What the Smart Investors Are Up To

In investing, you regularly hear that the odds are stacked against the little guy. How can you compete with a billionaire hedge fund manager who has access to better information, faster computers, and more analysts than you do?

One way: Piggyback their trades. This is easier than some think. All investment managers with more than $100 million under management are required to report their portfolio holdings to the SEC every quarter. They're called 13-F filings. Track these filings closely, and you can see exactly what some of the world's best investors have been buying and selling.

Here's what five of them have been up to lately.

Bruce Berkowitz
Berkowitz, who runs Fairholme Capital Management, has been on a quest to shed light on Bank of America (NYSE: BAC  ) in recent months. Berkowitz hosted a conference call with B of A CEO Bryan Moynihan earlier this month, firing off probing questions about the bank's neverending struggles.

He has good reason to be concerned. Berkowitz's funds owned 92 million shares of the bank earlier this year, and upped that stake to more than 99 million shares in the quarter ended June 30. Since then, B of A shares have plunged by almost a third, and have dropped by nearly half over the past year.

Berkowitz also bought about half a million shares of Citigroup (NYSE: C  ) during the quarter -- another stock bludgeoned in recent weeks. Fairholme's heavy concentration in financial stocks has hammered overall performance this year.

On the sell side, Berkowitz dumped more than two-thirds of his position in Morgan Stanley last quarter, and fully exited a position in Cisco (Nasdaq: CSCO  ) .

David Einhorn
Einhorn -- best known for his foray into professional poker, shorting Lehman Brothers, and looking like a sixth-grader -- purchased 5.8 million shares of Microsoft last quarter, bringing his hedge fund's total stake up to nearly 15 million shares.  

This wasn't a surprise. Einhorn gave a presentation at the Ira Sohn investing conference earlier this year, laying out the bullish case for Microsoft. An excerpt:

While I thought Microsoft was a bargain at a small discount to the S&P, it now trades at a remarkable discount.

Even as the business is outperforming average S&P 500 companies by a wide margin, the advancement has been barely above average. While the S&P multiple has gone from 16 to 15, Microsoft's multiple, net of cash, has contracted from 16 to 7. The question at hand is why. Certainly Microsoft isn't getting credit for some of its achievements and prospects.

Einhorn's main criticism seems to be CEO Steve Ballmer. "Ballmer's problem is that he is stuck in the past, and is at best a caretaker in an industry demanding constant innovation." This is a common complaint among Microsoft shareholders. Ditch Ballmer, they say, and value will be unlocked.

Einhorn also sold his entire position in Yahoo! (Nasdaq: YHOO  ) , and upped his existing stake in Best Buy (NYSE: BBY  ) .

John Paulson
Paulson, who made billions shorting the housing market, and billions more riding the recovery back up, shed huge amounts of two of his largest holdings, selling half of his stake in Bank of America, and nearly a quarter of his position in Citigroup.

But he doesn't appear to be giving up on banks -- not the good ones, at least. He purchased 13 million shares of Wells Fargo (NYSE: WFC  ) during the quarter, increasing his existing stake by a third. He also bought 10 million shares of News Corp.

Warren Buffett/Todd Combs
You have to be careful scouring Berkshire Hathaway's (NYSE: BRK-B  ) 13-F filings, since Buffett isn't the only person managing money under Berkshire's roof. In previous years, Lou Simpson of GEICO traded stocks that showed up in Berkshire's filings, causing the majority of the media to erroneously report that Buffett bought and sold companies he has nothing to do with.

Today, potential Buffett replacement Todd Combs manages money for Berkshire. Most small Berkshire trades are of his doing.

In the most recent quarter, Combs appears to have doubled his stake in MasterCard, and opened a new position in Dollar General.

One trade that likely did come from Buffett was the purchase of 10 million shares of Wells Fargo. Berkshire now owns 350 million shares of the bank.

David Tepper
Tepper made several billion dollars for himself buying bank stocks at bargain prices in early 2009. He's now starting to shed those stakes. Tepper dumped 7.3 million shares of Bank of America last quarter, or nearly half his total position. He also sold half a million shares of Citigroup, and nearly 200,000 shares of Wells Fargo. On the buy side, Tepper purchased 1.3 million shares of Beazer Homes.

Thoughts? Share 'em below.

The Motley Fool owns shares of Yahoo, Bank of America, Best Buy, Microsoft, Citigroup, Wells Fargo, Cisco and Berkshire Hathaway, and has created a ratio put spread position on Wells Fargo and a bull call spread position on Cisco Systems. Motley Fool newsletter services have recommended buying shares of Yahoo, Microsoft, Cisco Systems, Berkshire Hathaway, and Best Buy, and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Morgan Housel owns shares of Berkshire, Bank of America preferred, and Microsoft. Follow him on Twitter @TMFHousel. 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.


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  • Report this Comment On August 17, 2011, at 5:39 PM, xetn wrote:

    Why anyone would risk capital investing? in these big banks is questionable. They are exempt from FASB standards for reporting on the quality of their toxic assets they refer to as collateral for loans to the tune of $trillions. If they had to report as any other corporation they would all be bankrupt (pun intended).

  • Report this Comment On August 18, 2011, at 10:19 AM, MrsCathyGF wrote:

    This isn't relevant subject for the average investor. These guys play professional 'hockey' with their whackamole stragegy.

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