Fund managers might be associated with sharp suits, vintage champagne and a business school education, but an American website is using the investment strategies of amateurs, including a retired forklift driver, to run a successful mutual fund.

More than 100,000 people in 130 countries have signed up free at Marketocracy.com to manage their own $1 million (£484,411) fantasy portfolio of US equities. Every month or so, the top 100 performers are identified and their trades are monitored and used to steer the M100 fund. These “master” members are rewarded in cash, earning up to a few thousand dollars a year.

Ken Kam, who launched the simulation in 2000 and the fund a year later, says: “No one can be good at everything. What could be better than pooling so much experience?”

The fund has certainly performed. It has beaten the S&P 500 bench-mark consistently since 2002 and appreciated by 90 per cent, against the index’s 52 per cent, since inception. Mr Kam puts this down to members’ backgrounds in different areas and not only “finance”.

He takes the example of one stock to explain how the M100 is managed. “In 2005 I noticed that two of our top ten investors had bought big stakes in Elan, the Irish pharmaceuticals company. I asked them what they liked about the shares and we e-mailed the same question to the 1,500 other members who had bought them.”

A third of them responded, explaining that the shares had tumbled more than 90 per cent after the company’s product Tysabri, a multiple sclerosis (MS) drug, was withdrawn from sale in the US. About 50 members with MS were especially knowledgeable. “They wanted the treatment despite concerns about side-effects. We listened and bought the shares.”

The move paid off. Tysabri was reintroduced after pressure from MS sufferers and Elan’s share price recovered – climbing from $7 when Marketocracy purchased to a high of $23. The stock is the fund’s largest holding. “Wall Street said sell,” remembers Mr Kam. “They listened to doctors, but we had access to patients, who have a different perspective.”

Chris Rees was one of the two investors whose initial purchase of the shares caught Mr Kam’s eye. The 55-year-old British expatriate, who lives in the Dominican Republic with his wife and three-year-old daughter, is Marketocracy’s No 1 investor. His virtual portfolio has appreciated by more than 800 per cent since 2000, outperforming every US mutual fund with his average annual return of 44 per cent. “I have managed my own money for a long time,” he says. “But I am self-taught, with no degrees.”

Mr Rees has applied lessons learnt in Marketocracy to real-world investing with spectacular results. His average annual return over five years is 49 per cent. The money he has made has lifted him out of “poverty” and funded the purchase of several properties in the Dominican Republic. He says that the Marketocracy simulation is useful for anyone who wants to see how a portfolio is put together and works. “I have learnt a lot,” he says. “The best investors are not necessarily the smartest.”

Mark Taguchi, of Marketocracy, says that many members aspire to become full-time investors like Mr Rees. But he says that they should build a track record in real, as well as virtual, shares before leaving work. Mr Taguchi says: “For example, T.J. White, of Texas, worked the night shift driving his forklift for a food company so he could trade during the day. Now he makes so much, he has quit his job.”

Investors who want the experience of managing a virtual portfolio, but would prefer to trade in UK shares can get started with a virtual £100,000 account at BullBearings.co. uk. The site is free and has more than 85,000 members, many of them students. Unlike Marketocracy, the site is not linked to a fund. For now.

George Grima, of BullBearings, says: “We are looking at launching something similar in the new year. Having thousands of mini fund managers each doing their bit to generate excess returns is very exciting. The potential is enormous.”

If the company does go ahead, it may have competition. Mr Kam says that Marketocracy is looking at taking its concept overseas. Mark Dampier, of Hargreaves Lansdown, the independent financial adviser, says that the model has every chance of success. “The returns against the S&P 500 look extremely good. This is interesting and exciting and there is no reason why it could not be brought to the UK, Europe and Asia.”

Market information for real-life and virtual traders

Online stockbrokers enable investors to run real-life portfolios from their home PCs.

Most of the big-name brokers, such as Hargreaves Lansdown (h-l.co.uk), Barclays Stockbrokers (www.stockbrokers.barclays.co.uk) and Virgin Share Dealing (www.share.com/virginmoney), now have an internet presence and offer subscribers portfolio-tracking tools and market information from providers such as Hemscott.

Reduced overheads mean that transaction costs can be as low as £5 a trade. A calculator at Moneysupermarket.com, the comparison website, can find the cheapest deals based on your trading habits. These services are execution-only, so do not come with personalised advice. Note that some services charge subscribers an inactivity fee of £5plus a month when no trades are made.

Discussion forums offer internet-savvy investors a place to exchange ideas. They are an important part of Marketocracy.com and allow members to share knowledge useful in both real and virtual trading. Chris Rees, the simulation’s best-performing investor, says: “I read them to keep up with events. The information is useful and it is always interesting to see what other investors are doing.”

An advantage of these forums is that you can click on the contributor’s name to see his or her virtual track record. They are also moderated and spam-free. For chat on British-listed stocks, visit the forums at Bullbearings.co.uk and uk.finance.yahoo.com.

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