Did you know that you can ethically copy the investment choices of Wall Street’s best and brightest? Want to swipe Warren Buffett’s stock picks? You can do that. Want to invest alongside Bridgewater, the world’s largest hedge fund? You can do that too. This strategy, which is perfectly legal and not too hard to pull off, is called alpha cloning.

Alpha cloning, also known as copycat investing or coattail investing, is based on a single powerful idea: copy the best to become one of the best. After all, why overthink it when you can just copy the homework from the class brainiac and get (almost) full credit?

You see, every quarter, large investment funds must report their stock holdings to the public through an SEC form called the 13F. That includes the funds of legendary investors like Warren Buffett, Mohnish Pabrai, and Bill Ackman. But it also includes plenty of newer or smaller funds, leaving room for a skilled alpha cloner to discover a rising star.

The best part? As an alpha cloner, you won’t need to dig through all those filings yourself. Many online platforms already present this data for you on a silver platter. They even let you set alerts and monitor a fund’s holdings over time. These modern tools have done the tedious “legwork” for you, leaving you with the fun part: building a great alpha cloned portfolio.

How Alpha Cloning Works

At its core, alpha cloning is surprisingly simple: follow the paper trail that big investors leave behind. Here are the specifics:

SEC Filings Make Alpha Cloning Possible

Every quarter, investment funds managing over $100 million in equities must file a Form 13F with the SEC. These public documents are then stored and accessible on the SEC’s EDGAR database. Of course, alpha cloners usually prefer to use specialized platforms that compile, analyze, and then display this data in pretty colors. 

The 13F reveals several key pieces of information that make alpha cloning possible:

• Names of companies in which the fund has invested
• Number of shares held
• Value of each holding
• Any options or warrants held

When tracked from quarter to quarter, this information tells you whether a fund bought or sold a specific stock. However, there are some things the 13Fs do NOT show:

• Short positions
• Options positions
• Investments in non-U.S. securities
• Cash positions
• Small positions (under 10,000 shares or $200,000)

Some of these “omissions” do play a key factor in alpha cloning strategies, even if your strategy is long-only. We’ll circle back to these omissions in a moment.

The Catch: The 45-Day Lag

Aside from the omissions on the 13F, there’s another catch. Generally, funds must file within 45 days after the end of each quarter (March 31, June 30, September 30, and December 31). That means these filings aren’t real-time; they can come with up to a 45-day delay. So when you’re looking at a 13F, you’re seeing a snapshot of holdings from a month and a half ago.

In practice, this means that alpha cloning tends to work better when cloning gurus who have long investment horizons. For instance, if you know a fund tends to hold onto positions for 5+ years, copying their moves with a 45-day delay is not a big deal. Warren Buffett is a great example, as he tends to buy stocks that he plans to hold forever.

That said, even for funds with shorter-term trading strategies, their 13F can still be a goldmine of information, as long as you use it the right way. In this case, the 13F becomes a valuable clue to use alongside your own research, rather than a pure indicator of confidence in a company.

From Filing to Your Portfolio

As mentioned earlier, you don’t need to pore over 13F filings yourself. Several online platforms (with pretty self-explanatory names), such as WhaleWisdom or HedgeFollow, already do the heavy lifting for you. Some even offer pre-made portfolios based on top investors’ moves.

Next comes the question of who to follow, and this is where the alpha cloning skill factor comes in. Warren Buffett? Ray Dalio? A lesser-known fund manager with a stellar track record? The choice is yours. Essentially, you’re playing moneyball, but instead of scouting recruits for your baseball team, you’re selecting fund managers to add to your portfolio.

Choosing the right manager to clone can be a full guide on its own. But if you’re a beginner, just keep it simple! Start with a list of well-known investors who align with your personal investment goals. For example, if you personally want to build a portfolio around long-term value stocks, just start there.

Most of these online aggregator platforms also have historical performance data for each fund. Use this data to vet their track record before making a choice. You also have the option to follow multiple investors to diversify your strategy.

Making Your Moves

Once you’ve identified interesting moves from your chosen investors, it’s time to act. You might decide to mimic their new positions, increase your holdings in stocks they’ve recently bought more of, or sell when they sell. As new 13F filings come out each quarter, you’ll have fresh data to work with. This allows you to continually refine your portfolio based on the latest moves of top investors.

