Why you shouldn't copy Vijay Kedia’s stock picks blindly

Not because Kedia’s stock picks don’t do well. We all know, they tend to do very well.

Also, not because he does not do his research well. From the looks of it, Kedia does it very well.

And definitely not because Kedia is some fly-by-night operator who may disappear tomorrow. On this, we all can agree; Kedia is as solid an investor as they come.

Then, why do I advise against copying Kedia’s stock picks?

Well, here’s the truth. If you ask Vijay himself, he would tell you the same, most likely.

Eyes wide open

You see, coat-tailing super investors is an extremely popular way of finding stocks to invest in. And truth to be told, many who follow this approach have also done extremely well for themselves.

But at the same time, the fact remains that just copying someone’s stock pick blindly is riddled with dangerous pitfalls.

Here are a few that come to mind…

First, it’s unlikely, you will fully know the reasons why someone like Kedia bought a particular stock. Sure, they can explain it in a 2-minute bite on the telly, but the fact is that there is a lot more to stock research than some generic 10-year picture.

Second, you will most likely never know the price at which the stock was bought, because until the shareholding crosses 1%, no disclosures are required. So, a super investor like Kedia could have bought the stock for a price that is a lot lower than you will ever find it in. 

This basically means his margin of safety is much higher than yours.

Third, and this is where things get interesting, you will never know how long the super investor plans to hold on to the stock. For instance, you may be a long-term investor, who believes 5 years is a good holding period for the stock. While on the other hand, the super investor may be in it with, say, a 10-year view.

I hope you are beginning to see where I am going with this. You probably coat-tailed a super investor like Kedia, and even made big money. But the fact remains that you probably got lucky, because there were a lot of unknowns that you were not even aware of before you entered!

And this brings me to the biggest pitfall. If you are following Kedia, he refers to something he calls the “no gravity zone". This is basically a situation where, if something were to go wrong, no matter how big, you should not have to sell your stocks to meet that need. 

Kedia, if I recollect, mitigates this situation by having a stream of rental income from the commercial properties he has invested in.

Resisting gravity

So, here’s the question: Are you in a “no gravity zone"?

My bet is that most followers of Kedia would not be in this zone. And this is yet another way in which you are in a very different position than Kedia.

Finally, and the sixth pitfall, is that Kedia is not beholden to share with you when he exits his position. Selling a stock in time is as critical as deciding what to buy and when to buy. 

And just like you know little about why someone bought a stock, and at what price, you will often not know much about the sell action too. Until it’s too late, of course. 

This could result in a late-sale, or worse, mis-sell. Either way, not the best situation to be in.

Given all the gaps in information and understanding, and the absence of a “no gravity zone" that Kedia has built for himself, why do you believe it’s a good idea to coat-tail him?

Caution pays

Now, don’t get me wrong. I am not saying that coat-tailing is all bad. In fact, like I said, there is proof that this works too in some cases.

If you really want to go down this route, you will need to ensure you plug all the holes. And when you do coat-tail someone, be sure you make the stock pick “yours". 

By that, I mean, you do all your homework yourself, and you own your decision to invest in that stock. You own the idea, the buy price, the holding duration and the sell price. You own the risk of a sell off, or a surge. You own it all.

And the fact that Kedia owns it as well, is perhaps just the icing on the cake.

Be your own Vijay Kedia. You are probably better off that way.

And my guess is Kedia would agree, too.

When I shared this piece with Kedia and asked for his thoughts, this is what he said, “Chase the story behind the stock, not money on the table. Money will make you rich, but the story will make you wealthy".

Well said, as usual!

Rahul Goel is a finance and publishing professional with over 25 years of experience in the industry. You can tweet him @rahulgoel477.

You should always consult your personal investment advisor/wealth manager before making any decisions.