Shameless Cloning Can Lead to Financial Success
I am a fan of the Coffee Can Portfolio, an “Active Passive” approach to investing.
The idea of a Coffee Can is simple: Buy a basket of the best stocks you can and let them sit for years. You incur no costs with such a portfolio, and it is simple to manage.
You can follow and track my stock baskets here, on my Performance Scorecard.
Cloning is Key to your Financial Success.
Let me explain.
Tom Peters, a business author postulated that “if you run a business, you can sit down with your direct competitors, and you can lay out all your competitive advantages to them, they will listen to you very very carefully, but once they leave, they likely won’t act on what they’ve learned”.
Why does this happen? I don’t know. Perhaps it’s too easy? All I can tell you is that this happens all the time. Very few people keep an eye out for what works, and actually change their behavior to adopt what works, and benefit from it.
Some of the Biggest Businesses in the World are Based on Cloning.
Microsoft, a $1 Trillion market cap company, is a classic cloner. Pretty much every successful product of theirs is a clone. For example, today Azure is cloning AWS. This is not new:
Windows cloned Mac
Word cloned Word Perfect
Excel cloned Lotus
Bing cloned Google
And so on...
Cloning has helped Microsoft achieve giant success. One could even argue that this is despite being a poor cloner. It takes them at least a Version 3 to build a good product. Sorry I couldn’t resist :) Actually, all kidding aside, it is this trait, their ability to clone and perfect products, that gives me comfort in Microsoft’s ability to adapt and prosper as technology and the world keeps changing.
Walmart is another example. They copied what worked from Sears and K-Mart at the time.
A more recent example is MercadoLibre, the leading eCommerce platform in Latin America, currently worth $30 Billion, cloned eBay and Amazon.
What is required for cloning is an intense obsession about observing the world, pinpointing what can be learned and cloned, and having the willingness to adopt this.
Proposition: Just Clone Great Investors
Since cloning works so well, why not take good investment ideas from wherever you can get them? One great source is other investors that you respect. Don’t believe me? If you had simply bought the stocks that Warren Buffet bought, and sold them when he did, you would have beaten the market by more than 10% per year! [Source] This, despite being publicly available information, and the world knowing about Warren’s exceptional investment ability, resulted in massive returns.
Ok, it can be difficult to spot the next Warren Buffet but not impossible. We live in a world where people speak their opinions openly. Heck, large hedge funds in the US are required by law to disclose their investments. So find investors whom you can trust. Find those whose investment philosophy you agree with. Analyze and understand why they are fond of a particular investment (often, they will announce that to the world themselves). Then, if you are convinced, clone them.
I challenge you to be a Shameless Cloner.
I believe this approach can do very well. Why scour the world of thousands of stocks from scratch, when you can simply try to understand the ones your favorite investors are buying?
Note: The above thinking is heavily influenced by a talk by Mohnish Pabrai.