Copycat investing, as the name implies, refers to the strategy of replicating the investment ideas of famous investors or investment managers. The strategy is also known as coattail investing since the investor rꦐides on the coattails of those who presumably have much more investment prowess.

But is copycat investing a 澳洲幸运5官方开奖结果体彩网:viable tra⛄ding 🗹or investment strategy? While the evidence about its success is somewhat mi𒐪xed, there are certain techniques you can use to increase your chances of becoming the perfect ✃copycat investor.

Buffett Bootleg vs. Miller Mime

The long-term success of legendary investor 澳洲幸运5官方开奖结果体彩网:Warren Buffett has attracted a 𓃲host of copycats over the years, and that could be because replicating Buffett’s strategy has made people money.

According to a 2008 study by Gerald Martin and John Puthenpurackal, a hypothetical portfolio that mimicked 澳洲幸运5官方开奖结果体彩网:Berkshire Hathaway’s investments a month after they were publicly disclosed would have outperformed the S&P 500 by an annual average of 10.75% from 1976 to 2006.

But before you rush off to check Buffett’s current holdings, consider the other side of the coin, when a long streak of outperformance ends with a resounding thud. Fund manager Bill Miller joined the pantheon of great investment managers after his Legg Mason Value Trust Fund beat the S&P 500 for 15 years in a row, from 1991 to 2006. Miller’s fund✤ finally had a bad year in 2007—losing 6.6% and trailing the S&P 500.

However, 2008 was an outright disaster for the Value Trust, which plummeted 55%, compared with a 37% plunge for the S&P 500, as Miller loaded up on flameouts lik♐e Bear 🅷Stearns and AIG.

Investors who had mimicked Miller would have rued their decision if they had continued to do so after 2006. Miller eventually opted to step down from managing the Value Trust Fund in 2012.

How to Be a Copycat

Copycat investing is more widespread than one would think, although it is often done discreetly and without much fanfare by 澳洲幸运5官方开奖结果体彩网:institutional investors like mutual funds and hedge funds. But the idea of latching onto someone else’s in꧒vesting ideas has also caught on among retail investo𓂃rs.

The earliest copycat investors would routinely scour regulatory filings from mutual fund companies to discover which stocks star managers had loaded up on in recent months. Nowadays, online value investing research companies such as GuruFoc🗹us offer an alternative to this arduous process by tracking and displaying the holdings of the best investors and investment managers.

Then there's "澳洲幸运5官方开奖结果体彩网:mirror investing," which copies the copycat strateg𝕴y and takes it one step further. Services such as TD Ameritrade's Autotrade enable an investor to link investment accounts to portfolios actively managed by other investors or investment professionals and automatically mirror every investment move that the latter make, within specific allocations set by the investor.

The obvious difference between 🍰copycat investing and mirror investing is that the former attempts to duplicate trading ideas only of well-known and recognized investment gurus.

Who Should You Copy?

Investors considering a copycat🐼 strategy should consider replicating investment ideas from the following sources.

Successful Money Managers

All institutional money managers with over $100 million in qualifying assets are required to file 澳洲幸运5官方开奖结果体彩网:SEC Form 13F quarterly detailing their investment holdings. Thi🍸s is a great source document for copycat trades.

Buy-and-Hold Managers

Copycat investors would be much better served by getting ideas from long-term managers who believe in 澳洲幸运5官方开奖结果体彩网:buy-and-hold, rather than investment pros who are short-term traders. This is because the time lag between an 🍷actual trade and its reporting may be a detriment to effective trade replication.

It's better to go with someone like Buffett, who has often been quoted as saying, “Our favorite holding period is forever.”

Activist Investors

Activist 澳洲幸运5官方开奖结果体彩网:investors like Carl Icahn can usually cause a stock to appreciate as soon as the news of their involvement in the company becomes public. Icahn often shares his investment plans on X (formerly Twitter), which makes it easier for copycat investors to act on them rather than waiting for regulatory 🐭filings.

What Are the Risks?

Like any other strategy, copycat investi💃ng has its share 💟of risks.

Success Is Not Guaranteed

No investment strategy is a sure-shot winner. For example, a copycat investor may have to stick with the strategy for many years if following a value-based manager since 澳洲幸运5官方开奖结果体彩网:value stocks sometimes take an eternity to turn around.

Stock May Have Already Moved

A stock may have already moved significantly between the time it was acquired (or disposed of) by a money manager and the time this news is made public. This has an adverse effect on the stock’s risk-reward profile for the copycat investor.

Too Many Copycats

Too many investors—retail and institutional—are watching the top hedge funds and money managers. Given the speed of information dissemination and tradi✤ng nowadays, an investor who is a little late to a copycat trade is at a huge disadvantage, because the stock may have already moved quite a bit in a short time span.

Differing Investment Objectives

Your 澳洲幸运5官方开奖结果体彩网:investment horizon and obje♊ctives may differ from that of the money manager. For example, you may have a very short-term horizon, while the manager you are copying may be in for the long haul. Or the 🅰money manager may have a risk tolerance level that is much higher than your own.

How Should You Do It?

Here are some suggestions to consider while implementing a copycat invesꦐtment str♈ategy.

Follow Credible, Successful Professionals

Stick with the tried-and-tested money managers, since you may occasionally come across a stock that could be a spectacular success. As an example, Carl Icahn sold close to 3 million shares of Netflix (NFLX) in October🔯 2013, after the stock had more than tripled that year.

Icahn’s average cost of the Netflix stake was $58 when he originally acquired the shares on Oct. 31, 2012.ꦆ A year later, the shares were sold around $323 for a gain of 457%. Copying a timely investment like that could juice up returns for any investor’s portfolio.

Exercise Patience

Chasing a stock is never a good idea. If a stock has already move꧃d up on news that an investing heavyweight has taken a position in it, the best course of action may be to wait for it to come back within your buying range. If it does not, move on to something else.

Look for Accumulation

澳洲幸运5官方开奖结果体彩网:Large-capitalization stocks that are having hard tim🌸es may be a great opportunity for patient😼 investors. Look for such stocks where money managers have commenced accumulating significant positions since this signals their confidence in a turnaround in the near- to medium-term.

Follow Pros in Different Sectors

Don’t put all your eggs in one basket by focusing only on investment professionals in one or two sectors. Many top managers and investors in a specific sector have a c✨onsiderable degree of overlap in their holdings. Diversify your copycat strategy by replicating investment ideas from gurus in different sectors.

Conduct Your Own Due Diligence 

Do not assume that copying trades from th𝓰e best money managers around absolves you of the responsibility to conduct your own due diligence. Ensure that copycat stock you are considering is suitable for your investment objectives and risk tolerance before you acquire it.

The Bottom Line

While copycat investing has its risks, common🦂-sense measures—such𒁏 as following successful investors, exercising patience, looking for accumulation, diversifying with different sectors and conducting your own due diligence—can help you become a (near) perfect copycat and improve your chances of investment success.