Ever wondered why when the stock portfolios of all great investors like Warren Buffet and Ray Dalio are available online, we as retail investors don't just copy their investments to make money in the stock market?

This investment style of copying big investors is called copycat investing and a lot of people do it or at least try to do it. But I want to talk about how this might not be the most effective way to earn money in the stock market and how at times, it can create a lot of problems.

While it seems simple to copy Warren Buffet's portfolio and investment strategy since we'd assume they would've done the required research before buying and selling the stock that they would be in a better position to make that judgment than us. True, but there are many other factors that we do not consider. Some of them are:-

  1. Different goals in Life: The reason you're making investments today is not going to be the same as what Warren Buffet is making and so when your goals don't match, you can't buy or sell your stocks as per your requirements. You need to follow the big investor and adjust your life plans accordingly. That doesn't seem reasonable.
  2. Difference in risk appetite: Big investors are not right 100% of the time. Because their portfolio size is so huge and diversified, their risk appetite is much higher than a retail investor allowing them to take bigger hits without affecting them financially or mentally, allowing them to stay in the market or make rational decisions. We as retail investors may not have that kind of a risk appetite and may not have a similar level of diversification to allow us to hedge from the risk in a similar fashion.
  3. Difference in portfolio diversification: A lot of people trying to follow copycat investing end up replicating big investors' stock portfolios, but tend to forget those big investors have investments in multiple other places as diversification which helps them manage their risk better. They may own real estate, businesses, investments in start-ups amongst others. This inability for a retail investor to copy the entire portfolio of big investors leaves them exposed to higher risk as compared to big investors.
  4. Inability of retail investors to know when big investors are about to buy or sell stocks: By the time retail investors get to know about big investors move of buying or selling a particular stock, a lot of people start trading in that stock driving the prices high or low depending on big investors decision to buy or sell. In such a scenario, it becomes a race to buy or sell the stock as soon as possible to avoid any losses. This can at multiple times get tricky.
  5. Lack of availability of the same level of information: Big investors usually have an entire team and resources to perform research for them along with access to information we as retail investors can't get our hands-on. This allows big investors to make decisions allowing them to be rational even if the stock falls while we as retail investors would only keep guessing and be unable to justify the rationality behind holding it the way big investors do.
  6. Hidden transactions: Listed companies only have to disclose the names of those who hold more than 1% stake in their company, which means that a big investor can slowly keep buying a stock till they have a 0.99% stake in the company and we wouldn't get to know and as soon as they hit the 1% mark and it gets disclosed, everyone starts running after that stock, driving its prices higher. Thus not allowing you to fully replicate their investment strategy.

With all the above said, it is important to understand that a lot of people use copycat investing because it works. The problem is it doesn't work consistently for most people. With that said, it is always a good idea to track the investment styles and strategies of big investors and learn from them to create a style that works for you based on your current stage in life, your goals, and your financial situation.