MIMIC YOUR WAY TO A SECURE RETIREMENT
Investors love to try and discover undervalued stocks that no one has ever heard of. In fact as a financial advisor, clients often call me up asking for investment ideas and when I give them a Kimberly Clark (KMB) or Clorox (CLX) as an example, and explain that they have solid and growing businesses along with a near 4% dividend yield, which keeps getting increased, they are not enthused. “We know those companies,” they say, “we want something smaller, something that can produce huge returns in a relatively short amount of time.”
Investors want to think that they are getting original, one of a kind investment ideas but in reality they tend to piggyback investments all the time. 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 actually expect an advisor to provide them with some kind of esoteric, never heard of internet company that operates out of Estonia that’s 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?
Everyone can be a Guru
Having suffered through 3 stock market routs in the last 11 years, investors are getting nervous about their retirement portfolios. It has become a ‘fait accompli’ in the financial media that investors can’t outperform the stock market, and as such there is nothing to be done about dwindling retirement savings. 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 book “ Tradestream Your Way to Profits” – Building a Killer Portfolio in the Age of Social Media (Wiley), Zack Miller 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 gurus used to be limited, Miller writes how now, thanks to the internet and companies like AlphaClone or Covestor, 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.
Legal Insider Trading
While mirroring Warren Buffet is one approach of piggybacking, there are also exchange traded funds (ETFs) that mimic corporate insiders and company share buybacks. When we hear of corporate insider trading, images of Ivan Boesky, Martha Stewart and jail time are conjured up. But in reality, corporate insiders are legally allowed to buy and sell their own stock. Studies show that insider actions are a good indication of how a certain stock will trade in the future. And this makes sense. After all a CEO or a CFO know their company situation better than anyone else, so if they choose to buy or sell their own stock, that’s a big hint as to future prospects. Again, thanks to the internet, this information has become available to the general public. While it may be tedious for the average investor to sort through corporate filings, a couple of exchange traded funds (ETFs) now exist that allow investors exposure to these trends.
Guggenheim Insider Sentiment ETF (NFO): Linked to an index that shows corporate insider buying trends and earnings estimates increases by Wall Street analysts.
PowerShares Buyback Achievers Portfolio (PKW): Linked to an index that consists of U.S.-listed companies that have repurchased at least 5% of outstanding shares during the past 12 months.
Cash In
I am not saying to run out and buy these funds or stop everything and invest like Buffet, but you should speak with an investment professional to learn how you can incorporate piggybacking strategies to help get your retirement portfolio back on track.
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 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. a registered broker dealer, Member FINRA, SIPC, MSRB, NFA, SIFMA. For more information, call (02) 624-0995, visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.
