How good is copy trading?

How can you actually tell if copy trading is good? It sounds like a silly question. You will probably say if they have returns over X% lat year they are good. But how do you determine X? What is a good return on investments?

This is where bench marking comes in. Bench marking gives us something to compare copy trading against. If the copied investor is able to produce better returns than the bench mark we can say they are a ‘good’ investment. But if they can’t out perform the bench mark there isn’t really a point in investing with them.

A good bench mark is a popular alternative in the same space as the thing you’re trying to evaluate. For investing this has to be an Index Fund. These are funds that hold all of the securities listed in an index such as the S&P 500 or the FTSE 100. They have low fees and usually perform very well. Index funds are extremely popular and even Warren Buffet recommends them: “In my view, for most people, the best thing is to do is owning the S&P 500 index fund” he said at a recent share holder meeting. Outperforming the S&P 500 would be a very good sign for copy trading.

Outperforming the bench mark doesn’t just mean having better results at the end of the time period. We should also look at how the investor handles draw downs. When the index goes down does the investor also go down? if so do they go down as much? A good investor will maximize the ups and minimize the downs.

So let’s do it. Here’s the 4 most copied investors on Etoro (Jaynemesis, JeppeKirkBonde, Rubymza and Wesl3y) compared against the S&P 500 over the past two years:

S&P500(Green), Jaynemesis(Black), JeppeKirkBonde(Blue), Rubymza (Orange) and Wesl3y(Purple).

The results from the last 2 years are very clear. All of the investors achieved results over 100% and Jay even managed over 200%! The S&P 500 meanwhile achieved a result of 75% which is still really good but not as good as the Etoro investors.

After an even start in 2019 the investors really showed their worth after the March 2020 crash. After the crash the investors were able to rotate their investments into stocks that would benefit the most from the changes in the economy. Meanwhile the S&P 500 is locked into the companies and industries that clearly didn’t do so well in the new world. That is benefit of an active managed investment vs a passive investment.

Here’s what you would get if you invested $1000 2 years ago:

I hope this articles helps to put into perspective how good copy trading is :) You can compare popular investors to any symbol yourself using my builder: https://app.spbuilder.io/