How to mimic your way to a secure retirement

How you can incorporate piggybacking strategies to help get your retirement portfolio back on track.

By AARON KATSMAN
Money 311 (photo credit: Bloomberg)
Money 311
(photo credit: Bloomberg)
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. When I suggest, for example, Kimberly Clark or Clorox and explain that they have solid and growing businesses along with a near 4 percent dividend yield, which keeps increasing, they are not enthused.
“We know those companies,” they say, “but we want something smaller – something that can produce huge returns in a relatively short amount of time.”
Investors want to think that they are getting original, “one of a kind” investment ideas. But they really tend to “piggyback” investments all the time. Most, if not all, investment representatives and advisers do some kind of piggybacking of investment ideas. Whether it’s reading about an analyst recommendation on a certain stock, or hearing a hot pick on CNBC 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 trigger.
While some investors actually expect an adviser to provide them with some kind of esoteric, “never heard of” Internet company that operates out of Estonia that’s going to quadruple over the next year, for most investors the name of the game is simply to make money on their investments, and they expect their adviser to provide them with value. After all, isn’t that what you pay an adviser for?
Everyone can be an expert
Having suffered through three stock-market routs in the last 11 years, investors are getting nervous about their retirement portfolios. It has become a fait accompli in the financial media that investors can’t outperform the stock market, and 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. In his book Tradestream Your Way to Profits – Building a Killer Portfolio in the Age of Social Media, Zack Miller explains to investors how they can tap the power of the Internet and mimic or piggyback famous investors such as Peter Lynch, Bill Ackman, Warren Buffett and Joel Greenblatt, all who have put up staggering investment returns.
While access to these “gurus” used to be limited, Miller writes how now, thanks to the Internet and companies like AlphaClone or Covestor, investors are able to own the very same investments as these pros own. Just as in other disciplines, the Internet has succeeded in democratizing the investing field; for investors, that could lead to profits. Keep in mind that their past performance is no indication of their strategies’ future performance.
Legal insider trading
While mirroring Warren Buffett is one approach of piggybacking, there are also exchange traded funds (ETFs) that mimic corporate insiders and company share buybacks.
When we hear of corporate insider trading, images of Ivan Boesky, Martha Stewart and jail time are conjured up. But in reality, corporate insiders are legally allowed to buy and sell their own stock.
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 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 couple of ETFs 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.
• PowerShares 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.
Cash in
I am not saying to run out and buy these funds or stop everything and invest like Buffett, but you should speak with an investment professional to learn how you can incorporate piggybacking strategies to help get your retirement portfolio back on track.
aaron@lighthousecapital.co.il
Aaron Katsman is a licensed financial adviser in Israel and the United States who helps people with US investment accounts.