How to Read the Recent Trades of Major Hedge Funds in 5 Steps

How to Read the Recent Trades of Major Hedge Funds in 5 Steps

Where do you find inspiration to discover your next stock investment? One place you can look is in the portfolios of major hedge funds.

In value investor circles, we call value hedge fund managers “gurus.”

It’s quite common for value investors to keep track of what the well-known fund managers are doing – and even replicate some of their trades.

But how do you keep track, and how do you evaluate their investments?

In this blog post, I’ll give you my top five tips for copying the big gurus.

1. Find a List of Hedge Funds with a Value Approach

The funds investing in the U.S. market must report their trades to the U.S. Securities and Exchange Commission (SEC).

This makes it easy for us to look up what they have invested in – at least in U.S. stocks.

The SEC’s own website is not so easy to navigate or search, but there are other websites that collect data and make it more manageable.

You can look the gurus up here:

2. Look at the Number of Companies in the Portfolio

Value investors can be divided into two major groups.

  1. Quantitative Gurus: these are hedge funds that invest through financial ratios in many companies. We call them hedge funds with a quantitative focus.
  2. Qualitative Gurus: hedge funds that carefully select companies based on a checklist. We call them hedge funds with a qualitative focus.

We are, of course, interested in the qualitative ones because the companies they have carefully selected are of high quality.

A very rough rule of thumb: if the fund has more than 100 different companies in the portfolio, they are quantitative. But it’s a bit more complicated than that; you should also look at the composition of companies…

3. Look at the Composition in the Portfolio

How much does the guru have in the fund’s largest investment? Value investors with a qualitative approach are not afraid to put a large part of the portfolio into a single company.

As a very rough rule of thumb, a guru with a quantitative focus has a minimum of 10% in a company. However, some value investors set a rule that there must be a maximum of 10% of the fund in a single company, so it’s okay to let it go a bit below 10%.

Here are a few examples of value portfolios with high concentration as of now: 

  • Warren Buffett: half of his portfolio in Apple
  • Buffett’s partner Charlie Munger: 40% in Wells Fargo
  • Li Lu: almost a third in Bank of America

4. Look at the Pattern in Their Recent Trades

We always need to assess their recent trades in a larger context.

First, you need to evaluate whether they are sellers or buyers in the current market.

This gives us an idea of their attitude toward the market. What did they do in the last quarter?

Are they selling more stocks than they are buying? Have they done anything at all in the last quarter? Or are they waiting?

5. Research Their Recent Stock Purchases

What is their latest stock purchase? Is it from the last quarter?

Look up the companies. In your initial scan, you should investigate:

1. Did the stock price fall? As a general rule, I avoid companies whose stock price is at an all-time high.

2. Do they make a profit? I avoid companies that are losing money – unless there is a clear explanation of why a particular year is different (such as the COVID-19 pandemic).

3. Are the revenues growing? I avoid companies that are shrinking.

 Where do you look this up? For a quick overview, I use MSN Money. It’s free and gives you an 8-year overview (click on Financials after you have looked up the company).

Once you’ve found a company where you can answer yes to all three questions, you can start running them through a proper checklist to ensure that it’s a good investment. You can borrow my checklist here.

This is where the real research begins (and you can learn much more about it in the Value Investor Mastermind).

If you want to learn about how I invest in stocks without fearing a crash, you can download my free e-book Free Yourself  here.

7 Steps for Maintaining Inner Peace in Times of Crisis

7 Steps for Maintaining Inner Peace in Times of Crisis

 There is a crisis in the world, and the first thing to vanish is your inner peace. The world trembles, and so do you internally.

But it doesn’t have to be that way.

It might be war in the Middle East and large-scale protests across Europe.

Or perhaps it’s something else. Climate crisis and wildfires. Maybe it’s the stock market crashing like it did during the financial crisis.

I’ll be the first to admit that I am affected by major news.

When the war started in Ukraine, tears streamed down my cheeks. I remember crying in the middle of my morning run or during peaceful moments with my own kids when the children of the war came to mind.

What could I do about the war in Ukraine? Not much. But a little: I ended up hosting a Ukrainian family in my home for a month and a half.

