Self-directed investors are always told that it is important to keep up on what financial institutions like hedge funds and mutual funds are buying because those are the players that really make an impact on stock prices and the overall stock market. After all, these financial firms manage billions of dollars in assets, and buy and sell stocks in large volume. Not to mention, at the head of these funds are some of the brightest investors in the market. So it would only make sense to see where the Big Money is putting their...well, money.
Thanks to the Securities & Exchange Commission, investors can see each month what stocks their favorite hedge funds and mutual fund managers are investing in through the Form 13F. While it's important to know what stocks and investments the institutions are holding, investors should not use this information to dictate their own strategies. For one, they'll always be a step behind the institutions and could suffer some huge losses if these hedge funds and financial firms decide to move out of a position. Another reason is that simply knowing what stocks these fund managers are in isn't enough. It is important for investors to also understand the rationale behind the strategy as well as any favorable conditions the firms may be receiving that are unavailable to the rest of the public.
Buying Buffett and Berkshire Stocks
With all that said, digging into a firm's holdings can reveal certain trends that professional investors may be anticipating or buying into. Are they long or short on energy stocks? Do they think financial stocks are undervalued? Are they adding or reducing their exposure to specific sectors? While self-directed investors shouldn't try to mimic the experts, being familiar with their strategies and understanding their perspectives on the market can serve as a great advantage and provide very enlightening information.
For example, what investor doesn't follow Warren Buffet and Berkshire Hathaway (NYSE: BRK.A)? Well the Oracle from Omaha disclosed that his company bought 216,000 shares of MasterCard (NYSE: MA) and reduced its stake in ConocoPhillips (NYSE: COP). But more importantly, Berkshire Hathaway withheld certain information in the filing, which investment managers are allowed to do to avoid piggy-backing investors to jump onto their strategies as they build new positions. This is another example of why investors shouldn't let institutional holdings dictate their own strategies.
Stocks Owned by Hedge Funds
John Paulson, the hedge fund manager who became famous after he shorted mortgage-backed securities during the financial crisis, is another hedge fund manager that Wall Street likes to watch. His fund, Paulson & Co., invested heavily in PC-maker Hewlett-Packard (NYSE: HPQ), buying up $1 billion in shares of the company. Paulson also scaled back his exposure to financials like Citigroup (NYSE: C) and Bank of America (NYSE: BAC). But the big news is his $4.4 billion position in SPDR Gold Shares (NYSE: GLD) and doubling of his holding in Barrick Gold (NYSE: ABX).
Another highly influential money manager is Steven Cohen of hedge fund SAC Capital. Cohen added a significantly larger position in retailers, like Best Buy (NYSE: BBY) and BJ's Whole Sale Club (NYSE: BJ), and insurers like Chubb (NYSE: CB) and XL Group (NYSE: XL). SAC Capital is also long on gold, but more specifically, Newmont Mining (NYSE: NEM).
But not all big name investors are so bullish on gold. George Soros, the famous investor and founder of Soros Fund Management, essentially liquidated his position in GLD and NovaGold Resources (NYSE: NG). Soros also cut his holdings in J.P. Morgan (NYSE: JPM) and Bank of America (NYSE: BAC), but became incredibly bullish on Citigroup (NYSE: C) and Wells Fargo (NYSE: WFM).
Hedge Fund Investing Strategies
While it isn't difficult to find out the market perspective and investing strategies of popular fund managers, investors should understand that--especially when it comes to the stock market--timing is everything. It's just as important to know when to invest as it is to know what to invest in. So while keeping tabs on what market leaders and professional investors are seeing and doing is important, it isn't the be-all end-all if Buffett, Soros or Cohen decides to buy or sell a stock.
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