Why investors consider copying fund managers Private investors have a tendency to look up to professional fund managers as role models because they possess knowledge and means available in the market. Hearing about a star manager accumulating or disposing of large positions creates buzz, prompting doubts as to whether one should follow suit. The logic seems simple — if the professionals are accumulating or selling, their activities must reflect opportunity. But what really unfolds is more complex.
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Differences in investment horizons Professional fund managers usually invest on longer time horizons and manage portfolios of thousands of crores. Their investment strategy is intended to trade off risk, liquidity, and client mandates. Individual investors would have short-term needs such as purchasing a home, sending children to school, or retirement. Mimicking trades on different horizons can create mismatches and make individuals stuck with risky assets at times when they may need liquidity.
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Access to research and resources Fund managers possess huge research teams, company management access, and sophisticated data analysis before they make decisions. Retail investors do not have access and intelligence. By replicating fund manager portfolios in blind manner, retail investors end up purchasing stocks without knowing the fundamentals behind them. Without context, retail investors risk making decisions that are inapplicable to their financial profile or risk tolerance.
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Scale and liquidity considerations Institutions buy or sell in quantities, which impacts the way trades are done. A fund may go on to accumulate in a stock for several months in order to take a position, while small investors may wait after the appearance of a single news headline. Institutional funds may also have exit strategies that the masses are unaware of. Small investors who copy them may end up being exposed when institutions need to exit.
Smarter ways to learn from the pros Instead of emulating trades, individual investors can learn investment principles from professional managers. For example, focussing on diversifying your assets, allocating assets in a systematic manner, and leveraging compounding over the long term are all doable. Having access to interviews of fund managers, quarterly reports, or mutual fund fact sheets provides hints about markets, but individuals need always to take decisions based on their own goals and risk profile and not blindly replicate.
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Formulating a personal investment plan Ultimately, the most suitable method for retail investors is to create a plan based on individual requirements. Mutual funds, SIPs, or ETFs allow investors to indirectly avail themselves of professional fund managers' expertise without having to keep tabs on movements of individual stocks. Discipline in following up with a systematic approach assists one in creating wealth over time without getting caught up in the pitfalls of running after the headlines. Imitating fund managers sounds attractive, but planning and discipline remain the keys.
