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Copycat investing


NormR
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I was reading In Praise of Copycats, which reminded me of Mohnish Pabrai's talk and thought I should take a more disciplined attitude to copying good investment ideas.  So, I've a few questions for you.

 

Which portfolio managers to do follow with an eye to swiping their ideas?

 

When looking at the portfolios of said managers, how do you narrow down the list to the best few stocks/securities?

 

What sorts of things should you keep an eye out for when copycat investing?

 

Any other wisdom on the topic would be appreciated.  :)

 

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Most all us indeed grew up in a world where 'copying' was considered bad behavior.  Copying in the sense of plagiarizing someone else's work. 

 

However, and specific to the investing world, I am of the belief that copying another investment idea is actually praise for the idea generator and also to some extent helps that person over the longer term.  That is you are supporting the stock price by buying, or maybe even shorting.

 

Does copying stifle creativity?  I would take the opposite stance and say that 'legally' copying an idea stimulates creativity because via the simple fact that when someone starts copying -- it verifies the idea and both boosts your idea that stimulates others to make the idea better.  Making something better is creativity.

 

Cheers

JEat

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I think the key here is to be very very selective i.e. limit it to someone in which one can have very high degree of confidence which can only be achieved with a terrific long term track record combined with a very good understanding of how that track record was achieved. The only ones who meet this criteria for me are Buffett, Klarman, Watsa, Berkowitz and Hawkins.

 

Vinod

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I was actually playing with an idea of blindly selecting a basket of stocks discussed heavily on this forum, as well as various value investor blogs. Sort of like an index. Would be nice to have a software program for that. :)

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I think the key here is to be very very selective i.e. limit it to someone in which one can have very high degree of confidence which can only be achieved with a terrific long term track record combined with a very good understanding of how that track record was achieved. The only ones who meet this criteria for me are Buffett, Klarman, Watsa, Berkowitz and Hawkins.

 

Vinod

 

Buffett's and Berkowitz's picks are some what easy to understand. I some time don't understand why Klarman bought a specific security. Prem's picks are sometime low on quality curve for my liking. I think it works for him as a basket though. Having said that I agree with your sentiments fully.

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I think the key here is to be very very selective i.e. limit it to someone in which one can have very high degree of confidence which can only be achieved with a terrific long term track record combined with a very good understanding of how that track record was achieved. The only ones who meet this criteria for me are Buffett, Klarman, Watsa, Berkowitz and Hawkins.

 

Vinod

 

Buffett's and Berkowitz's picks are some what easy to understand. I some time don't understand why Klarman bought a specific security. Prem's picks are sometime low on quality curve for my liking. I think it works for him as a basket though. Having said that I agree with your sentiments fully.

 

Those were my thoughts on Klarman and Watsa also. 

 

Easy to understand picks for me screams Donald Yacktman.  Pepsi, Proctor and Gamble, Clorox etc.  He's a slow and steady wins the race kind of guy. 

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I don't know, if you're going to buy a basket you may as well invest in their instruments if you can, no?  FAIRX, BRK, FFH proper. Then you don't have to second guess sales.  Plus in the insurance cases you get the benefits of the float.  WRT software you can probably look at Stockpickr.com to help you track these portfolios.  The other one that's kind of interesting is Morningstar's ultimate stock pickers portfolio.  They use a number of expert portfolios to copy cat, then analyze big sales and purchases, and conviction positions...  Somewhat useful although I'm not sure what their performance has been...

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Guest hellsten

Thanks for creating what I hope will become a great thread. I took some time to think about my process and here are my thoughts.

 

Which portfolio managers to do follow with an eye to swiping their ideas?

 

Berkowitz, Watsa, Buffett, Munger, Pabrai, Yacktman, Gabelli, Eveillard, Einhorn, Cumming, Hawkins, Klarman, Holowesko, Herro, Spier, Parames, Dreman, Kahn Brothers, Greenblatt, Gayner, Chou etc

 

I'm also following smaller funds, for example:

- GoodHaven GOODX

- Oceanstone Fund OSFDX

 

While I might not steal ideas from most of them, I still like to follow them…

 

When looking at the portfolios of said managers, how do you narrow down the list to the best few stocks/securities?

