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Cloning Strategy


Guest notorious546

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Guest Schwab711

I see cloning just as dangerous as investing based on a screen. Do most find companies they also understand and like, just using the guru's investment as additional support? I just don't understand following WB into IBM at all. I think he has to since he jumped in too early  (and must have been afraid to miss the run-up so high potential?) but that was and is his best bet for the high requirements he faces. It's no where near the best risk/reward stock even above $1B or $10B which is why I personally don't like cloning at all. They have much different incentives, capital, tolerance, and the list goes on. Their approval almost seems worthless at some point (although I have had high overlap with Buffett and I check his 13-Fs everytime).

 

In 2008 when Buffett famously "bet on America" by investing $5 billion in Goldman Sachs (GS) he left out the part where he bought preferred shares priced at a discount, paying a 10% dividend and offered only to him. Because of those provisions, Buffett's stake in Goldman is up about 200% more than anyone who thought they were buying alongside him. I rather doubt Buffett sees why that taints his legend any more than the donut-center-sized tax loophole he exploited when he funded Burger King's (QSR) Tim Horton's buy last year. He had a unique opportunity and he took it. I would have done the same.

 

http://finance.yahoo.com/news/50-shades-of-warren-buffett--what-to-learn-from-his-investor-letter-130330653.html

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Guest notorious546

I see cloning just as dangerous as investing based on a screen. Do most find companies they also understand and like, just using the guru's investment as additional support? I just don't understand following WB into IBM at all. I think he has to since he jumped in too early  (and must have been afraid to miss the run-up so high potential?) but that was and is his best bet for the high requirements he faces. It's no where near the best risk/reward stock even above $1B or $10B which is why I personally don't like cloning at all. They have much different incentives, capital, tolerance, and the list goes on. Their approval almost seems worthless at some point (although I have had high overlap with Buffett and I check his 13-Fs everytime).

 

In 2008 when Buffett famously "bet on America" by investing $5 billion in Goldman Sachs (GS) he left out the part where he bought preferred shares priced at a discount, paying a 10% dividend and offered only to him. Because of those provisions, Buffett's stake in Goldman is up about 200% more than anyone who thought they were buying alongside him. I rather doubt Buffett sees why that taints his legend any more than the donut-center-sized tax loophole he exploited when he funded Burger King's (QSR) Tim Horton's buy last year. He had a unique opportunity and he took it. I would have done the same.

 

http://finance.yahoo.com/news/50-shades-of-warren-buffett--what-to-learn-from-his-investor-letter-130330653.html

 

The idea is that you are investing with a safety net. Pabrai says  that it is similar to bowling with bumpers so you don't get any gutter balls. I agree in a sense that jumping into the stock without any due diligence or after a stock has rallied or gone down this strategy becomes way more dangerous.

 

 

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Guest notorious546

A positive for this strategy is that at best you trade once a quarter which will keep your trading costs relatively low. While the other side of it is that you could be experiencing adverse share price movement  when the superinvestor is doing the selling him/herself during the quarter and you only find out at the end when prices are lower and you also have to sell.

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The "gutter balls" thing is interesting. Serious question - were most of you paying attention in 2008 when loads of very smart people threw one gutter ball after another, up to and including Mohnish? With hindsight this has become easy to ignore, but leading into the financial crisis, many of you would have been happy to clone Mohnish, Nygren, Bill Miller, Tom Brown, Longleaf, etc. All famous and successful names being written up in favored value investor magazines, concentrated portfolios, the whole deal. And you would have thrown a lot of gutter balls by following those guys.

 

While I can already hear the objection coming "But (insert 2015 favored investor) won't throw gutter balls." I have to respectfully disagree. These guys are all super smart, to be clear. Very good investors. But everyone throws em.

 

My point is not to say you can't "clone," but that you should be aware that you're taking on new risks by doing so. I knew some smart folks who cloned stocks like Pinnacle Airlines, Cryptologic, and WaMu and did not enjoy the experience. So be careful.

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Maybe Clone but with a grain of salt.  Clearly there are barriers that a would be cloner could put in place to proactively do damage control.  1.  Do not clone unless the position is 5-10% of a position.  One caveat here is that frequently investors will build positions so you will limit yourself if you say only 10% in one quarter.  The more important aspect includes some common sense.  If a stock traded between $20-$23 during one quarter but now is at $33 that's probably a pass.  On the one hand you are paying much more and on the other your realistic gains are much lower.  The 3rd aspect is that you have to understand the idea.  Baupost invests in some pharmaceuticals that have done and may continue to do great but I can safely ignore them and not feel I missed a profit. 

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Guest notorious546
Online trading and information providers including Zulu Trade, Ayondo, Tradency and FxPro's Super Trader have popularized concepts such as "copy trading", all having a basic idea that investors can profit from the apparent wisdom and talent of others.

 

Sites typically highlight their most successful members whose strategies others would want to copy. Less prominent are the members who have failed badly, possibly leading others astray.

 

On the eToro network, investors can search and select other traders by assets, countries or performance etc., while another website gurufocus.com offers people the option to choose trading strategies of famous and successful fund managers.

 

Even the professional asset-management industry is starting to take copycat trading strategies seriously, at a time when active fund managers face competition from passive exchange-traded funds that track market indexes for lower fees.

 

One top European wealth management firm recently back-tested the investment strategies of star investors such as Warren Buffett, with a view to possibly incorporating them into their investments.

 

"The (copycat) strategy often works," said a source familiar with the study.

