What Is Coattail Investing?
Coattail investing is an investment strategy of mimicking the trades of well-known and historically successful investors. By placing these trades, investors "ride the coattails" of respected investors in hopes of making money in their own accounts.
Today, through public filings, media coverage, and reports written by fund managers, the average investor can quickly learn where these big investors are placing their money.
- Coattail investing is an investment strategy of mimicking the trades of well-known and historically successful investors.
- It is made possible by the fact that managers with over $100 million in assets must disclose their positions once per quarter with the SEC.
- These disclosures are made through SEC Form 13F and are publicly searchable online.
- Coattail investing is arguably more suitable for ‘buy-and-hold’ investors with long time horizons, because such strategies are less affected by the 90-day delay in 13F filings.
How Coattail Investing Works
The Securities and Exchange Commission (SEC) requires investors who manage more than $100 million to disclosure their holdings once every 90 days. This information is contained in SEC Form 13F, which can be freely accessed online by the public.
By browsing these filings, investors can keep track of the investment decisions of historically successful investors such as Warren Buffett or Carl Icahn. In doing so, however, investors should be aware that because of the 90-day delay in obtaining new information, they may be acting ‘out of sync’ with the investor they wish to mimic.
Investors who wish to implement a coattail investing strategy should also be careful when deciding which model investor to choose. For instance, long-term investors who wish to minimize frequent changes to their portfolio may be better suited to follow Warren Buffett as compared to an activist investor such as Carl Icahn. On the other hand, investors with short time horizons may not be well suited to following Buffett’s characteristically patient style of investing.
Because timing is arguably more important for activist investors, coattail investing may be more appropriate for ‘buy-and-hold’ investors that have long time horizons.
Real World Example of Coattail Investing
To illustrate the process of coattail investing, consider the 13F filing made on August 14th 2019 by Berkshire Hathaway (BRK), Warren Buffett’s holding company. From this filing, we can see that for the quarter ending June 30th 2019, Buffett increased his positions in Amazon (AMZN), Bank of America (BAC), U.S. Bancorp (USB), and Red Hat (RHT) by approximately 11%, 3.5%, 2.5%, and 1.2%, respectively. We can also see that he reduced his position in Charter Communications (CHTR) by just under 5%.
All other positions in Buffett’s portfolio were unchanged, reflecting his generally stable investment style. Investors wishing to copy Buffett’s approach could routinely review his company’s 13F filings and adjust their portfolios accordingly.