I am not a data scientist and can’t find any particular result for the data presented, but here are some of my observations regarding the approach in general about coattail investing.
- Percentage of portfolio
Many investors put a small amount of portfolio into a company just to get a jist of it. It is insignificant to them but we take that as a faith of confidence and put a significant part of our portfolio in these smallcaps thereby taking a higher risk.
- Disclosure rules
Only companies where an investor has more than 1% of the company shares have to be disclosed to the exchanges. Even if the investor has a very large position in a large cap company but it falls below 1% of the total shares, they don’t have to disclose and we don’t know the investors full portfolio.
- Due diligence
Big investor buying gives a false sense of security regarding the company and we tend to break our own rules when investing in them. Most of the time they are right about a turnaround and company financials change for the better in a few quarters. But sometimes they are wrong or just want an exit.
- Value versus growth investor
It’s better to follow a growth investor than a value investor as the value investor will sell and exit when enough retail interest is generated as they require liquidity for exit, specially in small caps.
- Buying strategy
They can accumulate a significant number of shares in bulk or through company allocation in one go. This is how they acquire illiquid stocks after special situations. Retail investors can only come in when a significant player decides to create liquidity.
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