Dollar bills 370.
(photo credit: Steve Marcus / Reuters)
Imitation is the sincerest form of flattery.
– Charles Caleb Colton Iam
blessed to have a wife who is a great cook.
I can't count the number of
times we have hosted guests and then they called asking for a particular recipe
of a dish that she served. While I may be married to the best cook (as my
growing stomach can attest), swapping recipes is commonplace.
Everyone wins. The hostess feels good that her food was a hit, and the recipe
recipient is now making a dish that will earn her high marks and greatly satisfy
In fact, copying someone successful is something that is not
just food related. After all, some children may cheat on a test by copying from
the class genius, companies produce knock-off goods of popular products, sports
teams will copy strategies of championship teams, and the list is
So if imitation is so commonplace in society, why is it passed
over when it comes to investing? Investors love to try and discover undervalued
stocks that no one has ever heard of. In fact, as a financial adviser, clients
often call me up asking for investment ideas, and when I give them a Johnson
& Johnson or Merck as an example, and explain that they have solid and
growing businesses along with a near 4 percent dividend yield, which keeps
getting increased, they are not enthused.
“We know those companies,” they
say. “We want something smaller, something that can produce huge returns in a
relatively short amount of time.” It’s like some investors actually expect an
adviser to provide them with some kind of esoteric, never-heard-of Internet
company that operates out of Bosnia that’s going to quadruple over the next
Investors want to think that they are getting original,
one-of-a-kind investment ideas, but in reality they tend to “imitate”
investments all the time. Whether it’s reading about an analyst recommendation
on a certain stock or hearing a hot pick on Bloomberg or even around the water
cooler, very few investors actually come up with their own ideas. Rather, they
hear or read something, and they use that as a source of idea generation and
proceed to do research on the stock and then decide whether to pull the
Copy While the last few years have been kind to investors, it
seems that we are back to a round of intense volatility that is sure to make
them uneasy. Having suffered through three stockmarket routs in the last 13
years, investors are getting nervous about their retirement
It has become a fait accompli in the financial media that
investors can’t outperform the stock market, and as such there is nothing to be
done about dwindling retirement savings.
The dirty little secret is that
there are some well-known investment managers who have continued to outperform
the broad market for more than 20 years. Bill Ackman, Warren Buffett and Joel
Greenblatt are examples of investors who have posted staggering investment
returns. Thanks to the Internet and companies like AlphaClone or Covestor,
investors are able to own the very same investments as these pros own.
a pro While mirroring Warren Buffett is one approach of imitating, there are
also exchange traded funds (ETFs) that mimic corporate insiders and company
share buybacks as well as hedge-fund buying. Studies show that insider actions
are a good indication of how a certain stock will trade in the future. And this
makes sense. After all, a CEO or a CFO know their company’s situation better
than anyone else, so if they choose to buy or sell their own stock, that’s a big
hint as to future prospects.
Again, thanks to the Internet, this
information has become available to the general public.
While it may be
tedious for the average investor to sort through corporate filings, a few ETFs
now exist that allow investors exposure to these trends:
• Guggenheim Insider
Sentiment ETF: Linked to an index that shows corporate insider-buying trends and
earnings-estimates increases by Wall Street analysts.
Buyback Achievers Portfolio: Linked to an index that consists of US-listed
companies that have repurchased at least 5% of outstanding shares during the
past 12 months.
• Global X Funds Guru Portfolio: Linked to an index of
top holdings of hedge funds based on their recent public filings.
I am not saying to run out and buy these funds, but you should speak with an
investment professional to learn how you can incorporate copycat strategies to
help get your retirement portfolio back on
Aaron Katsman is a licensed
financial adviser in Israel and the United States