The Manual of Ideas: The Proven Framework for Finding the Best Value Investments

CHAPTER 6

Follow the Leaders

Finding Opportunity in Superinvestor Portfolios

Strive not to be a success, but rather to be of value.

—Albert Einstein

Have you ever invested in a company simply because a famous investor bought stock in it, or have ever you been tempted to do so? If you answered yes, you would be neither alone nor misguided. Ever since some investment managers have gained superstar status in the media, following the moves of those investors has become somewhat of a sport in the investment industry.

One of the best pieces of advice in investing goes something like this: “Do your own work, and don't trust the tips of others.” Nonetheless, following the moves of superinvestors can be both smart and profitable, if done correctly. After all, most so-called superinvestors have attained their status by virtue of superior investment performance over a long period of time. Warren Buffett, perhaps more than any other investor, has defied the academic notion of efficient markets. When Buffett buys a stock, is there really just a 50-50 chance that the stock will outperform the market? Investors who source ideas by tracking the activity of successful fund managers are putting themselves on fertile ground. Success is not assured, but it is more likely.

Superinvestors Are Super for a Reason

As we conducted more than 100 interviews with investment managers while researching this book, we realized that the best investors not only share the distinction of having superior long-term ...