Nowadays, a lot of us do coat tailing investing. Nothing wrong in it. It can be a powerful method of idea generation.
This is an attempt to find better ways of coat tailing. Let us try to collaborate and put together various methods of coat tailing including resources, finer aspects and tools
Tools & Resources
Looking at 52 Week Highs and trying to find why certain stocks are hitting highs - chances are some smart investors have observed something, and if possible we should also dig deep
Keeping a list of good investors and documenting what they are buying and the thesis behind the same. Now this is a task in itself - defining who is good and who is bad.
a. Avoid buying stocks of those companies where some shady names appear.
b. Avoid buying stocks of those companies which are being drummed up by investors who have often been wrong (intentionally or unintentionally)
c. I keep a list of good investors and generally when they buy a stock, I dig deep coz I know, they must have done some due diligence. I always ask myself, why hasnt the good investor bought this stock, even when everyone is aware of the stock. He didnt buy even when its down from 200 to 40. This is a popular stock. Chances are this stock hasnt passed his filtering criteria
d. Similarly I keep a list of shady investors and investors who arent good enough and dont even do proper work before buying a stock. Some are intentionally bad, and some are naive.
e. Why would I trust an investor who buys PC Jeweller, Sankhya Infotech, White Agro, MRSS, Omkar, Lasa etc. Chances are either the investor is dumb or he has a sinister plan.
f. One can go wrong once, he can go wrong twice, but if he keeps going wrong, then safe to ignore the investor and his picks
Some good website and resources to screen names are as follows , which give data on announcements etc
One observation I’ve made in this subject (my past experience):
When cloning a good investors portfolio (even after doing proper due diligence), we often get attracted more to the ideas which have under performed/ have notional loss for them (the investor we are following), we do this because we feel that this idea is available even cheaper then the time other person bought it.
What we end up doing, a lot of times, is buying the only stock ideas which haven’t performed and in all probability aren’t going to perform for them. Sometimes we end up buying a collection of looser’s from all the portfolios we track.
Hence it very important to understand the perspective, and the potential of idea (like any investment) than just focusing on the ideas of getting attractive valuations.
Interestingly I am reading a book on investing psychology. There is a good chapter on trying to guess what others and markets are doing and an excellent test to prove it doesn’t work
This was apparently the only test ever given to a group of very good investors. 100 of them gave the test. The test requires you to select a number between 1 to 100
You are a winner if your number is 2/3rd of the average. Lets say everybody selected 100, and you selected 66 then you are a winner (99 people x 100 x 2 /3 )
Obviously this rules out anything over 66 as the max the 2/3rd will be is 66. It cannot be 70 because for it to be 70, 99 people will have to choose 105 not 100
You job is to determine an average and multiply it by 2/3rd and say a number: ___
Spoiler : Dont read the rest if you want to see how it works, select a number before you read further
People guess that everyone will select 66 and hence the average is 66, 2/3 of it is likely to be 44 - Thats level one
Level 2 people think, everyone will think like level one and select 44, so the average is likely to be 44 and hence they chose 29
Level 3 people think that there are 2 levels before them and the average is likely to be 29 and they select 19
They saw spikes on level 2 and level 3 but most of it were random numbers
The smart investors may sell their holdings at any point of time and we could know that only after they have sold.
They are experienced, they know something which others do not know, and they buy a stock for a particular reason, but just after a few weeks they may sell for another reason. They do not hesitate taking a loss if they think they had done a mistake and they can always cover their losses with some big gains in the future.
Those who follow these super investors might have gotten on the bus but do not have an exit strategy and lose.
This is a good subject and thanks for taking it up. I came into direct equity investing post the DEMON period. To be precise on the 13th of December. Was able to latch on to some really good scrips at ridiculously low prices ( i did know it then ) however, the subsequent volatility scared me and exited most of them at negligible loss or profit. Since i was keen to continue investing started following some notable handles on twitter and especially one with a humungous number of followers. Everyday he used to tweet about the inflection point of some company and how it is poised to fly ever so higher. Needless to say i was drawn too and suffered a severe scalding for the experience. I later realised that the said gentleman was exiting his stocks even as he was drumming up its prices.
