A copycat investor follows the footsteps of successful investors and investment managers by mimicking their strategies and plans. Although, copying their path does not guarantee similar returns always, it can help avoid bad decisions to some extent and even boost the overall investment portfolio.
What does a copycat investor do?
This form of investing is not limited to only people directly mimicking the decisions of other investors; mutual fund managers also follow the strategy to some extent.
Copycat investors spend a lot of time researching on the holdings of the investors they want to mimic. On the other hand, mirror investing has taken its meaning to another level. Some online services help link investment accounts to portfolios that have a good record. Each move that the investor related to that portfolio takes is automatically mirrored in the linked account. Copycat investing differs in the fact that it only follows the ideas of well – known investors.
Who is worth copying?
Copycat investment is a strategy in itself and a good copycat investor usually copies only from three groups of investors:
- Well established and high earning money managers: The rule of the US Government asks them to file their holdings if it is greater than $100 million, and this is the vital source of information to copycat investors.
- Buy and Hold Managers: Copycat investors prefer to mimic investors who buy and hold on to the investment for quite a long period of time. Mimicking short term traders becomes increasingly hectic and can result in a lot of errors.
- Socially Active Investors: Some investors put in their ideas, acquisitions and suggestions on their social media platforms. It saves valuable time and effort for copycat investors as they would not have to chase regulatory filings.
Risks involved in Copycat investment
- No guarantee of success: If an investment copies a long term investment strategy, any selling or abandoning the strategy before that time period would prove fatal. It is necessary to analyze the environment around the investment and not just the parameters.