As we near the end of 2013, if a mutual fund manager does not have successful Company X - be it Netflix or anything else that has done well this year - the owners of the mutual fund shares are going to have a lot of questions.

As a result of that competitive pressure, the mutual fund manager may buy Company X - at its all-time high, after others are quite profitable in it - just to show it in the portfolio.

A humanities scholar at the University of Missouri researcher has further found that institutional mutual fund investors have built their own mythology about Boards of Directors. An 'independent' Board of Directors (members are not related to nor do they have any affiliation with the CEO of the company) is perceived as a "safer" option though no evidence exists that demonstrates these companies perform better in the stock market. In that light, Apple was a bad investment, Al Gore and the others were all friends of Steve Jobs.

"Institutional mutual fund investors often invest in these firms out of fear," speculates Karen Schnatterly,
University of Missouri
Distinguished Professor of Management. "The belief is that firms with independent boards are typically safer than those with less independent boards because they do a better job monitoring the CEO. Because of this belief, institutional investors often avoid investing money in firms with less independent boards out of fear of making a bad choice and getting fired."

Schnatterly further says that mutual fund investors tend to invest in companies that their competitors also are investing in — in this case, firms with more independent boards — because this is easily justifiable. While this allows these mutual fund investors to stay "safe" with regard to their investments, it can cost the mutual fund by ignoring other investment options. "Investors might be missing out on potentially winning companies by primarily investing in companies with independent boards."

 Upcoming in the Strategic Management Journal.