Stingy Investor Search - Contact - Subscribe - Login
  Home | Articles | Links | SNW
The case for being a copycat investor

Is purloining good ideas distasteful? U.S. fund manager Mohnish Pabrai doesn't think so. He says it's a great way to make money and urges people to copy notable investors more often. You might want to take a page out of his book and improve your portfolio.

Mr. Pabrai recently talked about the joys of being a copycat with students at the Ben Graham Centre for Value Investing at the Richard Ivey School of Business in London, Ont. He pointed to the case of McDonald's, which is well known for spending a great deal of time and effort on selecting locations for new restaurants. The effort is worth it because a good spot can make the difference between success and failure. But rival Burger King has a less expensive approach. It simply puts its restaurants across the street from existing McDonald's locations, thus getting the benefit of its rival's research for free.

The case for copying extends into the realm of investing where it makes up the core idea behind indexing. Just like Burger King, indexers see little reason to pay fund managers large piles of cash to pick stocks. Instead they buy what everyone else is buying while trying to pare costs to the bone. Some might characterize indexing as a parasitical approach but it is also a highly successful technique.

While there's nothing wrong with indexing, Mr. Pabrai believes smart stock pickers can do even better. He urged students interested in the market to follow the best investors in the world and said Warren Buffett was a good person to emulate. After all, Mr. Buffett is famous for his record as the CEO of Omaha-based Berkshire Hathaway (BRK.A, BRK.B). Thousands of investors pack a stadium each year to hear his words of wisdom at the company's annual meeting.

How would someone who aped Mr. Buffett's stock picks have done? Gerald Martin of American University and John Puthenpurackal of the University of Nevada, Las Vegas, did the calculations in their 2008 paper, Imitation is the Sincerest Form of Flattery. If you had mimicked Mr. Buffett's stock portfolio - with your trades occurring a month after Berkshire publicly announced each move - you would have beaten the S&P 500 by an average of 10.75 percentage points a year from 1976 to 2006. In other words, you would have made out like bandit.

Unfortunately Mr. Buffett's big run may be coming to an end. After all, he is 81 and won't be around much longer. He also runs a staggering amount of money, which leaves him little room to manoeuvre when searching for outsized profits - most investments are simply too small to move the dial for a company as gigantic as Berkshire. Even Mr. Buffett agrees that his performance will moderate in the future for this reason.

So how about copying somebody else? That can work, but only if you keep an eye out for problems. Many portfolio managers are more than happy to talk about the stocks they hold. But some might not have your best interests in mind. Managers may talk up stocks they're keen to sell with the idea of giving them a little boost.

It's better to verify what a manager is doing rather than what he is saying. Thankfully, everyone gets to peek at what fund managers do via regulatory fillings. Using those filings, you can calculate the prices at which a stock was purchased to make sure that you're not paying more than the manager you're copying. You can also keep an eye out for new additions or removals. Websites such as and can help you with these efforts because they regularly track the portfolios of famous investors.

But there's another hitch. Managers who trade frequently may have swapped into different stocks soon after they filed their list of holdings. Someone who jumps into stocks on the basis of those regulatory filings could be purchasing stocks the manager has already discarded.

For that reason, copycats should focus on investors who hold stocks for long periods. By and large, that means copying value investors - money managers who buy out-of-favour securities and hold onto them for several years.

Value stocks tend to outperform for surprisingly long periods after they're purchased. In the latest edition of his book Contrarian Investment Strategies, U.S. portfolio manager David Dreman explored the results that come from the classic value investing approach of buying stocks with low price-to-earnings ratios.

To demonstrate the efficacy of this approach, he looked at two portfolios: one composed of glamour stocks with P/E ratios in the highest 20 per cent of the market, one composed of value stocks with P/E ratios in the lowest 20 per cent of the market.

Mr. Dreman compiled these portfolios for each year, beginning in 1970. He tracked their results over two-, three-, five- and eight-year holding periods

As you can see from the accompanying table, the long-term results for value stocks were excellent. For copycats that's good news: It means that copying a value investor's portfolio can yield good results even for those who don't jump on a stock pick immediately.

Value Stocks for the Long Term: Low-ratio value stocks are a dream for buy-and-hold investors but high-ratio stocks can cause nightmares and relative poverty.
Average Annual Returns of U.S. stock by P/E: 1970 to 2010
Holding Period
P/E Group1 Year2 Year3 Year5 Year8 Year
Low P/E 15.2%15.5%14.3%15.2%15.2%
Market 11.6%13.3%11.9%12.0%12.7%
High P/E8.3% 9.9% 9.2%9.4%10.3%

If you're interested in copycatting, you might want to start by checking out Mr. Pabrai's portfolio. (You can also see a video of his talk at According to, his top 10 holdings at the turn of the year were: Wells Fargo (WFC), Berkshire Hathaway (BRK.B), Potash Corp. of Saskatchewan (POT), Terex Corp. (TEX), Goldman Sachs (GS), DIRECTV Group (DTV), Horsehead (ZINC), CapitalSource (CSE), Citigroup (C), and Bank of America (BAC). With any luck you'll get good returns and avoid paying performance fees while you're at it.

The Fab Five

You might want to take a few good stock ideas from the portfolios of these famous investors: Warren Buffett, Francis Chou, David Dreman, Mason Hawkins, and Mohnish Pabrai

First published in the Globe and Mail, March 30 2012.

Globe & Mail Articles

 Dividend All-Stars for 2024
 250 Megastars for 2024
 Extreme yields
 The easy way
 Smaller stable dividend
 250 Megastars for 2023
 Champagne portfolio
 Screaming Value
 Blended momentum
 Dividend monster
 Frugal dividend
 Stable dividend
 Speads and recessions
 TSX 60 for value investors
 Looking at 10-year returns
 Watching for a bottom
 Oh, bother!
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

MoneySaver Articles
 2 Graham Stocks for 2018
 2 Stingy Stocks for 2017
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Old MS Articles
 Cdn Top 200 2018
 Cdn Top 200 2017
 Cdn Top 200 2016
 Cdn Top 200 2015
 Cdn Top 200 2014
 Cdn Top 200 2013
 Cdn Top 200 2012
 Cdn Top 200 2011
 Cdn Top 200 2010
 Cdn Top 200 2009
 Cdn Top 200 2008
 Cdn Top 200 2007
 Cdn Top 200 2006
 Cdn Top 200 2005
 US Top 500 2018
 US Top 500 2017
 US Top 500 2016
 US Top 500 2015
 US Top 500 2014
 US Top 500 2013
 US Top 500 2012
 US Top 500 2011
 US Top 500 2010
 US Top 500 2009
 US Top 500 2008
 US Top 500 2007
 US Top 1000 2006
 Dividends 100 2017
 Dividends 100 2016
 Retirement 100 2015
 Retirement 100 2014
 Retirement 100 2013
 Retirement 100 2012
 Retirement 100 2011
 Retirement 100 2010
 Income 100 2009
 Income 100 2008
 Income 100 2007
 Top Trusts 2006
 Top Trusts 2005
 Hot Potato
 Buffett Buys
 Stocks that pay
 Value in the S&P500
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividend growers
 Graham's prescription
 The case for optimism
 Wicked investments
 Simply spectacular
 Small stocks, big profits
 Value that sizzles
 So simple it works
 No assembly required
 Investing by the book
 Invest like the masters
 A simple way to get rich
 Stocks for cannibals
 Car bites dogs
 So easy, so profitable
 Dogs of the Dow
 Money for nothing
 Yield of dreams
 Return of the master

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Flip Books

About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...