Can You Invest Like Warren Buffett?

Pivoting from information provider to investment app, iBillionaire introduces new ways for retail investors to beat the market.

The iBillionaire app allows users to monitor investments on their iPhones. (iBillionaire/UpstartCity)

iBillionaire wanted to be the Bloomberg for everybody. The New York City-based fintech startup launched with an initial goal to democratize easy access to financial data through mobile apps. While hedge fund managers research stocks on their Bloomberg terminals, platforms like these cost thousands of dollars and aren’t always affordable for retail investors. After introducing the research app, co-founder and CEO Raul Moreno realized his product had a larger problem to solve.

“It’s really hard to know what to invest,” Moreno said. “You like Starbucks and invest in Starbucks, you like Apple and invest in Apple. Instead of making those types of decisions as a young investor, why don’t you look to people who have made money over a period in the stock market?”

Started in 2013 as an information provider, iBillionaire now offers a mobile automated savings and investing service that aims to simplify the process by mapping strategies to the portfolios of billionaire investors such as Warren Buffett, David Tepper and others. This pivot appears to be a strategic move based on feedback from the investment community.

“A lot of times people don’t invest because they get overwhelmed with the research process,” said Charles Sizemore, chief investment officer of Sizemore Capital Management, an investment advisory firm that manages portfolios for high net worth clients.

Paying a $1 monthly management fee for accounts under $1,000 (0.9 percent of account value per year for those exceeding $1,000), users invest in an assortment of customized strategies. iBillionaire is able to track the holdings of famous investors thanks to Form 13F, a quarterly report filed by institutional investment managers to the Securities and Exchange Commission to disclose their latest investment positions.

The iBillionaire app interface. (iBillionaire/UpstartCity)

iBillionaire hopes to grow its user base by making it convenient for users to save money and invest. Young people have pressing savings needs and the company is targeting this wider demographic. The startup initially attracted only customers from the city but has since expanded its clientele across the nation, according to Moreno.

“Most important is for the startup to understand the customer needs and change the end-to-end customer experience,” said Deddy Gan, head of the Barclays Accelerator Programme that focuses on fintech and other emerging technologies.

Apart from investing in iBillionaire strategies, another option is the Direxion iBillionaire Index Exchange Traded Fund (IBLN ETF) listed on the New York Stock Exchange. Comprising the top 30 S&P 500 stocks owned by select billionaires, the IBLN ETF would be classified as a second generation ETF, also known as smart beta.

Traditional ETFs, typically weighted by the market capitalization of each stock in an index such as the S&P 500, Nasdaq or Dow Jones, deliver market exposure by tracking the returns of the index. Smart beta, on the other hand, may achieve better returns or lower risk than the market by strategically choosing companies within the index based on specific investment rules, according to Daniel Prince, head of iShares U.S. wealth advisory product consulting at BlackRock, the world’s largest ETF provider.

While the app looks good on paper, mimicking investor stock picks doesn’t always work. Delivering a 3-year return of just 5.40 percent, the IBLN ETF has underperformed relative to the 7.97 percent increase in the S&P 500 during the same period. The Buffett tracker is up a mere 3.24 percent while Icahn’s is down 6.29 percent.

When people follow what hedge funds are buying, it is important to “understand what was the price they paid and whether it’s too late to get in,” said Ronnie Moas, founder and director of research at Standpoint Research. Time lag could be a dangerous factor. As soon as Form 13F is made public at quarter end, shares jump if people quickly purchase the same names held by successful hedge funds. “Some hedge fund managers might sell on the very day when people are trying to piggy back off them,” Moas said.

To improve performance, iBillionaire has fine-tuned the strategies of its new portfolios. Screening for stocks based on specific sectors and dividend policies, for example, has boosted their gains. The tech fund incorporating the four leading technology stocks, Apple, Google, Amazon and Facebook, gained 29.09 percent over the past three years. The dividend aristocrats fund, which includes blue-chip companies with a track record of paying more dividends every year, is up 12.75 percent, also outperforming the S&P 500.

Before investing in the financial markets, it is wise to do your homework given the risks. Billionaire holdings “give you a starting point for your analysis,” Sizemore said. “The general rule, I would say, is probably not best to just copy the investor without sort of asking what it is that they’re doing or why.”