 

 

http://www.nytimes.com/reuters/2015/05/29/business/29reuters-mobile-bedroom.html

 

 

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Guest notorious546

Really interested to see how this develops further.  Cloning is a main part of my strategy.  I don't know how you feel about Ackman, but he has been the basis of a couple clones in my portfolio.

 

i recently stumbled upon recommendations of fund managers by Pabrai. The list included Longleaf Partners, Third Avenue and Fairholme.

 

 

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I'm willing to be that most of the people cloning pabrai in 2008 would have gone bankrupt (or very close). I doubt that many who cloned without understanding the ideas would have been able to withstand the, what, 77% or so drawdown?

 

I don't know if I could've withstood the pressure of the 2008 crisis, cloning or no cloning, but now that I'm trying to manage more of my own investments I do think the idea has a lot going for it.

 

I am trying to think of "cloning" in terms of cloning the thought process instead of just cloning actions. 

 

I am trying to clone ideas that:

 

(a) make sense to me after doing some research

(b) preferably have more than one "super investor" in the same idea.

© bonus points if the company is even cheaper now

 

For example: BAC around $15 and $16.  It was the biggest position in Allan Mecham's portfolio at the beginning of the year, something like 20% or more.  I read his comments on BAC from a year end letter, and read more about Allan Mecham himself and his performance record (he was one of the very few with a positive return in 2008 and 2009 even without using short selling) and his thesis sounded good.  I also noticed that Charlie Munger is holding a lot of BAC, and I remember seeing a Youtube video of Mohnish talking to a university class and he mentioned that Charlie and Warren have made mistakes in things like textile businesses, airlines, and shoe companies but they've never made a bad call on a bank, and that Warren still actively reads some esoteric banking periodical whose name I can't remember now...  (I don't know if it's 100% true or not that they've never rolled a gutter ball on a bank, but I just took Mohnish's word)  Later  I read in the Berkshire 2014 letter:

 

"Berkshire has one major equity position that is not included in the table: We can buy 700 million shares

of Bank of America at any time prior to September 2021 for $5 billion. At yearend these shares were worth $12.5

billion. We are likely to purchase the shares just before expiration of our option. In the meantime, it is important for

you to realize that Bank of America is, in effect, our fourth largest equity investment – and one we value highly."

 

... I have other cloned ideas that are underwater right now.  CHK for example.  I went in at 11 and averaged down to 10, but I'm going to have to wait and see how it plays out.  Carl Icahn is in, and recently bought some more, but it's really Bill Nygren's comments that make me think it's worth buying some now.  Oakmark bought in at 15 or 14, and they only ever buy companies that are selling at a discount to what they believe the company could be sold for in a buyout, among other great investment criteria which they never stray from: shareholder oriented managements, and the belief that the company has the ability to outperform the S&P for the next few years.

 

I really like watching these portfolios, dataroma.com is a really great site for investigating them.  I also try to read their letters or watch on Youtube whatever I can find:

 

- Allan Mecham

- Bill Nygren (About 25% of my savings are still with Oakmark)

- Mohnish Pabrai

- Guy Spier

- Howard Marks

- Jake Rosser (not on dataroma.com, but beyondproxy.com has some of his theses)

 

The book "Manual of Ideas" has some great tips on cloning too. 

 

Good luck everybody!

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Oakmark bought in at 15 or 14, and they only ever buy companies that are selling at a discount to what they believe the company could be sold for in a buyout, among other great investment criteria which they never stray from: shareholder oriented managements, and the belief that the company has the ability to outperform the S&P for the next few years.

 

 

Just remember that no matter how good the strategy or philosophy is, all make mistakes. Nygren got pretty badly burned with Washington Mutual. It was a major holding,  and he was buying more, right before....

 

 

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Guest longinvestor

Oakmark bought in at 15 or 14, and they only ever buy companies that are selling at a discount to what they believe the company could be sold for in a buyout, among other great investment criteria which they never stray from: shareholder oriented managements, and the belief that the company has the ability to outperform the S&P for the next few years.

Remember vividly getting Wamued. I was a proud Oakmark holder then. Read the commentary he wrote prior to.

 

 

Just remember that no matter how good the strategy or philosophy is, all make mistakes. Nygren got pretty badly burned with Washington Mutual. It was a major holding,  and he was buying more, right before....

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Guest notorious546

How do you guys think about position sizing when cloning?

 

i try to find ~10 positions various industries, sectors, geographical exposure size them each at about 10%

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How do you guys think about position sizing when cloning?

 

I keep my cloning positions much smaller than other ones. Generally a 2-3% max allocation.

 

I use cloning as a lazy way of finding value opportunities and generally make the assumption that the diligence and research has been done well since it's from investors I respect. It's a time/effort saving tool for me, but I have to be able to manage the risk since I'm not extensive diligence myself. That's why I generally keep these significantly smaller than my other positions.

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But sure, whatever, good luck.

 

Why so patronizing?

 

Not sure why this guy is calling me out like I am here to get credit or win internet points or something. 

 

If you find it hard to believe you can find bargains in a market where many stocks dropped anywhere from 20%-90%, and you have a 2008/2009 style crash in one sector...then i would tell you what I think of you but I may get kicked off the site....i paid 29.99 to activate this account a few days ago so I need to get my money's worth before i say anything i might regret.

 

I am here to learn, not here for internet games, bro.

 

This post wasted 5 min of my life.

 

Dyow=do you own work?

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