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Investing Specialists

Top New Money Purchases by Our Ultimate Stock-Pickers

Recent new money purchases offer insight into the thinking of our top managers.

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Todd Young | Senior Stock Analyst

As you may recall from some of our previous articles, we believe portfolio managers send signals about how they feel about a particular stock by the amount of money they're willing to commit to it at any given time. This is why we focus on both purchases and sales by our Ultimate Stock-Pickers. Just as we assess the relative attractiveness of an individual security by how many funds hold it, whether or not their managers have been adding to or subtracting from their positions, and the percentage that each security makes up of a total portfolio, we also like to look at new money purchases and outright sales, which we feel offer even more insight into the thinking of our top managers.

While managers will sell a stock for a multitude of different reasons, and can sometimes have several reasons for buying additional shares, they typically put money to work in new names only when they have a high degree of conviction behind the purchase. That's not to say that managers do not make high-conviction additions to their existing holdings, it's just that we believe that it is far easier for them to put money to work in holdings that they are already comfortable with than it is for them to make a bet on a brand new name (let alone one that might have been blown out of the portfolio in a previous period). When looking at these new money purchases, it pays to remember that the higher-conviction buys we are looking at were made during a prior period, so the prices managers paid for these stocks are likely different from where they are today. Still, in our view, new money purchases are probably the best indication of potential opportunities, followed by high-conviction purchases, than simply looking at overall holdings.

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.