Psst, Don’t be a Copycat Investor
We are not all born to be Warren Buffett or Catherine Wood
Copying is in our DNA
With the financial markets gyrating like Jennifer Lopez in Hustlers, media attention on celebrities touting investment advice continues to rise. The temptation for individual investors to copy them is strong; replication, after all, is part of our DNA.
Most people, however, are not the personalities of famous fund managers. Warren Buffett reportedly spends hours reading documents every day, with his blend of trademark patience, stamina, and a can of Cherry Coke on hand. Catherine Wood has balls like no other, famous for her early bet on Tesla – and publicly defending her bull thesis – even when it was struggling with Model 3 production hell and coping with the aftermath of SEC investigations on Elon Musk.
Trying to imitate their strategies – when one’s personality may be the exact opposite – is likely to result in more stress and losses than rewards. Buffett and Wood derive their investment theses and manage portfolios allocations based on their unique dispositions, talents, temperaments, and appetite for risks. If investors copy their moves without doing any homework behind the scenes or sufficient self-understanding, it can become confusing when markets turn for the worse.
Getting to Know The Real You First
A former colleague, who is prone to anxiety, does not participate in the stock market. Not even index funds. She has spent more than a decade working at an investment bank, and her money is invested only in real estate. To her, tangible properties – in London and Singapore – give her the requisite sense of security and safety. She would not have been able to cope with Netflix share price dropping 50% within months, had she invested in her favorite streaming network. She is someone who has figured herself out and developed a personal investing strategy that suits her emotional bandwidth.
On the other hand, I do enjoy managing an active portfolio. The process represents an intellectual challenge, and it keeps me engaged. I am, however, prone to getting sucked into my own mental models and have found myself (usually in retrospect) burying my head in the sand sometimes. To mitigate that, I diversify across more than 40 positions, and I limit the amount of capital invested in each name. I continue to learn and make mistakes, but my increased self-awareness has kept me from building a more concentrated portfolio, which could have been disastrous given my natural tendencies. For others with the same investing passion but possess higher degrees of healthy skepticism and caution, a narrower portfolio focus may be more suitable.
Big Tech versus Growth Stocks
In the current bear market, the largest companies by market capitalizations are seen as the safest. Names like Microsoft, Apple and Alphabet have held up quite well, compared to a high-growth name like Spotify, which has come off significantly from its highs. For active investors prone to anxiety, they may be better suited to less volatile stocks and index funds. Or they may perhaps even consider staying away from equities altogether, like my ex-colleague. There are alternative asset classes other than just equities when it comes to constructing a retirement portfolio. High-growth, next-generation companies come with major execution risks and fluctuations; even when one has done sufficient homework, they are not for everyone.
My former colleague is currently enjoying watching Netflix at her London flat, whilst collecting passive rental income. She is not worried about the markets or what subscriber count Netflix will be reporting next quarter. And it suits her.
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