 

Some of the things I look at:

- portfolio weight.

- do I understand the company and business?

- is it a high-quality business?

- have they owned it before?

- am I comfortable with management?

- does it fit my portfolio (e.g. I don't have billions to invest like Buffett)?

- is it easy to understand?

- is it cheap?

 

What sorts of things should you keep an eye out for when copycat investing?

 

- did they buy the common or something else?

- who bought the stock, e.g. Warren or Weschler?

 

If you're interested, here's a list of tools I use:

- http://dataroma.com

- http://zignals.com. I set up alerts (52-week lows…) for the most interesting stocks.

- http://morningstar.com

- EDGAR filings (RSS feeds) and Google Reader

 

What tools do you use?

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When looking at the portfolios of said managers, how do you narrow down the list to the best few stocks/securities?

 

Some of the things I look at:

- portfolio weight.

- do I understand the company and business?

- is it a high-quality business?

- have they owned it before?

- am I comfortable with management?

- does it fit my portfolio (e.g. I don't have billions to invest like Buffett)?

- is it easy to understand?

- is it cheap?

 

A question I think about when following some of the gurus is, why did they buy it?  Did they buy it because they see a huge bargain or is it a part of a larger theme?  Chou, Watsa and Klarman are prime examples of us not always seeing the bigger picture where Buffett and Berkowitz usually explain very candidly why they bought.   

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Guest hellsten

When looking at the portfolios of said managers, how do you narrow down the list to the best few stocks/securities?

 

Some of the things I look at:

- portfolio weight.

- do I understand the company and business?

- is it a high-quality business?

- have they owned it before?

- am I comfortable with management?

- does it fit my portfolio (e.g. I don't have billions to invest like Buffett)?

- is it easy to understand?

- is it cheap?

 

A question I think about when following some of the gurus is, why did they buy it?  Did they buy it because they see a huge bargain or is it a part of a larger theme?  Chou, Watsa and Klarman are prime examples of us not always seeing the bigger picture where Buffett and Berkowitz usually explain very candidly why they bought. 

 

Good point. I'm not interested in a stock if I can't figure out why they bought it.

 

Another thing I try to remember is that many gurus use a basket approach to investing. Many of the stocks in their portfolio will be failures, so betting the farm on e.g. Targacept is not a good idea.

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I try to identify thier smaller holdings as there is less competition from other copycat investors.  In my view the largest threat to outperformance is competition (the same is true for businesses).  I rarely find a great business at a great price (maybe once in every 10 years) so I focus on average or slightly above average businesses at cheap prices keeping in mind obsolesence.  I would add Howard Marks, Tim McElvaine and Monish Pabrai to the list.  I also focus on the guys taking big bets like Berkowitz.

 

Packer 

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Copycat investing makes the investor feel good cause a "guru" is with him or her. This is okay and i believe that is  of the golden principles in the richest man in babylon. Follow people who are good at gathering gold. I feel more empowered if i gather up my own ideas.  Usually after i research a idea then i check if any gurus or future gurus have the same idea. I'm not a money manager so i have no pressure for relative performance. I manage the excess cash from my biz. Copycat investing i think is essential if your a money manger. I think its important to research a idea and come to a conclusion before you read the gurus thought process. You want your thought process to be similar to the gurus and not be persuaded by the gurus thinking. This is what they mean having an independent thought process.

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I believe it is a lot better to copy investment ideas on message board than from other sources. It can be here or someplace else(some posters in iHub are very good also) . If we can find  next rock-star stock picker on webboard/blog first (ie,Michael Burry on Silicon Investor Board), it is easier to make profit by following these people than just follow well-known gurus via public data. 

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Many of our greatest successes are a result of not following a great investor when he takes a major position in a company, but waiting to see if there is a much lower entry point and then jumping in with both feet if the investor's thesis still is valid and we understand the company and their strengths.  Then, the upside is much greater than if we had slavishly followed a guru immediately after their stock purchase became public.