Of course, the end goal is not to blindly copy every move, even though you might do that at the start just to learn the ropes. You’re ultimately the CEO of your own portfolio. As you get better at alpha cloning, you’ll get better at deciphering the different types of signals and how to interpret them.

Three Reasons Alpha Cloning May Be for You

There are three key advantages that make this strategy appealing to many retail investors.

Play Fund Manager Moneyball

First, it’s very possible for skilled alpha cloners to outperform the individual funds they clone, sometimes by many times over. Here’s how:

1. Cherry-picking: Alpha cloners can select only the best ideas from multiple funds, creating a “super portfolio” that outperforms any single fund.
2. Size advantage: Retail investors can be more nimble, entering and exiting positions more easily than large funds that may move markets with their trades. Retail investors can also consider much smaller cap companies, including promising competitors to the ones the large funds buy.
3. Concentration: Alpha cloners can choose to be more concentrated in their highest-conviction ideas, potentially leading to higher returns (though with increased risk).
4. Sector focus: Cloners can focus on sectors or strategies where specific managers excel, rather than following a fund’s entire portfolio.

The point is: there are many ways to chop up and remix alpha cloning strategies. A skilled music producer takes multiple samples and beats to create a track that outshines all the inputs. A skilled baseball scout drafts a winning team from players overlooked by others. A skilled alpha cloner is no different – there’s plenty of room for a “skill gap.”

Unlike investing in a mutual fund, alpha cloning lets you pick and choose which moves to follow. You’re not locked into someone else’s entire portfolio. If you love most of a fund’s picks but disagree with one, you can simply skip that stock. All this flexibility is why we consider alpha cloning easy to learn, but hard to master.

Leapfrog the Learning Curve

Many of us would love having Warren Buffett as our personal investing mentor. And while that’ll probably never happen, alpha cloning is the next best thing. You get to see exactly what successful investors are doing with their money.

Yes, past performance doesn’t guarantee future results (you knew that was coming, right?). Yet many of these top investors have consistently outperformed the market. At the least, it sure beats taking stock tips from your cousin Joe.

That’s why alpha cloning is one of the best beginner-friendly investment strategies. As you follow these investors over time, you’ll start to understand their strategies and thought processes. It’s like an ongoing masterclass in investing. You might start by copying moves, but you’ll likely end up learning how to think like a pro investor.

Piggyback on Professional Research

Top hedge funds and investment firms spend millions each year on research and analysis. That could include industry surveys, company visits, and extensive financial modeling. Some even go as far as buying satellite data so they can count cars in parking lots. So when you clone their moves, you’re getting some of the benefit of that expensive legwork for free.

Also, following multiple investors can naturally lead to a diversified portfolio. Different fund managers specialize in different sectors or strategies. You can find different “mentors” for commodities, currencies, and high-growth tech stocks all under one roof. By cloning a mix of these experts, you can achieve diversification without having to become an expert in every industry yourself.

Finally, compared to the fees of actively managed funds, alpha cloning can be much more cost-effective. You’re getting the benefit of professional research without the high expense ratios. All you need is a brokerage account and maybe a subscription to a 13F aggregator service.

Two Major Pitfalls to Avoid

Alpha cloning might seem like a foolproof strategy at first glance. After all, you’re following the pros, right? Well, there are two major pitfalls you need to be aware of.

The Partial Picture Problem

Imagine you’re following a well-known hedge fund, let’s call it “TechTitan Capital.” In their latest 13F filing, you see the following:

• 1,000,000 shares of Apple (AAPL)
• 500,000 shares of Microsoft (MSFT)
• 750,000 shares of Amazon (AMZN)

At first glance, you might think, “Wow, TechTitan is really bullish on big tech! I should follow their lead and load up on these stocks.”

But here’s what you might not be seeing (since 13F filings omit the following information):

• Short Positions: TechTitan might have massive short positions on these same stocks. For instance, they could be short 2,000,000 shares of other consumer electronics stocks. This means they’re actually betting against the consumer electronics sector… but just keeping some Apple shares as a hedge (in case they are wrong).. 
• Options Strategies: The fund might be using complex options strategies. For example, they could be selling covered calls on their Apple shares. This would generate extra income, but also limit their Apple upside. 
• Non-U.S. Securities: TechTitan could be heavily invested in Samsung, a major competitor to Apple. This international position wouldn’t show up in the 13F.
• Cash Position: The fund might be holding 50% of its assets in cash, suggesting a cautious outlook. You wouldn’t know this from the 13F.
• Smaller Positions: TechTitan might have small, speculative positions in promising AI startups that compete with the big tech giants. These wouldn’t appear if they’re under the reporting threshold (under 10,000 shares or $200,000).

