In one sentence: Phil and Danielle explain why copying great investors is a legitimate edge for a small investor, how to find a manager's 13F filing on SEC EDGAR and on Dataroma, and why only concentrated investors (under about 20 stocks) are worth cloning.
Key ideas
- Cloning is old and respectable. Buffett started by following Ben Graham, and Mohnish Pabrai calls himself a shameless cloner. Phil's story of a Chicago secretary who built an $18 million fortune by copying her boss makes the same point. [02:00–05:00]
- A UNLV study. Phil and Danielle recall a 2007 study that copied Buffett's public buys and sells at the worst price on the day his filing became public, 1976–2006, and still compounded at roughly 20%. They quote it from memory, so check the study before relying on the figures. [05:00–07:00]
- Two hurdles. Most investors don't know cloning is possible, and those who do don't act because they can't judge whether the guru is right. Pairing it with your own analysis fixes that. [04:00–07:30]
- A guru's buy is not always your kind of buy. Michael Burry's recent purchases were companies Phil considered train wrecks (heavy debt), and he sold them the next quarter after three of four worked. Phil concluded they were short-term speculations he couldn't replicate. [07:30–10:00]
- Know thyself. Phil must play a game he can win: patience, not IQ. Danielle compares it to choosing a fixed or variable mortgage by what you can live with. Use each tool the way you use it best. [10:00–13:30]
- What a 13F is. Managers with $100 million or more must file quarterly. It shows long US positions only: no shorts, no foreign stocks, no cash. [14:00–15:30]
- The SEC rule-change fight. The SEC had considered raising the threshold to about $3.5 billion, which would have hidden some of the best small gurus. Phil says Rule #1 students were asked to write in, and he understood the proposal was dropped. [15:00–18:00]
- Finding the right filer on EDGAR. The filer is the fund (Scion Asset Management, LLC), not the person. Several similarly named entities exist (one old, one with only a "13F-NT" notice and no holdings). Check each before trusting one. Dataroma uses the public name and shows percent changes. [19:00–31:00]
- The percentages can mislead. Dataroma's weights are based on the 13F value ($154 million for Burry), not the whole portfolio, which Phil puts nearer $320 million. A 25% or 50% weight may be a fraction of the real portfolio. [27:00–29:00, 36:00–37:00]
- Screen for concentration. Of thousands of filers, most hold hundreds of stocks and mostly mimic the market. Fewer than 20 holdings (about 5% each) signals a Rule #1-style investor. Use their buys to build a watch list, not a buy list. [35:00–38:00]
How it maps to RuleOne
- This is the Radar step: a guru buy is a tip that sends you to a company, as in 001. Treat any 13F feed in RuleOne the same way.
- Stock pages link out to SEC EDGAR, where the same 13F and 10-K lookups work.
Buffett, Munger and Graham links
- Buffett's cloning of Graham: the Graham–Newman partnership and The Intelligent Investor are the roots. Buffett's own account is in his writing on Graham, such as the 1984 Columbia talk "The Superinvestors of Graham-and-Doddsville".
- Pabrai's "shameless cloner" idea is his, drawn from Buffett and Munger. The Phil quote on it is paraphrased in the show notes.
Words to know
- 13F: quarterly holdings report from managers with $100 million or more, up to 45 days late, long US positions only.
- Guru investor: a manager whose style resembles yours, tracked for ideas.
- 13F-NT: a notice filing that reports no holdings of its own.
Try this
Pick one guru with a concentrated book. Find the filing on EDGAR by searching the fund's name, then compare it to its Dataroma page. Note the number of holdings and any holding you don't understand, then run it through /stocks/ before deciding anything.
Check yourself
- Why is the percentage weight on Dataroma sometimes misleading?
Answer
It is based on the reported 13F value only, so cash, shorts and foreign holdings are missing and the real portfolio is larger. - What number of holdings suggests a Rule #1-style investor?
Answer
Fewer than about 20, meaning around 5% per business. - What should you do when a guru buys something you can't understand?
Answer
Skip it unless you can do the research yourself. Their reason may differ from yours (for example a short-term trade).
Short quotes
"If they own less than 20 companies, they almost are certainly our kind of investor." (Phil, ~35:30, auto-transcribed)