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If you're looking to navigate the global markets with the lowest losses and the richest gains, education and research can be two of an investor's best tools – but a peak inside the financial minds of billionaires doesn't hurt, either.
Those looking for another weapon to add to their investment arsenal this week had a chance to see where the market's biggest hitters have been hunting for profits – and where they have scored the biggest gains.
This week marked the third-quarter disclosure of the biggest U.S. investors' holdings, allowing an infrequent glimpse into the stock decisions of some of the most successful money managers.
Warren Buffett, John Paulson and George Soros were some of the big-name investors who made a Form 13F disclosure filing, which the U.S. Securities and Exchange Commission requires of money managers with holdings in excess of $100 million. Forms are due within 45 days of a quarter's end, with current reports covering the quarter that ended Sept. 30.
So what are these most recent disclosures demonstrating? The most notable moves include Buffett's $52 million stake in Bank of New York Mellon Corp. (NYSE: BK), a slight pullback in gold-related investments, and some new biotechnology positions in Genzyme Corp. (Nasdaq: GENZ) and Dendreon Corp. (Nasdaq: DNDN).
Investors hoping to cash in like the masters use this information to guide their trading decisions, causing a spike in trading volume a week after each 13F is filed. Interestingly, a boost in activity holds true for stocks that are bought and sold, meaning investors are attracted to any equities held by the big players.
The most followed investment leader is Buffett, who's firm, Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B), increased its stake in Wells Fargo & Co. (NYSE: WFC) last quarter, prompting analysts to label Buffett as faithful in an economic recovery.
"That is very much a vote of confidence not only in Wells Fargo, but in the commercial banks and the banking sector," David Kass, a professor at the University of Maryland's Robert H. Smith School of Business, told Bloomberg. "Warren Buffett is perhaps more confident now in the economic outlook that our recovery, however slow, will continue."
But the transparency handed to investors isn't a golden ticket to billion-dollar profits, and some analysts say the inside glimpse isn't always a good thing.
Buffett, for example, has previously warned stock-picking piggy-backers that not all of Berkshire Hathaway's positions are his decisions, so those looking to emulate Buffett himself can't be certain they are mirroring the Oracle of Omaha when copying the report holdings.
Companies eliminated from holdings also go on the defensive after reporting.
"Investment decisions are made for any number of reasons, not all of which reflect the underlying strengths of a business," said Dan O'Neill, spokesman for Iron Mountain Inc. (NYSE: IRM), an information-management firm that Berkshire dropped its stake in last quarter. "We're not privy to how or why those decisions are made, but our business is strong and performing well."
The reporting also has stirred up suspicions that those aware of the biggest holdings take advantage of the likely future spike in their big positions. A study by professors Stephen J. Brown at New York University and Christopher Schwarz of University of California – Irvine found that trading volumes peak about a week before the filing deadlines.
Where some investors might still try to cash in on the share price jump, others might be more comfortable pursuing a company with a stock climb based on promise and performance, not publicity.
This brings us to next week's Money Morning "Question of the Week:" Are you a follow-the-leader investor? Have you profited by copying the market moves of famed investors, or do you prefer to turn elsewhere for stock guidance? Do you see any drawbacks to the required 13F filings or do you think the transparency is a beneficial regulation?
Send your answers to email@example.com. We want to hear from you!
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News and Related Story Links:
- The Wall Street Journal:
Investors Shine Light On Firms They Favor
- Money Morning:
Playing 'Follow the Guru' Can Be Fun – and Profitable
- Money Morning:
Playing 'Follow the Guru' Can Be Fun – and Profitable – for Investors
- U.S. Securities and Exchange Commission:
Form 13F-Reports Filed by Institutional Investment Managers
Berkshire Sells Nike as Buffett Changes Stock Pickers
- Social Science Research Network:
The Impact of Mandatory Hedge Fund Portfolio Disclosure
- Money Morning News Archive:
Question of the Week Feature