If we continue to imagine investing as a horse race that involves many horses and many jockeys racing each other throughout the year, in which you like to participate and let’s say, like to win (at least ones in a while) then we can ask who are the best horses (portfolios) and best jockeys (investment managers) against whom we race?

Before we answer this, note the sublime distinction that is made between betting on someone else’s horse versus racing your own horse (managing your own portfolio)!

If you bet on someone else’s horse you must know an awful lot about that horse (portfolio objectives and composition), the horse’s training (how that portfolio has done over time), the jockey (investment manager’s education and experience) and how they work together (the investment manager’s influence on that portfolio). To obtain reliable information on all this requires a lot of work.

If you race your own horse, i.e. your portfolio and you know yourself at least a little, you are much better off! You know what your objectives are, what your level of experience is, how much time you have, how active your like to manage, what risks you are comfortable with etc. It takes much less time to figure all this out. Hence, that is why you fired your investment manager and chose to run your own race, manage your own portfolio.

In October of 2005 we studied the best jockeys using the FundInvestor of Morningstar, a listing of 500 of mutual fund managers. We scanned all 500 funds ignoring all the biases of Morningstar (including classification of funds by objectives—growth versus value-- fund orientation –large, mid, small cap--, Morningstar ratings etc) comparing funds solely on the basis of performance, expenses, and investment manager. The distinction between domestic versus overseas (i.e. foreign and global funds) was kept and will be reported on separately.

The S&P500 index at the time of this investigation was at 2.8% (about half of what it ended up with for 2005); we looked for funds that were doing three to four times as much, who had consistent higher annual rates of return over three and five years compared to the index, and had expense ratios below the category average. We ignore funds ran by “management teams, since we are looking for the best jockeys not anonymous teams!

The result of this investigation was a list of some 25 that we entered in a spreadsheet and have monitored ever since. These 25 investment managers and their portfolios are the competitors against which we choose to race. Note there are easier races with slower horses against which it is easier to win, but we chose to raise the bar, remember?

Ranked based on current year-to-date performance (YTD 4/30/2006) we consider the following the top ten “best domestic jockeys “– the list below shows the top ten by name, the name of their horse (symbol of the fund they are running), the YTD 2006 return, the 3 year average annual return, and the expense ratio--.

1. John Bogle, BOGLX, 19.1%, 27.3%, 1.35
2. John Montgomery, BRAGX (& BRSVX), 17.3%, 25.7%, 1.58
3. John Keeley, KSCVX, 15.1%, 27.7%, 1.64
4. Kenneth Heebner, CGMRX, 14.6%, 48.7%, 0.96
5. Stephen Perkins, FMCSX, 14.5%, 19%, 0.62
6. Ron Sachs, JORNX, 13.8%, 26%, 1.08
7. Michael Buek, VISVX, 11.1%, 21.6%, 0.23
8. Willima d’Alfonzo, BRWIX, 10.6%, 19.4%, 1.08
9. Charles Royce, RYPRX, 10.5%, 25.9%. 1.14
10. Scott Satterwhite, ARTVX, 9.7%, 23.7%, 1.18

These are not jockeys and horses to bet on because in order to bet on them you would need to know more than you know about yourself…. These are the ones currently leading the race against whom you are racing! They set the bar, the standard for what we want to achieve in managing our portfolio. Note that the average YTD of the top ten is 13.75% compared to 5% for the S&P500; and the average 3 year annual return of the top ten is 26.8% compared to 14% for the S&P500.