Cloning

• The Bottom Line: Investment cloning is the disciplined practice of replicating the publicly disclosed stock purchases of world-class, long-term investors, using their extensive research as a high-quality starting point for your own.
• Key Takeaways:
• What it is: A strategy where you systematically identify and analyze the portfolios of “superinvestors” (like Warren Buffett or Seth Klarman) to generate investment ideas.
• Why it matters: It provides a powerful shortcut, allowing you to stand on the shoulders of giants and filter through thousands of stocks to focus on a few that have already passed the rigorous analysis of the world's best financial minds, often with a built-in margin_of_safety.
• How to use it: Identify suitable investors, analyze their public filings (like the 13F), and—most importantly—conduct your own due_diligence to ensure the investment fits your own circle_of_competence and goals.

Imagine you want to cook a Michelin-star meal. You have two options. You could spend years going to culinary school, mastering thousands of techniques, and experimenting with countless ingredients. Or, you could find the published recipe book of a world-renowned chef like Gordon Ramsay or Julia Child and follow their exact instructions. Investment cloning is the financial equivalent of using that master chef's recipe book. Instead of trying to single-handedly analyze every one of the 10,000+ publicly traded companies, a cloner identifies a small group of investors they deeply admire—investors with decades-long track records of exceptional, value-oriented performance. These are the “superinvestors.” The cloner then systematically monitors their public portfolio disclosures, required by law, to see what “ingredients” they are adding to their portfolios. Cloning is not about day-trading or blindly following hot tips from a TV personality. It's a patient, rational process rooted in a simple, powerful idea: if one of the smartest, most disciplined investors in the world, after thousands of hours of research, decides a company is a wonderful business trading at a fair price, that company is probably worth investigating. It's a strategy of leveraging genius, using the hard work of others as a powerful filter to bring the best ideas to the top of your own research pile.

“I am a shameless cloner… Everything in my life is a result of cloning.”
– Mohnish Pabrai, renowned value investor and a vocal advocate of cloning.

For a value investor, cloning isn't just a clever tactic; it's a philosophy that aligns perfectly with the core principles laid down by Benjamin Graham. Value investing is about buying businesses for less than their intrinsic_value and demanding a margin_of_safety. The challenge, of course, is figuring out what that intrinsic value is—a task that requires immense skill, time, and emotional discipline. Cloning directly addresses this challenge in several ways:

• A High-Quality Idea Funnel: Superinvestors like Warren Buffett or Li Lu are, in essence, world-class “value-hunting machines.” Their entire careers are dedicated to sifting through financial statements, industry reports, and management interviews to find undervalued gems. By observing their purchases, you are essentially getting access to the final output of this multi-million dollar research process.
• An In-Built Quality and Value Screen: The investors worth cloning are not speculators. They are business analysts who buy companies with durable competitive advantages (economic moats), strong balance sheets, and honest management. When they make a large investment, they have likely concluded that the business is excellent and the price is attractive. This acts as a powerful first-level check for both quality and value.
• Behavioral Reinforcement: One of the biggest enemies of the individual investor is emotion. We are tempted to chase popular, exciting stocks and panic-sell during market downturns. Cloning provides a rational anchor. Instead of asking “What's everyone buying today?”, you ask “What are the world's most patient, disciplined, and successful investors buying for the long term?” This simple shift in focus helps you avoid market manias and stick to a sound, evidence-based process.
• Expanding Your Circle of Competence: You might be an expert in retail companies but know little about banking. If you see a superinvestor with deep expertise in finance, like Seth Klarman, making a significant investment in a specific bank, it serves as a compelling reason to begin studying that industry. It's a guided tour into new areas, led by a master of the domain.

Ultimately, cloning helps the value investor solve the “where to look” problem. It doesn't eliminate the need for independent thought, but it ensures that the time you spend on research is focused on opportunities that have already been vetted by the best in the business.

Intelligent cloning is a systematic process, not a lottery ticket. It requires discipline and, above all, the understanding that the superinvestor's idea is the start of your work, not the end of it.

Here is a step-by-step guide to practicing intelligent cloning:

1. Step 1: Identify Your “Superinvestors”.

This is the most crucial step. You are not looking for traders, hedge fund quants, or market timers. You are looking for long-term, concentrated, value-oriented business owners. Your list should be short and well-curated. Think of investors like:

• Warren Buffett (Berkshire Hathaway)
• Charlie Munger (Daily Journal Corp, until his passing)
• Mohnish Pabrai (Pabrai Investment Funds)
• Li Lu (Himalaya Capital)
• Seth Klarman (Baupost Group)
• Guy Spier (Aquamarine Fund)

The key is that their investment philosophy must align with yours.

1. Step 2: Find the Data.

In the United States, any investment manager with over $100 million in assets must disclose their long equity holdings to the Securities and Exchange Commission (SEC). This is done via a Form 13F-HR. These forms are filed quarterly and become public 45 days after the end of each quarter. While you can find these on the SEC's EDGAR database, several free and paid websites aggregate this data beautifully:

• Dataroma.com (Highly recommended, free)
• WhaleWisdom.com
• Gurufocus.com

1. Step 3: Analyze the Buys (and Sells).

Look for significant moves. Don't worry if a superinvestor adds 0.1% to an existing position. Focus on:

• New, large positions: When a concentrated investor allocates 5-10% or more of their portfolio to a new company, it signals immense conviction.
• Significant additions: When they substantially increase an existing holding, it suggests they believe the company is even more undervalued now than when they first bought it.
• Consensus buys: If you see two or three of your chosen superinvestors independently buying the same “boring” company, it's a massive red flag—of opportunity.