So, what’s really going on? TechTitan could actually be positioning for a tech sector downturn. If they’re:

• Long on big tech stocks, but more heavily short (betting on a price decrease)
• Hedged with options
• Diversified internationally
• Holding a lot of cash
• Making small bets on potential disruptors

If you simply copied their visible long positions, you’d be taking on much more risk than TechTitan actually has. You might end up heavily invested in a sector that the fund is actually betting against overall.

This is why the partial picture can be so dangerous. You’re seeing only a fraction of their strategy and potentially misinterpreting their entire outlook. It’s like reading only every other chapter of a book. You might see the hero attack his “friend,” but miss how the “friend” betrayed the hero in the previous chapter.

To mitigate the partial picture problem, successful alpha cloners often:

• Follow the fund’s public statements and interviews to gain more context
• Look at the fund’s positions over time to spot trends
• Consider the fund’s known strategy and philosophy
• Use the 13F as a starting point for ideas, not as a blueprint to copy exactly

Again, alpha cloning isn’t about blind copying. It’s about using the available information as a springboard for your own research and decision-making.

The Time Lag Trap

The 45-day reporting delay in 13F filings can lead to several challenges as well. Let’s break this down using our TechTitan Capital example:

Imagine it’s August 14th, and TechTitan’s latest 13F has been released. It’s showing holdings as of June 30th. You notice they’ve made a large new purchase: 1,000,000 shares of “InnoTech” (a fictional AI company).

Excited by this move, you decide to buy InnoTech shares yourself. But here’s what might have happened in those 45 days:

The Completed Trade Scenario:  

• June 15: TechTitan starts buying InnoTech at $50/share.
• June 30: They complete their purchase, now owning 1,000,000 shares.
• July 20: InnoTech announces a breakthrough in quantum computing, stock jumps to $70.
• August 1: TechTitan sells all shares, making a 40% profit.
• August 14: You see the 13F and buy at $70, but the opportunity is gone.

The Changed Thesis Scenario:  

• June 30: TechTitan owns 1,000,000 InnoTech shares, bought at $50.
• July 10: A major flaw is discovered in InnoTech’s AI algorithm.
• July 15: TechTitan, concerned about the technical setback, sells all shares at $45.
• August 14: You buy at $43, thinking you’re following TechTitan’s move, but they’re no longer invested.

The Merger Arbitrage Scenario:  

• June 25: MegaCorp announces it’s acquiring InnoTech for $55/share.
• June 30: TechTitan buys 1,000,000 shares at $52, betting on deal completion.
• July 25: The acquisition completes, TechTitan sells at $55, earning a “free” $3 per share.
• August 14: You see the 13F, but this was a short-term arbitrage play that’s already over.

The Slow Build Scenario:  

• April 1: TechTitan starts slowly building a position in InnoTech.
• June 30: They own 1,000,000 shares, which shows up on the 13F.
• July-August: They continue buying, aiming for 5,000,000 shares total.
• August 14: You buy based on the 13F, potentially driving up the price and making TechTitan’s continued buying more expensive.

In each of these scenarios, the 45-day lag means you’re acting on outdated information. TechTitan’s current position, their reasons for trading, and the market conditions might all have changed significantly.

Mitigating the Time Lag Trap can be tricky, even for seasoned alpha cloners. However, there are a few ways to reduce the risk of acting on a false signal:

1. Look for patterns across multiple quarterly filings rather than reacting to a single report.
2. Consider TechTitan’s known strategy and typical holding periods when interpreting their moves.
3. Keep an eye on significant market events or news during the lag period that might have affected TechTitan’s decisions.
4. Only clone funds that are known to be long-term, long-only funds. This increases the likelihood that a position increase is a true signal of conviction from the fund.

By the way, none of this is to discourage you from pursuing alpha cloning as a strategy. The advantages can far outweigh the risks, as long as you’re informed about these potential pitfalls.

Does Alpha Cloning Still Work Today?

It’s a fair question: with the abundance of information available online, can this strategy still give investors an edge? The short answer is yes, but with some caveats.

Sure, thanks to easy-to-use online platforms, more investors can use this strategy today. But that doesn’t mean everyone will interpret the same data the same way. With over 5,000 funds filing 13Fs every quarter, there’s a tremendous amount of room to develop a skill advantage with this strategy.

