“Silver Blaze” was a story about the disappearance of a famous racehorse the night before a race and the murder of the horse’s trainer. It was featured in Arthur Conan Doyle’s 1892 collection of short stories, the Memoirs of Sherlock Holmes. Sherlock Homes solves the mystery by figuring that no one he spoke to in his investigation mentioned that they had heard barking from the watchdog when the murder happened. Here’s an interesting conversation from that story:

Gregory (who is a Scotland Yard detective): “Is there any other point to which you would wish to draw my attention?”

Holmes: “To the curious incident of the dog in the night-time.”

Gregory: “The dog did nothing in the night-time.”

Holmes: “That was the curious incident.”

One learning from this story is that most of the times we are focused on an event that happened (action) rather than something that did not (inaction). As Sherlock Holmes points out there are many clues hidden in the “inaction” and we should not overlook them.

Taking this point to more mundane things like stock selection, one data point which always intrigues me is what the Expert Investors are not buying. In this particular case, I would like to focus on the Mutual Fund activity…or inactivity!

It is a well-known fact that Mutual Funds have received record inflows over the last couple of years. This is forcing the mutual fund managers to look at new ideas and today they own more than 1000 stocks, some with market cap as low as Rs. 100 cr. Also the fact that mutual funds, in comparison to FII’s, are closer to the ground helps them do better due diligence of the companies. Putting these two together, if Expert investors like Mutual Funds, are not buying a stock is that giving us a clue?

We have looked at stocks with market cap more than Rs.10,000 crore (assuming that a stock this size would definitely be on the radar of a Fund manager at any Mutual Fund) and find out those stocks where mutual funds own less than 2% of the free float (basically adjusting for promoter holdings).

This is not to say that above are bad stocks per se. But the fact that Mutual Funds do not own enough of these stocks should be used as an input when we evaluate these companies and make us do more work on if we are looking to invest in these companies.

Note: We at marketsmojo.com are trying to bring you the most relevant information at your fingertips. You can check the shareholding structure of each company at the Company CV section.