Shadow Investing: My personal experience over the last 12 years

Posted by Paul Sutherland on Tue, Feb 21, 2012 @ 02:10 PM

Shadow Investing my personal experience My name is Paul Sutherland, I'm ISACO's Managing Director and a regular contributor to this blog. In this post, I wanted to share my personal experience of Shadow Investing over the last eleven years*.

I have been Shadow Investing my brother Stephen since the year 2000. Stephen Sutherland is ISACO's Chief Investment Strategist and bestselling author of Liquid Millionaire. Stephen is one of the UK's leading growth fund investors and a regular commentator on business television, radio, personal finance newspapers, magazines and other investment media.

Why I started Shadow Investing

I remember explaining to Stephen my frustration with getting poor investment returns and how I’d been making my own investment decisions due to not trusting the competence of financial advisers. At the same time, I also told him that I didn’t have the passion, time or desire to become a full time trader.

I was in a bit of a tricky situation because I wanted to get the same returns as Stephen, but at the same time I didn’t want to put in the same amount of time as him.

While I was pondering how I could overcome this problem, I had an idea. I said to Stephen, “How do you feel about me copying you? I want to get the same returns as you, so would you share what investments you are buying and selling and tell me the day you are doing it?” He immediately said yes and from that day I’ve had the privilege of Shadow Investing Stephen and achieving the same returns as him. It has turned out to be a very wise move indeed.

What is Shadow Investing

In case you've not heard of Shadow Investing before, here's how it works. Using my Stocks and Shares ISA account, I copy the trades that Stephen makes in his own Stocks and Shares ISA account. When he buys a particular investment fund, I buy the same one. In falling markets when he switches into a cash park, so do I. In other words, he does the work and I simply shadow his trading activity. In this way, Shadow Investing allows a novice investor like me to get almost identical returns to a high caliber investor.

The market over the last eleven years* has been in a sideways trend, which has resulted in the FTSE 100 making a cumulative loss of 15%. To make money over this period has been tough. However, by copying Stephen’s ISA trades over this time I’ve made a cumulative after tax gain of 27.1%.

With the FTSE 100 losing 15% over the last eleven years* and me being fortunate to returning close to 30 per cent, it means by shadowing Stephen’s trading activity, I’ve beaten the FTSE 100 by 42.1 per cent. .

Market beating performance like this is rare, so it’s not that often you hear about investors who have ‘beaten’ the market. Yet a relatively uneducated investor like me has managed to achieve that goal.

In my opinion, I wouldn't have been able to achieve these gains if I hadn't been Shadow Investing. Stephen is my secret weapon and he alone is the reason I’ve managed to outperform the FTSE 100 so dramatically since 2000.

If I had followed the traditional route of receiving guidance on how to grow my Stocks and Shares account from a traditional financial adviser, I probably would have performed poorly and more in line with the FTSE 100’s performance. This is because 80%-90% of financial advisers underperform the stock market and so achieve less than the FTSE 100’s growth.

In another post soon I'll look more closely at the performance I've achieved in both falling and rising markets through Shadow Investing.

*31st Dec 1999 - 31st Dec 2010
ISACO investment performance verified by Independent Executives Ltd


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