How can I find out exactly what stocks my mutual fund holds? The OpenFund makes this information available instantly. But with other funds, all I get is something twice a year that tells me what the fund owned months earlier. Can I get up-to-date information from the fund or on the Web? Shouldn’t shareholders have a right to this information?

Paul's Answer:

OpenFund is unique, as far as I know. Billing itself as "the first interactive mutual fund," it has a Web site showing its current portfolio and noting its most recent trade.

I don’t think shareholders should have any "right" to that sort of information. And for the sake of savvy investors, I hope this is not the start of a trend.

Mutual funds are required to report their holdings twice a year to shareholders and to the Securities and Exchange Commission. Beyond that, everything they report is discretionary.

Knowing what your fund manager is doing on any given day won’t make you a better investor. On the contrary, it will be to your detriment as a fund shareholder. Savvy shareholders should be thankful that their fund managers don’t disclose this information without a substantial delay.

For example, let’s say I’m managing a fund and I decide I want to take a substantial position, something like $100 million, in a small-cap stock. If you’re a shareholder in my fund, you want me to buy that stock at the lowest price I can. I’m not likely to pump $100 million into that stock all at once, because it would drive up the price. (This would be less true of a large-cap stock, though the general idea is the same.)

Therefore I’m going to try to buy into this company quietly, perhaps over a couple of months, a little at a time. You probably hired me because I’m a dynamite stock-picker (which in real life I am not, but it’s fun to imagine!). Let’s also assume the rest of the world agrees. As a shareholder, do you want me to tip my hand when I start buying this stock? I don’t think so, because then more investors would rush in to buy that stock, making it impossible for me to get you a low price.

Now think for a moment about the selling side. Let’s say I decide to dump my whole position in a stock, but I’ve got too much of it to get rid of it all at once and still get a good price for it. So I decide to gradually lighten up over a few months. But if the investing public finds out about this the moment I make my first sale, I’ve made it impossible to go out quietly.

With OpenFund, you may feel "in the know" because you are on top of what the manager is doing. But I say that information has compromised your best interests, not enhanced them.

My advice: Spend your investing time and energy other ways, and you’ll probably get a much better return for each hour you spend.