If you want to make winning investments in the stock market, you can’t rely only on your own research. It’s just not possible to read up on the 9,000 or so stocks that are traded on the stock market even if that were your only vocation. However, investing blindly would also be a recipe for disaster. You need to get the financial data and other information of the company before buying their stock. As part-owner of the firm, your success will hinge on the success of the firm, so you want to invest in a company that will help you grow your money. And you will only know that if you do the necessary research.
Thankfully, you don’t have to burn the midnight candles just to be able to research each company on the stock market. As it is in work, there is a way to invest smarter, not necessarily harder. This is where stalking comes in—and no, you’re not going to do anything illegal here.
Stalking the winners in Wall Street refer to following what investors who have made substantial gains in their investments and applying their strategies to your own investments. As you continue your journey in the stock market, you will get to know popular investors who have built massive fortunes because of their investment strategies. They are usually the hedge fund managers whose decisions have not only resulted in huge returns but have also made them legends in their own right.
Names like Warren Buffet, Peter Lynch, Benjamin Graham, T. Boone Pickens, David Einhorn and Daniel Loeb are regularly featured in various investing literature because of how they’ve managed their investments through the years. They are also emulated because of the nuggets of wisdom they have imparted not only in investing but about life as well.
If you want to invest smartly, you will want to brush up on what these hedge fund giants have to say. There is no need to buy the stocks that are in their portfolio—actually, that would not really be possible for the average investor who only has limited funds. If you believe in one hedge fund manager with all your heart, you can always invest in the mutual fund they manage. However, their general ideas about investing are worth learning about.
Your journey towards stalking winners in Wall Street begins with understanding some of the beliefs that have governed their investment strategies. For example, Peter Lynch believes that investors should buy what they know. One of Lynch’s principles is to never invest in any idea that you can’t illustrate with a crayon. He is also known for favoring firms that have low operating costs and don’t spend money on frivolities.
Then there’s Warren Buffet who is well-known for his classic investing style. He follows Benjamin Graham to a huge extent—he says he is “85 percent Benjamin Graham”—who is known for value investing. Buffet and Graham believed in intrinsic value or the underlying fair value of a stock based on its future earnings power. Another tenet that Buffet believes in is restricting himself to a “circle of competence.” This simply means investing only in businesses that you can understand and analyze. If you invest in a business that you don’t understand, how can you project its future performance?
T. Boone Pickens, meanwhile, is known as a corporate raider because he led the leveraged buyouts in the oil industry in the 1980s. He had deep insight into the upcoming oil boom in that era, translated it through acquisitions and gave big wins for his investors at that time. Knowing when to strike and when to play big are two things that T. Boone Pickens is known for and this requires a deep and passionate knowledge of the industry you want to make a bet in.
Daniel Loeb is an activist investor who seeks to influence the decisions of the companies he has a stake in. He is outspoken in his investor letters, pointing out the areas where firms need to act on, whether it is to divest a unit or a change in leadership. Loeb also believes in value investing, looking at the fundamental analytical framework of the company. He then accompanies this with legal, regulatory and accounting evaluation. He also believes in supporting stocks that are still on the rise—those that have promise but have not completely reached their potential.
These hedge fund managers are just a handful of the many others who have made it big in the stock market because of their specific investing philosophies. If you want to trade like them requires more than just knowing the stocks in their portfolio. Rather, it requires an understanding of what their core beliefs are. While it might be impossible to invite them over for dinner for this all-important chat, you can still pick their brain, so to speak, by reading their books and interviews that media has done with them.
While understanding basic investing philosophy of hedge fund managers is important, you may feel that this is insufficient. In this case, you may want to get the actual portfolio of your favorite hedge fund managers. This information may not be easy to come by but if you do your research you will be able to find it. The web is a goldmine of information for investors who are persistent enough.
Hedge funds are also required to make disclosures of their investments quarterly to the US Securities and Exchange Commission. News websites like Bloomberg and Reuters pick up these disclosures, allowing you to actually know what companies professional money managers actually put their investors’ money on.
Now it’s important to understand that you blindly follow what these professional hedge fund managers actually invest on. You still need to do your own research and make your investment decisions after you’ve done your own due diligence.
It’s no easy task to follow winners in Wall Street. However, it need not necessarily be a daunting task. Here are some tips to make the journey not only easier but enjoyable as well.
1. Make it a habit to read the business section of the newspaper.
If you are serious about your stock investments, you need to make it a habit to read the business section of the daily. This where you can find news and features about companies as well as the movers and shakers that run them. News items about their latest investments and the transactions between companies that will have an effect on your own stock picks can be found in the business section so make it a habit to read them.
2. Buy one of the books of your favorite investing legend.
To help you understand how the mind of your favorite investment manager works, you will need to buy a book or two that they have written. Some, like that written by Peter Lynch, are considered mandatory reading for all investors. If you can’t afford them, go to your public library and borrow one.
3. Widen your investing knowledge.
Again, you can do this by reading. Don’t confine yourself to the books written by your favorite hedge fund managers. Read up on the basics of investing, the stock market and related topics. There are a good number of books out there that will teach you the different kinds of investment strategies as well as books that teach you how to make sense of all the numbers, graphs and other data you can find in company reports.
Don’t just confine yourself to books either. You can go to informative websites and get information there. Just make sure that you choose the website carefully and stick to reputable ones. Do be cautious about sites that ask you to pay for newsletters promising to double your money in a month using the investment strategy in their newsletter that you have to pay for. Don’t fall for these schemes.
4. Do your own research.
Just because a money manager invests in certain companies doesn’t mean that you should follow suit. You should still do your own research before deciding on an investment. Review the company’s fundamentals and study information you can get your hands on. The investments of the money manager you admire should serve only as guideposts as you make your investments. They should not be treated as the only “correct” investments.
5. Learn life lessons from the investment legends.
Money is fleeting. While you do invest to prepare for the future, money should not be treated as the be-all and end-all of your investments. While you are following the winners of Wall Street, the lessons you should look for should not only be about picking stocks and investment strategies. Try to check out what they have to say about life, love and the lighter things in life. Many of them are animated storytellers, too. So enjoy their stories and learn from them.
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