What the Smart Investors Are Buying

According to the World Federation of Exchanges, there were 45,358 publically traded companies worldwide at the end of 2009. That's a lot.                                         

Asked years ago how he finds gems when so many companies exist, Warren Buffett said he "starts with the A's."

Impressive -- but impractical for most of us. We need a faster, more efficient way to find good investment ideas.

One smart approach: Copy the masters. Watch what they do. Get your ideas from them, then dig a little deeper.

That's what we do several times a year, when the world's greatest investors are required to disclose what they bought and sold in the previous quarter. Here's what six of them have been up to recently.                

1. John Paulson
Fresh off a $5 billion payday last year, hedge fund dominator John Paulson upped his bet on the energy sector last quarter, buying 7.8 million shares of Anadarko Petroleum.

This isn't terribly surprising, since the bulk of Paulson's fund is already positioned to wrestle with inflation. As he recently wrote to investors: "While we know there is very little inflation today, we are concerned about the impact quantitative easing could have on future inflation. Accordingly, we have put in place numerous portfolio strategies that could both protect capital and provide high absolute returns with minimal risk if inflation becomes an issue in the future."

Paulson also opened a 6 million-share stake in J. Crew and a 3.5 million-share position in Whirlpool (NYSE: WHR  ) .

2. Warren Buffett
Berkshire Hathaway
's (NYSE: BRK-B  ) quarterly filing spread confusion, after several positions were liquidated by former Berkshire employee Lou Simpson, not Buffett himself. But one transaction very likely came directly from Buffett: The purchase of 6.2 million shares of Wells Fargo, already one of Berkshire's largest holdings.

When Wells traded below $9 per share two years ago, Buffett said that if he had to put his entire net worth into one stock, he'd choose Wells. Shares apparently still look attractive at more than three times that price.

3. George Soros
Soros's fund more than quadrupled down on its position in Delta Airlines (NYSE: DAL  ) , buying more than 11 million shares last quarter.

You probably forgot that airlines could make good investments. So did everyone else. But in truth, the airline industry cut out so much excess capacity during the recession that its pricing power is now returning. Seats are full. Ticket prices are rising. The end of 2010 was the first time in more than 10 years that the industry had a profitable fourth quarter.

4. David Einhorn
Einhorn's hedge fund bought a massive 55.9 million-share stake in Sprint (NYSE: S  ) last quarter.

Admittedly, this was already known. Einhorn revealed his Sprint position to CNBC in December, saying:

Sprint has been a disaster stock. It's practically gone from a high number to a low number. The Nextel acquisition absolutely killed the company. They almost went bankrupt. But we think they're in a good spot for a turnaround right now. The churn has improved. The customer service has improved. Their reputation has improved. Their lineup with handsets has improved. But that's more short term. What's interesting is, as telecom expands, these new devices use more and more bandwidth. And Sprint along with its partner Clearwire has much, much more spectrum than most of the competing companies that are out there ... So I think there's an opportunity for Sprint to gain market share over time.

He also opened a new 3.3 million-share position in BP (NYSE: BP  ) , which has nearly doubled since bottoming amid the oil spill last summer.

5. Bill Ackman
Ackman more than doubled his stake in J.C. Penney over the quarter, buying more than 19 million shares. His fund now owns roughly 16% of the company.

Like Einhorn, Ackman's J.C. Penney stake has already been known for a while. He said in an interview last week: "The margins are lower than where they could be, I think the revenues are lower than where they could be, and I think the business has an opportunity. It's got a very strong balance sheet, and it's got a very strong position in the minds of consumers."

Ackman also bought 7.2 million shares of GM (NYSE: GM  ) , which went public in November.

6. David Tepper
Tepper, who made billions riding bank stocks as the economy recovered, more than doubled his position in Citigroup (NYSE: C  ) , buying 66 million shares last quarter. He also bought 1.4 million shares of GM, 2.6 million shares of Bank of America, and 3.2 million more shares of Microsoft.

Tepper's economic bullishness was rekindled last year after the Fed began a second round of quantitative easing. "What'd the Fed [just say]?" he asked in September. "They want economic growth. And not only do they not care if there's inflation, but they want a little inflation. Have they ever said that before? No. They say they want the market up. So what, am I going to say, 'No Fed, I disagree with you? I don't want to be long?'"

Guess not.

Fool contributor Morgan Housel owns shares of Berkshire, Microsoft, and Bank of American preferred. Berkshire Hathaway, General Motors, and Microsoft are Motley Fool Inside Value picks. Berkshire Hathaway is a Motley Fool Stock Advisor selection. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Bank of America, Berkshire Hathaway, Microsoft, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 16, 2011, at 8:17 PM, Jescal7 wrote:

    Do these guys get discounts for purchasing that many shares or would they pay the same price per share as I would on any given day using sharebuilder.com?

  • Report this Comment On February 16, 2011, at 9:45 PM, TMFHousel wrote:

    Jescal7,

    Good question. It really depends: They might get a modest discount for buying in large chunks if an eager buyer wanted to unload at once, but they also might have to pay a premium to buy a large amount of a illiquid company. Big investors get the most advantage over the little guy when striking special non-common-stock deals. For example, Berkshire Goldman and GE in preferred stock in Oct. 2008 with a 10% dividend that wasn't available to the public.

  • Report this Comment On February 17, 2011, at 1:42 PM, mderelus wrote:

    hello how is everyone doing ? i am very new and unexperience in this i just open an account in tradeking and i am looking to invest $1000 in the market but i really dont know which stock i should invest in i dont plan on doing anything with the money for 5yrs. please help any input is welcome thank you.

  • Report this Comment On February 17, 2011, at 2:13 PM, foo82 wrote:

    @mrderelus

    Safest route is just to find some 4 or 5 star stock that pays out a modest dividend.

  • Report this Comment On February 17, 2011, at 2:38 PM, mderelus wrote:

    @foo82 thanks but how would i go about finding those because i want to learn and also i dont want to be a fool and just throw my money away

  • Report this Comment On February 18, 2011, at 6:59 PM, hanover67 wrote:

    Didn't Buffet get a cheap option to buy Wells Fargo several years ago and a high interest rate on a loan he made to the holding company. Maybe this "purchase" is just exercising the option now that the stock is higher than the strike price. Of course, you and I don't get to do deals like this...

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