Peter Lynch, another outstanding mutual fund manager who has made billions for dollars for his clients by buying stocks no other institution was interested in has also criticised the typical behaviour of institutional investors.
"Between the chance of making an unusually large profits on an unknown company," says Lynch, "and the assurance of losing only a small amount on an established company, the normal mutual fund manager would jump at the latter. Success is one thing, but it's more important not to look bad if you fail. There's an unwritten rule on Wall Street: You'll never lose your job losing your client's money in IBM.
If IBM goes bad and you bought it, the clients and the bosses will ask: "What's wrong with that damn IBM lately?" But if La Quinta Motor Inns goes bad, they'll ask: "What's wrong with you?" That's why security-conscious portfolio managers don't but La Quinta Motor Inns when two analysts cover the stock and it sells for $3 a share. They don't buy Wal-Mart when the stock sells for $4, and it's a dinky store in a dinky little town in Arkansas, but soon to expand. They buy Wal-Mart when there's an outlet in every large population centre in America, fifty analysts follow the company and the stock sells for $40."
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