DO YOU WANT A PIGGYBACK RIDE?
My soon-to-be six year old daughter loves to jump on my back, throw her hands around my neck and beg me to give her a ride. In fact for her, she actually thinks the best part is to assume riding position while I am bending over tying my shoes, and I am no Mary Lou Retton when it comes to flexibility! When we think of the term ‘Piggybacking’ the first image that we conjure up is this type of frolicking with children.
Well, for investors whether they realize it or not, they tend to ‘Piggyback’ investments all the time. When a client calls a financial advisor wanting a ‘hot’ stock pick, for some reason they think that they are getting some kind of original, never-been-thought-of-idea that is special just to their advisor. It just doesn’t usually work this way. Most, if not all investment representatives and advisors, do some kind of piggybacking of investment ideas. Whether it’s reading about an analyst recommendation on a certain stock or hearing a hot pick on CNBC or even around the water cooler, very few investors actually come up with their own ideas. Rather, they hear or read something and they use that as a source of idea generation and proceed to do research on the stock and then decide whether to pull the trigger or not.
While some investors may be disappointed to hear this, and actually expect the advisor to provide them with some kind of esoteric, never heard of internet company that operates out of Ghana and is going to quadruple over the next year, for most investors the name of the game is simply to make money on their investments and they expect their advisor to provide them with value. After all isn’t that what you pay an advisor for?
Index Investing?
There is a lot of noise in the media about the advantages of index investing. Index investing is basically a passive strategy where you invest in a well-known market index like the S&P 500 and just leave your money there. The theory says that since most investors can’t outperform the market you might as well forget trying and just link yourself to the market. While this strategy has made its champions a ton of money, it has left investors holding the bag. As I have mentioned previously, we are in the midst of the ‘lost decade of investing.’ The U.S. major market indices are at the same level they were 10 years ago. This means followers of this strategy have the exact same amount of money as they had a decade ago. Of course factor in inflation and you have probably lost about a third of the value of your investment. Great strategy!
Piggyback the Gurus
While the ‘indexers’ will say most investors can’t beat the market, the dirty little secret is that there are some well known investment managers who have continued to outperform the broad market for more than 20 years. In his new book “ Tradestream Your Way to Profits” – Building a Killer Portfolio in the Age of Social Media (Wiley), Zack Miller (colleague) explains to investors how they can tap the power of the internet and mimic or piggyback famous investors like Peter Lynch, Bill Ackman, Warren Buffet, and Joel Greenblatt, all who have put up staggering investment returns. While access to these investors used to be limited, Miller writes how now, thanks to the internet and social media, investors are able to own the very same investments as these pros own. Just as in other disciplines, the internet has succeeded in democratizing the investing field, and for investors that could lead to profits. Keep in mind that their past performance is no indication of their strategy’s future performance.
Stick to a Strategy
A word to the wise: if you are going to implement a piggybacking approach to your portfolio, you need to have the discipline to stick to a certain strategy. For investors, constantly changing investment strategies is a recipe for disaster. Even the Gurus themselves say that their specific strategy will underperform for a year or two over the long-run.
Cash In
Speak with an investment professional to learn how you can start piggybacking these famous investors and start adding value to your portfolio.
The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.
Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA. For more information, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il
