THE PERILS OF COPY TRADING

10/09/25 Prospero.ai Investing (256th) Edition (Midweek)

A bull market makes everyone more confident — betting bigger and bigger — and, in the end, losing more than they made. This story is as old as the market itself. It wasn’t the decision-makers who stood in bread lines during the Great Depression, but everyday people who sold their shares at the worst possible time. That’s why roughly 70% of DIY investors lose money. A lot of people look smart in a bull market. Few are prepared for the bear.

Back in 2022, when Prospero first started our live recommendations, we witnessed something familiar. A popular “social investing” platform emerged, where self-proclaimed “creators” offered paid subscriptions to their stock picks. For a while, those picks produced excellent returns. One creator, known as The Wizard, specialized in small caps — one of which skyrocketed, earning him his nickname. But when the market turned, most of these creators flamed out faster than a startup that raised more than $600K in a retail crowdfund ever should.

What many people — including The Wizard — didn’t understand was that in a bull market, you can make tons of money simply by adding risk. But when the market turns, high-risk portfolios lose their gains just as quickly. And retail investors, in particular, are often the last to accept that the market has turned.

This brings us to copy trading. I’m writing this letter because more times than I can count, someone has told me — like at an event last night — that “everyone should just copy Nancy Pelosi.” And yes, in a bull market, that might not be the worst idea. But — and this is a big but — senators can wait up to 30, even 45 days to report their stock transactions to the public. That’s an eternity in a bear market.

One of the letters we’re most proud of, dated 03/30/25, was titled DON’T TRIM THE HEDGES. In it, we helped readers get ahead of “Liberation Day,” when the market fell over 10% in just a few days. The letter showed how using inverse ETFs could help protect against losses. That’s why, at Prospero, we focus on teaching people how to fish — how to read our index and stock-level signals — rather than just handing them picks. Because when a major correction hits, Nancy Pelosi and her colleagues in Congress will already be out of their positions long before the public gets the memo.

And beyond the timing issues, most copy trading “creators” face serious flaws in both experience and risk management. Most platforms you cannot even short stocks. On top of that, the platforms themselves suffer from delays and limitations that make them nearly useless in fast-moving markets:

I would look at something like a Pelosi tracker the same way I look at crypto exposure. At 10%—or even 20%—of your portfolio, it can be a nice way to add meaningful upside with very little maintenance. However, if the bulk of your portfolio is tied up in things like this, instead of more stable assets such as dividend ETFs or a broad fund like the Vanguard Total Return, or if you’re not using tools like Prospero to manage risk in real time, you’re setting yourself up to become part of that 70% statistic. I don’t know when it will happen—but I’m confident that it will.

GENERAL & PERFORMANCE

For anyone that missed this, there was a fantastic segment on Yahoo Finance Live highlighting how unique and powerful our products are. Our crowdfund is approaching $300K in the last 3 weeks to go. We will likely be letting in another batch to our trade alerts product soon, the crowdfund gets you access.

We are proud of our strategy this week. We are seeing some big gains even long/short and our paper trading portfolio is beating the S&P 500 by 77% annualized, with a win rate of 60% against SPY benchmarks.

Short intro + learning videos with our full app tour as well as advice on how to use this letter.

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