Late to the Bull Run? Don't Follow the Super Investors

Rremind yourself that even Warren Buffett is sitting on US$ 150 bn in cash waiting for the next big opportunity. (Illustration by Jayachandran Nanu (Mint))
Rremind yourself that even Warren Buffett is sitting on US$ 150 bn in cash waiting for the next big opportunity. (Illustration by Jayachandran Nanu (Mint))


  • Not only do you need to find the right stock, you also need to perhaps time your exit in case something goes wrong with the company

So, you missed the big gains in the stock market rally. And now you are hungry for your “rightful" share of the big profits that everyone around you seems to be making.

What do you?

Here’s my calculated guess on how you are perhaps already dealing with this situation:

First, you are checking stocks super investors own and evaluating if there is still scope to enter any of them. And you are probably doing that by simply checking the stocks with the lowest valuation (among the holdings), or ones which have corrected recently.

Second, you are tracking all moves super investors make like a hawk. So, tracking end-of-day block deal data is your new passion. The moment you hear of a super investor entering a new stock, you believe you found the next winner.

Third, you are scanning mutual fund fact sheets to see whether your favourite fund manager has entered a new stock, or perhaps increased weightage in any of them. If they have, you’ve got action to take.

Fourth, just like with mutual funds, you have taken to tracking trade data of large global funds that have taken a liking to India. The buzz about such deals is almost live, though full details come end of day. But there’s a lot of activity, possibly throwing up quite a few stock names for you to consider investing in.

Last, but not least, your potential investment universe has increasingly shrunk in size. And I am not referring to the number of stocks here. But the size of companies you are looking for to invest. The smaller the company, the better. Incidentally, a lot of super investors too operate in this space.

How accurate is my guess? (If you would like to tell me what you agree with, and what you don’t, drop me a line at

My gut feeling is that while not being 100% right, this somewhat hits the mark.

As a seasoned long-term investor for over 25 years, even I can’t but help think on these lines sometimes. Why? Purely because so much of the news flow, the breaking alerts, the TV interviews et cetera encourage this line of thinking. One literally needs to have a mental model in place to ensure one does not fall into the trap of this kind of thinking.

Now, we have been around for far too long to judge which approach to investing works best over the long term.

Long enough to have heard the “invest, then investigate" approach of one of the most successful investors of our times, and not be shocked by it.

But even then, this approach of coat-tailing super investors and funds/institutions, especially now when the bull market is maturing, I believe, is possibly the worst way to pick a stock.

Several reasons come to mind.

First, one never knows the thinking of the super investor (collectively as a group) behind picking the stock until much later in the game, by when prices have generally run up.

By then you could be sitting on a stock, the premise of owning which makes no sense to you. Worse, you could have bought it at much higher levels. This is all bad news for you.

Second, super investors, at least the disciplined ones, follow certain rules for allocating monies. They have allocated monies based on several factors. You on the other hand, perhaps, are going to invest based on monies you have available. No overlap there at all, which exposes you to even more uncertainty.

Third, just because some super investor bought a 1% stake in a company does not mean he invested 10% of his wealth/fund; perhaps it was just 1%. Or maybe just 0.1%. In that case, the significance of owning the stock to the super investor is far less than what you probably think. But you on the other hand may end up with a disproportionate exposure to the stock. After all, you are trying to make a big buck!

Fourth, the super investor may be dead wrong, or in some rare cases, may be involved in some not-so-transparent stock market dealings. In the process, you could unwittingly, end up booking a large loss simply because of someone else’s folly or greed, or both!

Fifth, the exit matters a lot. The super investor could exit his position when he chooses too. You of course will only come to know post the fact. While that’s one risk, there’s an even bigger risk.

And that’s got to do with the fact that your belief in the stock, which you probably bought blindly coat-tailing the super investor (who has now exited), remains intact. If the stock has fallen (“I am patient") or risen (“I will be exiting too soon"), doesn’t matter. We learn to rationalise our holding. Call it ownership bias, or whatever. The fact is that you are just exposing yourself to more and more uncertainty.

Sixth, and finally, smallcaps look very attractive at the top of a bull market. There’s something about small size and the ability to move fast that gets to investors. But then the fact is finding the right smallcap is like finding a needle in a haystack. On top of that, remember, they move fast. Both up and down. So, not only do you need to find the right stock (a huge challenge), you also need to perhaps time your exit in case something goes wrong with the company (as it happens in many cases).

I hope you, dear reader, are not sailing in this boat – coat-tailing super investors blindly.

If you are, remember that bull markets come and go. If you missed this one, no worries. Don’t chase it. Find stocks that fit well in your portfolio. Allocate wisely.

And if you don’t find stocks, sit it out in cash. And remind yourself that even Warren Buffett is sitting on US$ 150 bn in cash waiting for the next big opportunity.

Happy investing!

Rahul Goel is the former CEO of Equitymaster. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.

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