Invest Like A Pro: 9 Ways To Emulate The Experts With Your Investing Strategy

If you’re looking to boost your investment returns, it can be helpful to study how the investing pros manage their money. You can see not only their investments in publicly available filings but also understand how they approach investing as a discipline – their attitudes, philosophy, setbacks and the wisdom they’ve learned over years or even decades of “running money.”

Below are nine ways to emulate the pros to power up your own investing game.

How you can invest like an expert

If you’re looking to invest like an expert, the first step is examining their approach. Here are nine things that the investing experts do to improve their returns.

1. Think long term

Investors rarely think about what a stock could trade for next week. In contrast, traders focus on generating profits in relatively short-term trades. Investors are looking years or even decades out to find companies that are well-positioned to compound their money. Short-term stock performance is almost irrelevant as long as the fundamental business stays on track.

Thinking long term has a variety of key benefits, including forcing you to think like an owner, reducing capital gains taxes and improving your overall returns. Imagine that you invested in a massive long-term winner such as Apple and took a 50 percent profit after holding for a bit. You would have missed out on huge gains over time during which you could defer taxes on your win.

To quote the late investing legend Charlie Munger: “The first rule of compounding: Never interrupt it unnecessarily.” If you feel yourself wavering, it may help to review your portfolio with an advisor to see how investment decisions can impact your overall financial picture. 

2. “Don’t lose money”

“Don’t lose money” is the maxim that superinvestor Warren Buffett names as his top investing rule. (His second piece of advice: “Don’t forget Rule No. 1.”)

Naturally, no one approaches investing trying to lose money, but if you don’t take the right approach, you can easily lose your shirt. But the advice to “not lose money” means focusing on what you could lose first, the potential downside of an investment. If that downside is low enough, then it may be worth investing if the potential upside is high enough and likely to occur.

So when you eliminate the biggest potential losers, you’re left with higher-probability winners. While your investments won’t all be winners, you’re not likely to lose as much overall, leaving you with more money to compound over time and better overall long-term returns.

3. See what other investors find interesting

You don’t win any points for originality in investing – the name of the game is making money. Here’s where you can be rewarded by cheating off your other people’s homework.

It can be worthwhile following what the great investors, including Warren Buffett via Berkshire Hathaway, are buying. You can easily find out via Form 13F, which the SEC requires for investment funds with more than $100 million in assets. To find out why a pro is buying, look through the quarterly letters that hedge funds and others send to their private investors and listen in on any conference calls.

Of course, it’s not sufficient to buy a stock because the pros like it, though it is a starting point.

4. Build an investing community

The filings of big investors can be a great place to find large-cap stocks, but you may be able to find even more attractive smaller stocks that the big guys can’t touch. And that’s where it can be useful to have an investing community to tap for stock ideas.

With an investing community you can run your ideas by other investors and see what they think and where you might have missed a critical detail. A community is also great for running through a ton of stock ideas faster than having to pore over all the details by yourself. You’ll be able to sift through the market faster and see what others think are the most compelling ideas out there.

5. Look at underperforming sectors, stocks or asset classes

One of the best sources of investment ideas for expert value investors is finding what’s out of favor today, whether that’s a stock, an industry or an asset class. If that undervaluation is likely to correct itself at some point in the future, then it may be worth exploring further.

For example, experts might look for stocks hitting 52-week lows or sitting at their lows for some time, and then assess whether their problems are temporary or not. If a company can overcome its issues, then it may return to investors’ favor and generate above-average returns.

For asset classes, investors might look at undervaluation relative to other asset classes. For example, in 2023 the Magnificent 7 stocks (a group of large-cap tech stocks) earned their moniker by defying the market’s downward pull that impacted many small-caps stocks. But by late in the year, large-caps were valued at multi-year highs relative to small-caps, making the small fry a relative bargain. So investors piled into small-cap stocks, pulling the best small-cap ETFs out of a nosedive.

6. Do your own research

It can’t be overstated – with all these ideas you’re getting from others, it’s critical to do your research. You can’t trust what some anonymous (or even non-anonymous) individual on the internet says about a company – one reason penny stocks are dangerous – and must verify the facts and come to your own conclusion about whether the stock presents an opportunity.

So getting ideas from others is fine, but do your own research before you put your money to work. Doing your own work can also give you the confidence to buy more later on, especially if the stock drops. If you know the business well, a cheaper price may be a great time to load up.

Here’s how to research stocks like the pros – including techniques to find critical info that most investors miss.

7. Have your buy list ready to go

Top investors are always learning about good companies that they might like to own at the right price. Even if they think the stock price is too high right now, it could be a business they want to own later if the price comes down. The pros keep a watchlist of stocks and the price they’re willing to pay for them, so when the market drops they’re ready to pounce on good deals.

Having a shopping list means you can act quickly if the market over-reacts to short-term news or even if a bear market rears its head and you need to sort through your top picks. You won’t have to think when emotions are running high and can act on the work you’ve already done.

8. Concentrate on your best ideas

The best investors typically concentrate money on their top ideas, preferring them to, say, their 20th best idea, which may not offer as much risk-adjusted return as their best. The focus on their best ideas allow experts to generate high returns with a given amount of capital.

Keep in mind that the pros can take concentrated positions because they’re thinking long term (Rule No. 1), focused on the downside first (Rule No. 2) and have the confidence of their own research (Rule No. 5). In other words, because they’re doing the right work, they can take the risk of a concentrated portfolio.

Finally, don’t fall into the silly trap of building a concentrated portfolio believing that it makes you an expert. That’s an easy way for the overconfident to blow up. For most investors it’s advisable to use diversification to reduce their risk. Buying an S&P 500 index fund, for example, allows anyone to get a safer portfolio without having to do the research work to own individual stocks.

9. Invest in a trend with ETFs

It can take a lot of work to know enough about an industry to invest in it, but investors who are looking to ride a major trend can purchase a sector ETF and take advantage of its growth.

For example, let’s say you’re interested in investing in semiconductor companies. Getting up to speed on the industry can be tough. By buying a semiconductor ETF, you won’t need to do all the in-depth work to invest in individual companies, and you won’t need to pick winners. An ETF provides exposure to the overall growth of the industry.

However, it’s important to understand what an ETF owns and whether it actually owns stocks that will participate in the trend the fund purports to represent. For example, a blockchain ETF may own companies where only a tiny part of the revenue comes from blockchain-related ventures while the rest come from software, finance or other industries.

Bottom line

Emulating the best practices and behaviors of experts —  and identifying the techniques and tricks that work best for you and your temperament — can help you increase your investment returns. However, understand that pro-level results require discipline and practice.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

— Bankrate’s Dayana Yochim contributed to an update of this article.