Aaron Katsman 58.
(photo credit: Courtesy)
My soon-to-be six-year-old daughter loves to jump on my back, throw her hands around my neck and beg me to give her a ride. In fact, she actually thinks the best part is to assume riding position while I am bending over tying my shoes, and I am no Mary Lou Retton when it comes to flexibility. When we think of the term “piggybacking‚” the first image that we conjure up is this type of frolicking with children.
Well, for investors, whether they realize it or not, they tend to “piggyback” investments all the time. When a client calls a financial adviser wanting a “hot” stock pick, for some reason they think they are getting some kind of original, never-been-thought-of idea that is special just to their adviser.
Usually, it just doesn’t work this way. 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 use that as a source of idea generation; then
they research the stock and decide whether to pull the trigger.
While some investors may be disappointed to hear this – they actually
expect the adviser to provide them with some kind of esoteric,
never-heard-of Internet company that operates out of Ghana and is 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? INDEX INVESTING?
There is a lot of noise in the media
about the advantages of index investing. Index investing is basically a
passive strategy where you invest in a well-known market index such as
the S&P 500 and just leave your money there. The theory says that
since most investors can’t outperform the market, you might as well
forget trying and just link yourself to the market.
While this strategy has made its champions a ton of money, it has left
investors holding the bag. As I have mentioned previously, we are in the
midst of the “lost decade of investing.” The US major-market indices
are at the same level they were 10 years ago.
This means followers of this strategy have the same amount of money as they had a decade ago.
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Of course, factor in inflation and you have probably lost about a third of the value of your investment.
Great strategy! PIGGYBACK THE GURUS
While the “indexers” will say most
investors can’t beat the market, 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 new 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 of whom have
put up staggering investment returns.
While access to these investors used to be limited, Miller writes how
now, thanks to the Internet and social media, 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 – and for investors that could lead to profits. Keep in mind that
their past performance is no indication of their strategies’ future
performance.STICK TO A STRATEGY
A word to the wise: If you are going to implement a
piggybacking approach to your portfolio, you need to have the discipline
to stick to a certain strategy. For investors, constantly changing
investment strategies is a recipe for disaster. Even the gurus
themselves say their specific strategy will underperform for a year or
two over the long run.CASH IN
Speak with an investment professional to learn how you can start
piggybacking these famous investors and start adding value to your
Aaron Katsman is a licensed financial
adviser in Israel and the United States who helps people open investment
accounts in the US.
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