'Monkey see, monkey do' won't do

If a kid has just started playing cricket, would watching videos of Virat Kohli and copying the shots be the right strategy? Kids do that, but a moment of thought will tell you that, no, that's unlikely to be the path to success. I'm not saying that no kid watching can have the kind of talent that Kohli has - I'm sure many would. The difference is that the beautiful cover drive that the kid sees and wants to copy is just the tip of the iceberg. It's the end result of a process and a support system that has lasted a lifetime in which talent was just one input. Moreover, it's particularly suited to the exact kind of advantage that Kohli has. Copying the result is unlikely to produce the same result.

So am I saying that one cannot learn from an expert? What about the oft-repeated saying that to win, one must play like a winner? That's one of those corny 'inspirational' things that people say, and we implicitly believe it to be true. In the investment world, too, this idea of mimicking successful people is quite common. Investors are constantly seeking insights into the strategies of more prosperous counterparts with the intention of replicating them. Since mutual funds have to reveal their portfolios on a schedule, it's quite easy to do.

Here's the most interesting argument against this idea. It was presented by the well-known investor and fund manager Howard Marks, who, incidentally, is just the kind of famous investor whom amateurs would like to emulate. In a talk that Marks gave many years ago at Google (bit.ly/howmarks), he illustrated this very point by drawing an analogy from tennis. He said that top tennis players win by playing a lot of shots that are winners. Djokovic, Alcaraz or Medvedev often play shots that few of their opponents can handle and play with great regularity. However, amateur players can't play such shots except by rare chance. Marks says that for amateurs, the key to winning is not to hit losers, instead of hitting winners. A good amateur player believes that if he or she can just get the ball over the net and keep that going for eight or 10 shots, then sooner or later, the opponent will make a mistake. Amateurs achieve their victories by just managing to do the ordinary thing competently and consistently. An amateur who tries to play Djokovic shots will lose every time.

Do you see how this fits into investing? It's not as if amateurs cannot invest well. However, they are unlikely to invest well by mimicking professionals. If they choose their own path based on their own advantages and keeping in mind their own limitations, then they can do even better than professionals. However, the strategy cannot be a copy. Blindly following the moves of a renowned investor without a solid grasp of the underlying rationale is like an amateur tennis player attempting a Nadal backhand - it's ill-suited to their abilities and more likely to lead to a flubbed return than a point won.

Instead, successful amateur investors must focus on understanding their own strengths and weaknesses. Perhaps you have a knack for identifying solid, long-term companies or excel at maintaining a balanced portfolio amidst market volatility. Whatever your inherent advantage, the key lies in tailoring your investment approach accordingly, focusing on the fundamentals that you genuinely comprehend and can execute reliably. Consistency and a clear understanding of your own game, rather than imitating the flashy plays of the investment world's superstars, will ultimately determine your long-term investment success.

The tendency of beginner investors to mimic experts is a losing formula. Great investors hit winners. They achieve success by making profitable investments, using unique skills or experience or a process to identify opportunities that elude others. Additionally, since investing is not an open book, many conceal their failures and only highlight the rare success achieved, perhaps by mere luck. To use an up-to-date phrase, you see only the highlights reel and not the bloopers.

Write your own story instead. Read the cover story of 'Wealth Insight' March 2024 issue to understand more about it.