Risk with Following "Gurus"

This probably doesn't apply to too many reading this but those blindly following so-called "gurus" need to be on top of the ball. Eric DeCloet of The Globe & Mail has a good article pointing out the shortcomings of following others. He uses Eric Sprott, a very investor, and his investing team in Canada as an example, although the example can apply to anyone. The problem is most acute with momentum investors--Sprott and his hedge funds are,--sector rotation investors, macro investors, and growth investors. If you follow a long-term investor you generally don't have as big of an issue.

I have no reason to doubt the ethics of Eric Sprott so it isn't a question of anything immoral. Rather, the problem is that small investors can't stay on top of these investors. Of those reading this blog, the most vulnerable would be those following Jim Rogers, Marc Faber, or such investors. These guys move in and out so quickly that small investors can be light years behind. I am a huge fan of Marc Faber but have no idea what his position is half the time. Recall how Faber was bullish on Vietnam a few years ago. Is he still long or did he sell out? Who knows! How about how Jim Rogers is bullish on China? Is he still long or did he sell out last year and avoid the complete meltdown that is China these days?

You avoid all these problems with long term investors. Many long term investors tend to be value investors and their holding period is often quite long. Those blindly following Jean-Marie Eveillard or Warren Buffett are probably ok...

No currency is more valuable on Bay Street than a good investment idea. The problem is they're hard to find, so a lot of people attempt a shortcut by buying what the smart money is buying. “Coattail investing,” they call it.


Good read for those blindly following others...

Comments

  1. AnonymousAugust 15, 2008 at 2:45 PM

    I'm not for blindly following the pros. But for individual investors (I'm one) I like and employ the concept of "reverse engineering."

    Pick 2 or 3 top investors, and review their holdings and moves. Use these names as your list of potential candidates for investment. Note the word potential. Sometimes a stock has moved by the time it's a reported holding of Whitman, etc.

    The appeal of this strategy is that the top professionals have analysts who do nothing all day but research stocks. I can't do that because I'm one person, and I have to work for a living ;-)

    And, you're right, this type of thing works best for investors, and not traders or those making quick, in-and-out moves.

    ReplyDelete

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt
✖ READ MORE >>>

Charlie Munger: Stock market as a pari-mutuel betting system

The model I like to sort of simplify the notion of what goes o­n in a market for common stocks is the pari-mutuel system at the racetrack. If you stop to think about it, a pari-mutuel system is a market . Everybody goes there and bets and the odds change based o­n what's bet. That's what happens in the stock market. —Charlie Munger, "Art of Stock Picking" Although I don't share the same views on politics, I am probably closer to Charlie Munger than Warren Buffett when it comes to how we view the world. Warren Buffett is almost singly focused on business and investing, and is not very opinionated, indeed possibly not knowledgeable, in other areas. In contrast, I am closer to Charlie Munger in the sense that I have diverse interests—you can probably tell by the articles I link to or write about—and have an opinion on almost anything. There is one big difference though: I am not into the field of psychology quite like Munger. So it may be surprising to see me rarely
✖ READ MORE >>>