Ken Kam's Best Ideas Blog

Marketocracy's Team Investing Process is a concept that I started over ten years ago and today, continues to evolve and improve. To explain our process it helps to go back to the beginning.

Firsthand Experience Makes a Difference: Before founding Marketocracy, I founded Firsthand Funds over ten years ago based on the belief that someone with firsthand experience and a network of contacts knew more about their industry than the legions of people hired by Wall Street, most of whom have never worked in industry.

I gained my firsthand experience as one of the founders of a successful medical products company. We developed a catheter that we took through FDA approval (non-trivial) and we manufactured, marketed, and sold it. We built a successful business that we sold and kept the remainder of the company, which eventually went public.

Over time, I developed an extensive network within the industry, particularly cardiologists across the country. So, when I invested in medical products and pharmaceutical companies while co-managing the Technology Value Fund I was able to tap into the opinions of the best research team in the world the people on the front line using and purchasing the products of the companies I was investing in.

I learned that even a bad product in the hands of the best cardiologist could work well and look great in a marketing video to promote the company. Until you test it in the hands of the average cardiologist you really don't know how well a product will really work. I learned that nurses see how the products works in the hands of all the doctors and they aren't paid by product companies. So, when nurses give their opinion about a product I listen.

My partner did the same in information technology stocks and our fund was ranked by Lipper as the #1 fund of all mutual funds for the 5-year period ending September, 1999 delivering 56% per year.

Team Investing: No single person has enough expertise to invest well across all industries. This is why you need a team. At Marketocracy I've taken the firsthand concept and expanded it to every sector and every stock because I wanted an investment process that works even when the stocks I know best are out of favor.

As the market changes, the team needs to change because the expertise of the team members needs to match the opportunities available in the market. This year we needed expertise in the oil industry. Technology stocks are not always in favor and when tech stocks aren't performing you don't want a tech stock expert picking oil stocks for you.

Team Research: Even great investors rarely have all the pieces of the investment puzzle. For most stocks, there are only a handful of issues that can drive a stock to double within the next 2 to 3 years. The secret to good stock research is to frame the right questions about the big issues, and then ask the people best qualified to answer them.

At Marketocracy, we have always used the investors with the best long-term track records to help us pick stocks, identify the issues, and frame the right questions. Recently, I asked the broader Marketocracy community if they could help me understand a piece of the investment puzzle on Elan (nyse: ELN) and their multiple-sclerosis drug, Tysabri. I heard back from members that were physicians, MS patients, nurses, lab technicians, industry executives, scientists, etc. Together, they helped give me a 360 degree view and made me comfortable making Elan the second largest position in the m100 portfolio. You can see some of the Elan results in the article on page 4 in this month's Marketscope.

This research process has worked well for me at Firsthand Funds and I am confident will work even better at Marketocracy where the talent base is broad enough to research and find great investments in every corner of the market.