Thursday, August 21, 2014

Why replicating another person's portfolio can be dangerous?

All of us wants to earn good returns in the stock market.

While some retail investors do their diligent fundamental analysis about the company they are invested in, some others are simply taking the short cut by replicating other's portfolio - usually the person they admire.

A quick look at the hardwarezone forum and/or facebook and you can see many people either asking for advice or simply just replicating the portfolio for almost every stock they are invested in without having any justification for doing so.

For those of you who are guilty of doing so, note that doing this can be inherently dangerous for you.

1.) You are not aware of the average price the person bought the stocks. For example, I own 6 lots of Vicom in my portfolio and so can you, but if we are buying at a vastly different price, then you might be taking a much lower margin of safety (if there is any in the first place) should price heads south.

2.) You might be underestimating the different strategy between the party you are replicating and yourself. One might be inclined to go for growth stocks and highly cyclical stocks while another might be going for a slower pace dividend style of investing. The same strategy might not fits both parties.

3.) You might not aware of the portfolio allocation of the party you are replicating. Usually, financial bloggers would list down only their equity holdings in their blog and leave out the rest (e.g CPF, Cash, Gold, Bonds, Property) unknown. While he has some cash holdings and hedging at hands, you might not have one to mitigate your risks.

It is too easy and tempting to look at someone you really admire and photocopy the same portfolio as what he did. Nevertheless, the outcome is always going to be different. The risk and returns you undertake by doing that will be much more dangerous than what it really is.

Anyone you know that are doing that? Pls share your thoughts.


  1. Hi B,

    Actually, when we put up the stocks that we own on a page, this is somewhat inevitable.

    What readers most likely are unable to replicate is the entry price that we made, especially those stocks that we owned before we started blogging.

    And most importantly, the danger is that readers are unable to replicate perfectly when you are going to sell, unless one blogs live.

    1. Hi 15hww

      Yeah agreed. Complete replication is virtually impossible but theres a lot ofpeople in the forum who got excited if they enter at a price lower than the average price of those they are replicating. Strange indeed.

  2. B,

    Here is another puzzle.

    There are people who PAY for subscription services where the "guru" will tweet, sms, email their entry and exit points to the subscribers.

    Isn't it easier to give our money to the "guru" to invest/trade for us if all we do is mimic wholesale?

    If we try to give money to these "gurus" to invest/trade for us, we may discover other "truths"...

    No license?

    1. Hi SMOL

      Gurus these days offer 12 or 24 percent return per annum too many people know their fake trick already.

      Might as well boost 88 returns per annum huat huat huat ah

  3. Another Madoff if they took our money?

  4. Think it easier to follow your favorite bloggers for dividend income investing.

    Quarterly passive income can't be that wrong to follow. Right?

    1. Hi Uncle CW

      The wrong part will be at alater stages when that person doesnt know how to exit. Hehehe

  5. I think another point which is equally important is the psychological factor.

    If I've done my analysis on company X, whatever happens to the share price I will get a good night's sleep because I know company X is:
    (i) A
    (ii) B
    (iii) C

    Someone copying me, may be pulling his hair out.


    1. Hi Anonymous


      Just like in school. Right answer wrong answer doesnt matter just justify and you are accountable for your gain or loss :)

    2. Sorry I meant to say your name JW :)

  6. Thats why it is always good to be transparent and tell the readers what price range it was bought, i.e for undervalued stocks.
    I do not understand people who depend on their Guru's advice. If someone dont have the time to understand the risk then better not invest in it.

    1. Hi HM Shak

      Sometimes not all bloggers state their complete reasoning in their posts. They may find one which was discovered later but too lazy to post.

      In any case agree with you that lazy person will hv lazy returns later ;)

  7. Totally agreed. One should do their own diligent before executing the trade.

    1. Hi David

      Its a virtue to do our own diligence. Its at least somethinf that we hv to be accountable for our money

  8. There are two colleagues who have wide network of friends working in the various brokerage firm and financial institutions. With their help, they monitored the trading activities of their victims on a daily basis .Each trade transactions are messaged/communicated to them almost instantaneously . Even CDP statements are not spared. When confronted, they said where is the evidence? Indeed where is the concrete proof ? Complains to the broking firm yield no results . One bank says cannot help , any suspicious must call the police. Some friends opined that it is okay as there is no financial loss to the victims. Family members advised not to stir troubles just let them be lah. This has been going on for more than a year and is still continuing . The question is where is the privacy, what about banking secrecy and personal data protection. Do not know what to do as there is no concrete evidence . Very SAD.