MARKET COMMENT
Investors To Avoid

By Maynard Paton (TMFMayn)
February 25, 2004

Stock market success comes from developing your own skills and finding your own way. Blatantly following high-profile investors almost always leads to long-term disappointment.

Copycats can come unstuck in two ways. Firstly, you'll never know what shares your investment guru has bought or sold until it's too late, leaving you to follow him at a higher or lower price. Furthermore, it's always difficult to tell how important a holding is to most well known businessmen. Needless to say, you don't want to be betting your life savings on a stock when your leader is just playing with his fun money.

Still, a prominent name joining the shareholder register, especially in a small company, can work wonders for a share price. Take Jim Slater, the famous 1960s/70s asset-stripper that hit bankruptcy soon after. After reversing his gold mining vehicle into Galahad Capital (now Galahad Gold (LSE: GLA)) last year, Galahad's share price quickly doubled.

Jim's effective 'buy price' is undoubtedly much lower than anything the ordinary punter could have attained, though what he understands about 'classic layered gabbroic intrusions' on the East coast of Greenland is unclear. What he does know about, however, is bandwagons. The price of gold (always quoted in US dollars) is up 53% in the last three years.

Ex-Tomkins (LSE: TOMK) boss Greg Hutchings is another whose glory days passed by long ago. Still, the appearance of the growth-by-acquisition specialist at investment firm Lupus Capital (LSE: LUP) captured the market's imagination last month, with the shares up 100% since the announcement. But even if you bought on the day, you'd have still had to pay a 42% premium to Greg's entry price.

Then there's David Page, ex-boss of PizzaExpress. Following the restaurant company's takeover, he went on to found Clapham House (LSE: CPH), a shell that's on the hunt for new dining chains. Will Clapham become the next great restaurant growth share? It's intuitive to reflect on what happened when former PizzaExpress director Luke Johnson jumped ship. He formed Belgo, a small dining chain, which failed miserably. His attempts to broaden his skills, with Integrated Dental (LSE: INTD) and dentistry, also gave followers a kick in the teeth.

All in all, following these and other well-known investors in and out of stocks is pretty much a mug's game. In particular, the big guns in the above examples are involved in speculative issues where the biggest asset is now 'hope' -- never something to base a long-term investment on. Rather than play follow-my-leader, far better to do your own research and make a name for yourself.

Where next? Investors To Follow | Don't Follow The Shrewd Investors