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 last 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.
Last 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 biggest-name investors to make Form 13F disclosure filings, 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, and his firm Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) also 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 piggybackers 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 has also 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 also 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 more on promise and performance, not publicity.
This prompted last 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?
The following reader responses show a variety of investment approaches – with not everyone trusting the biggest investing minds during an uneven economic recovery.
Gurus Inspire Investment Confidence
Investing in a sustainable business is profitable and you will have confidence in a business that has been built on a firm foundation by the gurus who have seen the down side and the upswing of a brand.
– Charles K.
What's So Special About Buffett?
In October 2008 I toyed with the idea of just putting my core holdings in Berkshire Hathaway Inc. (NYSE: BRK.B) and put in a limit order and it expired unfilled, but within a few dollars of that limit. I continued to trade my own account and BRK.B went down 15% in a year. So why does everyone bow to the "Oracle of Omaha"?
Contrarians All the Way
You've said before to "Be a Contrarian: Value is important – and the best time to find it is when no one else can see it, or is too afraid to buy it. Both Buffett and Templeton said it concisely: 'Buy when everyone else is selling.'" This philosophy is what Donald Trump is doing and also why Bill Fields, former CEO of Wal-Mart Stores Inc. (NYSE: WMT), has joined Mr. Trump as an advisor in his endeavor with The Trump Network. It's the vision and creation of Mr. Trump and his partners of a Boston-based wellness company.
Be a Contrarian when no one else can see it.
– Michael T.
If people are selling, then I buy. A 5% downward correction is the big boys' way of cashing out those who are weak of heart or pocket book. For example, gold will continue upward well beyond the correction and sellers will be upset!
– John S.
No More Market
I am pretty much done with the market as we head into a hyperinflationary period. This "quantitative easing" stuff is just another way of spurring inflation – which Ben Bernanke freely admits.
Precious metals for me as the world currencies are purposely being devalued. The stock market will crash big time.
– Tom C.
[Editor's Note: Thanks to all who responded to last week's "Question of the Week" feature regarding follow-the-leader investing.
Be sure to answer next week's question: What's your 'Black Friday" shopping plan? Are you heading out to stores – as early as Thanksgiving Day – or do you prefer to shop online? Have you already started holiday shopping using some of the Pre-Black-Friday specials? Is your smartphone playing a role in this year's holiday shopping?
Send your answers to firstname.lastname@example.org.!
Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at email@example.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
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