Copycat or Piggyback Investing

Piggyback investing is a trend-following behavior that is adopted by less informed investors as a way to profit from the bets of what are believed to be better-informed investors. Piggyback investing is the art and science of building portfolios based on mimicking the stock picks of some popular investor or guru.

This can be considered a lazy investing approach as well but like all other methods, it has advantages and disadvantages. You may make a lot of money or even lose a lot of money as well.

“There is danger in reckless change, but greater danger in blind conservatism.” – Henry Glasgow

There are many stock market animals, the bull, the bear, and then there’s the sheep. Following the crowd can give one some feeling of security. However, when you invest with the crowd, you have to worry about when the crowd will leave the party. There usually isn’t much upside potential left in a stock after it becomes popular, which means you took on a lot of risk for a shot at a low rate of return!

Some greenhorn or newbie investors can find themselves in this sort of situation when they first decide to give investments a try. They can get enticed easily with the usual get-rich-quick marketing, this just goes to show that it really is difficult to find genuine mentors out there.

What about Online groups (Forums, FB group)? 

I’m not saying these types of groups are outright bad (since there are some helpful people there too) but a noob can easily be taken advantaged. Some members provide their opinions or speculations about a HOT STOCKS that you should buy. These are what we call ‘Hypers’, they hype a stock so others will also buy and when the price reaches their target, they immediately exit and those who bought high end up suffering paper losses (This is also called as “Pump and Dump”).

“Don’t judge the book by its cover they say, for there’s more to this story than meets the eye.”

Following the recommendations of others is not as simple as you may think. Should you buy a stock just because two people you know also bought it? I’m sure most copycat investors will see that as strong validation for piggyback investing. But what if I told you that one was a value investor who holds a position for a long time and the other was a position trader who was buying passed on price movements?

Those two purchases do not reinforce each other and 1+1 does not always equal 2 in this scenario.

If you follow your broker’s recommendations, you can take it into consideration but you can't blindly follow those because they are still brokers, irrespective of the performance of the stock they will still receive their commissions, our profit may not necessarily their best interest – but who knows.

If you follow “Investment gurus”, it’s not simple either since you don’t really know whether the guru you’re following is truly skilled or simply riding a hot streak or perhaps just a charismatic salesman or marketer.

Copycat or piggyback investing is a lazy approach but may not always pan-out. Doing due diligence is necessary to avoid sizable losses if you are not careful.

But should you decide to use the copycat or piggyback approach anyway, don’t just simply piggyback or copy on individual stock recommendations but rather just go for an ETF/Mutual Fund Index funds instead.

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