Superinvestor Copycats

The trades and positions of many of the world's top investors are public information. Any manager that manages over $100 million in assets is required to file quarterly reports to the SEC. You can use this information to your advantage by adding new positions to your portfolio and possibly reverse engineer their process.

Our curated list is a good place to start. We list a number of top managers, provide a list of holdings, and the recent activity of each manager. Since our focus mainly covers SaaS/Cloud Computing stocks, the list is ordered by the Superinvestors with the most holdings in the BVP Nasdaq Emerging Cloud Index (EMCLOUD). The Superinvestor list we have is pretty diverse though as it contains many traditional non-tech investors including Warren Buffet.

Taking it one step further, we also provide a page that contains a count of the most widely owned cloud companies.

As of this writing, Microsoft is the most widely held company, followed by Alphabet, Meta, and Amazon. Clicking the count value in the right column will take you to a list of all the Superinvestors that have a position in any given stock. This page will show how much of their portfolio each manager has allocated to the stock.

Can Following Actually Work?

There are a few criticisms of strategies that mimic the top investors, which we'll address later. The short answer, though, is yes.

A few studies have proven this. One such study consisted of copying Warren Buffet's Berkshire Hathaway trades. From 1976 to 2006, simply buying all the publicly disclosed positions beat S&P 500 by an annual average of 10.75% per year².

For this strategy to work, the Superinvestor should be a long-term, buy-and-hold investor. Because of the reporting delay (up to 45 days after a quarter ends), a short-term investor may have bought and exited a position before you know about it. The higher the turnover, the less valuable the strategy will be because of the delay factor.

The portfolio should also lean towards being more concentrated. The more concentration, the greater the conviction for each position. A position that is small (say 1% of the portfolio) will have little impact whether it doubles or gets cut in half. Because of this, it's less likely the superinvestor put an extensive amount of time and energy researching the stock.

Which Superinvestors to Follow?

Deciding who you want to follow is most important and should meet the following criteria:

• has integrity
• demonstrates clear thinking
• communicates clearly
• has passion for investing
• has humility
• has comparable strategy

This list is expressed in The Manual of Ideas¹

Your Investment Strategy

It's important to gain an understanding of how your investment strategy compares with that of the Superinvestor. If a guru's strategy is to hold growth stocks, the selection of stocks may not make a lot of sense to you if your strategy is deep value or you don't plan to hold the company long-term.

A Superinvestor may have few positions or many positions. If there are many positions, the portfolio strategy may be based on a certain sector or industry, a macro strategy (i.e. disruptive technology), or based on a quantitative model. The size of the investor's staff may also be a factor. A traditional value investor is more likely to have a concentrated portfolio that he/she believes to be true bargains. This type of investor's approach entails holding stocks until they become fully valued or longer.

Reverse Engineering a Portfolio

Finding common patterns may reveal a strategy you can employ yourself. And find new opportunities outside of copying. Perhaps you even discover a stock before your guru does.

When deciding to follow a Superinvestor, I search for any available material on that investor's strategy. This is anything from books, annual letters, YouTube videos, podcasts, and more. Warren Buffet, for example, publishes an annual letter with every Berkshire annual report. In addition, at every shareholder's meeting, there are long Q & A sessions where the audience asks questions. These are available all over YouTube.

For each of the holdings, pay attention to:

• which industries the investor typically invests in
• do the industries change over time?
• financial metrics (i.e. revenue growth, earnings growth, valuation metrics)
• qualitative properties (i.e. brand loyalty, company culture)

Superinvestors Influence

Superinvestors, especially those with sizable positions, can influence management. Activist investors like Carl Icahn and Bill Ackman can bring about drastic change to a company. In less extreme situations, Superinvestors can influence management to repurchase shares, pay dividends, and even prevent bad, value destroying decisions. An example of a value-destroying decision would be making a terrible acquisition that was either too expensive or in an unrelated industry.¹

Criticisms of This Approach

Now, we'll discuss some of the criticisms of this approach. The first is that opportunities will be arbitraged away by the time the holdings are available. We somewhat addressed this problem earlier. The concentration of the portfolio matters along with the investor's time horizon. If the investor generally has a short-term approach with a lot of turnover, the criticism is probably correct. For longer-term investments, it's a different store because compounding does its magic over long periods of time.

The second criticism is that the positions will become too popular by the time they are available. This is a possibility, but there are couple of things you can do. The first is to check how much the stock price has changed since the Superinvestor first bought it. This is also a good time to check to see if anything has fundamentally changed with the company. If the stock price hasn't changed much, the stock's popularity probably hasn't changed much. If the price has risen substantially and you like the company from a fundamental standpoint, simply add it to a list of stocks you are watching. In the future, there should be multiple buying opportunities, even for most stocks that are too expensive today.

Slumps and Periods of Underperformance

Similar to quantitative strategies, there will be periods where even great investors underperform. Certain industries and even strategies go out of favor from time to time. Warren Buffet underperformed in the late 1990's and kept getting critized for being "out of touch". These periods can be frustrating to many investors relying on business fundamentals because the top performers are being driven by hype and speculation. These periods eventually end as everything being driven by hype collapses.

The difficult part of being a copycat during a rough stretch (or a speculative mania) is sticking to the process. Continuing to evaluate the decisions of the guru objectively will be of vital importance. If the strategy still makes sense, it could take time for results to come.

References

¹The Manual of Ideas John Mihaljevic

²Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway