You can take a significant shortcut while learning to invest in the stock market.
You can mimic the investments of others.
Warren Buffett did exactly that when he first began out. He imitated his tutor Benjamin Graham’s investments and, ultimately, his investment strategy.
Who should you emulate, and how do you do so?
No worries – I’ll offer you my top ten value investors and explain how you can find out what they’re investing in.
But first, some background information that is required if you want to copy them.
Quantitative and qualitative value investors are the two types of value investors.
Quantitative investors invest in a large number of companies at once. They have a portfolio of hundreds, if not thousands, of firms.
They operate on some sort of automated method, with a computer deciding what to invest in based on a set of numbers.
This is how Benjamin Graham used to invest. Today, Joel Greenblatt invests in this manner. He is a well-known value investor, although he now owns stock in 1,044 businesses.
We can’t expect someone with hundreds or thousands of investments to have thoroughly investigated each company, thus we can’t consider their investments as evidence of quality.
We must consider qualitative investors, or those that examine each investment carefully and invest heavily when they believe in a company’s future. This is similar to how I advise you to invest: use a checklist and thoroughly research the business.
What criteria do you use to determine whether an investor is qualitative or quantitative?
First and foremost, consider the number of companies in which they invest. Some of the most successful investors have only a few current investments. Some of them, on the other hand, have a large number of “practise shares.” When they simply spend a small amount in the business they’re evaluating, the overall number of companies isn’t always balanced.
Looking at their top five investments is a better indicator. You’re looking at one of our guys if their top five stocks account for at least 50% of their portfolio (sorry, there are no women on the list).
What are your thoughts on their investments?
At the conclusion of each quarter, fund managers must report their trades to the SEC. The SEC’s website can be used, but it’s a touch clumsy. It is preferable to use databases such as:
1. Warren Buffett
Berkshire Hathaway (Berkshire Hathaway) (around 200 billion USD)
Is there anything further to say?
You are most likely new to the blog if you haven’t heard of him.
Because Warren Buffett is the best investor in the world, I write and talk about him until I’m blue in the face.
Value investing was pioneered by this 90-year-old investor. He transformed it from simple bargain hunting to bargain hunting with a brain.
His professor Benjamin Graham, a quantitative investor, taught him value investing. Buffett took it a step further and coined the qualitative investing technique, in which you thoroughly examine your assets to ensure that you are getting genuine values – not so-called cigar butts or falling knives (investments that are cheap because they face a bleak future).
Buffett invests through Berkshire Hathaway, a publicly traded corporation, and if you’re really lazy, you may invest directly in Berkshire (BRK/B). However, like with any stock investments, you must ensure that you purchase the stock at a low price. Because BRK/B is a complex structure with several companies inside, it can be difficult to determine whether it is inexpensive.
When Warren Buffett believes it’s time for share buybacks, that’s a solid barometer. You can rest convinced that he made some calculated decisions.
Berkshire Hathaway’s top five investments account for 75% of his publicly traded company portfolio. Apple is his largest investment, accounting for 44 percent of his portfolio at the time of writing.
2. Charlie Munger
Berkshire Hathaway (valued at approximately $200 billion) and the Daily Journal (around 1oo million USD)
Warren Buffett’s partner is Charlie Munger. Buffett would not have gotten to where he is now if it weren’t for Munger.
You can hear Charlie Munger’s impact when Warren Buffett says that he would rather invest in a fabulous company with a fair price than a fair company with a fabulous price.
Buffett has gone from being a doomsday-thinking, cigar-smoking investor to investing in so-called Wonderful Companies thanks to Munger (companies with a moat and a good management).
Apart from his influence at Berkshire Hathaway, where he is vice chairman, Munger also has some say over the Daily Journal’s portfolio, which he chairs.
Bank of America, Wells Fargo, US Bancorp, and Posco are the only four companies in which the Daily Journal has invested.
Bill Ackman is number three.
Pershing Square Capital Management is a private equity firm based in New York City (7 billion USD)
Bill Ackman isn’t your typical value investor. He self-identifies as an activist investor. He takes a stand and becomes actively involved in directing management.
He frequently invests in struggling businesses and forces them to make major changes, such as changing management.
This is in stark contrast to Buffett and Munger, who take a hands-off attitude to the businesses they invest in. Buffett and Munger invest in well-managed firms with management they trust, and they leave the management to run the show.
Bill Ackman is also known for making large bets on companies he believes will fail. This is known as shorting or short selling.
When he warned against Herbalife, which he labelled a pyramid scheme and shorted, he made headlines. Carl Icahn, a rival investor, took the opposite tack and began buying Herbalife stock to prop up the company and its stock price. The two investors had a highly public feud over the company, which was broadcast on major financial television networks. Bill Ackman may have been correct in his claims, but Carl Icahn had a stake in the stock, and after five years, Bill Ackman was forced to exit the bet with a significant loss in 2019.
Early in 2020, he made a comeback by shorting the entire market, predicting the March 202o COVID fall.
Shorting is not for the faint of heart, and I strongly discourage private investors from doing it.
Regardless, Bill Ackman enters the list because he has taken several extremely sound long positions over the years.
His portfolio comprises of only seven companies, with the top five accounting for 83 percent of the total.
Greenlight Capital is a venture capital firm that focuses on (922 million USD)
David Einhorn reminds me of Bill Ackman. He enjoys shorting and makes some amusing public accusations from time to time.
