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Everyone owns these stocks and that's a bad thing

Qualcomm signage and a shadow of CEO Steve Mollenkopf
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Qualcomm signage and a shadow of CEO Steve Mollenkopf

It's been a suspicion of astute investors on Wall Street for decades, but one research firm finally backed it up with data: when everyone else owns a stock, you shouldn't.

Maybe its hard to generate 'alpha' in a trade that everyone else is in too because your timing has to be better than millions of people.

Or maybe when so many people own a stock, their shares are then 'priced for perfection' and destined to underperform on any small hiccup.

Whatever the reason, Credit Suisse found the stocks most commonly-owned by active mutual funds underperformed the S&P 500 by almost 2 percent on an annual total return basis since 2012.

The effect is likely the 'closet indexing' phenomenon that has plagued the mutual fund industry as fund mangers buy the biggest names in the benchmark on fear of underpeformance, but in turn, cause the opposite.

The positive flipside to this research is that if you want to beat the market, buy the stocks that money managers are dumping.