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.