Coattail Investing

“Don’t ride on someone else’s coattails; make your own way in the world,” your grouchy uncle may have told you. But sometimes coattail investing can pay off. The term refers to a strategy where you copy the moves of famous investors (such as a Warren Buffet or a Peter Lynch or that guy from the Dos Equis commercials). You hear that they buy a stock, so you buy that same stock. When you hear they are selling, you sell too.

Copying their investment prowess can bring you some good returns, up to a certain point. And with today’s technology and mobile phone apps it is easier than ever to coattail invest, and even mutual fund and hedge fund managers have been known to do it discreetly. Online investing research companies will track and display holdings of the most successful investors, or one can simply copy the investments listed in the quarterly SEC Form 13F that institutional money managers with over $100 million in assets have to file.

The only problem with coattail investing is that by the time you hear about a stock guru’s investment, the rest of the world knows about it too and the stock may have already moved substantially. Also, you might be looking for short term gains while the expert is in it for the long term. Or vice versa.