Billionaire Insights You Can Take to the Bank

By Lee Bellinger / December 24, 2013

Where Top Investors Are Deploying Their Capital Now

By Seth Van Brocklin

  • Find out what some of the world’s most successful investors are doing — and not doing — right now.
  • REVEALED! A key success practice is protecting weath as much as building it.

An elite circle of talented mega-investors have amassed and maintained great fortunes. And each one has unique stories. But they share one thing in common: they do things differently than ordinary people.

The super-rich didn’t get that way by following conventional wisdom. And while being a contrarian is no guarantee of success, you can improve your odds of being successful as an investor by emulating some of the habits of top, independent-thinking billionaires. This story will show you how some of the world’s billionaires are investing their money now – strategies, sectors, and companies.

The Buffett Way:
Still Working After All These Years

Let’s start with one of the best known investment whizzes — widely regarded as the world’s most successful investor, Warren Buffett. Even at age 83, Buffett continues to serve as Chairman and CEO of Berkshire Hathaway (BRKA; BRKB). One lesson to be derived from his longevity is that when you find something you’re good at and love doing, the thought of retirement needn’t enter your mind.

Buffett recently expressed some backhanded admiration for the Federal Reserve. “The Fed is the greatest hedge fund in history,” Buffett told an audience of students at Georgetown University in September. Of course, no other hedge fund has access to its own digital printing press for making investments (see Publisher Lee Bellinger’s take on this very subject nearby)!

According to Buffett, the Fed “is under no pressure, none whatsoever to have to deleverage.. But it is something that’s never quite been done on this scale. It will be interesting to watch.”

He’s investing accordingly – betting that the bailed-out financial sector will continue to do well in an environment of easy-money, unlimited Fed backstopping. In October, Buffett and Berkshire publicly disclosed a passive stake in Goldman Sachs (GS) worth $2 billion. Buffett’s position represents about 2.8% of outstanding Goldman Sachs stock.

Warren Buffett’s Sector Allocation

Sector Weighting (%)
Financial Services 41.4
Consumer Defensive 28.2
Technology 15.2
Energy 4.7
Consumer Cyclical 2.6
Communications Services 2.6
Healthcare 2.4
Industrials 1.6
ETF, options, preferred 1.3

“Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.” – Carl Icahn

But he holds his biggest position in Wells Fargo (WFC) – a massive 21.5% weighting. It’s the country’s most profitable bank.

If Buffett likes a company’s fundamentals and balance sheet, he’ll accumulate the company, while not necessarily rendering a judgment on the direction of the stock market or even the sector in which it resides. Buffett’s current overweighting in financial services thus shouldn’t be interpreted as him being super-bullish on the sector. Rather, a few stocks he likes a lot happen to be in that sector.

An Icahn of the Hedge Fund World
Profits from Mass Stupidity

“One of the greatest things I did for the human race was not to become a doctor,” billionaire hedge fund tycoon Carl Icahn recently boasted. And why shouldn’t he be boastful? Icahn has pledged to donate at least half of his earnings to

worldwide charities. He’s joined by Warren Buffett, Bill Gates, and other billionaires who will end up devoting the great bulk of their enormous fortunes to philanthropic causes.

Being generous with your money helps you feel good about making it. And that provides motivation to go out and be a cutthroat if necessary to make more. It’s a virtuous circle.

As for where Icahn is investing now, in October, he disclosed that he had bought 61 million shares (a 6% stake) in Talisman Energy (TLM). The upstream oil and natural gas company has a market capitalization of $12.7 billion and a dividend yield of 2.2%.

Investors looking to follow Icahn’s lead into this sector might also consider First Trust ISE-Revere Natural Gas (FCG), an exchange-traded fund. Its holdings include a 4.1% weighting in Talisman Energy.

In the technology sector, Icahn holds a sizeable stake in Apple Computer (AAPL). When Apple shares were shooting skyward last year, and the company could do no wrong in most analysts’ eyes, this newsletter expressed skepticism. Apple shares have since pulled back smartly.

The company now sits on a whopping $145 billion pile of cash. It plans to buy back $100 billion in shares. Carl Icahn is trying to convince Apple CEO Tim Cook to buy back even more shares – on the thinking that they are undervalued.

When you can buy into a cash rich company such as Apple, you have the potential to benefit from either share buy-backs or dividend increases. It’s one of the ways that smart investors give themselves a margin of safety and an opportunity to profit in multiple ways.

Dumb-Money Mutual Fund Managers
Underperform (Again)

What you don’t do can enrich you too. Most investors who entrust their funds to a professional fund manager do so in the belief that they have good odds of outperforming the market. They don’t.

As Barron’s (September 25, 2013) reports, “The Standard & Poor’s Index Versus Active midyear scorecard is in — and it tells the same old story. Most fund managers can’t keep up with the index.”

“In the last year (through June 30), 59.58% of U.S. large-cap stock funds trailed the S&P 500… Nearly 86% of the same group lagged on a three-year horizon, and 79% over five.”

Top investors pick their own stocks, of course. And the top fund managers run hedge funds that are only open to accredited investors rather than mutual funds that are targeted toward small investors. But one simple thing that any investor can do to improve their returns over time, without taking on any additional risk, is to choose index funds over higher-cost actively managed funds (especially the ones that come with sales loads).

The Coming Debt Storm

Many billionaire investors, including Jim Rogers and Home Depot founder Kenneth Langone, are warning that excessive U.S. debt and fiscal recklessness is taking the country toward disaster. “We don’t know when the storm is going to hit,” Langone said in an interview earlier this year. “It has to happen. If you look at our debt to GDP, eventually you reach a point where there’s no turning back.”

The partial government “shutdown” (during which a bipartisan Congress voted unanimously to pay furloughed federal workers not to work), and the debt ceiling drama that played out in October, are just the initial winds and darkening skies announcing the coming of a mega-storm. Savvy investors are preparing for the potential of a default – not necessarily on government bonds themselves, but on many other promises made to the public, including a stable currency.

Following the Oracle

The best way to shelter is through diversification – of asset classes, of currencies, and of countries, to give yourself the ability to weather a variety of potential outcomes.

Not even Warren Buffet, the so-called Oracle of Omaha, can see into the future. And even though Buffet is relatively optimistic, he knows full well that our economy, financial markets, and government are all addicted to Federal Reserve stimulus which has “never quite been done on this scale.”

Which means that there is no precedent to suggest how the Fed’s great gamble will ultimately turn out.


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