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What are Investment Gurus’ Portfolio telling us

Sunday, October 16, 2016 14:28
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(Before It's News)

Dear PGM Capital Blog readers,

In this weekend’s blog edition we want to discuss the investments and investments strategies of some important gurus in this current volatile environment.

INTRODUCTION:
Guru (Sanskrit: guru) is a Sanskrit term that connotes someone who is a “teacher, guide, expert, or master” of certain knowledge or field.

In pan-Indian traditions, guru is someone more than a teacher, traditionally a reverential figure to the student, with the guru serving as a “counselor, who helps mold values, shares experiential knowledge as much as literal knowledge, an exemplar in life, an inspirational source and who helps in the spiritual evolution of a student.”

The term also refers to someone who primarily is one’s spiritual guide, who helps one to discover the same potentialities that the guru has already realized.

Using the above as a guideline we can define an Investment Guru as follows:

A person who is an expert, or master in the field of capital markets and has developed overtime a strategy of investing or trading with higher returns at lower risk.

Below we will discuss the investment strategy of some successful investment gurus.

WARREN BUFFETT:

Warren Buffett is the most respected and successful investor in history.

Buffett has been called “The Oracle of Omaha” for his impressive investing prowess.

As of September 2007, he was the third richest person in the world. Buffett studied under the legendary Benjamin Graham at Columbia University. Graham had a major impact on Buffett’s life and investment strategies. Buffett is Chairman of the miraculous Berkshire Hathaway, which he built from a textile company into a major corporation with a market cap in excess of US$200 billion. Under Buffett’s leadership, Berkshire shares averaged a 21.4% compounded annual gain in per-share book value from 1965-2006.

Below table shows the top 10 Holdings of Warren Buffett at the end of the second quarter of 2016.

Company Ticker Value On
2016-06-30
No of Shares % of portfolio
KRAFT HEINZ CO KHC  28,812,169,000 325,634,818 22.21%
WELLS FARGO & CO NEW WFC   22,704,405,000 479,704,270 17.50%
COCA COLA CO KO   18,132,000,000 400,000,000 13.97%
INTERNATIONAL BUSINESS MACHS IBM 12,329,439,000 81,232,303 9.50%
AMERICAN EXPRESS CO AXP 9,211,866,000 151,610,700 7.10%
PHILLIPS 66 PSX 6,250,563,000 78,782,000 4.81%
US BANCORP DEL USB 3,430,598,000 85,063,167 2.64%
DAVITA HEALTHCARE PARTNERS I DVA 2,981,889,000 38,565,570 2.29%
WAL MART STORES INC WMT 2,937,332,000 40,226,402 2.26%
MOODYS CORP MCO 2,311,805,000 24,669,778 1.78%

Below image shows a breakdown of Warren Buffett portfolio by sector, on June 30, 2016.

Source:

GEORGE SOROS:

George Soros is known for the unmatched success of his Quantum Fund. A hedge fund guru, he is recognized for having the best performance record of any investment fund in the world over its 26-year history. A mere US$1000 invested in 1969 when Soros established the Quantum Fund would have been worth US$4 million by the year 2000. During that time he achieved a cumulative 32% annual return.

Below table shows the top 10 Holdings of George Soros at the end of the second quarter of 2016.

Company Ticker Value On
2016-06-30
No of Shares % of portfolio
SPDR S&P 500 ETF TR SPY  845,432,000 4,034,900 18.08%
LIBERTY BROADBAND CORP

LBRDK

 533,523,000 8,892,050 11.41%
JDS UNIPHASE CORP    (DBCV 0.625% 8/1)  245,610,000 250,782,000 5.25%
ISHARES TR    (RUSSELL 2000 ETF) IWM  208,441,000 1,813,000 4.45%
CIENA CORP    (NOTE 0.875% 6/1)  203,729,000 205,139,000 4.35%
NUANCE COMMUNICATIONS INC    (NOTE 2.750%11/0)  187,621,000 185,534,000 4.01%
FIREEYE INC    (NOTE 1.000% 6/0) 166,237,000 182,302,000 3.55%
ADECOAGRO S A AGRO 130,731,000 11,917,157 2.79%
INVENSENSE INC    (NOTE 1.750%11/0) 104,265,000 111,290,000 2.22%
ROVI CORP    (NOTE 0.500% 3/0) 93,632,000 98,560,000 2.00%

Below image shows a breakdown of George Soros portfolio by sector, on June 30, 2016.

Source:

CARL ICHAN:

Carl Icahn is an activist investor. He takes minority stakes in public companies and typically pushes for change. He invests with three investment vehicles: the 7 billion hedge fund, Icahn Partners, American Real Estate Partners (AREP), a public traded private equity firm, and ICAHN MANAGEMENT LP, a US$2 billion hedge fund. GuruFocus tracks the third portfolio, which covers all the stocks owned by Icahn Partners. Mr. Icahn has a personal wealth of US$17 billion.

