First of all, James has written publicly about this, and it seems to me most people are more busy trashing him and his service than actually finding out what he does, which is sad, because he’s a good guy who knows his stuff.
I’ve been reading James’s blog since 2012, I’ve read all of his books and my roommate got the Top 1% Newsletter when it came out. I’m personally not a member yet, but I plan on joining this year.
One of the special reports you get when signing up is about trading like a hedge fund. My friend let me read it and it describes the “backdoor” approach pretty much the same way his blog post does.
What is James Altucher doing?
James Altucher is investing in trends.
As long as you know what trend a company is betting on, whether that’s a startup you think is going to be big, or a massive, established company, you can piggyback on the same trend by finding a company that is acting in the same space, for example:
- acting as a supplier to the startup/big player
- having a partnership with them
- competing with them in just one small niche where they have a superior product.
To quote from the blog post:
I find all the stocks that the top funds are buying and then I pick the ones that don’t have analysts covering them. So I know the hedge funds are in first.
Then I look for the companies they are buying that are backdoor plays to the bigger guys.
Instead of looking at AAPL I’ll notice the funds might be buying the chip suppliers to AAPL.
Instead of looking at Google I’ll look to see if the hedge funds are buying companies that are managing the bandwidth for Google. The companies nobody writes about because they are boring.
Instead of looking at Pfizer, I’ll look for the companies that are making an Hep-B drug almost exactly the same as Pfizers that the hedge funds are buying.
And then I’ll often look for stocks that are trading at a discount to where the top investors bought them. It’s as if Warren Buffett is my free intern.
How does he find those trends?
Institutional investors have to file certain forms whenever they take a sufficiently large stake in a company via a stock purchase.
These forms are publicly available, which means anyone can look at them online.
James simply checks the U.S. Securities and Exchange Commission website for those reports and then looks at which positions have been added.
Again, quoting from the same post:
I look at a site like SEC.gov and I look every month at all of my favorite investors and see what stocks they are quietly beginning to buy.
They don’t go on CNBC talking about these stocks. They don’t go to the newspapers. But they have to report their holdings to the SEC in obscure filings labeled “13-D” or “13-G” or sometimes “13-F”.
Of course, with several decades of history in the investment industry himself (including running his own hedge fund at one point), James has built a very strong network of relationships with these investors too, so I’m sure he knows a thing or two you can’t find on Google, but still.
I think the fact that he uses such “plain” methods only adds to his credibility, instead of taking away from it.
Here’s me finding out what companies Berkshire Hathaway (Warren Buffett’s company) has invested in within less than 30 seconds:
That report was filed on 2016-11-14, so less than 2 months ago.
And that’s it really. You don’t invest in Uber. Because you can’t. You invest in a company that owns gas stations. You don’t invest in Facebook. You invest in the company that makes the satellites they want to use to bring internet to everyone.
There are lots more examples from James right on the sales page of his Top 1%.
Of course, not all of these startups and big companies’ plans will pan out – just like the investments that piggyback on them.
You can either use the wealth of information that’s out there to try and pick all the winners yourself, or you can trust in someone like James to do it for you and get the added bonus of his connections, including exact times when to buy and sell.
As someone who wants to invest, believes in value investing, but doesn’t want to spend a lot of time on research, I think it’s a great idea, because it leaves me with more time to make money to actually invest, rather than obsessing over what to pick next.
Disclaimer: This is just my opinion and I’m not affiliated with James or his service in any way.