Amateur Hour

Here’s how the revolution started: average investors began to go online instead of using traditional brokers. Now there’s a new front: a few of these average investors are taking a role in selecting the stocks in their mutual funds, assuming a duty once left to professionals. This new breed of lay analysts is cropping up far away from Wall Street. Kathy Dimler is a perfect example. The Fairport, N.Y., mother of two culls financial information from magazines, websites and television, even following the ticker on her computer while she makes lunch for her sons Alex, 3, and Mark, 6.

When she started investing in mutual funds earlier this year, Dimler decided she didn’t want to put her money just in trusted names. She wanted to help manage a fund herself. That’s the idea behind StockJungle.com’s Community Intelligence Fund. Everyday investors like Dimler can sign up and start naming the stocks they think should be included in the fund. The picks are ranked and filtered through computer programs to determine if they should be added to the portfolio. A big stake in selected technology and drug stocks, bought late last year and in early 2000, pushed the fund’s returns past those of the Dow, the NASDAQ and the S&P 500. This year, StockJungle.com’s Community Intelligence Fund is up nearly 22%. Not bad for a bunch of amateurs.

The fund is tiny, only $5 million in assets, yet the concept is catching on. MutualMinds.com is another cybersite that recently filed to launch a mutual fund that would pool investors’ predictions on future stock prices and invest based on their combined forecasts. A survey on iexchange.com a site where amateur analysts strut their stuff, asks surfers if they’d like to invest in a fund based on its top picks.

With financial information so readily available, it’s no wonder investors think they can play like the pros. “I knew personally that there were a lot of great [amateur] analysts out there,” says StockJungle.com CEO Michael Witz. “So I always felt there was this great untapped resource.”

But the Community Intelligence Fund isn’t quite so democratic as the name implies. Says Morningstar mutual-fund analyst Russ Kinnel: “The name is kind of a smoke screen.” Ultimately the fund’s management team buys just a fraction of the thousands of picks tipsters submit. The choices are based on quantitative analysis, a computer model to screen stocks. If you want a quant fund, Kinnel suggests looking at more established names like Fidelity Disciplined Equity, the Numeric Investors family of funds or veteran manager John Bogle Jr.’s new Bogle Small Growth fund.

That’s not the point, argues Kendall Ramirez of MutualMinds.com which also plans to use quantitative analysis. She says most fund investors want to have a voice but not the final say.

That’s exactly why Dimler says she decided to try her hand picking stocks on StockJungle’s site. She likes comparing her choices against what the fund is buying and selling at that moment. “It’s a lot more interesting than just reading what a fund’s Top 10 holdings are,” she says. Still, it’s worth noting the fund doesn’t have a long track record or seasoned managers–and a couple of good months doesn’t mean much. So while it may be entertaining, even profitable, to do a little exploring in the stock-market jungle on your own, the safest move still is to travel with a professional guide.

Sharon Epperson is a correspondent at CNBC Business News. You can e-mail her at sharon.epperson@NBC.com