Does imitating the stock picks of billionaires make you rich? The short answer is no. You don’t get rich by investing in a diversified portfolio of stocks. Let’s take an extreme example. Steve Cohen managed to return about 30% per year for a very long time. If you started with $1 million and return 30% per year every year, you still wouldn’t become a billionaire after 25 years. And that’s assuming that you don’t have to pay any taxes and you keep reinvesting everything you make. Greenlight Capital managed to return 18.9% since its inception in 1996. One million invested with Greenlight Capital at the beginning of 1996 would become only $32 million today assuming you don’t have to pay any taxes. If your tax rate is a modest 25%, your $1 million invested in Greenlight Capital would only become $14.2 million today. That’s assuming that you were lucky to invest with one of the most successful hedge funds in the World.
The truth is billionaire hedge fund managers start investing differently as their assets grow and they become billionaires. When they are managing a $100 million portfolio, they can easily invest in small, promising ideas. When they start investing a multi billion dollar portfolio they put most of their money on large-cap stocks because they have too much money to invest it all into small-caps. Unfortunately, almost all hedge fund managers, including billionaire hedge fund managers, can’t beat the market by a large enough margin by investing in large-cap stocks. That’s one of the reasons why hedge fund investors have been under-performing the market in recent years.
Our research has shown that the 30 most popular stocks among hedge funds outperformed the market by nearly 2 percentage points between 1999 and 2009. This isn’t bad at all but it isn’t enough to justify the high hedge fund fees. On the other hand, investors would have outperformed Vanguard’s index funds by an average of 2 percentage points a year if they had imitated these picks in their personal portfolios. Our research also has shown that hedge funds’ small-cap picks outperformed the market by double digit rates annually between 1999 and 2009 (read the details here). So, overall it is a good idea to pay attention to what hedge funds and billionaires are buying and selling, especially in the small-cap portion of your portfolio.
We recently published the list of the 10 most popular stocks among hedge funds. Most of those stocks are also very popular among billionaires. This list covers the equity positions of 59 billionaires. We excluded positions that are smaller than $10 million. We also limited our rankings to technology stocks. We ranked each stock by the number of billionaires with bullish positions. As you’ll notice in the forthcoming list, it appears billionaires love mostly mega-cap tech stocks but there are a couple of surprises at the top of the list.
7. Yahoo! Inc. (NASDAQ:YHOO) was in the portfolios of 12 billionaires at the end of 2014. Billionaires James Dinan, Daniel Och, and David Einhorn initiated brand new positions in Yahoo probably thinking that it is a much better way of investing in Alibaba. Yahoo has been targeted by one activist after another in the past three years. Actually David Einhorn was the first star hedge fund manager who thought Yahoo’s sum of the parts valuation was much higher than its market price. That was more than 3 years ago. Einhorn actually lost a little bit of money before Dan Loeb started buying Yahoo at $12 per share. Loeb ousted Yahoo’s management and pushed the board to hire Marissa Mayer as CEO. Third Point made about a billion dollars until he stepped down in the middle of 2013. More recently Jeff Smith’s Starboard Value has been targeting Yahoo. The thesis is still the same.
6. Facebook Inc (NASDAQ:FB) is sixth most popular tech stock on our list, with 12 of the 59 billionaires owning a stake in the social networking company. Facebook actually declined in popularity during the fourth quarter of 2014. There were only two new billionaires initiating new positions vs. 4 billionaires selling out of the stock. Blue Ridge Capital’s John Griffin and Stan Druckenmiller initiated new positions whereas Andreas Halvorsen, David Tepper, Rob Citrone, and Jim Simons’ Renaissance Technologies dumped the stock. Billionaires were withdrawing their support but other hedge fund managers got actually more bullish about Facebook. It was the third most popular technology stock among hedge funds. Here is what we wrote about this earlier this week:
“Facebook climbs into third place after not making the top five on our last list, with 16% ownership at the end of the 2014, compared with 15.3% ownership at the end of the third quarter. Facebook shares have mostly stalled after a torrid 8-month run from the middle of 2013 to early 2014 that saw the stock gain more than 150%. Facebook is up about 10% since then, though down 1.68% in 2015. While the social media giant has had positive earnings reports, there is concern over the stagnating user growth, which has left analysts and investors mixed on its potential. Stephen Mandel, and David E. Shaw both made big increases to their positions, while John Griffin opened a new position with 3.24 million shares.”
5. Google Inc (NASDAQ:GOOGL) lands in fifth with 13 billionaire investors, who have just under $3 billion invested in the search giant. Google is also the second most popular technology stock among all hedge funds though Google has been losing its popularity among billionaires and hedge funds recently. They were actually on the right track by selling their Google positions as the stock lost nearly 10% since the end of the third quarter. Lee Ainslie is the only billionaire in our list who initiated a brand new position in the stock. George Soros, Stan Druckenmiller, and Steve Cohen dumped their Google shares for other tech stocks.
4. Microsoft (NASDAQ:MSFT) is the fourth most popular technology stock among billionaires. There were 14 billionaires invested in Microsoft at the end of 2014. We didn’t count Jeff Ubben as one of these 14 billionaires. He may already be a billionaire or he will definitely become one within a couple of years if he continues his mind blowning performance. Ubben had nearly $3.5 billion invested in Microsoft and he was buying more shares as MSFT shares fell below $42 at the end of January. Stephen Mandel, Kerr Neilson, and David Abrams are some of the billionaires who are bullish about Microsoft.
3. Micron Technology, Inc. (NASDAQ:MU) is one of the most popular stocks among all our hedge funds, and that holds true for our billionaire hedgies as well, with 15 of them investing $3.8 billion in the stock. It’s not hard to imagine why anyone rich or not would not want to jump on this stock’s back, as it’s gained a tremendous 424.71% since the start of 2013. David Einhorn, Andreas Halvorsen, and Seth Klarman have all added to their fortunes through this stock, having all held ownership of it for over a year.
2. Baidu Inc (ADR) (NASDAQ:BIDU) is probably the most interesting stock to make the list, as it doesn’t fall into a neat category that most of the others do. The Chinese search engine giant is one of the most trafficked sites in the world, and yet relatively unheralded in the west, even among investors, despite its meteroic rise of just under 100% over the past two years. Yet billionaires are clearing taking notice, with 16 of them invested in the stock, though it may be too late for the layman to get on board with the stock now trading above $200, though it has fallen substantially in the past three months (down over 15%). Stephen Mandel and Philippe Laffont are the billionaires we track with the largest investments in Baidu. Howard Marks and Jamie Dinan also became Baidu shareholders during the fourth quarter.
1. Apple Inc. (NASDAQ:AAPL) is the most popular stock among billionaires. 19 billionaires had more than $10 billion invested in Apple, but this corresponds to less than 2% of Apple’s market value, showing that Apple may be too rich even for their blood. Carl Icahn is probably the most well-known billionaire investor in Apple, and an outspoken bull on the tech giant’s potential. Icahn is a firm believer that the stock has nowhere to go but further up, despite its impressive 16.61% rise already in 2015, and he’s keeping pressure on Apple’s management to ensure that happens. Others include Ken Fisher, David Einhorn (Stock Picks, Investor Letters), and Rob Citrone.
Disclosure: None.
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