The best investors of all time are the best because they have developed remarkable investing strategies and procedures via years of experimentation, analysis, and study. That is, of course, why their meticulously planned investments have made them some of the world's wealthiest people. These are the folks who have assimilated the market's nature into their life. So, it goes without saying that any retail investor would want to blindly follow them in the hopes of making it big just like them.
But here's the thing: it's true. It is a psychological barrier that we erect against ourselves that prevents us from being creative. Those who rely on the judgments of others to build a fortune for themselves are doomed to fail in the long term. We must remember that every one of us is uniquely empowered and endowed with incredible mental abilities that are not necessarily shared by others.
We've all got a brain right? So let's put it to good use!
As a result, the focus of this discussion will be on one aspect of copying: whether or not you should mindlessly imitate the portfolios of successful investors.
Is portfolio cloning a good way to go?
Everyone wants to earn money in the stock market, but portfolio cloning may not be the greatest way to accomplish so, contrary to common opinion. I understand that some may disagree, citing examples such as Mohnish Pabrai, who is outperforming the market and generating returns of over 10% using the cloning approach. Unlike successful celebrity investors, we don't have access to sophisticated research and analysis tools.
However, there are certain critical issues that these arguments frequently fail to address. So, let's try to figure out why cloning portfolios indiscriminately can never benefit ordinary investors like us.
The barrier of difference in goals
Do you share the same financial or life goals as Warren Buffett or Rakesh Jhunjhunwala? Do they fantasise about a fantasy mansion with a spa or a high-end sports car? Are they putting money aside for their children's wedding? Perhaps yes, perhaps no!
How can you expect someone else's decisions to benefit you when we're all on separate routes with distinct aims in life? Investing is about living a life free of financial concern, not about making it to the Forbes list of wealthiest people. As a result, rather than imitating a successful investor's stock picks, you should acquire stocks that can finance your needs.
Diverse investment prospects
Big investors frequently put large sums of money into equities and then forget about them for a long time. This is frequently the method that generates such large profits. Retail investors, on the other hand, may not be able to adjust to the same investment horizon due to further differences in financial goals and risk appetites. For example, if you need to meet a financial goal within the next 3 to 6 months, a low duration fund may be a considerably better choice than a stock pick with a 5-year growth forecast of 15%.
Various risk appetites
It is simply due to the risk appetite issue. A person who earns a six-figure salary and someone who barely scrapes by might not be at the same danger of losing a thousand dollars. As a result, it varies from one person to the next and from one investment to the next.
Diversification
To avoid putting all your eggs in one basket, you'll need additional baskets, which will require you to shell out more money, which will require you to have more money. What you should take away from this is that diversification requires more money, which successful or institutional investors have in abundance and which you, as a retail investor, may not. If you want to profit from your own investments, it's best not to mimic someone else's portfolio.
If you're looking for stock ideas, look into the portfolios of outstanding investors. After a comprehensive examination of the market and the stock, you can decide to invest. To cut a long story short, money management is highly subjective. What is okay for someone else may not be appropriate for you. (As well as the other way around).
As a result, before entering into investing, you must first evaluate your financial profile, risk appetite, and goals, among other things, and then devise the appropriate asset allocation strategy for you.
