How to Determine Which Investors to Follow

November 17, 2012 — Leave a comment

In the financial industry, we all piggyback on each other. Most of us listen to the market predictions and “how-to” information of others. Most investors and traders follow and pay attention to other investors – my list includes the likes of Jim Rogers, Jack Welch (who has a deep understanding of the economy), Jeremy Grantham, etc. So how does one determine which people to follow and pay attention to?

He or She Must Be Qualified

Obviously, he or she must be qualified to make the statement he or she does in order for you to pay attention to her. There’s no point in following someone who:

  1. Does not have relevant data and information to back up his or her claims. These kinds of people usual depend upon emotional words (not concrete data) to support their opinions. Stay away from emotion in finance and stick to soundly supported reasoning.
  2. Just because someone has a Harvard Business School education doesn’t mean he or she is “qualified” to make opinions that you should listen to. In the investment industry, the ONLY THING that matters is one’s track record – if the speaker is talking but doesn’t have decent returns to show for it, there’s no point in following someone who’s opinions, when expressed through investments, are invalid.

Pay Attention To Different People For Different Reasons

I pay attention to different people for (and ONLY for) different subject matters. For example, I follow Jim Rogers because he’s great at identifying long term trends and confirming whether or not a trend is over. His investment track record has proven this (once again, going back to the idea that “you should only follow someone who is qualified to make his or her opinion”). However, I do not use Jim Rogers to aid my view on how politics will affect the economy and stocks – something I follow Jeremy Grantham for. Likewise, I follow Jack Welch for accurate, non-governmental information about the fundamentals of the economy, something that no one else has because Welch (former CEO of GE) has many connections in the business world.

My point is, follow certain people ONLY for their area of expertise – when it comes to stuff that’s not their area of expertise, I try to stay away from those opinions.

When It Comes to Investors and Traders, Make Sure His or Her Time Frame Is The Same As Yours

I forgot to mention another person that I follow: Cullen Roche. I follow Cullen purely for his opinion on the future direction of the markets. When it comes to following other traders and investors, MAKE SURE that his or her investment time frame is the same as yours. For example, I usually make 3 investments a year, holding onto those investments for an average of 1 month. This is also exactly what Cullen Roche does – hence, his market prediction fits into my investment time frame. However, someone who makes 10 investments a year and holds onto each of them for 6 months wouldn’t help me simply because our time frames are different. Timing is everything.

 

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