1. Step 4: Do Your Own Homework (The Non-Negotiable Step).

This step separates intelligent cloners from gamblers. You've found a great idea. Now, you must make it your own. You need to be able to answer:

• What does this company do? Can you explain it to a 10-year-old? Is it within your circle_of_competence?
• Why is it a great business? Does it have a strong economic_moat? What protects it from competition?
• Is the price attractive? Do your own basic valuation. Does it seem cheap based on its earnings, cash flow, or assets? Does it have a sufficient margin_of_safety?
• What are the risks? Why might the superinvestor be wrong? What could permanently impair the value of this business?

1. Step 5: Act Only If It Clicks.

If, and only if, you have completed your own research and can confidently explain why the investment is a good idea—independent of the fact that a superinvestor owns it—should you consider making an investment. Your conviction must come from your own work.

The difference between success and failure in cloning lies in your approach. Blindly mirroring trades is a recipe for disaster because you won't have the conviction to hold on during tough times. Intelligent cloning is about using 13F filings as a map to find buried treasure, but you still have to dig for it yourself.

Let's walk through a hypothetical scenario. Meet Sarah, a diligent value investor. One of the superinvestors she follows is the fictional “Eleanor Graham,” known for her long-term, concentrated bets in high-quality, understandable businesses. 1. The Filing: In mid-February, Sarah is reviewing Eleanor's 13F filing for the quarter that ended December 31st. She notices a major new position: Eleanor has allocated 8% of her fund to a company called “Steady Spices Co.” (Ticker: SPC). This is a significant move that catches Sarah's attention. 2. Initial Triage: Sarah has never heard of SPC. A quick search reveals it's a 100-year-old company that sells a portfolio of dominant spice and seasoning brands to supermarkets. It's a simple, “boring” business—exactly the kind of thing Eleanor Graham likes. The stock price hasn't done much for two years. 3. The Deep Dive (Her Own Homework): Sarah doesn't buy the stock. Instead, she spends the next two weeks researching Steady Spices Co.

• Business Model: She reads the annual report. The business is straightforward: they buy raw spices, blend them, package them under trusted brand names, and sell them with a healthy markup. It's a business she can understand. It's inside her circle_of_competence.
• Economic Moat: She realizes SPC's moat is its brand. Generations of consumers have trusted “Steady Spices” in their kitchens. A new competitor would have to spend billions on marketing for decades to replicate that trust. This gives SPC pricing power.
• Valuation: She looks at the financials. The company consistently generates strong free cash flow. Based on the current stock price, it's trading at a Price-to-Earnings ratio of 14x, lower than its historical average of 20x and lower than the overall market. It seems reasonably priced.
• Risks: She notes that a recent rise in raw commodity costs has squeezed profit margins, which is likely why the market is pessimistic about the stock. However, she believes the company's brand strength will allow it to eventually pass those costs on to consumers.

4. The Decision: After completing her own due diligence, Sarah agrees with Eleanor's apparent thesis. Steady Spices Co. is a high-quality business with a durable brand, facing temporary headwinds that have created an attractive price. She now has her own conviction. She buys a small position in SPC, comfortable in her knowledge of the business she now partially owns. When the stock later drops 10% on a bad quarterly report, Sarah doesn't panic. She re-reads her research, concludes the long-term thesis is still intact, and considers buying more. Her conviction is her own, not Eleanor's.

• Efficiency: It dramatically narrows the investment universe from thousands of stocks to a few dozen pre-vetted ideas.
• Quality Bias: It naturally steers you toward businesses with strong competitive advantages, as these are the companies superinvestors favor.
• Educational: By studying the holdings of great investors, you learn what makes a great business and how the best minds think about capital allocation.
• Cost-Effective: It allows you to benefit from multi-million dollar research departments for the cost of a few hours of your own time.

• Time Lag: The 13F filing is released up to 45 days after the end of a quarter. The superinvestor's purchase could have been made up to 135 days ago. The price may have changed significantly, or they may have already sold their position.
• Incomplete Information: 13Fs only show U.S.-listed long stock positions. They don't show international stocks, short positions, bonds, or cash levels. You are only seeing a small slice of their total strategy.
• The Danger of Blind Copying: This is the single biggest pitfall. If you don't do your own work, you won't have the conviction to hold on during volatility. You will buy high and sell low, turning a good idea into a bad outcome.
• Different Goals & Sizes: A multi-billion dollar fund manager may buy a stock for reasons that don't apply to you. They may be constrained to only buying large-cap stocks, while you have the flexibility to buy smaller companies. Their position size may be tiny for them but huge for you.

• superinvestors_of_graham_and_doddsville
• circle_of_competence
• margin_of_safety
• due_diligence
• sec_filings
• intrinsic_value
• behavioral_finance