‘People attempt to clone the portfolios of veteran investors with a mindset thinking to clinch the returns in propitious and brisk ways. While, this phenomenon may seem quite intoxicating to many, its dangerous halves can’t be that easily taken care of. Pitfalls of this so-called coat tailing or copycat investing can have far repercussions.’
Being a trailblazer and having a research of our own often comes in handy. Investment avenues tend to be intriguing when palpated with our very own calculations and charters. But, a damn sight times, people attempt to clone the portfolios of veteran investors with a mindset thinking to clinch the returns in propitious and brisk ways. While, this phenomenon may seem quite intoxicating to many, its dangerous halves can’t be that easily taken care of. Pitfalls of this so-called coat tailing or copycat investing can have far repercussions.
Following are some reasons you should do your own due diligence before investing:
1)Multitude of tactics and perceptions involved: Truly speaking, there’s no “one-size-fits-all” concept that will suit the varied tastes, ideas, preferences, styles, profiles and perceptions of such a diversity prevailing. Veteran investors tend to have more patience and long-term goals, while people might not have that much patience and pine to witness the results ASAP. Experienced peeps might have different resources and opportunities not easily available to everyone. Moreover, the perceptions, tactics and pieces of information present on the online or offline resources, only serve a little and limited size of their pie to the public, whilst the back-end stories may have a completely distinct picture.
2)Humongous Opportunity Costs Involved: Due to the lack of proper information and different horizons for the investment avenues, the trading costs involved can be very large. Investors like, Warren Buffet, assume and realize more favorable entry and exit points by spending meager amounts of cess on the exchange of a particular stock, on a net basis, chiseling their performances in a more of a robust shape. While, quite opposite is the case as far as a tyro is concerned irrespective of his wealth, holdings and diversification. They don’t, in many cases, jot such preferential statements.
3)Inability to adequately spread their wings: In practice, it becomes difficult for the investors to spread their wings in the desired directions in terms of the diversifications and functions required in the portfolios to nurture the avenues efficiently. Veteran investors tend to nourish quite varied portfolios by holding stocks of a plethora of companies spreading their total risk on a large surface, thusly, reducing the pressure (even if their capacities don’t allow for the same), whereas others fail to achieve such propensities due to the either lack of funds, or, the financial wherewithal.
4)Lack of Requisite research: Institutional investors, or, veterans often employ teams of analysts or experts who browse the whole markets exploring the supply chains and the signals depicted by the invisible hands. Those analysts also tend to have more patience than others. An “average Joe”, on the other hand, doesn’t have that much patience and the relative deficiency requisite research about future earnings potential, growth opportunities, and competitive forces in the markets, etc. catalyse towards the failure to strike the arrow at the aim.
5)Keeping a decent track record becomes difficult: Despite being an individual having the required funds, willingness to deal with, requisite patience, or, even the ability to diversify accordingly, it rather, is difficult to upkeep a decent track record as many exchange stocks with a great fervour throughout a given quarter. Consequently, people are left only with an extremely risky strategy of using their conjectures and guesses, which often render their conditions miserable, especially in a volatile market.
Conclusion: From the above cited points, it’s clear to vindicate that it may sound interesting to clone the portfolios of the veteran investors, but in practice, reality takes a different mold with many other complications. Veteran investors tend to have resources and opportunities which others might not possess as per the requirements. It is beneficial for them to plan their own investment strategies keeping in mind their own wherewithal, long term goals and the pillars of investing.