I loved this article in Slate because I have been trying to relay a similar message to clients for the last few years – just because a big name investor, the Slate article is about Warren Buffet, takes a position doesn’t mean you should too.
Here are some things you probably can’t do that big name investors with a large amount of capital can:
- Access – They can call up a CEO and get him on the phone almost immediately.
- Terms – They can dictate their terms – preferred dividends, warrants, premiums, etc.
- Clout – They are big names. The investing public trusts them. Thus, when they take a position the masses follow.
- The How – Many big name investors might be long or short a position, but not necessarily own or be selling the asset. They can have products developed or go into opaque markets to make synthetic trades.
- Talk Their Book – They can make a trade, go on Squawk Box, and articulate why they took a position enticing others to do the same.
- Timing – Are they about to get out and just pumping up the position for one last jump?
- Team – They pay very smart people a lot of money to continually do due diligence.
- Plan – They have a plan. They know when they are going to get in and when they are going to go out with contingency plans and maybe some hedges.
Maybe outside of having a plan, almost no common investors can do any of the above. This is in contrast to the heavy hitters who can possibly have all of those items.
Does this mean you shouldn’t invest alongside a big name? Of course not. Just make sure you do your own diligence and understand that most of the time they are getting a better deal and/or have built in advantages.
