Investing 411
Some of the “Ins” and “Outs” of an Up-and-Down Market
Maybe you took a Personal Finance class in high school. The professor “gave” you $1,000 to invest at the beginning of the semester, and then checked it at the end of the semester so you could learn how stocks and bonds work? Okay, let’s up the ante. You control a billion dollars. Now, how are you going to invest that money?
One way to begin would be to study how some real billionaires invest their portfolios. They certainly didn’t become billionaires by not being strategic in their investment approach. So, if you have a billion dollars, we’ve already done some of the work for you.
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Warren Buffet
Berkshire Hathaway, Inc. is an investment fund run by Marc Hamburg and managing more than $300 billion. The total portfolio value may be much higher due to cash assets that are not publicly disclosed such as fixed income, real estate, or cash equivalents. There are currently 45 companies in Mr. Hamburg’s portfolio.
A Bite of the Apple
As of August 8, 2022, Berkshire Hathaway’s top holding is 894,802,319 shares of Apple (AAPL), currently worth over $122 billion and making up 40.8% of the portfolio value. Relative to the number of outstanding shares of Apple, Berkshire Hathaway owns less than approximately 0.1% of the company. In addition, the fund holds 1,010,100,606 shares of Bank America Corp. (BAC) worth $31.4 billion. The third-largest holding is Coca-Cola (KO), worth $25.2 billion and the next is Chevron (CVX), worth $23.4 billion, with 161,440,149 shares owned.
Recent trades
On the other hand, there are companies that Berkshire Hathaway is removing from its portfolio. Berkshire Hathaway shed Verizon Communications (VZ) on August 15, 2022. It sold the previously owned 1,380,111 shares for $70.3 million. Marc Hamburg also reduced its stake in US Bancorp (USB) by approximately 0.1%. This leaves the value of the investment at $5.51 billion and 119,805,135 shares.
Investment Strategy
Berkshire Hathaway’s portfolio is diversified across 11 sectors. Currently, their heaviest sector is Consumer Discretionary, making up 41.4% of the total portfolio value. The fund focuses on investments in the United States as 66.7% of the portfolio companies are based in the U.S.
The majority of the companies in the fund’s portfolio are large-cap stocks; 56% of the total holdings are stocks with a size of more than $10 billion in market cap. However, small-cap stocks make up only 4.4% of the portfolio. The average market cap of the portfolio companies is close to $165 billion.
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Carl Icahn
Carl Icahn is an investment fund run by Jesse Lynn and managing more than $20.9 billion. The total portfolio value may be much higher due to cash assets that are not publicly disclosed such as fixed income, real estate, or cash equivalents. There are currently 16 companies in Mr. Lynn’s portfolio.
Investing in Themselves
As of August 8, 2022, Carl Icahn’s top holding is 277,653,658 shares of Icahn Enterprises LP (IEP), currently worth over $13.4 billion and making up 64.1% of the portfolio value. In addition, the fund holds 71,198,718 shares of CVR Energy (CVI) worth $2.39 billion, whose value grew 49.8% in the past six months. The third-largest holding is Cheniere Energy (LNG), worth $747 million and the next is FirstEnergy Corp. (FE), worth $728 million, with 18,967,757 shares owned.
Recent Changes
In the most recent 13F filing, Carl Icahn revealed that they had bought 34,245,314 shares of Xerox (XRX), worth $509 million. This means they effectively own 0.2% of the company. Xerox makes up 100.0% of the fund's Technology sector allocation and has decreased its share price by approximately 0.1% in the past year.
The investment fund also strengthened its position in Icahn Enterprises LP (IEP) by buying 20,606,398 additional shares. This makes their stake in Icahn Enterprises LP total 277,653,658 shares worth $13.4 billion.
There are companies that Carl Icahn is dumping from its portfolio. Carl Icahn dropped Occidental Petroleum (OXY) on August 15, 2022, selling its 45,000,346 shares for $1.3 billion. They also decreased their stake in Cheniere Energy (LNG) by 0.7% and leaving the value of the investment at $747 million and 5,611,613 shares.
Investment Strategy
Carl Icahn’s portfolio is diversified across 8 sectors. Currently, their heaviest sector is Energy — making up 15.4% of the total portfolio value. The fund focuses on investments in the United States as 68.8% of the portfolio companies are based in the U.S.