These two’s thoughts are similar to those of investigative reporters who unearth scandals.
In 2007, David Einhorn shorted Lehman Brothers, and he highlighted to the precise vulnerabilities that led to their demise a year later.
He is now a Tesla short seller, and he uses Twitter to call out some questionable managerial behaviours. His Twitter account can be found here.
He wrote a book about one of the other cases he shorted, Allied Capital, called Fooling Some of the People All of the Time.
He presently has 23 different enterprises in which he has invested. His top five account for 69 percent of his total.
5. Monish Pabra
Pabrai Investment Funds are a group of investment funds based in Pabrai (148 million USD)
Monish Pabrai, an Indian-American, sold his IT company and revealed that he intended to work as a fund manager, causing his friends to grimace. They advised him to get a “real” job and stop counting the money in his pocket.
They should be ashamed of themselves. He is now widely regarded as one of the world’s top investors, and some have dubbed him the “new Warren Buffett.”
He focuses on classic value plays, identifying companies that are similar to free lottery tickets, with a large potential upside and low chance of losing money. In his book The Dhandho Investor, he discusses his investment philosophy. I wrote about it in this blog article.
We know about three of his fund’s investments: Micron, Seritage Growth Properties, and Fiat Chrysler. There is, however, one snag. We can only view the American firms in which he owns more than 10%, and he tends to keep his holdings below 10% to avoid having to declare them to the SEC.
6. Li Lu
Himalaya Capital Management, Li Lu (1 billion USD)
Li Lu was one of the Chinese students who coordinated the Tiananmen Square protest in 1989. He was forced to quit China and was awarded a scholarship to study at Columbia University, where he met Warren Buffett and learned about value investing from Benjamin Graham.
According to Charlie Munger, Li Lu invested or traded his scholarship money and expanded it to a million dollars.
Munger serves as his mentor and investor, and he isn’t afraid to brag about Li Lu’s abilities at Berkshire Hathaway’s annual meetings.
Some think that following Buffett and Munger, Li Lu will be one of the heirs to take over administration of Berkshire Hathaway’s investment.
Micron Technology, Bank of America, Facebook, and Google are the only four companies in Li Lu’s fund (Alphabet).
7. Bill Gates
The Bill and Melinda Gates Foundation is a trust established by Bill and Melinda Gates (17 billion USD)
Bill Gates, the creator of Microsoft, isn’t a value investor, but as a close friend of Warren Buffett, I keep an eye on his activities.
Buffett has donated a big portion of his shares to the Bill and Melinda Gates Foundation Trust, and I’m sure Gates discusses – or at least runs – any substantial investments by Warren Buffett.
Because we’re working with Bill Gates, the Trust has a more dotcom-focused approach, which is unsurprising. Among the companies in which he has invested are Google and Amazon.
There are a total of 23 businesses. The portfolio’s top five companies account for 72 percent of the total. Berkshire Hathaway, by far the largest, owns 49 percent of the Trust, however this is due to Warren Buffett’s donation of shares to the Trust.
8. Allan Mecham
Arlington Value Capital (688 million USD)
After the financial crisis, a local broker sued Allan Mecham for falsifying his representations. When the rest of the market was down roughly 50%, the broker didn’t think Mecham could have made a profit.
But the fact was that Mecham defied financial gravity.
Because he’s a quiet investor, you’ve probably never heard of him before.
He never does interviews, he hasn’t published any books (it seems like any investor worth his salt would produce at least one book), and he’s generally quiet. He desires to remain unnoticed since he does not feel that attention will help him. He has previously stated that he is concerned about attracting the wrong type of investor if he is too visible in the media.
There are reports circulating on the internet that he is closing his fund owing to health issues. The rumours initially surfaced in April 2020, when COVID-19 began wreaking havoc around the globe. There has been no official statement on the subject.
A look at his investments suggests that he may be winding down — or that he is simply anticipating another market downturn. Most of his top positions have recently declined in value, from 1.5 billion USD to 688 million USD at the time of writing.
He’s the youngest of the top ten investors, and the only one under 50, so he can’t be retiring anytime soon.
His portfolio consists of 16 distinct companies, with the top five accounting for 38% of the total.
9. Prem Watsa
Fairfax Financial Holdings,(1.6 billion USD)
Prem Watsa, an Indian-Canadian, is a value investor who concentrates on the low end of the market (think Warren Buffett before he met Charlie Munger).
Remember Blackberry? That’s one of his big jobs. They used to be a popular calendar phone, but when the iPhone took over the world, their sales dropped.
In Blackberry, it’s difficult to detect any characteristics of a great corporation (what is its competitive advantage?). Only a classic value investor attitude can explain this type of investment. Prem Watsa had to have identified some assets, perhaps technology, that were worth more than the company’s stock market valuation at the time of purchase.
He has 59 firms in his portfolio, several of which are little investments (they look like practise shares). His portfolio is made up of 81 percent of the top five companies.
10. Seth Klarman
Baupost Group (8 billion USD)
Seth Klarman is a true legend in the investment world. On Amazon, a second hand copy of his book, Margin of Safety, sells for more than $1,000 USD.
Some have speculated that it is on design that he refuses to allow his book to be reissued. Perhaps holding a book that has become a collector’s item confers some sort of prestige.
Seth Klarman knows a thing or two about purchasing and selling used items. eBay is his largest holding, accounting for 21% of his portfolio.
He currently has 30 firms in which he has invested. His top five account for 58 percent of his total.