Tag Archives: warren buffett

Piggybacking investing gurus just got easier

AlphaClone is probably the best research platform out there for investors looking to recreate, or “clone”, portfolios developed by leading hedge fund and mutual fund managers.

money-laundry-with-water-reflection-effectAlphaClone is Mebane Faber’s online foray that implements much of the research he recently published in The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. It’s a good read and AlphaClone has Faber’s extremely-well researched homework embedded in its pixels.

AlphaClone has now taken its platform one-step further and partnered with Folio Investing to make it even easier for investors to implement the piggyback approach by allowing:

investors to buy an entire portfolio of securities at once with one transaction, and have any dollar amount automatically distributed at the proper percentage weights across all of the stocks in the portfolio.

You can see the Folios for portfolios like the Tiger Cubs and Berkshire Hathaway here.

AlphaClone also launched a clone for a portfolio designed by the popular investment blog, MarketFolly as well.

According to AlphaClone:

Marketfolly’s prefered clone from its new group is the Top 3 Holdings clone which is up 15% year-to-date and has returned 20% annualized since 2000 (yes 20%).(5/29/09).

Not too shabby.  AlphaClone is moving further into this space and will be launching more clone groups developed by stock bloggers.  This is another important way to bring transparency to the financial blogosphere and bring quantification to some of the leading voices out there.

More Resources:

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Learn the basics of Screening 2.0 by book

Giving thanks

Sometimes you just have to give thanks.  When you use something, it’s good practice to give credit to those behind the product’s creation.jennifer-anniston-give-thanks

I’ve been giving a successful seminar locally for about 1 1/2 years.  It’s very user-friendly in the sense that the topics we discuss are driven by the participants.  We’ve learned about investing in China, hedging strategies, asset allocation — a whole slew of things.

Ask the guru

We’re in the process of dissecting Guru Strategies, where we break down those strategies employed by guru investors of present and yore, investors like Warren Buffett, Peter Lynch, and Ken Fisher.

I’ve been basing a lot of our discussion around a strategy I call Screening 2.o, definitely one of our New Rules of Investing that will enable investors to make better, more profitable trades/investments in the future.

Screening 2.0 is all about the ability to easily screen stocks for criteria that the pros use.

Guru Screening vs. Piggyback Investing

On this blog, we’ve talked a lot about what I call Piggyback Investing.  Whereas Piggyback Investing involves cloning existing guru portfolios and creating your own all-star portfolio on the back of institutional investors, Screening 2.0 uses an algorithmic approach to screening for the same criteria other investors use in their investment processes and then picking stocks accordingly, even if these investors are no longer in the came.

It’s Alpha Clone vs. Validea.

Mebane Faber vs. John Reese.

Go to the source

Anyway, by far the best breakdown of these strategies comes in a recently published book, The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies.  I’d like to give thanks to the author John Reese and everyone at Validea for producing such a text, a text both novice and experienced investors can pull something out of.  It’s been a true source of learning for our investment group as we discuss the strategies and tactics of famed investors.

It works like this:

The book is structured into 4 parts:

  1. Value investing
  2. Growth investing
  3. Pure quants
  4. Putting theory to practice

In the first three sections, various gurus occupy their own chapters.  Drawing from extensive research, Reese introduces each guru investor (think, Dreman, Zweig) with a brief bio, successfully reduces their overarching tenets in investing (“Buy what you know” or “Invest in a company an idiot can understand”), and then provides actual mathematical formulas these successful investors used in their investing (so, PE<30 or PS<.75) as a way to implement these tenets.  In some cases, Reese and Co. update certain formulas to reflect more current conditions (as per, Benjamin Graham, per se) and in other cases, have to provide more clarity on certain criteria when the guru investor was more ambiguous in his writings.

Section 4 then provides 6 principles that Reese has culled from a variety of gurus.  These are rules that sit above each guru that only someone studying all these portfolios could posit.  Things like “Combining strategies to minimize risk and maximize returns”.  Think of these as the end-product of research that puts forth applied rules based upon the findings of monitoring these portfolios.

Reese is a successful entrepreneur whose exit from his own startup enabled him time to think about investing a windfall of cash.  Like any MIT and Harvard grad, he read everything available on the market related to investing (newsletters, magazines, books).  He liked the idea of focusing on those guru investment books that provide actual formulas and creating a computer system to screen for stocks that fit these criteria.  He’s been following the performance of many of these Screening 2.0 portfolios for years.  His book, The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies is the culmination of this research.

This blog post started out as a process in thanking someone for a valuable resource.  In an age of screen scraping, spam blogs (splogs) and pirated music, it’s good to give back sometimes to drivers of content we find valuable.

More resources:

Downside of piggyback investing

After yesterday’s review of the latest entry into the piggyback investing game (read what piggyback investing is and why it’s important), alphaCLONE, I came across a chart that I felt needed to be shared.

The chart below is the chart of a fabled value investor, Bill Miller, of Legg Mason. It was part of a write-up in today’s WSJ.  I recommend reading it here.

from the wsj.com

from the wsj.com

Guru investors can have years, perhaps even decades, of outperformance.  At some point, most of them fall back to the mean and either end up tracking the greater market or even trailing it.  In this case, Miller has essentially given back all his gains over the S&P 500 throughout his storied career.

Investors should be aware of this tendency to revert back to the mean.  It happens to the greatest of investors.  Very few people have outperformed the markets for a significant amount of time.

Investors utilizing piggybacking strategies always need to decide if the manager is in a temporary or permanent slump.

