Evidence Investing

I want to start this section off with a explanation of what Cloning means and the evidence behind it.

First, cloning is when a investor follows the actual investments of other, proven investors.  This is not investing based on a newsletter or stock tip alert twitter.  You aim to 'clone' the other portfolio.  Typically the portfolios which are cloned are major hedge funds and famously successful investors, such as Warren Buffett, Pulson, Soros, etc, etc...you get the picture.  As you may know, most of these funds are required to release their holdings each quarter...giving us individual investors a quarterly look at what they are investing it, what they have bought and sold, and changes in positions.  You can get the raw data if you do a google search (link to follow).  The quarterly releases are called 13F filings.

One of the more academic papers, by finance professors Garald Martin and John Puthenpurackal, which examined Warren Buffett and the cloning of Berkshire Hathaway's portfolio yields some interesting results.

Abstract (edited):      
We analyze Berkshire Hathaway's equity portfolio over the 1976 to 2006 period and explore potential explanations for its superior performance. Contrary to popular belief, we find Berkshire Hathaway invests primarily in large-cap growth rather than "value" stocks. Over the period the portfolio beat the benchmarks in 27 out of 31 years, on average exceeding the S&P 500 Index by 11.14%, the value-weighted index of all stocks by 10.92%, and a Fama and French characteristic-based portfolio by 8.56% per year.\We find that Berkshire Hathaway's portfolio is concentrated in relatively few stocks with the top five holdings averaging 73% of the portfolio value. We show the volatility of the portfolio is driven by large positive returns and not downside risk.  A hypothetical portfolio that mimics the investments at the beginning of the following month after they are publicly disclosed also earns significantly positive abnormal returns of 10.75% over the S&P 500 Index. 

Read the whole paper here:  Martin, Gerald S. and Puthenpurackal, John, Imitation is the Sincerest Form of Flattery: Warren Buffett and Berkshire Hathaway (April 15, 2008). Available at SSRN: http://ssrn.com/abstract=806246. 
Now thats really incredible, if you ask me.   How many investors would give their right arm to have returns 10.75% above the market?!  I would...

As a result of this paper and this idea, there have sprung up a number of sites devoted to this concept:
I suggest you take a look at these three:  
WhaleWisdom (allows you to search each funds holdings and sort by several parameters...the best one, imo), 
MarketFolly (a quality blog devoted to following leading hedge fund managers), and 
AlphaClone (a very slick PAY site that allows to clone and follow cloned portfolios, backtest, etc...  well worth it if you want to get into this sort of investing).

Now you know what cloning is...and if you took a look at those sites, you can see there are some great tools out there to help you do it...

More evidence and specifics to come...