Investor Alert

July 11, 2020, 4:34 p.m. EDT

5 ways to beat the stock market — from a fund manager who’s done this for years

These lessons from Amana Growth Fund can make you a better investor

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By Michael Brush, MarketWatch

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Wall Street is so full of greed, fraud and ego, a cynic might say it’s no place for any kind of spirituality to find a home.

But several religious precepts might actually help investors if they paid them more mind, judging by the long-term returns of Amana Growth Fund /zigman2/quotes/207871833/realtime AMIGX +0.73% .

The fund avoids companies in activities prohibited by Islamic law. That brings the expected ban on alcohol, “sin” and pork-processing companies. But it also layers in core investing principles that help this fund’s long-term outperformance. You’d probably be wise to follow these concepts — described below — whatever your religion.

I also take a look at other principles you should adopt because they help explain this fund’s record, according to Scott Klimo, now lead manager of the fund after co-managing it since 2012. The fund beats its Morningstar category (large-cap growth) by 1.3 to 1.8 percentage points annualized over the past three and five years, with less volatility to boot, according to Morningstar.

Here’s a look at investing concepts you can borrow from this fund to boost your returns and, who knows, get more peace of mind in the process.

1. Avoid debt

Islamic law prohibits paying or receiving interest, so banks are out. But this also contributes to the imposition of limits on company debt. Any businesses with a debt-to-market-cap ratio above 33% get the boot.

“We believe that financial sustainability is integral to the success of a business,” Klimo told me in a recent interview. “We’ve done multiple studies, and it just works. It creates a nice tailwind, and this contributes to performance.”

A basic investing principle is at work here: The easiest way to make money is to not lose it. Heavily leveraged companies can blow up, so avoiding them reduces risk. “Risk reduction goes hand in hand with performance,” says Klimo.

This rule keeps the fund out of notoriously volatile areas like basic materials, real estate, telecom and banks. This means the fund bounces around less than the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.18% , the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.25%  and Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.74% . The Amana Growth Fund is one of the least-volatile funds in its category, says Morningstar analyst David Kathman.

2. Stop watching every tick and overtrading

Spend any time on Twitter and you’ll notice how mesmerized people get watching the market and their stocks trade all day, commenting on every little move. This is pretty stupid, and a big waste of time. It doesn’t make your stocks go up any faster. It drains energy by creating stress.

“People just bang their heads against the wall sometimes,” says Klimo. “Sturm and drang doesn’t really add value.”

This is valuable advice, both for reducing stress, and for freeing up time for activities that actually help — like actual research.

Because Islamic law discourages speculation, excessive portfolio trading is out at the Amana Growth fund. It has a decidedly long-term approach. The average holding period is greater than 10 years. It has held Apple /zigman2/quotes/202934861/composite AAPL +2.46%  since maybe before you were born — the early 1990s.

US : U.S.: Nasdaq
$ 63.21
+0.46 +0.73%
Volume: 0.00
June 14, 2021
+7.71 +0.18%
Volume: 1.85B
June 14, 2021 5:15p
US : Dow Jones Global
-85.85 -0.25%
Volume: 302.55M
June 14, 2021 5:15p
US : Nasdaq
+104.72 +0.74%
Volume: 4.09M
June 14, 2021 5:16p
US : U.S.: Nasdaq
$ 130.48
+3.13 +2.46%
Volume: 96.91M
June 14, 2021 4:00p
P/E Ratio
Dividend Yield
Market Cap
$2125.17 billion
Rev. per Employee
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