Every investor claims to be independent. Every manager insists their ideas come from first principles and rigorous work. And yet, if you look closely, professional portfolios behave as if managers spend most of their time peering over each other’s shoulders. The evidence comes from a fascinating study by Harrison Hong, Jeffrey Kubik, and Jeremy Stein, Thy Neighbor’s Portfolio (NBER Working Paper 9711).

The core finding is elegant, funny and unsettling: money managers located in the same city tend to buy, sell, and hold the same stocks at the same time, even after controlling for style, industry tilts, size, local preferences, and everything else you might expect. The authors interpret this as word of mouth. Ideas spread locally. Information diffuses geographically. Your portfolio is influenced by where you live.

What they document is not a trivial effect. If managers in your city increase their average weight in a stock by one percentage point of assets, your own weight tends to rise by roughly twenty basis points relative to managers elsewhere. This is not correlations induced by style. It is not an indexing artefact. It survives controls for local stock preference and even the elaborate machinery of Census region dummies.

It also shows up in trades, not just holdings. Roughly two thirds of the adjustment happens within the same quarter. The remainder shows up, weakly, with a lag. In other words, there is live transmission. Someone in Boston says, “I’m hearing good things about Intel”, and you see Intel weights drift upward around Boston funds.

The authors test alternatives. Could it be companies visiting Boston and talking only to Boston managers? Possibly, but the effect persists after Reg FD, which was designed specifically to eliminate selective disclosure. Could it be a small stock phenomenon? No. The effect is even stronger among micro caps, where institutional presence is thinner and analyst coverage is sparse. Could it be that everyone just loves their local stocks? The effect remains after removing all local stocks entirely from the dataset.

So what is going on?

At minimum, this demonstrates that information transmission in markets is both slow and spatial. This is uncomfortable for a field that likes to imagine information as a frictionless global ether. Investors live in real cities, talk to real people, and absorb ideas through human channels. The friction is social, not technological.

It also gives structure to a long-standing explanation for momentum. The most compelling behavioral account for medium term trend following is that information diffuses gradually across investors. Hong and Stein themselves proposed this in earlier work. What this study adds is evidence that geography shapes the diffusion. Investors learn from those physically near them. Even among professionals.

This creates two practical implications for anyone thinking seriously about edge.

First, ideas cluster. When everyone around you is talking about a narrow set of stocks, sectors, or narratives, your own ideas drift in the same direction. Not because you want to imitate them, but because attention is contagious. This is as true within portfolio management teams as it is across them.

Second, your comparison set shapes your behavior. Even without explicit imitation, when everyone in the local ecosystem is leaning into a theme, you will feel pressure to close the gap. It is the same phenomenon Bill James saw in baseball managers who imitate each other in lineup construction and bullpen usage. People copy the people they see most often.

Edge, therefore, is not just about having better models or faster data. It is also about escaping the gravitational pull of your own peer group. If the people you talk to are all doing the same thing, you are not operating independently. You are participating in a local information pool with its own biases, blind spots, and shared illusions.

In short: your neighbor’s portfolio is influencing yours far more than you think. The real question is whether that is helping you or quietly narrowing your field of vision.

Disclaimer

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting, or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact HTAA or consult with the professional advisor of their choosing.

Except where otherwise indicated, the information contained in this article is based on matters as they exist as of the date of preparation of such material and not as of the date of distribution of any future date. Recipients should not rely on this material in making any future investment decision.