Think of it like NBA scouts watching tape of the same player. The player is a 6 foot 11 inch, kinda slow, and relatively unathletic center from Serbia. Everyone else might pass on the player, but the team that scooped up the future 3-time MVP with the 41st draft pick? They’re set for the next decade.

The point is: data alone is useless. It’s the interpretation of that data that makes the difference. Plus, AI-assisted platforms have made it easier than ever to parse through 13F filings. That means you, as the investor, can focus on designing your strategy, leaving all the manual legwork to the software.

So what are the caveats? Well, gone are the “easy money” days where you can just straight up copy a famous investor and expect to do great. Markets tend to react more quickly to 13F filings now, especially for well-known investors. This can reduce the window of opportunity for cloners.

That means success increasingly depends on:

• Focusing on lesser-known or “rising star” fund managers
• Combining insights from multiple investors into a “super portfolio”
• And learning how to separate true signals from noise or red herrings

Used wisely, alpha cloning can still be a powerful tool in your investment arsenal. It can work as a standalone investment strategy, or as a supplement to another strategy, such as value investing, dividend growth investing, or thematic investing. That means alpha cloning is one of the best beginner-friendly strategies—easy to learn, hard to master, and with the ROI potential to be well worth mastering. 

Your First Baby Steps with Alpha Cloning

Like other investment strategies, alpha cloning could be a full-length course. But there are some baby steps you can take right away to get the ball rolling. Here’s how to start.

Step 1. Find Funds That Align with Your Investment Goals

The first step is to find 3-5 investors or funds that align with your broad investment goals. You’ll likely start with more well-known names before branching out to find rising stars. As a beginner, it’s generally better to focus on investors with long-term investment horizons, which tend to be value investors. This partially negates the 45-day delay disadvantage discussed earlier.

The key thing here is to have fun with this step. You’re the president putting together your cabinet. Or the CEO putting together your board of directors. Or the Pokémon trainer putting together your dream team. Really take the time to read up on these investors and their philosophies, and pick the ones that best align with your own.

Here are some options to consider:

Notable Value Investors with Longer-Term Horizons:

Investor	Fund	Investment Style
Warren Buffett	Berkshire Hathaway	Long-term, value-oriented approach and investments in high-quality companies with a “moat” (competitive advantage).
Seth Klarman	Baupost Group	Value investor with a focus on finding undervalued assets and a reputation for patience and discipline.
Mohnish Pabrai	Pabrai Investment Funds	A disciple of Buffett, known for his concentrated, long-term value approach and “heads I win, tails I don’t lose much” philosophy.
David Einhorn	Greenlight Capital	Value investor who also focuses on short-selling overvalued companies.
Joel Greenblatt	Gotham Asset Management	Value investor known for his “magic formula” approach combining value and quality metrics.
Bill Miller	Miller Value Partners	Value investor with a contrarian approach, known for his successful bets on Amazon and Bitcoin.
Jean-Marie Eveillard	First Eagle Investment Management	Known for his conservative, value-oriented approach with a global perspective.
Mason Hawkins	Southeastern Asset Management	Long-term value investor with a focus on quality companies and deep research.
David Abrams	Abrams Capital Management	Value investor focused on long-term compounders.
Tom Gayner	Markel Corporation	Value investor with a focus on intrinsic value and margin of safety.
Tom Russo	Gardner Russo & Gardner	Focuses on global consumer brands with long holding periods
Chuck Akre	Akre Capital Management	Looks for “compounding machines” and holds for the long term
Terry Smith	Fundsmith	Advocates buying good companies and holding them for the long term
Christopher Davis	Davis Advisors	Multi-generational value investing firm with a patient approach

Notable Growth Investors with Longer-Term Horizons:

Investor	Fund	Investment Style
Philippe Laffont	Coatue Management	While focused on technology, Laffont often takes a long-term perspective.
Nick Sleep	Nomad Investment Partnership	Known for his long-term, concentrated approach to investing in high-quality businesses.
Qais Zakaria	Lone Pine Capital	Invests in a mix of growth and value companies with a focus on technology and consumer sectors.

