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.
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.
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.
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.
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,
Eric Panneflek