Learn the pros' secrets to successful investing. By Anne Kates Smith, Executive Editor May 17, 2011 As an investor, you've no doubt thought long and hard about what makes a good mutual fund manager. But have you ever wondered what fund managers think makes a good investor? At a recent meeting in Washington, D.C., a panel of heavyweights shared what they thought had made them successful and what they looked for when hiring other managers. The panel was sponsored by the Investment Company Institute, the fund industry’s trade group. It featured Jack Laporte, who retired last year after two decades as manager of the T. Rowe Price New Horizons Fund (symbol PRNHX); Eddie Brown, founder of Brown Capital Management, a Baltimore investment firm and a co-manager of Brown Capital Management Mid-Cap Institutional Fund (BCMSX); and Staley Cates, co-manager of Longleaf Partners Fund (LLPFX), Longleaf International Fund (LLINX) and Longleaf Small-Cap Fund (LLSCX). The moderator was John Rogers, manager of Ariel Fund (ARGFX) and Ariel Appreciation Fund (CAAPX). Below are six tips on how to be a better investor, from some pretty good investors. Resist the urge to trade all the time or to churn the holdings in your portfolio. “Finding great companies and owning them for a long time is the secret to success,” said Laporte. When he left new Horizons a year ago, 15 of the fund’s 20 biggest holdings had been in the portfolio for five years. On average, Laporte held a stock for four years. By contrast, the average turnover rate for similar small-company funds was greater than 100% per year, meaning that the typical small-company fund held a stock for less than one year. “I’ve always been fascinated with finding great companies early on in their life cycle and owning them for a long time,” said Laporte. “That’s a lot easier than trying to out-trade the next guy. I know I couldn’t do that.” Advertisement Be patient. Laporte told the story of New Horizon’s early investment in Wal-Mart (WMT). The fund bought in at the retailer’s initial public offering in 1970. The fund sold its Wal-Mart shares in 1983 because the stock had grown too large for a small-company fund. A decade ago, Laporte looked back to see what would have happened if the fund had held onto its position. The surprising answer was that the stock would have been worth twice the value of the entire fund then. “There are a couple of lessons from that,” said Laporte. “One is that there aren’t very many Wal-Marts out there. Two is that if you find a company with the people, process and the wherewithal to build a better mousetrap, you really ought to stay with it a long time.” Be a contrarian. It’s important for investors looking for bargains as well as growth-oriented investors to go against the grain, Laporte said. “We try to inculcate our newer people with the confidence to be an independent thinker, to lean against the crowd and to have strong opinions, he said.” Advertisement But being a contrarian is harder than it looks, said Cates. Every investor fancies himself or herself a contrarian -- the same way everyone’s child is above average and all drivers are good ones. But contrarians are that way throughout life, not just in the market, said Cates. Have you ever tuned out the crowd to go your own way? Maybe it’s the college you attended or the career you forged or where you chose to live. Learn to read markets. Managing money is as much art as it is science. Anyone can study investment analysis, said Brown. But when he looks to hire a money manager, he looks for an elusive sixth sense that can’t easily be taught. Those who have it see the market as a mosaic, he said. They’re able to assemble disparate and often conflicting pieces of an economic, political, psychological and social puzzle. “You have to be able to assemble all of these various pieces of information, make some sense out of them and make a rational decision,” said Brown. “It’s hard to find that kind of talent.” Deal with your mistakes. Advertisement Confidence is important but must be balanced with humility, said Cates. Otherwise, you’re undone by your mistakes, instead of schooled by them. “You’ve got to take mistakes hard,” said Laporte, “but you’ve also got to move on.” That’s especially true in a business that generates so much feedback. Daily stock prices are more feedback that anyone needs or wants. Don’t be a slave to benchmarks or short-term records -- and don’t enslave a good money manager, either. “The most frustrating thing is a client who’s upset because you’re not represented in every economic sector in your portfolio,” said Brown. “That’s insane.” Long-term investors shouldn't hold talented money managers to a style box or a benchmark, because doing so asks them to forgo potentially huge opportunities outside those limits. Demand a great long-term record, but don’t be put off by more recent bumps in the road. “If I believe in a team with a long record, I’d want to catch that group after a horrible three years, not their best three years,” said Cates. Investors should investigate the decision-making process at the fund. Find out what the specific criteria are for selecting securities. Is management a team effort? Familiarize yourself with the members of the team and how they work together. Are there a couple of superstars? Ask how they’re retained and compensated. Lastly, ask how much the managers invest in their own fund, to gauge how aligned their interests are with yours. “That’s a huge one,” said Cates. If it’s not advertised, I'd assume it’s not a lot and worry about it.” There you have it -- some of what a good manager looks for in a manager.