Other Notable Investors with Longer-Term Horizons:

Investor	Fund	Investment Style
Ray Dalio	Bridgewater Associates	Founder of the world’s largest hedge fund, known for his “All Weather” portfolio approach and emphasis on understanding economic cycles.
Carl Icahn	Icahn Enterprises	Activist investor known for taking large stakes in companies and pushing for changes to unlock value.
Bill Ackman	Pershing Square Capital Management	Activist investor with a focus on long-term, concentrated investments.

Step 2. Choose Your Fund Tracking Platform

The key to implementing your alpha cloning strategy is a reliable 13F aggregator. Choose the platform that best fits your budget and needs. Here are some of the top options (no affiliate links):

WhaleWisdom (Free basic features, $90+ per quarter for premium features)

WhaleWisdom is a comprehensive platform that tracks over 6,000 institutional investors. It’s packed with features, including screeners, analysis tools, visualizations, and custom portfolios. WhaleWisdom is a pricey option, but it’s the most comprehensive data and analysis available for alpha cloners.

Dataroma (Free)

Dataroma is known for its user-friendly interface and focus on “superinvestors.” It’s free, making it an excellent starting point for beginners. Dataroma is perfect for those who want a simple, no-frills approach to tracking elite investors’ moves.

HedgeFollow (Free)

HedgeFollow has a simplified user interface and easy-to-use fund rating system. You can sort its list of hedge funds by various metrics, letting you find top performers at a glance. It’s not comprehensive enough to be used as a standalone platform, but it’s useful for filtering for funds to potentially follow.

StockCircle (Free basic features, $99 per year for premium features)

StockCircle focuses on simplifying the 13F data for retail investors. It offers a clean, mobile-friendly interface that makes it easy to track your favorite investors and discover new ones. StockCircle is great for those who want to access alpha cloning insights on-the-go and prefer a more streamlined experience.

GuruFocus (Free basic features, $499+ per year for premium features)

GuruFocus combines 13F data with extensive fundamental analysis tools. It not only shows you what top investors are buying but also provides detailed financial data and valuation metrics for each stock. GuruFocus is perfect for those who want to combine alpha cloning with in-depth stock analysis.

Step 3. Track Your List of Funds on the Platform

Now that you have your list of investors to follow, as well as one or two platforms at your disposal, it’s time to begin your research. A few things you can do right off the bat:

• Set up alerts for new 13F filings from your chosen investors. Most platforms allow email notifications.
• If the platform allows you to create one, you can even put your chosen investors directly in a custom portfolio.
• Familiarize yourself with your investors’ recent trades. Do those trades align with your expectations of their strategies?
• Avoid the urge to make trades immediately. Take your time to understand their moves, and make sure to do your own research.

This is just the beginning. Rome wasn’t built in a day, and you shouldn’t expect to be a pro alpha cloner right from day one. But by following these three steps, you’ll have done the most important thing: you’ll have gotten the ball rolling.

A Star is Born: Your Alpha Cloning Journey Begins

Now that you’ve got the basics of alpha cloning under your belt, you’re ready to begin the journey. Take your time, enjoy the process, and savor the excitement of learning a new skill. As you gain experience, a whole new world of advanced alpha cloning techniques will open up. We’ll have in-depth guides and articles that cover these techniques in more detail. Here’s a sneak peek at what’s ahead:

• Multi-Manager Synthesis: Instead of following a single investor, you can create a “super portfolio” by combining the best ideas from multiple managers. For example, you could cherry-pick only the highest-conviction stocks from Warren Buffett, Seth Klarman, and Mohnish Pabrai.
• Conviction Weighting: Not all positions are created equal. Learn to weigh your portfolio based on the level of conviction shown by your chosen investors. A newly initiated 10% position likely carries more weight than a long-held 1% position.
• Sector Rotation: Some investors excel in specific sectors. By tracking multiple specialists, you can potentially capitalize on sector-specific opportunities more effectively than any single manager.
• Activism Piggybacking: When an activist investor takes a large stake in a company, it often signals upcoming changes. Learning to identify and capitalize on these situations can lead to outsized returns.
• 13D Mining: Beyond 13F filings, 13D filings can provide even more timely information about significant positions. This is a form that investors must file with the SEC when they acquire more than 5% of a company’s outstanding shares. Mastering the art of 13D interpretation can give you another edge.

Remember, the goal isn’t just to copy trades, but to understand the thought process behind them. Each 13F filing is a puzzle piece in the larger picture of an investor’s strategy. Your job is to piece them together and, eventually, create your own masterpiece. And who knows? Maybe someday, others will be cloning your moves.