 

:)

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Guest hellsten

Our greatest successes are a result of not following the best of the best when they take a major position in a company, but waiting to see if there is a much lower entry point and then jumping in with both feet if the outstanding investor's thesis still is valid and we understand the company and their strengths.  Then, the upside is much greater than if we had slavishly followed the great investor immediately after their buy became public.

 

Well said. I agree. This is exactly the reason behind my greatest successes so far.

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I think copycat is the wrong term.  I get great ideas from other great investors, and try to understand what they see in them.  F. Chou, and B. Berkowitz, are the easiest for me to understand, and agree or disagree.  FFh is very hard to copy these days since so many of their larger positions are workouts, or developmental investments of some sort.  Buffett is similarly hard to decipher.  Its always nice when a publicly successful investor buys what I have, or backs what I have, but it doesn't mean we will not all suffer together.

 

 

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Two years ago I started my Master in Engineering and I concluded that I would not have enough time to do a good job researching stocks. So I decided to adopt a guru copy of portfolios. I had no idea which guru's to copy tough. So I established the following criterias:

 

-Must have a value approach

-Must have low portfolio turnover (I'm 2 months late on their portfolio change so if I want to follow it needs to be slow!)

-Must have outperformed the S&P500 on a 10 years timeframe

-Must be capable of understanding their thesis

-Must have concentrated positions

 

The results of that selection are the followings:

Berkshire, Greenlight, Fairfax, Fairholmes

 

Each quarter generates 4-5 ideas. I find the lows of the quarter for each stock and buy 5% position if the stock gets below that (if the thesis still holds).

 

So far it seems to generate 2-3 purchases per year.

 

BeerBaron

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Two years ago I started my Master in Engineering and I concluded that I would not have enough time to do a good job researching stocks. So I decided to adopt a guru copy of portfolios. I had no idea which guru's to copy tough. So I established the following criterias:

 

-Must have a value approach

-Must have low portfolio turnover (I'm 2 months late on their portfolio change so if I want to follow it needs to be slow!)

-Must have outperformed the S&P500 on a 10 years timeframe

-Must be capable of understanding their thesis

-Must have concentrated positions

 

The results of that selection are the followings:

Berkshire, Greenlight, Fairfax, Fairholmes

 

Each quarter generates 4-5 ideas. I find the lows of the quarter for each stock and buy 5% position if the stock gets below that (if the thesis still holds).

 

So far it seems to generate 2-3 purchases per year.

 

BeerBaron

 

That's really awesome. Please keep us updated on how it goes over the years.

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I'd throw Bill Ackman and Glenn Greenberg in there too. Obviously JCP isn't going his way right now but he embraces the multi year time frame that true value investors apply.  His break up of Fortune brands was excellent and his entry point on CP was not too shabby either. I heard him speak in Mew York last year and he mentioned that he liked going public with his ideas bc it can help bring  awareness to the internal problems he is trying to fix. He also uniquely has the tools to implement real change.

 

Greenberg has a great interview he did for Greenwald at the CBS site from 2006. His track record is outstanding (I don't have it handy, so you'll have to take my word for it) and he takes very concentrated positions. To me, concentrated positions plus excellent long term track record tells me that there is a lot of conviction behind those ideas and a lot of research, so they may be worth diving into.

 

I also like Wilbur Ross and Pabrai.

 

As far as 'copycating' are there any particular VIC members that folks on this board found consistently intriguing/profitable? There are a few names that I regularly look for.

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Guest hellsten

Whale Wisdom is another tool that makes it easier to follow gurus. You can set up email alerts and e.g. list the top holders of a stock.

 

They have an article on the perils of cloning gurus where they recommend following managers that have the lowest portfolio turnover (Chou, Watsa, Buffett, Berkowitz, etc):

http://whalewisdom.com/articles/the-perils-of-hedge-fund-cloning/

 

Another point when following gurus is to double check all data. Dataroma, WhaleWisdom and other tools are not 100% accurate.

