Being that it is SEC Form 13F (quarterly institutional holdings report) season, I thought that it would be appropriate to remind everyone of what a fruitless endeavor this relatively new found obsession with following the supposed smart money truly has become. I'm not sure what it is about 13F zombies that I find so irksome. Perhaps it is the thought that simply following the popular guys, without any analysis to accompany the investment is somewhat insulting to those investors who put countless hours into investigating, reading and understanding companies before, during and after an investment. Or perhaps it has to with the thought that this concept of simply following "smart money" will lead to inordinately large gains.
The lore of smart money had some truth to it many years ago. There used to be an information advantage that institutional managers shared. Information pre-2000 was incredibly expensive to access, which kept anyone without either vast soft dollar accounts or vast real dollar accounts out of the information market. The large funds would pay for access to information that is now accessible for free. They would have access to the opinions and minds of those who now disseminate the same information now for little to no cost at all. In fact, just getting real time quotes pre-2000 was a couple hundred bucks a month. The same fundamental data you can get from Yahoo, Google or Ycharts cost hundreds or thousands of dollars.
As the projectile vomiting of information has continued unabated, access to information has become more efficient and less expensive. This inverse correlation between efficiency and expense will continue as the volume of information grows. What will also continue its inverse relationship is the destruction of any edge supposed "smart money" has as the efficiency and volume of information increases.
Those who attempt the payment model for information are simply going against the technological grain and will be dealt with by the market. Asking readers to pay for information, regardless of the perception of how valuable it is will not be a sustainable business model because the volume of similar information trumps whatever perceived edge your "valuable" information will bring to the table.
If we are all on standing on relatively level ground from an informational angle, then what would be the advantage of simply following an investor into a stock because the symbol showed up on a list of companies they own? Never mind the fact that the fund manager's position could have changed, been hedged or part of a greater "basket" strategy that those who simply follow the 13F won't see.
The answer to the question of an investor's advantage is that there is none. There is only convenience. Emotional convenience of knowing that a large investor is accompanying you on your mission into the dark woods of the marketplace. And the convenience of not having to perform nearly the same level of due diligence you would if you were all alone in the investment. In other words, to put it bluntly, 13F investing is for the apathetic dolts among us.
Its lack of viability is the reason you have not heard one story of that investor who started investing alongside Dan Loeb in the late-90s and is now a millionaire many times over. It is the reason you have not heard one story of that investor who started investing alongside David Tepper in 1993 and is now sitting on a yacht off the coast of Positano sipping Macallan 55.
13F investing is an example of another feel good strategy that seems extraordinarily viable on the surface but has the depth of a circus clown.
There are no shortcuts friends. Keep grinding.
