Scraping together enough coin to win the annual luncheon auction with Warren Buffett is probably beyond the means of most investors. With the proceeds going to benefit charity, last year's winning bidder forked over $1.68 million for the privilege.
But many investors would love the chance to chow down with Buffett and pick his brain on his investment philosophy and stocks he's considering buying. The same could probably be said for many other value investing legends, too.
Feast or famine
Maybe we can't break bread with the greats, but we can peek at their stock ideas through their SEC filings. What we'll do here is pore over the reports of some of the top investors and see which stocks they've chosen as their best investments. We'll then check in with Motley Fool CAPS members to see if they agree.
Obviously, there are a few caveats with a strategy of piggybacking on the masters:
- There's a delay from when the stocks were bought and when they file their paperwork. If they were a good deal back then, are they still a good deal today? Have they sold out since?
- These legends may be hot investors now, but that can change in an instant. Bill Miller was a wunderkind for beating the market 15 years in a row -- then he went cold for three. He came back in 2009, but we don't know what 2010 will bring.
Contrary to popular opinion
That's why we say you'll need to do further research. But with those points in mind let's take a look at Seth Klarman, founder and portfolio manager for Baupost Group, which has an equity position valued at more than $1.5 billion. Klarman is a well-known, if somewhat enigmatic, value investor who is the author of the equally elusive investing classic Margin of Safety, which is selling on Amazon for more than $1,000.
Klarman often has significant cash holdings, never borrows, and he can often be found nosing about in distressed debt, particularly bankruptcies. His investing philosophy is perhaps best summed up in the letter he wrote to shareholders in 2004:
By holding expensive securities with low prospective returns, people choose to risk actual loss. We prefer the risk of lost opportunity to that of lost capital, and agree wholeheartedly with the sentiment espoused by respected value investor Jean-Marie Eveillard, when he said, "I would rather lose half our shareholders ... than lose half our shareholder's money ... "
Fund: The Baupost Group
Website: www.baupost.com
No. of Stocks Owned: 17
Top 5 Holdings: News Corp. (NYSE: NWS-A), Domtar (NYSE: UFS), ViaSat (Nasdaq: VSAT), Theravance (Nasdaq: THRX), Breitburn Energy Partners (Nasdaq: BBEP)
Top Sectors: Consumer Discretionary, Health Care, Industrials, Information Technology
Like many of the investing legends we've looked at, Klarman's portfolio is highly focused, and while secretive, you can look at some of his best ideas below. These three companies represent completely new additions to his portfolio at the time of the filing, and some amounted to significant purchases relative to the size of the portfolio.
|
Stock |
Avg. Price |
Recent Price |
% Change |
CAPS Rating |
|---|---|---|---|---|
|
CIT Group (NYSE: CIT) |
$27.92 |
$36.08 |
29.2% |
* |
|
DirecTV (Nasdaq: DTV) |
$30.15 |
$34.78 |
15.4% |
*** |
|
Liberty Starz |
$48.32 |
$53.64 |
11.0% |
** |
Source: SEC Filings.
Naturally, we want you to look a bit closer at these stocks before buying. You can get low-priced appliances in the dent-and-ding section of your home-remodeling superstore, but their quality might not be so good. Same thing here: Make sure there's nothing seriously wrong with the company before you plug it into your own portfolio.
Price is what you pay
Baupost Group was among the handful of creditors that agreed to a $3 billion financing package that gave CIT Group the chance to restructure its debt outside of bankruptcy last July, though it still finally succumbed in November. Klarman apparently never gave up hope, and when CIT Group emerged from bankruptcy just a little more than a month later, Baupost was there, staking a sizable claim.
Admittedly, it's tough to bet against an investing genius like Klarman, but 56% of the CAPS members who weighed in with an opinion believe CIT Group is going to underperform the broader market averages. Not destroyevidence, however, who, like Klarman, looks at its still-dominant position in the small business financing industry as the key to its comeback:
Only a few days out of bankruptcy. They have 10 billion less in debt but still have the largest small business consumer base in America. Warren Buffet and Leucadia wanted to purchase but they declined and went bankrupt instead and now they are back from the dead!
This is a vote that America's small business will be coming back in the next 5 years. Kmart rose tripple digits after bankruptcy and Kmart is dated and out of style. Money never goes out of style. CIT will be back!
Value is what you get
It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page.
Sign up today for the completely free service, and tell us whether these stocks are as good a value as these investing legends think they are.
