You’ve probably heard a lot over the past few weeks from big-name hedge fund manager, Ray Dalio.
In short, he’s pretty worried about the whole economy.
Reflecting on the stock market, he said at a conference recently:
‘They’re selling dreams. They’re not selling earnings, and they’re not even selling a path to earnings.’
Sounds pretty bad…
And yet it’s worth remembering Dalio isn’t the be all and end all of investing.
He’s just one person with an opinion, after all.
That’s the beauty of the markets really.
Your opinion, my opinion…it’s just as valid as Dalio’s.
At the end of the day, only you can judge yourself and your investments. The scorecard you use should reflect the reality of the returns you made, for the risk you took.
And don’t forget this…
You always have to be a bit wary about people talking their own book. That is, someone who is trying to use their fame to move the markets in a favourable way to their investing strategy.
Believe me it happens all the time!
But my main point is this: opinions are worthless.
Opinions don’t make you money or lose you money. Only cold hard cash on the line can do that.
With that in mind, let’s look at where hedge funds have been putting their money — not what they’ve been talking about — over the last quarter…
Look here for new ideas
Every quarter, public funds have to disclose their buying and selling in public statements called 13F filings.
Which means that anyone can take a peek into what some of the smartest minds are up to in the markets.
Pretty neat, eh?
Now when you scroll through some of the figures, some of it isn’t that surprising.
Apple, Alphabet (Google), Alibaba, and Amazon are big hedge fund favourites.
But it’s interesting to note that Facebook is the most popular hedge fund stock with 23.8% of all public hedge funds having a ‘long’ position. That is, they’re betting on the Facebook share price rising further.
Once you get out of the big names, though, it can provide more interesting clues as to what companies and industries are on the hedge fund radar.
For instance, it’s worth noting that the top 30 hedge fund holdings were mostly in the technology, biotech, banking, and finance industries. There weren’t notable stakes in commodities, retail or builders as far as I could see.
Diving through the data you also see that a substantial amount of ‘smart money’ is happy to outsource their thinking to the smartest money of them all: Warren Buffett!
13.2% of hedge funds have a stake in Buffett’s investing vehicle Berkshire Hathaway.
I’d feel a bit cheated if I was being charged hedge fund ‘2 and 20’ fees for this (traditionally hedge funds charge investors 2% annual fee and 20% of the profits)!
You can even follow Buffett around using the 13F filings. For example, in this quarter’s filings you can see that Buffett has shares in Walt Disney and Goldman Sachs right now.
Anyway, it’s a great place to look for ideas.
But it’s not the be all and end all…
At the end of the day, the ‘smart money’ doesn’t know the future any more than you or I do.
And while the top performing hedge funds do well in some types of market, a lot do worse than average too.
Furthermore, many hedge funds are playing more complicated games than most. While you may see their stock holdings, you don’t know if they’ve hedged their positions with options for example.
Personally, I like trawling through this data as a source for ideas rather than stocks. It can throw up surprises or new lines of enquiry I hadn’t thought about.
But at the end of the day, as with all investing, it’s up to you to make the investment decisions that are right for you and your situation.
The magic of the markets is that it’s possible for plebs like us to take on — and sometimes beat — Dalio, Buffett, and the rest!
Editor, Money Morning
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