Can cloning a big investors investments yield you good result The answer is, No.
If you feel just by following others stock holdings blindly, you will be successful, or that you might be able to see heaven, then you are gravely mistaken.
One has to die to see heaven; in other words one needs to work hard and go through the process.It is very difficult to achieve success just by cloning anothers stock holdings.
There is a saying in Hindi: nakal ke liye bhi akal chahiye (to ape someone, you need to use your own intelligence as well).
If you have the intelligence to copy someone correctly, then you would also have the intelligence to pave your own path.So the question I ask is, why copy The problem in copying is that if you ever copy or clone a big or so-called successful investor, then two most important things you miss or dont understand or you need to know are his insights and strategy.
It is important to understand the insights of the investor that led to the purchase, and the strategy to handle favourable and, more importantly, unfavourable situations.
It isnt necessary just because one is a big investor, s/he will be successful in each and every investment.
Remember, in the entire career of a successful investor, there would be only a handful of stocks out of his/her hundreds, which would have really multiplied and made that investor successful.
Majority of the stocks would have given average returns, or no return, or even losses.So, what if you have cloned only those stocks which did not fare well There is a possibility that the investor you follows is giving out biased opinions.
Therefore, it is necessary to first understand what were the insights behind buying those shares, and if using your own intelligence, you get convinced about those insights.
Only then should you chart your own strategy.
Even then, you should not base your buying/investment decision on a stock solely on the investors insights.
Strategy is more important than insightsThere are many other parameters which become part of an investment strategy: What percentage of ones total portfolio has the investor put in a particular stock For example, if he has a portfolio of Rs 100, but invested only Re 1 in this particular share, and looking at his successful track record, if you invest Rs 25 of your Rs 100 in this particular stock, then you are at risk.
If that share falls 30 per cent, then imagine how much you would lose and how much the investor your follow would lose Your loss would be a lot more than his.
You also need to understand the type of purchase.
Is it an average purchase or fresh purchase If the investor bought a stock previously at a lower price and there is a repurchase, then his average price would be lower compared with a purchase that is entirely new.
Here, he has a cushion when that stock falls, but yours being a new purchase, you will be losing from the very first fall.
Next, you have to understand the investors view on a purchase: is it for the short term, medium term or long term Also, what is his definition of short-, medium- and long-term Each investor has his own definition for these periods.
Euphoric market often changes all these definitions.Nowadays, short-term is BTST or buy today sell tomorrow, and long-term is next two quarters.
One person had approached me once to recommend a stock for the long term.
I asked him, what is his definition of long term, and his answer was six to nine months.
I said, I am sorry dear, I am not that smart.
I usually take one year to acquire a stock or build my portfolio.One should also understand sometimes an investor buys a stock based on his/her insight about a particular upcoming event.
The investor might feel if a particular event occurs after a few months and it goes a certain way, he would hold the stock for a longer period; if not, he might sell it.
Therefore, it is necessary for you to understand his strategy well.Sometimes an investor might buy a stock for the next five to 10 years, but that does not mean he cannot change his view on it midway through.
Even if he makes public statements that s/he was going to stay invested in a company for a particular duration, it isnt necessary that s/he will stay invested.Sometimes, a particular situation in a company or in the economy changes suddenly and an investor finds better opportunity somewhere else.
If at this point, he is tired of the way one of his investments is performing, he might exit that.
If this is the case, then certainly s/he will not inform you before exiting the stock.
The same applies before one buys a stock.
One is not going to inform you that he is going to buy a stock tomorrow.
If he is a big investor, the quantity he would buy of a particular share would be large, and when he sells those shares, by the time you become aware of the sale, the share price might have already gone down.Remember, everybody is a genius in a bull market! But ones wisdom is tested only in a bear market.
If anyone pushes a train in the direction it is moving, other people might have an impression that he is moving the train.
Secondly, the market spares no one.
Every investor in the stock market goes wrong at some point of time.
The only thing you need to understand and learn is the ratio between making a profit when one is right and making losses when one is wrong.
Ideally, a successful investor would make a lot of money when he is right and lose very little when he is wrong.
Cloning a successful investor blindly doesnt guarantee you success in the stock market.
You always have to use your own wisdom and discretion while investing.
This wisdom comes from you own experience of failures.
Remember, we learn to walk only by falling!