Below table shows the top 10 Holdings of Carl Icahn at the end of the second quarter of 2016.

Company Ticker Value On
2016-06-30
No of Shares % of portfolio
ICAHN ENTERPRISES LP IEP  6,671,801,000 123,551,872 32.9%
AMERICAN INTERNATIONAL GROUP AIG   2,414,214,000 45,644,982 11.9%
PAYPAL HOLDINGS INC PYPL   1,237,585,000 33,897,153 6.1%
CHENERIE ENERGY INC LNG 1,227,153,000 32,680,490 6.1%
FREEPORT MCMORAN INC FCX 1,158,560,000 104,000,000 5.7%
FEDERAL MOGUL HOLDING FDML 1,151,684,000 138,590,141 5.7%
CVR ENERGY INC CVI 1,103,580,000 71,198,718 5.4%
HERBALIFE LTD HLF 995,010,000 17,000,000 4.9%
XEROX CORPORATION XRX 939,795,000 99,030,026 4.6%
ALLERGEN PLC AGN 785,706,000 3,400,00 3.9%

Below image shows a breakdown of Carl Icahn portfolio by sector, on June 30, 2016.

Source:

JOHN PAULSON:

John Paulson is the President and Portfolio Manager of Paulson & Co. Inc. Paulson was ranked by Absolute Return Magazine as the 3rd largest hedge fund in the world managing approximately US$29billion in merger, event and distressed strategies. Mr. Paulson received his Masters of Business Administration with high distinction, as a Baker Scholar, from Harvard Business School in 1980. He graduated summa cum laude in Finance from New York University’s College of Business and Public Administration in 1978.

In 1994 he started his own hedge fund, focusing on M&A. Starting with $2 million, he built it to $500 million by 2002 through a combination of its returns and new money from investors.

John Paulson had pulled off the greatest trade in financial history, earning more than $15 billion for his firm by shorting subprime mortgages during real-estate bubble in 2007. Paulson is now having to sooth jittery investors after his Paulson Advantage ended 2012 down more than 14%, its second straight year in the red.

Below table shows the top 10 Holdings of John Paulson at the end of the second quarter of 2016.

Company Ticker Value On
2016-06-30
No of Shares % of portfolio
MYLAN N V MYL  997,047,000 23,058,461 10.13%
SHIRE PLC    (SPONSORED ADR) SHPGY  972,421,000 5,282,600 9.88%
ALLERGAN PLC AGN  962,063,000 4,163,151 9.77%
TEVA PHARMACEUTICAL INDS LTD    (ADR) TEVA  842,548,000 16,773,800 8.56%
EXTENDED STAY AMER INC    (UNIT 99/99/9999B) STAY  637,791,000 42,661,591 6.48%
SPDR GOLD TRUST GLD  603,896,000 4,775,012 6.13%
MALLINCKRODT PUB LTD CO MNK  508,794,000 8,371,080 5.17%
AMERICAN INTL GROUP INC AIG  479,189,000 9,060,100 4.87%
VALEANT PHARMACEUTICALS INTL VRX  384,110,000 19,072,000 3.90%
STARWOOD HOTELS&RESORTS WRLD HOT  332,514,000 4,496,476 3.38%

Below image shows a breakdown of John Paulson portfolio by sector, on June 30, 2016.

Source:

PGM CAPITAL ANALYSIS AND COMMENTS:
The world of investing can be a complicated place to navigate. Where do you start? For beginners, the sheer volume of information available to them on the internet has only served to make the process more complex and increase confusion.

Moreover, it appears that most investment strategies are now called value strategies, even though they have little in common with the traditional value strategies laid out by the likes of Benjamin Graham and Walter Schloss.

Investment Gurus they are mostly a value investor, contrarian and insider.

The above implicates that by analyzing the core holdings of Guru, that replicating the investment ideas of famous investors or investment managers, might lead to similar portfolio results as the one of the Gurus.

When analyzing the top 10 holdings of the gurus mentioned in this article we’ve noticed the following:

  • A great portion of their portfolio is in energy, basic material and Gold, which means, that they might foreseeing a rebound of these sectors.
  • They are heavily invested in Healthcare, consumer and insurance stocks, which means that they are highly defensive right now.

Like any other strategy, copycat investing has its share of risks, such as the following:

  • Success is not guaranteed
  • Stock may have already moved
  • Too many copycats
  • Differing investment horizon/objectives, than the one of the Guru or Money Manager

While copycat investing has its risks, common-sense measures – such as following successful investors, exercising patience, looking for accumulation, diversifying with different sectors and conducting your own due diligence – can help you become a (near) perfect copycat and improve your chances of investment success.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that markets can remain longer irrational than that you can remain solvent.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek

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