And, there lies the trouble of coat tailing. Recently too there have been instances wherein despite and immediately after the entry of a well know name the stock suddenly nosedived. It happened not one but two instances. Besides, the amount of money invested by these is miniscule compared to their resources. The same may not be the case for individual investors. Secondly, there are a few individuals who have been in the market for over a decade and may have entered the scrip at an early stage or even prior to listing. They start canvassing the same post their lock in period and give target dates beyond 2020 for the results to be seen ( of late everybody seems to a Long term investor and anyone who does not profess to the doctrine is looked down upon ) and some of us have fallen prey to this tactic and are staring at severe losses. You have been quite vocal and critical on twitter of such people.
After all if a highly valued name had entered the stock it does seem that there is a tremendous scope for appreciation and the FOMO instigates us into putting substantial money relative to our resources.
Hence, it would help if you could share the pointers to look for even before coat tailing and how to assess the time frame since which the person being coat tailed is holding the stock and whether he continued to do so despite the severe gyrations if any.
Coat tailing is not to be done blindly. One should be aware of the risks and details about the company.
Best way is :
Maintain an excel sheet
Note Down what people whom your respect are buying.
Judge if you can track the sector - A businessman who runs a company always tracks 2-3 main things about his business - for eg. price of key Raw Materials(s), per unit price of the product, competitor actions etc
Write 5 reasons why you want to buy the same stock and 5 reasons why you shouldnt.
Also write why would you want to buy this company and not its competitor
Be very honest and thorough in points 3 and 4
Remember, you are responsible for your own actions and money.
Dont trust anyone blindly
Also, be objective…Some people whom you coat-tail may be sharks.
There are some stocks which have gone up and down considerably.
The people who started the thread on VP or Twitter say, that they sold it mid-way, or that they still hold it and are suffering together. But the point is,
- What was their thesis when they bought the stock.
- Did the thesis play out.
- What were the red flags which we later observed in the story
- Why should I then trust the same guys to have a proper thesis in other stocks they are buying
Price is not what you coat tail for. You coat tail ideas. So we should judge whether the person whom we wish to follow has proper analytical skills and can he really claim to be identifier of good business.
If he is consistently wrong on a longer term scale, then best to ignore this investor
Some investors have reccomended the following stocks in past
A US Based Investor who claims to manage some funds , has suggested a demerger play in past , where he believed that the super generic business is the best thing since sliced bread - Can we go back and check, what was the business case about this stock - did the sales increase, did profit increase, did cash flows arrive. What was the ROA/ROE of the business. How did the company suddenly start this business…Did it give enough details about this demerged entity in the past Annual Report (3-4 years back and not the immediately preceeding years)
The same investor took to Twitter to reccomend a Agro based company that sells organic food . Did the investor even check the tax payout of this company or did he just assume everything to be WHITE. Did he check that all this Organic Company was doing is trading organic products , and that trading business is not exempt from tax - else D Mart would claim tax breaks for selling rice in its stores - (because ummm Rice is an agri product)
Same guy now is silently recommending a pest kill company. Why should I expect him to be right
There is an investor who loves Dogs . The investor has recommended some stocks in past
A Intensely debated company which does some Mumbo Jumbo work with Telecom companies. My point was, why does the Telecom co need such a software for its work. How did they do this work in past. What does the new technology offer, how did this company get the technology. Did they give any hints on same in past Annual Reports. Did they hire someone to build this. How much has been spent in past to build this software, and many such things. I was given some unsatisfactory answers by followers of this pied piper investor, but my argument was let the company perform. I will buy it later at an expensive price if need be. We all know what happened next. The business case itself hasnt been justified, 1-2 years after the story was created.
Same investor also recommended a Research Company. Crowd went beserk. My question was have we seen their work. Globally do companies which do this work - ever get listed - normally such companies work on partnership model , else they cant scale up. Also they never want customers to know their profitability.
Which B School are they hiring people from - is salary cost getting reflected in the numbers.
All I got in answers were dead end and the fact that senior guy has worked in xyz company
Why should I coattail an investor who claims to find such fantastic hidden companies - but is unable to find wrong doings in the very company where he worked at a Senior Position.
Why should I trust the acumen now in the Diagnostic Company and Food Company and engineering company. Shoudnt I be careful ,coz this investor is not as smart as he claims.
Shouldnt I wait for numbers to come
Hi, I am always intrigued by the returns generated by famous investors and feel that coat tailing can be a good strategy. I came across this article. With the permission of moderators i would like to share it with readers here.