By Björn Jeffery, SvD Tech Brief. Published in Svenska Dagbladet on 7 January 2025.
Why make your own investment decisions when you can copy someone else? A new phenomenon from the US is creating new and unusual ways to trade stocks — by riding on the coattails of celebrities.
If you follow the markets, you have almost certainly seen him. Sleeves rolled up, tie loosened, and a bald head, the boisterous Jim Cramer shouts out buy and sell recommendations on the financial channel CNBC. He is a loud and polarising figure who mixes financial advice with entertainment.
Those who followed his advice have had a rough ride. If, on the other hand, you had done the exact opposite of what he recommended, your portfolio would be up 45 percent over the past year. And now there are financial products that help you do precisely that kind of manoeuvre.
The American app Autopilot is part of a new phenomenon in how stock market investments can be made. Traditionally, a distinction is drawn between active and passive fund and stock management. But as the app’s name suggests, this is something that combines both. Someone — a politician, a hedge fund, or a billionaire — makes active investment decisions, and with the help of the service you passively replicate what they do. Or do the exact opposite.
By using publicly available data on which stocks well-known figures hold, you get a somewhat simplified picture of how they think about investments. If you had, for example, mimicked American politician Nancy Pelosi’s stock purchases over the past year, you would have seen a gain of around 55 percent.
The phenomenon is part of a broader trend. New types of financial products are making it easier to access ideas and areas to invest in. The exchange-traded fund KPOP invests in the Korean entertainment industry — something that appears to have had a tough time, having fallen 34 percent in a year. With the description “stop investing in companies that are woke,” you can buy the “God Bless America ETF,” abbreviated as “YALL.” DEAD is not yet a tradeable product, but is an index that tracks listed companies whose chief executives train deadlifts. The idea is that they — regardless of industry — outperform their competitors.
Repackaging financial products into new configurations is thus a familiar method in the industry.
What is new here is not that there are individuals and firms with very specific investment theses — it is the ability for a broader public to trade them in a simple way. On the institutional side, similar ideas have existed for a long time.
In the book “Chaos Kings,” author Scott Patterson describes how two investors created the fund Empirica Capital as far back as 1999. The fund’s purpose was the opposite of everything else at the time. While the rest of the market was trying to find stocks and other assets that increased in value, Empirica had a different strategy: it only made money when the world was going badly. The fund performed best of all in a complete crisis. Behind it stood Mark Spitznagel and the now well-known Nassim Nicholas Taleb, who went on to make a name for himself as the author of books on similarly chaotic themes, including the bestseller “The Black Swan.”
Repackaging financial products into new configurations is therefore a well-established method in the industry. But even if access for the general public has now increased, there are reasons to consider whether there were good reasons why small investors did not put their money to work in this way previously.
Several exchange-traded funds have poor liquidity, for example, which makes them hard to trade. It can also be difficult to understand the precise risk profile of these new products. In the case of the Autopilot app, you are mimicking someone whose appetite for risk may be substantially different from your own. They may also hold other types of financial instruments that protect them against a sudden drop in value — a kind of hedge, or insurance if you will. Trying to replicate a portfolio without seeing the full picture can easily become misleading and risky.
In Sweden, the phenomenon is still in its infancy. Perhaps that is for the best. The newfound simplicity that now attracts many curious small investors may well conceal a great deal of complexity. You do not become Jim Cramer or Nancy Pelosi simply by copying what they do.
