Skip Funds, Buy the Companies

Stop buying the mutual funds, start buying the stocks of the mutual funds!

That's my takeaway from this Legg Mason (LM - commentary - Cramer's Take)-Citigroup (C - commentary - Cramer's Take) deal everyone's buzzing about today.

Let's face it, I spend a tremendous amount of time telling you lots of stuff that the mutual fund companies don't want you to know and the managers want to keep you in the dark about. And I also tend to rail often about how mutual fund managers get away with tons of poor performance, performance that hedge fund managers could never get away with and stay in business. I am a former manager; I know the tricks of the trade all too well.

But I don't spend enough time talking about how you can make big money off this kind of thinking. So what if hedge fund managers have it tougher than mutual fund managers? Tell me something I don't know.

OK, well, how about this: If you were to have invested $1,000 in the companies that run mutual funds vs. the flagship mutual funds of those companies, how would you have done? Would the managers have done better?

Hardly.

The statistics, frankly, are mind-blowing. Managing the fees and marketing of mutual funds generates a much better return than managing the money itself, something that's often a lower priority that the business itself.

Consider the Legg Mason funds that are the talk of the town today, and not just because of talk about this giant swap from Citigroup to Legg Mason of the fund families. Almost everyone knows that Bill Miller's Legg Mason Value Trust has beaten the S&P 500 for years and years.

But how has Legg Mason's stock done? How about 140% better in the last seven years, a logical time to evaluate performance. A grand invested with Bill Miller made you $1,975 over that time period. Legg Mason made its shareholders an astounding $4,745 during that same period. I am not going to knock Bill Miller because the man is a legend, but I believe his success benefits Legg Mason's shareholders even more than those lucky enough to be in his fund.

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James J. Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. Outside contributing columnists for TheStreet.com and RealMoney.com, including Cramer, may, from time to time, write about stocks in which they have a position. In such cases, appropriate disclosure is made. To see his personal portfolio and find out what trades Cramer will make before he makes them, sign up for Action Alerts PLUS by clicking here. While he cannot provide personalized investment advice or recommendations, he invites you to send comments on his column by clicking here. Listen to Cramer's RealMoney Radio show on your computer; just click here. Watch Cramer on "Mad Money" at 6 p.m. ET weeknights on CNBC. Click here to order Cramer's latest book, "Real Money: Sane Investing in an Insane World," click here to get his second book, "You Got Screwed!" and click here to order Cramer's autobiography, "Confessions of a Street Addict."