MARKET COMMENT
Don't Follow The Shrewd Investors

By Maynard Paton (TMFMayn)
October 23, 2001

Carburton Street, London -- Remember the fuss concerning Warren Buffett buying a mystery UK share during the spring of 1999? While many pundits suggested Marks & Spencer (LSE: MKS) as the likely target, it eventually transpired that Buffett had bought 3.15% of Allied Domecq (LSE: ALLD).

Those investors following Buffett into the UK drinks firm had a nasty shock last week. Allied announced that Buffett's investment vehicle, Berkshire Hathaway (NYSE: BRK.A), was no longer a beneficial owner of 3% of its shares. What's more, it's reported that Buffett had sold the shares about a year ago but "had only just got round" to telling anybody about the disposal.

All in all, blindly copying Buffett and other famous investors is an ultimately unrewarding pursuit. There are many dangers.

For starters, while it was relatively straightforward to discover Buffett's investment in Allied represented mere loose change, it can be difficult to judge just how important any investment is with other well known investors. Needless to say, you don't want to be betting the farm on a stock when your investment guru is playing with his fun money.

What's more, while Buffett looks to have made a profit on his Allied trade, he didn't exactly do well on his Guinness shares a few years back. So-called shrewd investors can and do make mistakes.

Closer to home, those who followed the lead of stock market "entrepreneur" Luke Johnson and switched from PizzaExpress (LSE: PIZ) to Belgo (LSE: BGO) during 1998 have since suffered a severe bout of portfolio indigestion. Other famous UK stock market "shrewdies" include Nick Leslau and Nigel Wray. But don't ask how their Nottingham Forest (LSE: NGF), Safestore (LSE: SAF) and WILink.com (LSE: WLK) shares are doing at the moment.

Finally, you'll never know when a famous investor has bought or sold their shares until after the event. And the more famous the investor and the larger the transaction, the less likely you'll get anywhere near the dealing prices they achieved. Your return is going to dampened by other copycats with the same idea as you.

It's pretty much a mug's game to try and follow well-known investors in and out of stocks. Alternatively, it's far better to use the investment philosophy of a successful stock picker, do your own research and become a shrewd investor yourself.