How Billionaires Invest and What it Means For You
When a billionaire makes a move, everyone pays attention. In fact, movement isn't even required to rattle markets. One intriguing turn of phrase or even a single word from the likes of Warren Buffett can send traders and investors into overdrive.
If you're interested in how billionaires invest, there's an easy way to track this information. Money managers with more than $100 million under control are required to submit a record of equity holdings within 45 days of the end of each quarter. These filings are overseen by the Securities and Exchange Commission.
If you're interested in how hedge fund managers and billionaires are trading, this makes for compelling reading. It provides a broad window into the strategies of the world's wealthiest investors. It gives us an inkling as to what the biggest players -- like David Tepper -- are thinking.
Tepper is a famed hedge fund guru and billionaire. His track record is extraordinarily impressive, so anything Tepper does at scale is noteworthy. Tepper's first quarter filing for 2015 was just released. Among other interesting information, it shows he initiated a call option on stocks worth $1.3 billion.
That's a strong move toward stocks. The value of equity holdings in Tepper's hedge fund, Appaloosa Management, increased by 40-percent in the first quarter. That's after a 40-percent decline in equities in the fourth quarter of last year.
Tepper's actions didn't come entirely out of left field, however. He's on record saying he believes the S&P 500 is cheap. He's also predicting a 15-percent return in 2015. That kind of return may seem optimistic. After all, the S&P 500 is up only 4.1 percent since the start of the year.
Yet Tepper isn't alone. Another hedge fund billionaire, Louis Bacon, made a similar move. Bacon initiated a $1 billion call option on the S&P 500 ETF. Like Tepper, he seems to bullish on stocks.
So does this represent a serious buying opportunity? A chance to build wealth quickly by riding a stock market primed to explode?
Perhaps. The S&P 500's lagging performance can be read two ways. Much like a bear market, prevailing conditions might be worrisome. Yet that's exactly when value plays tend to emerge. If you're bullish on stocks, that 4.1 percent return just means there's a long way to go up in 2015.
Buying like a billionaire
So if the bullish feelings of hedge fund masters such as Tepper and Bacon have you feeling inspired, where should you invest? Here's what Tepper bought:
- Homebuilder D.R. Horton (1.1 million shares).
- Budget airline JetBlue AirWays (4.7 million shares).
- Regions Financial Services (5.1 million shares).
- Construction material firm USG Corp. (1.9 million shares).
- Bank of America (650,000 shares).
Does this mean Tepper is excited by the immediate prospects of the construction, aviation and banking sectors? Not so fast. He also sold his entire holdings of American Airlines and Hartford Financial Services. He also sold 20-percent of his stake in United Continental.
Tepper also reduced his share in Google by seven-percent and Whirlpool by 33-percent. He also doubled his position in Eastman Chemical.
Should you follow the Tepper Template?
While it's interesting to review the activity of billionaires and investment gurus, it's important to remember this isn't necessarily a roadmap to massive returns. We're reviewing moves that have already occurred. By nature, this exercise is backward looking, which limits its utility to some degree.
Yet that doesn't mean this information isn't compelling or useful. Traders monitor and scrutinize these lists at every opportunity. Tepper has delivered annualized returns of close to 40-percent. That's one of the best track records in the business, so it's unsurprising his every move is closely watched.
If you're already feeling inclined to strengthen your position in stocks, you can take Tepper and Bacon's enthusiasm as one more piece of evidence that you're on the right path. It's important to remember one thing, however. Billionaires and hedge fund gurus are virtually bulletproof when it comes to personal losses. They can afford to take huge gambles. Their primary mission is to keep maximizing returns for their clients.
Your primary mission is building and preserving personal wealth. You have to approach the stock market in an appropriate fashion. Be aggressive, yet never compromise your long-term financial goals.
You may never run a hedge fund, yet with some smart investing and savvy money management, you can chart your own path to wealth and happiness.