In our last post, Piggybacking guru investors for profit, we explored what piggybacking is (following the every move of uber-investors) and why it’s important (there are a small number of great investors who beat the market over the long term).
So…how does an investor follow the trades of A-list hedge fund investors like Eddie Lampert, George Soros, Ken Griffen or perhaps one of the best investors of all time like Warren Buffett?
There are a variety of ways to do this but we’re going to keep it simple and enlist the help of a site that does much of this tracking for us, Stockpickr.com. Founded by all-around smart guy, James Althucher, Stockpickr pores over numerous filings investment funds make to the SEC and pulls out those investments owned by specific funds or investors.
Assume we decide to employ a strategy of mimicking Warren Buffett.
Step 1:Go to Stockpickr.com and click on the ‘Most viewed portfolios’ tab.
Step 2: You’ll see a list of the most popular portfolios on Stockpickr. Choose Warren Buffett’s.
Step 3: Stockpickr goes through Buffett’s quarterly and monthly filings to the SEC and in the description field, tells how newly updated the information is. From there, each stock in Buffett’s portfolio is detailed below and in most cases, how many shares Buffett owns and how big a chunk the stock is as part of Buffett’s overall portfolio. What’s important here is also to see the movement in the portfolio: is Buffett adding to a position or selling it?
Step 4 (additional): If you click on a specific stock in Buffett’s portfolio, Stockpickr will transport you to a page with more information about the stock as well as information regarding other professional investors who own the stock. Corroborate if a specific stock is help by multiple hedge funds and whether they are still accumulating it or in the process of liquidating it.
Words of advice
- Once you’ve found a stock you’re interested in, go to the SEC’s website and do your own research to validate that the fund you’re researching actually owns the stock.
- what’s important is that the guru investor not only owns the stock but that he’s currently amassing a stake and not liquidating a position. These sites have a lag time and occasionally by the time you read of a certain position, the investor could have sold it out already.
- look for broad institutional ownership of stocks. While everyone likes to find a diamond in the rough, these guru investors, given the size of the funds they are managing, take really large positions in big companies. If a stock is widely owned among hedge fund managers, there is more support for the stock. On the other hand, when funds start to bail out of a position, look out below.
- look for stocks that make up meaningful positions in the guru’s portfolio. Something at 1-5% is pretty small. 5-10% is meaningful. Anything higher than that, the guru is wagering a large bet and expects a big return.
- understand that you are only seeing part of the picture. Many privately owned guru investors are frequently only reporting stock holdings. In addition to these holdings, we don’t know whether the investor has other options and debt holdings to complement a position. It’s not always clear from these reports whether the investor is taking a bullish stance, bearish stance, or expecting nothing to happen and collecting an option premium. Do your homework.
Again, you can find the studies but there are always a handful of investors who by hard work or luck consistently beat the market. Given regulatory requirements and new internet technologies, individual investors can track these investors’ every move and piggyback on top of them.
Using New Rules-like tools allows an investor to create a portfolio of stock picks that mimic a hedge fund manager’s portfolio or even create an all-star portfolio from the investment community’s dream team of managers.
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