Make Millions With the "Seeing Eye"

"Having eyes, do you not see?" -- Mark 8:18

Don't you wish that you could tell which stocks were about to take off to the upside?

Unfortunately, few of us can -- including professional fund managers. In fact, according to Jack Meyer, who grew Harvard University's endowment more than five-fold (from $4.7 billion to $26 billion) during his 15-year tenure, 85% to 90% of fund managers underperform their proper benchmarks. What is it about super-investors like Meyer, Warren Buffett, and Peter Lynch that lets them outperform the market when the rest of us can't?

The answer is simple: They have the "seeing eye." 

The what?
According to Barton Biggs, a 30-year Morgan Stanley veteran, current hedge fund manager, and author of the excellent investment book Hedgehogging, the seeing eye is the ability to take current snippets of information -- available to all -- and see their significance for future events.  In other words, the essence of superior investing isn't having secret inside information ... it's perceptively interpreting well-known public information.

That means not only observing but appreciating the meaning of such little details as arcane regulatory changes, subtle shifts in consumer tastes, lawsuits and court rulings, footnotes in a company's SEC filings, and "minor" scientific discoveries.

And while I agree with Biggs that great investors with the seeing eye are born, not made, I do think it's possible -- and potentially very rewarding for investors -- to determine which people actually have it.

Brothels in Bangkok? That's nuts
I used to think hedge fund manager Victor Niederhoffer had the seeing-eye gift. His 1997 book The Education of a Speculator was a fascinating look at how price patterns in the stock market are mirrored in nature -- be it musical notes, the life cycle of forests, elephant stampedes in Africa, or the laws of thermodynamics.

Soon after his book came out, however, Niederhoffer lost virtually all of his investment capital buying futures contracts on the value of Thai stocks that were in the process of imploding.The New Yorker quotes Niederhoffer as stating that he invested in Thailand because -- are you ready? -- a friend of his visited Bangkok and noticed that the brothels were cleaner and safer than usual.

Based on this "brothel indicator," which Niederhoffer interpreted as a sign that Thailand's developing economy was improving, he invested hundreds of millions of dollars worth of his clients' money. After it went up in smoke, he said:

I had no scientific basis for investing there. ... It was purely a qualitative idea ... I had no knowledge of the country. I'd never even visited the country. All I had done was finance a trip by [my friend] to the brothels there.

Wow
It's hard to believe that a sophisticated, Harvard-educated money manager entrusted with hundreds of millions of dollars could be so reckless with his foreign investments. Suffice it to say that I no longer believe that Niederhoffer has the seeing eye.

That said, we can start understanding who does have it by looking at a combination of a person's investing thought process and, perhaps more importantly, long-term investment results. Take Harbor International Fund's Hakan Castegren, for example. He was Morningstar's international stock manager of the year in 1996, and he and his team are nominated to win the award again this year. His investment philosophy is value-oriented and long-term, and he combines a bottom-up approach to stocks (focusing on stocks with low price-to-earnings ratios and significant competitive advantages) with a top-down approach to markets (avoiding or underweighting markets such as Russia that do not adequately recognize shareholder rights).

But his ace in the hole is a proprietary earnings forecast database that uses only the best standardized data gleaned from his global network of contacts. This gives him another leg up when it comes to "seeing" investment opportunities others do not.

He's not alone
Harbor is not the only fund that's done well with this type of analytical investment formula. Here are additional funds with stellar five-year performance records, reasonable expense ratios, and highly experienced managers who appear to have the seeing eye:

Make those millions ...
Motley Fool Champion Funds lead advisor Amanda Kish believes that mutual funds are the best place for your money, yet they are only as good as the managers who run them. She searches for those select few managers with the seeing eye that can help you achieve significant wealth.

These hand-picked managers engage in top-down assessments of the political, legal, and economic landscape and engage in rigorous bottom-up fundamental analysis of each company's financial statements. They don't invest in stocks based on a country's brothels. A free 30-day trial gives you full access to all of Amanda's recommendations and past issues.

Jim Fink refuses to say whether he has ever visited a brothel. He does not own any shares in the companies mentioned, nor in any of the mutual funds. PetroBras is a Motley Fool Income Investor recommendation. The Motley Fool is investors writing for investors.