The majority of the companies in the fund’s portfolio are large-cap stocks. Stocks with a size of more than $10 billion in market cap make up 13% of the total holdings value, while small-cap stocks make up only approximately 0.1% of the portfolio.
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Mario Gabelli
GAMCO Investors, Inc., formerly known as Gabelli Asset Management Company, provides investment advice and brokerage services to mutual funds, institutional and selected investors. GAMCO Investors (OTC: GAMI) includes two businesses: GAMCO Asset Management (institutional and separate accounts) and Gabelli Funds.
Gabelli Funds is a hedge fund with 33 clients and discretionary assets under management (AUM) of $22,610,817,368. Their last reported 13F filing for Q2 2022 included $13,024,322,000 in managed 13F securities and a top 10 holdings concentration of 11.73%. Gabelli Funds' largest holding is NextEra Energy (NEE) with shares held of 2,773,365. They also control shares of Apple (AAPL), Amazon (AMZN), US Treasury Notes & Bonds, and Meta (META).
In addition to mutual funds, closed-end funds and money market funds, Gabelli has introduced Growth Innovators, serving businesses both enabling and benefitting from the digital economy. As organizations invest to become more agile, more secure and more data-driven, digital transformation is escalating. Meanwhile, consumer behavior is more aligned with digital technologies than ever before.
The improved cost and access of advanced technologies is driving global adoption of cloud, 5G, internet-of-things, data science and artificial intelligence. The comprehensive adoption of these technologies has the capacity to essentially shift the balance of power in the corporate outlook, at the same time contributing to global productivity. The Gabelli Growth Innovators ETF seeks to uncover the portfolio management team’s best risk-reward ideas derived from these trends.
They adopt a “benchmark-agnostic” approach to cover all sectors of the market, identifying evolving themes and value-based opportunities. Their investment approach uses fundamental, bottom-up research to identify securities selling below their intrinsic value, and they identify mispriced companies with strong businesses and the presence of a catalyst that will surface value.
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Louis Bacon
Moore Capital Management is a global investment firm managing over $27 billion in assets. The firm was founded in 1989 by Bacon, who remains its Chairman and Principal Investment Manager. Moore Capital was one of the best performing funds in the world in 2020, gaining more than 70%.
Comings & Goings
That performance swelled the fund’s 13F assets to over $9.1 billion by the end of 2020, which has since been scaled back to $3.93 billion as of the end of Q1. Bacon was active during the first quarter as he looks to again capitalize on a chaotic investment environment, adding 202 stocks to his 13F portfolio while unloading 186 former holdings.
Bacon was betting more heavily on energy stocks in Q1, growing his 13F portfolio’s exposure to them by over 6 percentage points to 7.55%. On the other hand, Moore Capital slightly cut its exposure to consumer discretionary, tech, and healthcare stocks. Close to half of the fund’s portfolio assets were invested in finance stocks and ETFs.
Here are 10 stocks that the iconic billionaire money manager is bullish on as we head deeper into 2022.
Fisker (FSR) = $109 million
Bacon’s top stock pick by a substantial amount is electric carmaker Fisker Inc. This may be based on the fact that Fisker plans to start production of its Fisker Ocean all-electric SUV in November, for which it has already surpassed 50,000 orders. Fisker expects to deliver its 5,000 launch edition Fisker Ocean Ones by next September, and has reportedly begun asking early reservation holders for non-refundable $5,000 deposits. The company has another planned EV that will be revealed in the latter half of next year, with production of that vehicle starting up in 2024.Luminar Technologies (LAZR) = $63.3 million
Bacon raised his fund’s stake in autonomous vehicle software company Luminar Technologies Inc. by 12% during Q1 to 4.05 million shares. He began building a stake in the company in the second quarter of 2021, a few months after it went public via SPAC merger, and the stock has rapidly become one of his favorites.CrowdStrike Holdings (CRWD) = $56.1 million
CrowdStrike Holdings, Inc. is closing in on one of the 30 most popular stocks among hedge funds, and Bacon has taken his investment in the cybersecurity company to a new level in the first quarter of 2022, increasing his stake by 646% to 246,903 shares.
