Investment Style: An Easy Way to Be a Copycat Investor
Source: http://www.guiadomilhao.com.br
You want to be a Copycat Investor?
In one of my previous posts, I wrote about why you should not blindly copy Warren Buffett. While I have stated the reasons for not copying Warren Buffett, some of my readers have asked me how can they “copycat” the guru’s investment. Well, this post will teach you an easy way to invest like an investment guru such as Warren Buffett and Carl Icahn.
Find the Investment Guru of your Style
Before you dive straight into the sea of investment gurus out in the market, you must first know what’s your investing style. You should read my previous post on investing style before you proceed. This is very important because you want to follow a guru that suits your investment logic and risk appetite. For example, an Income investor who likes to receive dividends, will feel very uncomfortable following a guru that is a Growth investor as a growth guru will not be too bothered with dividends. In fact, you don’t see growth guru buying income or dividend stocks much.
Once you have determined whether you are Value, Income, Growth or Technical investor, you can then proceed to “shop” for gurus that are of the same investing style as you. Sadly, they are not labelled clearly like daily groceries hence you need to understand the Guru a bit deeper. This is no fix way to do this. Personally, I will take a look at their portfolio to have a sense of their style. Below are 2 main indicators I look out for.
1. Types of Stock in the Portfolio
The type of stock that the guru bought will tell you a lot about their style. For example, Warren Buffett is a value and income investor hence you will find familiar names such as Coca Cola, Wells Fargo and Wal-mart. These are all consumer and finance-related companies which tend to be value stocks and/or give out dividends to shareholders.
On the other hand, there is Bill Ackman who is an activist investor. IMHO, he is a growth investor with a very high risk-tolerance. Therefore, you see that he hardly diversifies his portfolio with only 9 stocks in it, and none of them are major companies other than Air Products
2. Level of Portfolio Turnover
Portfolio Turnover just means how often does the guru changes the stocks in the portfolio. Since we are following the guru with a time lag, we should only follow gurus who do not change the portfolio too often ,aka a low portfolio turnover. If a guru buys and sells his or her stocks very often, we would not be able to follow accurately. With a time lag of 45-90 days, they may have sold the stock even before we bought it.
Buy at a Cheaper Price Than Guru
In order to follow the guru successfully, you must purchase stocks at a cheaper price than the gurus! After deciding on the guru that you want to follow, you just need one website – www.Gurufocus.com. While this is mainly a paid website, you can find the portfolio of various investment gurus there for free!
Source: gurufocus.com
In the website, you can see immediately which are the stocks that they bought recently, and how much they paid for it. For example, Warren Buffett “add” more shares of Phillips 66 on 14 Sep at an average price of $77.21.
Therefore, you may want to consider purchasing shares of Phillips 66 at a price lower than $77.21.
Final Word of Advice
As I have mentioned, I wrote this post because readers have asked me about “copycat” investing. However, I can’t emphasize enough that you must do your own due diligence before being a “copycat”. Be a smart copycat!
See you next week!
Investing Always,
Pete
