Do you want to know why most fund managers can't beat the S&P 500? Because they are sheep, and sheep get slaughtered! - Gordon Gekko, "Wall Street".

There is a lot of truth to this statement. Most investors are aware that the majority of mutual funds are lousy investments that lag the major stock market indexes year after year. Why is this? Why can't professional money managers with Harvard MBAs, CPA credentials, giant research budgets and hordes of analysts outperform a broad index? It is said that over 85% of funds under perform the S&P 500 on a regular basis. One would think that after all these years, someone would try something different! By examining the methods employed by these lackluster fund managers, it becomes clear why the trend is such.

One of the biggest reasons for the under performance of mutual fund managers is their reliance on fundamental analysis. By nature, fundamentalists attempt to predict the future direction of a stock's price by analyzing a company's financial statements, balance sheet, products, management and any other info it can gather to make a decision. This seems logical but it simply doesn't work! Even if it did work, it would not tell us how much to buy, when to buy, or when to sell. These are all very important factors in a successful investment model. So it is no wonder why only a handful of money managers like Warren Buffet, Peter Lynch and Bill Miller have been able to successfully beat the market using fundamental analysis. The odds are that you will lag the index using this approach.

Another reason fundamentalists lose is because they attempt to predict, not react. Unless you have a crystal ball, it is futile to try to predict anything, let alone stock prices. A much more effective approach is to react to what the market is telling us. Rather than buy stocks that are going down in an attempt to scoop them up cheap, why not buy stocks that are going up? Sure, this is counter intuitive to most of us. We think buy low and sell high right? WRONG! Successful trend followers buy high and sell higher. This is the way to capture the true market leaders each and every time. It makes perfect sense when you think about it. The market is rewarding these companies for doing something right. There are always insiders who know more about a company than you do. They are the ones driving stock prices. If a company is performing, these insiders will be buying the stock by the boat load. This will be reflected in the stock's price action making new highs repeatedly. By nature, the biggest winners of every market cycle MUST make new highs over and over again on their way to producing spectacular gains for investors. Wouldn't you rather choose your universe of companies from a list that is trending higher versus one that is trending lower? The future stock market winners are not going to come from the list of companies going lower, that much I can tell you.

So what have we learned? To capture the large trend, buy high and sell higher. If you are more concerned with being right than making money, then by all means buy low and attempt to sell high using fundamentals. Similarly, if you are trying to predict where a stock will go, then by all means, use fundamentals. But if you are want to win big by following trends, then price action is all you need to watch in order to know when to buy, how much to buy, and when to sell. John Henry, one of the world's most successful traders and owner of the Boston Red Sox is a trend follower. He says, "we cannot and do not attempt to predict anything. Our approach is reactive, not predictive." No one has a crystal ball therefore no one can predict where a market will go. Those who use fundamentals are usually more concerned with being right than making money. They often buy stocks on the way down and sell stocks on the way up in an attempt to enter and exit before everyone else. They are trying to catch bottoms and tops in the market. My approach will never catch the bottom or the top, but rather we attempt to capture the meat of the move. About being right, I have never cared about being right. All I care about is winning. So should your thinking go.

Mark Carey is an Internet marketer and webmaster of TradingMechanics.com. Trading Mechanics is stock trading advisory service based on proven, profitable trading algorithms that do not rely on fundamental analysis. For more information about trend-following trading systems, visit http://www.tradingmechanics.com