Coattail investing is a strategy whereby smaller investors follow on in the footsteps of larger investors. So a money manager working for a large investment house begins a new investment strategy, this information eventually reaches the wider financial markets and then other investors, based on the perceived strength of the investment houses new investment strategy, follow on and also invest. Also known as copycat investing, it is a strategy that has stood the smaller guys in good stead for many years, and also inevitably leads to a rise in the price of the asset being invested in which also benefits the big boys who got in first. However this coattail strategy can backfire in certain situations, namely when the the investment house being copied is only investing for short term benefits. In these cases by the time the information reaches other investors further down the food chain it may not be as good a prospect. The good thing about it is that many if not most of these types of big investments are conducted under a buy-and-hold mentality, making the information valuable for far longer durations.
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