 

Glenn Greenberg dropped Capital IQ because of inaccurate data:

He again stressed how it is critically important to read the 10-K’s. He was using Capital IQ but decided to drop it because he found too many errors.

http://gregspeicher.com/?p=1083

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I'd throw Bill Ackman and Glenn Greenberg in there too. Obviously JCP isn't going his way right now but he embraces the multi year time frame that true value investors apply.  His break up of Fortune brands was excellent and his entry point on CP was not too shabby either. I heard him speak in Mew York last year and he mentioned that he liked going public with his ideas bc it can help bring  awareness to the internal problems he is trying to fix. He also uniquely has the tools to implement real change.

 

Greenberg has a great interview he did for Greenwald at the CBS site from 2006. His track record is outstanding (I don't have it handy, so you'll have to take my word for it) and he takes very concentrated positions. To me, concentrated positions plus excellent long term track record tells me that there is a lot of conviction behind those ideas and a lot of research, so they may be worth diving into.

 

I also like Wilbur Ross and Pabrai.

 

As far as 'copycating' are there any particular VIC members that folks on this board found consistently intriguing/profitable? There are a few names that I regularly look for.

 

Good idea.  However, it seems like some of the better VIC posters drop off that forum.

 

Please post your short list of the better VIC posters.

 

Thanks

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I'd throw Bill Ackman and Glenn Greenberg in there too. Obviously JCP isn't going his way right now but he embraces the multi year time frame that true value investors apply.  His break up of Fortune brands was excellent and his entry point on CP was not too shabby either. I heard him speak in Mew York last year and he mentioned that he liked going public with his ideas bc it can help bring  awareness to the internal problems he is trying to fix. He also uniquely has the tools to implement real change.

 

Greenberg has a great interview he did for Greenwald at the CBS site from 2006. His track record is outstanding (I don't have it handy, so you'll have to take my word for it) and he takes very concentrated positions. To me, concentrated positions plus excellent long term track record tells me that there is a lot of conviction behind those ideas and a lot of research, so they may be worth diving into.

 

I also like Wilbur Ross and Pabrai.

 

As far as 'copycating' are there any particular VIC members that folks on this board found consistently intriguing/profitable? There are a few names that I regularly look for.

 

Good idea.  However, it seems like some of the better VIC posters drop off that forum.

 

Please post your short list of the better VIC posters.

 

Thanks

 

It seems like VIC's requirement of posting ideas regularly gets a lot of bad ones on there.  To me, there seems to be too many ideas at a time...

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"It seems like VIC's requirement of posting ideas regularly gets a lot of bad ones on there.  To me, there seems to be too many ideas at a time..."

 

I would agree that forced idea submission doesn't always make for the best and most thorough ideas, but there are a few names that I see that are consistently profitable.  When I say 'profitable', I mean based on the price at the time of posting, which is included in the writeup.  Of course, one should always read the investment thesis thoroughly, do their own checks against provided data and reach their own conclusions.  If nothing else, over the years I have learned a great deal about valuation and key numbers/metrics by reading those posts every night. 

 

Some folks I find useful:

 

"Lukai" - small cap specialist with very impressive track record and very thorough posts

"Olivia" - mainly large cap posts that have been consistently profitable. 

"Pretium" - excellent record so far in pharma.  Pharma is outside my circle but an interesting read.

"YCombinator" - dissects complex bankruptcies. 

"Spence774" - Ken Shubin Stein of Spencer Capital

"NCS590" - my guess is that it is Nick Snyder from the most recent OID given the info provided on VIC and OID about CHK & Gastar.  The picks haven't performed that well so far, but the write-ups are very thorough and informative. 

"Charlie479" - frequently discussed on CSInvesting blog, but hasn't posted to VIC in a while.  Supposedly discussed as a case study in Prof. Greenblatt's classes (a VIC co-founder).

 

Those are some folks that I find interesting to read with good track records (strictly based on VIC postings, so not comprehensive).  Every once in a blue moon, I'll read a write up that really resonates with me, but like all great investing ideas - they don't come along often.  Given that there are some big dogs roaming VIC (and Corner of BRK & FFH), I've always found it interesting to wonder who are the managers behind the screen names. 

 

 

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