Investors, don't try to ape an ace

Retail investors keenly watch where India's top investors like Rakesh Jhunjhunwala or Ramesh Damani are placing their bets on, hoping to piggy back on the success of these investment wizards.

Can the general public duplicate the success of the super-successful investors by aping the latter? Will they be just as rich and successful if they invest in the same companies as the A-list investors?

"No," say experts. The lay investors should not ape the investments made by the czars of the stock markets as their investment strategies differ. "None of us can ape the investment patterns of others, as his/her needs and wants as well as incomes may be different compared to ours," says Yogita Dand, certified financial planner (CFP).

The various websites, or rather "fan sites," that track top investors and analyse their stock picks are proof that the average investor is hoping that some of the shine of these men with the Midas Touch rubs off on them.

The logic of the faithful followers is that since the market pundits have already done the necessary research, so investing in the same stocks should not be a bad bet. But they forget that the research and investment by the financial wizards is in line with their own risk profile and financial goals.

While one can take cues from the investments of the astute investors, there is no shortcut to success. "Everyone should always do their own research,'' advises ace investor Ramesh Damani. He cautions investors against "following anybody blindly."

And with good reason. Firstly, the lay investor needs to remember that the super-rich and successful investors are investing only a small part, probably not more than 1% to 5% of their total wealth in a particular stock or company. "In comparison, the lay investors would be risking a higher percentage of their wealth, so they need to be doubly careful,'' says Sanjay Khatri of Krishna Finance.

Secondly, almost all celebrity investors follow the strategy of holding their investments for very long periods. Warren Buffet, India's Rakesh Jhunjhunwala, like his foreign counterpart, is known to hold stocks for as long as 20 years. For instance, Jhunjhunwala is known to have invested in Titan Industries in 1986 and continues to be invested in the company till date.

But lay investors do not have the same level of patience. It is seen that they usually sell the stock within 3 to 5 years.

Thirdly and most importantly, the average investor may learn about the purchase from the media, but is unlikely to know other details of when to exit and at what price, etc. "A copycat investor who does not apply his own mind, may end up with dud stocks," says Khatri.

Experts say it is not a good strategy to invest as per the investment strategy of another person, be it your neighbour, friend or even a star investor or a celebrity. This is because the investment strategies of each individual need to be tailor-made as per their individual financial goals and risk profile.

"The rules of investment differ from individual to individual, as per their incomes, their needs and wants, their life goals as well as their risk profiles and the time horizon of their investments as per their goals. Hence, there can never be same rules of investment for any two persons at any given point of time,'' points out Dand.

Also, despite the research, there are moments when a particular investment may not pan out as per expectations. For instance, Ricoh India, once the darling of Dalal Street, tanked to Rs 370 from a high of over Rs 1000, following allegations of financial irregularities last year. The astute investors know when to cut their losses, but the lay investors can ill afford to book losses as easily as the big investors.

It thus makes more financial sense for the lay investor to plan his investments as per his own needs and goals rather than follow the celebrity investors blindly.