Why it’s a bad idea to copy top investors portfolio.

We all want to make money in stock market however not all of us have the best stock ideas or the skills to identify the best stocks. So, we go by the advice of our friends/ relatives or take services of an investment advisory. Some of us just copy the portfolio of any the top investor. In this post we will try to examine why it’s not a good idea to copy the portfolio of top investors. Before I start, let me give some background due to massive reach of print, electronic media and internet, lot of information is available on portfolio stocks of top investors.

As per SEBI guidelines one needs to disclose his investment if it exceeds 1% of shareholding of any company. now let’s try to understand why it’s not a good idea to copy investment portfolio. Theoretically we can make same return as any top investor if

1. We buy exactly the same set of stocks as the investor.

– Not all the stocks from their portfolio is available in public domain. Only those company in which their shareholding is more than 1% is made public as per SEBI guidelines.

2. Buy and sell level are same.

– Information about the portfolio is never available real time. You know about it only at the end of the quarter. So, you have no idea when actually did this investor purchased the stock and at what price. There is no point in buying or selling a  stock which was purchased or sold months back.

3. Hold it for same period.

– It’s not easy to hold the stocks for the same period due to 2 reasons. First we already mentioned in points 1 and 2 where you have information available at the end of quarter only and that too for a limited number of stocks. Second is stocks by nature are volatile. While the top investor knows the company inside out and he will understand the rationale behind the price crash and will never sell until there is some justified reason for it (fundamental/over valuation/govt regulation etc) but you may get stressed with every fall in price and will be forced to sell.

– Top investor has different risk capacity than yours (in most cases it’s much more than yours). So, he can easily withstand market crashes and average out at later point of time which will not be in your case.

Hence, we can conclude that copying top investors portfolio backfires in most cases. One live example is portfolio of India’s top investor Rakesh Junjhunwala which was down by 30% this year from Jan 1st to July 1st. While he can easily withstand the notional loss and continue to hold due to his conviction and the loss will recover with time, this 30% loss may be too much for you. Remember to make money in stock market you should have excellent stock picking ability and the right temperament to handle the stock price movement as per your investment objective. While the former can be borrowed by hiring the services of a good investment advisor the latter is inherit quality and cannot be borrowed.

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