Check out our interview with John Reese of Validea who has been tracking certain guru strategies (like Ken Fisher and  Warren Buffett) over a multi-year period.  He’s found that while they occasionally lag the market, they typically make up the loses and ultimately outperform.

alphaCLONE launches and takes piggyback investing to the next level

Why create new, unfounded and unproven investment strategies when you can piggyback on top of the world’s best investors instead?  Lots of investors are using the ideas of guru investors like Ken Heebner and Warren Buffett to mimic their investment strategies or build an all-star portfolio based on the best ideas of leading hedge fund and mutual fund managers.  Check out our easy how-to guide for piggyback investing.

tour-ss-full-leaderboardA highly-anticipated website launched today named alphaCLONE.  Mebane Faber, a frequent contributor to SeekingAlpha and fan of endowment investing (Check out his recently published book entitled The Ivy Portfolio: How to Manage Your Portfolio Like the Harvard and Yale Endowments) is one of the co-founders.

According to their launch materials: We built AlphaClone to serve as an intelligent market guide to self-directed investors – both individual and professional.  Given the market turmoil over the last year, there has never beena better time for a service like AlphaClone for investors like you to intelligently research and track how the world’s top investors are deploying their capital in US equity markets.

So, how does it work?

Users can search using a variety of criteria through the portfolios of specific fund managers from over 230 funds tracked by alphaCLONE. Once a user finds a portfolio he/she is interested in (say, Warren Buffet, Carl Icahn, etc.), users are given a variety of tools to monitor performance of current and past holdings, changes to the portfolio (recent buys and sells).  Users essentially “clone” portfolios, or copy them to be able to monitor performance.

Users can not only track individual funds but also pre-defined groups of funds and track the best picks using some type of collective intelligence. One such clone is the Tiger Cubs clone (see it here) that tracks the top picks of hedge fund managers who where former proteges of Julian Robertson, one of the most successful hedge fund managers in history and founder of Tiger Fund Management.

tour-ss-full-berkshirePros of alphaCLONE

  • lots and lots of information on hedge fund portfolios
  • powerful search functionality
  • free version (there is a premium one) is pretty robust
  • predefined groups of funds is a great for idea generation and tracking strategies
  • displays ins-and-outs of positions in the fund and changes in relative weightings
  • great display of things like performance of best stock pick, annualized data, long vs hedged holdings

Cons of alphaCLONE

  • site is very busy and it’s not easy to understand everything that’s going on
  • premium pricing at about $100/month is steep but priced for high end investors
  • OK, I didn’t spend SO long on the site but found it very distracting
  • next step would be to create a real trading platform to implement the strategies developed on the site or plug into existing online trading to for trade execution (like SmartStops has done with Ameritrade).

Piggybacking 2.0

We’ve discussed using StockPickr.com, the first site to make piggybacking easier and more accessible for most of us.  alphaCLONE is StockPickr on steroids.  While both sites suffer from being very busy, alphaCLONE provides better search functionality, broader monitoring of professional portfolios, and tools to help investors both create and track portfolios piggybacking on top of the world’s best investors.

Investment Screening 2.0: An interview with Validea’s John Reese

Institutional investors have powerful tools at their disposal to screen through reams of data.  Part of the institutional investment process entails screening through thousands of securities looking for a needle in a haystack — stocks that fit certain investment criteria.  From thousands of stocks, analysts can filter through a couple of hundred that fit these so called screens.  With a couple of hundred stocks in hand, analysts set out to do the hard work analyzing these companies, comparing them to one another, speaking to management and whatever else hedge fund and mutual fund logonew1analysts do when looking at prospective investments.

If I’m a value investor, I’m probably going to use some metrics that focus on Return on Capital (RoC) or Return on Equity (RoE) and Earnings Yield (E/P).  Growth investors might like to compare the price/earnings ratio (P/E) to the actual growth prospects of the stock in question.  There are literally thousands of things to look at.  So, where to start?

As we discussed in the “Piggybacking the Pros“, the Internet is a wonderful place to get information on stocks.  From monitoring actual moves that uberinvestors make to seeing what your peers think of certain firms, the information is out there.  You just need to be able to find it.  Investment Screening 2.0 is all about using screening criteria from super investors like Warren Buffett to find the next big stock.  Think of it as tapping the world’s greatest minds to see what they think of a given investment.

John Reese, a well-regarded entrepreneur with degrees from the two best schools in Cambridge, MA, has created a premium service that is the product of many years of research into the strategies of super successful investment managers.  Having devoured numerous investment books and interviews with the world’s best investors, Reese embarked on an ambitious project to computerize this information.  His firm, Validea, has created an algorithm capable of analyzing thousands of stocks according to differing investment strategies ranging from Fidelity’s Peter Lynch to Berkshire Hathaway’s Warren Buffett and applies screens to the overall market to find stocks that would fit these uberinvestors’ criteria.

John Reese joins New Rules of Investing for an exclusive interview.

John, can you tell us a bit about yourself? Continue reading

How to piggyback guru investors: a primer

spying1In our last post, Piggybacking guru investors for profit, we explored what piggybacking is (following the every move of uber-investors) and why it’s important (there are a small number of great investors who beat the market over the long term).

So…how does an investor follow the trades of A-list hedge fund investors like Eddie Lampert, George Soros, Ken Griffen or perhaps one of the best investors of all time like Warren Buffett? Continue reading

Piggybacking guru investors for profit

piggyback-by-robert-duncan

Most people who trade relatively frequently don’t realize huge profits.  Their losses typically match their gains, cancelling out much of their activity and racking up transaction costs.

Others, particularly whom I like to refer to as guru investors, just print money. Continue reading