Finishing the top 10 are Palo Alto Networks (PANW) = $54.1 million, MGIC Investment Corporation (MTG) = $38.2 million, T-Mobile US (TMUS) = $37.8 million, Laureate Education (LAUR) = $35.9 million, Alight (ALIT) = $33.9 million, The Allstate Corporation (ALL) = $32.4 million, Workday (WDAY) = $32.4 million.
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Howard Marks
AUM: $164 billion (as of 3/31/22)
Oaktree Capital is organized as a private equity company. As such, OAK raises money from accredited and institutional clients, and invests this money into specific opportunities. Under the guidance of legendary investor Howard Marks, Oaktree Capital focuses on niche opportunities such as corporate bonds and distressed debt securities. The company's specialization in distressed investments, and access to a record $22.8 billion in dry powder, should drive strong performance over the next several quarters.
Oaktree has a strong history of positive returns. The company is generating absolute returns for its investors and has easily beat the market over the years. As a result, Oaktree Capital has become a highly respected name in the private equity industry.
Oaktree Capital Management has disclosed a total of 276 security holdings in their (2022 Q2) SEC 13F filing(s) with portfolio value of $7,476,694,000.
What stocks does Howard Marks own?
In Howard Marks's portfolio as of June 30, 2022, the top 5 holdings are Chesapeake Energy Corp. (CHK) 11.39%, Torm PLC-A (TRMD) 9.72%, Star Bulk Carriers Corp. (SBLK) 8.70%, Vistra Corp. (VST) 7.76%, and Garrett Motion (GTX) 7.57%.
Rounding out his top ten holdings are PG&E Corp. (PCG), Runway Growth Financial (RWAY), Ally Financial (ALLY), Eagle Bulk Shipping (EGLE) and Hertz Global Holdings (HTZ).
It’s worth noting that, of the top ten holdings, three of them are in a form of transportation and five of them are in a form of energy.
Caveat Emptor (Disclaimer)
Smaller investors who want to replicate the strategies of rock star money managers scrutinize 13F filings. And the financial press often reports on what these fund managers have been buying and selling by comparing changes in quarterly filings. But a caution sign should pop up in front of those 13F filings.
Unreliable Data?
13F has been criticized by groups who claim it contains a hedge fund managers loophole. The SEC's internal review noted that “no SEC division or office conducts any regular or systematic review of the data filed on Form 13F." Did the name Bernie Madoff just pop into your head?
Herd Behavior
Money managers tend to borrow investment ideas from one another, and hedge fund managers are just as susceptible to behavioral leanings as anyone else. This can lead to crowded trades and overvalued stocks. If smaller investors are late getting into a trade, they could very well be late getting out!
An Incomplete Picture
The SEC requires that all hedge funds submit a report of their long positions each quarter. This leaves several areas – including short positions, cash and a variety of other asset classes – that hedge funds are not required to report as part of the 13F filing. This means that, while this can be useful in some ways, it’s not necessarily the safest way to make investment decisions.
The “Long” & “Short” of It
Knowing the nature of a particular fund’s investment strategy is therefore crucial when reading its 13F filings. In the case of funds that are net long, a 13F will show changes in those funds' core positions only. Some portfolio core funds are net short, meaning the net long funds are excluded. Seeing only one position does not give an accurate view of the investment strategy of a fund.
Domestic Exchanges Only
Another important element of the 13F report is that it only tracks activity conducted on domestic exchanges. With the exception of ADRs, 13Fs do not show a fund's holdings via international exchanges. For a fund that combines domestic and international investments in roughly equal parts, the 13F will only show half of the investment portfolio!
Looking in a Rearview Mirror
Because 13F reports are filed up to 45 days after the end of a quarter, they may in some cases reflect investment decisions made more than four months prior to the filing. Basing investment decisions on 13F results must take into account that 13Fs are glimpses into past trends and strategies and may not be applicable at the time of filing.
Conclusion
While the stock market may be a way to make it big, there’s a reason that every transaction, every statement, every advertisement comes with this reminder: “There is an inherent risk in investing, and past performance is not a reliable indicator of future results and investors may not recover the full amount invested.” Or words to that effect.
Unless you can afford to lose money, DON’T try it on your own. Seek out someone who is qualified, experienced, and savvy! And…happy investing!