How to Learn Which Stocks Hedge Funds Love

By way of 13F SEC filings, retail investors can find out which famous investors, like Berkshire Hathaway (BRK.B -0.69%) and Markel (MKL -1.00%), own shares of stocks like Bank of America (BAC -0.21%), AIG (AIG -0.13%), or ExxonMobil (XOM -2.78%). While this information can be useful, investors shouldn't blindly follow these professional money managers.

In this segment of The Motley Fool's financials-focused show, Where the Money Is, financial-sector analysts Matt Koppenheffer and David Hanson tell viewers about five funds they think can provide some interesting insights. The guys highlight Bruce Berkowitz's Fairholme Capital Management's large stakes in Bank of America and AIG and discuss Warren Buffett's ExxonMobil purchase. Like Berkshire Hathaway, insurer Markel's 13F filing also provides some great lessons on long-term investing.

Full transcript below.

Matt Koppenheffer: Moving on to our focus for today, we're sort of at the end of earnings season, and that also means that we're basically at the end of 13F reporting season.

David Hanson: We're almost to the fourth quarter of earnings season. It turns over so fast -- one more month.

Koppenheffer: These quarters grow up so quickly.

For those that aren't familiar with 13F reporting season, all the financial companies that own stocks, so we're thinking about mutual funds, thinking about hedge funds, and then companies like Berkshire Hathaway and Markel, that own a lot of securities -- I guess we could say insurance companies; both of those are insurance companies -- that own securities, they have to report in these 13F filings to the SEC, letting the SEC and letting investors know, what are the stocks that they own.

This is a great time for investors to tune into these and see what the talented investors out there are doing; not necessarily to just go and copy what a Tom Gayner at Markel is doing, or what Buffett's doing over at Berkshire, but to tune in. To see what they're doing, and then maybe do some more analysis on your own and figure out if that's a good idea for your own portfolio.

I know you've got a few that you were looking at. I've got a few here that I was looking at, so maybe we'll do a little back-and-forth, here.

I'll start out with Berkshire because we can't not cover Berkshire. I'm sure that most Buffett fans have already heard what Berkshire's done this quarter, but it added a position in ExxonMobil. This has been a position that the company's been building for a while. This is a Buffett position. They don't really say specifically what's a Buffett position and not, but this is a Buffett position.

ExxonMobil, on the other side of the coin, eliminated stock in ConocoPhillips. This is an interesting kind of pairs trade if you're looking at the two -- sell ConocoPhillips, buy ExxonMobil.

Hanson: Look at you, "pairs trade."

Koppenheffer: Pairs, yeah. You didn't know that I was a short-term trader.

Hanson: Such a trader.

Koppenheffer: Yeah, I know. CNBC's going to be calling me for Fast Money now.

Hanson: I like it.

Koppenheffer: Also added to the very large position in DaVita. This is not a Buffett position, almost assuredly. Most likely this was from Ted Weschler. This was a very large position in his hedge fund before he came over to work at Berkshire. Also sold a bunch of stock in Tesco, the overseas grocery giant.

Hanson: There you go. One of the ones that I like to take a look at -- there's not a ton of quarterly moves in this one -- and that's Fairholme Capital Management. That's Bruce Berkowitz. It's really just more interesting to see how concentrated this portfolio is -- 65% of the portfolio in AIG and Bank of America -- so just a very unique perspective there.

This isn't, maybe, one to go in, like you said, and blindly follow, and say, "Oh, he's doing that. I'm going to put 65% of my portfolio in there," but he's got a very interesting strategy in terms of how he sees value, so I think it's an interesting one to pull up and see where does his portfolio sit, what is he thinking about the market right now? That's one that's always on my list.

Koppenheffer: Well, Fairholme was the number two on my list. It makes sense that it's on our radar because of the big positions there. During the quarter, added a whole bunch more Fannie Mae and Freddie Mac preferred shares -- preferred shares. I know there was some talk early on that, when Berkowitz was buying the preferred shares of Fannie Mae and Freddie Mac, that he also bought some common shares.

He did, and then sold them. This is, as far as I could tell, almost exclusively now a bet on the preferred shares of Fannie Mae and Freddie Mac, and we actually saw the proposal that Berkowitz made to roll those over into a new company. Also added some more Sears Holdings, sold a little bit of AIG and Bank of America; maybe not too surprising, given the overwriting in there. Maybe making some room for that big Fannie Mae and Freddie Mac preferred play.

Hanson: My next one?

Koppenheffer: Yeah, go for it. I'm not stopping you.

Hanson: You mentioned it when we kicked off, and that's Markel and Tom Gayner, who's managing that portfolio over there. This is an interesting one, contrasted to Fairholme. It's much more diversified; a lot of stocks in this portfolio.

There is some concentration at the top. This is total here -- 20% is in Berkshire, Brookfield Asset Management, and Fairfax Financial Holdings -- so there's some concentration in there, but it's a little bit different because all three of those companies are diversified in their own right.

We talk about Berkshire Hathaway, it's essentially an index fund, kind of. It spans multiple areas of the economy itself.

Koppenheffer: Right, or at least a mutual fund.

Hanson: So, 20% of the Markel portfolio in there is in those three holdings, but those are very diversified as well. Gayner, a very interesting one. He's a value guy, but he's also not afraid to invest in some growth companies. He's not a cigarette-butt, or a cigar-butt type investor.

Koppenheffer: Or cigarette...

Hanson: Yeah.

Koppenheffer: He's not picking things up off the street...

Hanson: Nobody likes to do that.

Koppenheffer: Nobody does. It's gross.

Hanson: I don't know if he would brand himself that, but he's a little bit of a Foolish investor, so it'll be interesting to see what he's holding. Other than Berkshire Hathaway, his next biggest holding is CarMax, so maybe just one to look into, and read up more.

Koppenheffer: A lot of buybacks there at CarMax. A lot of buybacks. Big, big into the buybacks.

My final one, this is Mohnish Pabrai, his funds. Not much to report here; no changes in the portfolio. That's not too surprising, if you're familiar with Mohnish Pabrai. Again, a very concentrated portfolio here; even more concentrated, maybe, than Fairholme. He just doesn't do a lot of trading. Picks his positions and holds them, looks for big movements.

Among the top holdings, this goes to you and me; apparently either Pabrai has been listening to our show, or maybe we've been tele...

Hanson: Communicating?

Koppenheffer: Telecommunicating. I was struggling with that word. I don't even know if that's the right word.

Hanson: It's probably not.

Koppenheffer: We've got some Star Trek thing going on with Mohnish Pabrai. Bank of America, Citigroup, and Goldman Sachs all among Pabrai's top holdings.

Hanson: All right. My last one, I'll just say it quick, is Baupost Group, Seth Klarman.

Koppenheffer: Oh, good one.

Hanson: The guy's a genius, so one to put on your radar. There you go.

Koppenheffer: That's all you have to say?

Hanson: That's all I have to say.

Also a very concentrated portfolio at the top there, so one to check out. You can find these on SEC's website, but there's also a website that's pretty easy to navigate. It's called Whalewisdom.com. It's another easy one to just go in and check some stuff out. There you go.

Koppenheffer: Thanks for that enlightening report on Seth Klarman.

Hanson: You're welcome.