Meb Faber has been blogging nearly as long as I have. He made a splash with his paper A Quantitative Approach to Asset Allocation which is now the most downloaded paper on SSRN. He has followed it up with a series of working papers and e-books. His most recent e-book Invest With the House: Hacking the Top Hedge Funds is being published today.
The book takes a closer look at the idea of cloning the stock picks from the best hedge fund managers. Meb touched on this idea in his first book The Ivy Portfolio: How to Invest Like the Top Endowment and Avoid Bear Markets but fleshes out the idea even further here. In the book he examines a number of hedge funds who historically have been a good source for profitable stock picks.
You can get a better sense for the book by checking out a recent post by Meb. In the post he examines the (strong) performance of a Warren Buffett clone. Meb notes the challenge of using a strategy like this isn’t financial but psychological. He writes:
The reason Buffett is successful is not because he has a magic stock wand, but rather has unbelievable ability to stick to his style. There are numerous investment styles on Wall Street that work – value, momentum, trend, buy and hold – they all work. The challenge is sticking to your style and not selling at the worst time.
If that were not enough Meb has made his last three e-books available for free on the Kindle. These include: Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies, Global Value: How to Spot Bubbles, Avoid Market Crashes and Earn Big Returns in the Stock Market and Shareholder Yield: A Better Approach to Dividend Investing.
For most investors picking stocks is a recipe for disaster. This is due in large part because they are not using a time-tested strategy. Hedge funds have come under a lot of criticism of late but that does not necessarily mean there isn’t some value in their top stock picks.