Dangers of Following Famous Investors
A widely-promoted investment strategy is to follow what famous and successful investors are doing. There even are some academic studies indicating the strategy can work. Most of these investors don’t tell us what they’re doing while they’re doing it. But a large number of them are required to file reports with the SEC that show their major holdings plus changes they’ve made. Various media search through these and report promptly on their details.
The problem is this strategy works only if you’re following a long-term investor. The SEC reports are filed no more frequently than quarterly. (The frequency depends on the investor’s vehicle and how it’s regulated.) Plus, there’s a lag between the period covered in the report and when it’s actually filed. So for any investor who is fairly active, the information is stale by the time it reaches you. You’ll be buying after the investor does, and selling perhaps long after the investor sells.
A prime example is in today’s reports on the latest filings. One reason many people rushed into gold were previous reports that George Soros owned a lot of gold. The latest reports show that he’s sold almost all his gold holdings.
Billionaire investor George Soros’s hedge fund dumped most of its gold holdings during the first quarter, according to a securities filing on Monday.New York-based Soros Fund Management owned just 49,400 shares of the SPDR Gold Trust [GLD 143.66
-1.71 (-1.18%)
] at the end of March, down from 4.7 million shares held at the end of December. A 5 million share stake in the iShares Gold Trust [IAU 14.391
There’s another point buried in this article. Soros was buying gold because he was worried about deflation. Most people who buy gold say they are doing so because they’re worried about inflation. You’ll do better as an investor when you know why a person is buying something and agree with his theory.
