Why follow successful investors?
Every once in awhile, an investor may get lucky and receive a huge payout from a lucky investment. While people who fit this bill aren’t hard to find, it’s much more difficult to find investors who have long track records of success.
It also can take a lot of time and resources to study all the hedge fund managers, private investors and mutual fund managers to figure out not only who’s performance beat the market for a given year, but also find those managers who have consistently beat the market for extended periods of time.
Having this data would be useful as a learning tool, to not only track and mimic the trades of the greatest investors but to learn to see patterns in what they are doing so you too can replicate their success in the future.
Obviously, following fund managers and other investors with the best track records makes it easy to piggyback on their success. All you need to do is copy their trades and tag along for the ride into Profitville. But after a while, it would be wise to try to notice patterns in their trading behavior so you can learn from what they are doing, the types of stocks they select to invest in and the timing around when they jump in. Here are some examples of additional things you want to look out for when studying what they do so you too can become a better investor.
Timing
It’s not unusual for the best investors to buy stocks with impeccable timing. By this I mean they are buying up shares in companies, sectors and industries that have been beaten down badly. In fact, there might have been recent bad news that is hammering the price of the stock down or the industry is just hated at the moment.
Whatever the case, you’ll notice that the best fund managers and investors buy and add shares to their portfolio with excellent timing. This is not a coincidence since it can be evidenced over and over again throughout many years of trading history.
Allocation sizing
This is an important item to note to see how much or little diversification these successful investors prefer. You may notice that they only own 5 or 10 total stocks spread out across their entire portfolio. Others will hold many more stocks in their portfolio than 10. See if you can notice a pattern here with the best fund managers and how many stocks are typically held within their funds. Remember the important fact that it’s more difficult to manage hundreds of stocks than it is just a handful or more.
Holding less stocks while still remaining diversified is a great strategy for the best managers to perform better since less tracking and analysis is required. It’s easier to stay on top of 15 stocks really well than it would be to follow 50.
Stock selection
You can learn a lot by studying what types of stocks the best fund managers and investors choose to invest in. Is it common for them to only invest in blue chip stocks? Do they tend to prefer stocks in certain industries because they are more stable and able to weather major economic storms? Finally, where do the companies operate? Are there certain economies that they favor over others?
These are all great questions that probably contain different answers for each fund manager and investor that you research. See if you can find common themes or pockets of themes that the best of the best use when picking stocks to invest in.
Dividends
Do the best investors buy large ownership stakes in companies that distribute dividends? Sometimes the answer is yes. You’ll notice that this is a favorite strategy of Warren Buffett. In fact, a lot of the revenue that he derives is from dividends that are still paying on stocks he bought over 50 years ago and the dividends have increased so much that he’s now making over 50% returns on his original investment just from the dividends alone.
Not only do dividends provide income but they also help to protect you from the downside risk by lowering your cost basis every time a dividend is paid out. This is why the best investors like them and why you should look at how dividend stocks are allocated within their portfolios.
How KINFO can help you track successful investors
KINFO provides two key areas to look at when it comes to follow the best investors. The first being a complete, enriched and objective view of all US hedge funds. See what stocks top hedge funds funds are buying/selling as well as their current holdings. Read more about how KINFO tracks top hedge funds
The other being insight into private investors activities. Using KINFO you are very likely to find another private investor who has a similar strategy & goal but is more successful and can provide you with inspiration. Read more about how KINFO tracks private investors
