The Best Investments Available to Ordinary Investors

They give you nasty nicknames like "Joe Oddlot" and call you the dumb money in the market. They say they're the sharks in the dangerous waters of the stock market, and you're their prey. Worst of all, they can scare you into paying exorbitant sums of money to manage your investments for you.

Who are they? Mutual fund managers. And they manage a huge amount of the money invested in the market.

But they don't want you to know that their bravado is largely just an act. In reality, they're jealous of you -- and extremely scared, too. They're scared that you'll find out the truth about the tremendous advantage you have -- one that's completely off limits to them.

Your unstoppable edge
The great irony of mutual funds is that the very size that gives them their power also becomes their greatest vulnerability. They're simply too big to take advantage of many of the best opportunities available in the market.

For instance, take II-VI (Nasdaq: IIVI  ) , one of the picks Fool co-founder Tom Gardner made for our Motley Fool Hidden Gems small-cap investment service. When he recommended the company in August 2006, the market judged that its entire business was worth around $530 million.

That's a fairly substantial amount for individual investors, but for a fund like Fidelity's Contrafund (FCNTX), which has $78 billion in assets under management, it's pocket change.

In fact, $530 million works out to approximately 0.7% of the fund's current worth. Contrafund could have bought out the entire company and watched its worth skyrocket, as it has these past few years, yet the impact on the fund would have been minimal.

Where they're stuck -- and you're not
As a result, Contrafund, and other giant funds like it, are stuck fighting over some of the largest companies out there. Contrafund's holdings include giants like these:

Company

Market Cap
(in billions)

Shares Held by Fund

Danaher (NYSE: DHR  )

$25.50

958,377

Costco Wholesale (Nasdaq: COST  )

$29.78

192,000

MasterCard (NYSE: MA  )

$36.92

269,000

Gilead Sciences (Nasdaq: GILD  )

$50.48

1,858,900

JPMorgan Chase (NYSE: JPM  )

$129.73

244,500

Cisco Systems (Nasdaq: CSCO  )

$145.55

2,117,400

While all those firms may well make fine investments, they're very large companies. Do you really think Cisco will quadruple in size over the next few years to become a half-trillion dollar company? It may get there someday, especially as the developing world creates new networks in support of its emerging economic prowess, but it likely won't happen anytime soon.

On the flip side, since it was first selected for Hidden Gems just two short years ago, II-VI has skyrocketed some 120%. That's your major advantage over Wall Street's giants: You have the ability to buy shares in the best up-and-coming small companies on the market -- and actually feel the benefits of their success.

If you need a few ideas to press the tremendous edge you have over the biggest investors around, join us at Hidden Gems with a free, no-obligation 30-day trial.

This article was originally published March 8, 2008. It has been updated.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. II-VI is a Hidden Gems selection. JPMorgan Chase is an Income Investor pick. Costco is a Stock Advisor recommendation. The Fool has a disclosure policy.


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