The attack in Israel on October 7th, the hostages in the tunnels, the thousands of civilians killed in Gaza, the protests in the West, and manifestations of anti-Semitism and Islamophobia give me nightmares.

What does all this have to do with investing?

Inner Peace is a Prerequisite for Wealth

It’s natural to be affected by such horrific news, but it doesn’t help anyone if I can’t sleep at night, so I need to turn that around.

In fact, inner turmoil can be harmful because negative energy spreads like wildfire and can affect other areas of your life.

I believe that inner peace and focus is a prerequisite if you want to be good at investing and attracting prosperity.

External pressure requires extraordinary inner peace.

But how do you achieve inner peace when the world around you is upset?

Here is my checklist, primarily written for myself in these times, but perhaps you can also benefit from it.

1. Plan Screen-free Time

You need time where you don’t check the news at all.

Maybe you can even plan it and put it in your calendar?

Whether it’s just a few hours here and there, a whole day, or an entire weekend, you need time where you allow yourself not to think about the crisis.

What about planning a camping trip without the internet?

If you can go a whole day without news and without thinking about it, it’s like hitting the reset button.

When you are looking at the screen, think about how you use your time.

I avoid tabloid journalism and opt for analysis and quality journalism.

Be careful with social media, where there are no filters (like journalists) to sift through the information.

I systematically block anyone entering my thread with hate messages. If they cross a certain line, I also report the post, so they don’t get to spread their hatred and disrupt others’ inner peace.

2. Cultivate Conscious Positive Thoughts and Ideas

We can replace negative thoughts with positive ones.

Positivity is contagious, just like negativity.

My most shared post ever is actually a positive post from a remembrance of the Kristallnacht with the words: “This is what I will think of with gratitude tonight. Thousands of people in Copenhagen showed up to remember the Kristallnacht and to show their support for the small Jewish community in Denmark.” You can see it right here

If in the evening, at bedtime, I feel upset thinking about hostages or bombs, I push the thought away with the image of the beautiful torchlight procession in Copenhagen. It works.

3. Envision How You Want It to Be

In the Middle East, it would be beautiful if Israelis and Palestinians could live in peace and prosperity alongside each other or even together. That’s the ideal. It’s an image I cultivate in my mind.

If stocks fall, I think of the opposite and of prosperity.

I hold the ideal up as a vision that I believe in. I visualize it as if it’s already a fact. It helps create inner peace.

4. Get Enough Sleep, Eat Healthy, and Exercise

No one is well if they don’t have the basics in order: diet, sleep, and exercise.

All of us with children know how cranky and upset our children get if their sleep is disrupted for a single night. Or if they are hungry.

You need to take care of your physical needs lovingly – even when you don’t feel like it.

I have minimized all stimulants that counteract a stable life and can interfere with sleep or appetite.

I currently avoid alcohol altogether and have significantly cut down on coffee, caffeine, and sugar.

I am also very conscious of breathing all the way down to the abdomen – especially in the evening. It helps the entire nervous system calm down.

Here are my best tips if you have trouble sleeping:

Set aside an hour to prepare yourself.

A. Spend twenty minutes preparing for the next day (write down a few tasks to get them out of your head).

B. Spend the next twenty minutes taking a warm bath or shower and making your bedroom cozy. I use a heated pillow in my bed.

C. Spend the last twenty minutes just relaxing in bed and breathing calmly, as if you’re already asleep. There is nothing more effective than breathing to relax. You may read, but no screens. 

 5. Connect with Nature

Take a walk in the forest or on the beach. Feel the sunshine on your face. Get fresh air in your lungs. Listen to the birds chirping and the leaves rustling.

Get out. Every day.

I have a dog, so it happens naturally.

Honestly, it’s downright annoying to have to walk with the dachshund Hugo at 6 a.m…. but as soon as we’re out the door, I enjoy the fresh air, movement, and freedom.

It’s like being cleansed a bit. Letting some air into the upper floor. It helps.

6. Find a Simple Activity that Calms You

When I was on maternity leave, I couldn’t get enough of knitting. It was the only thing my tired brain could handle in the evenings. These days, I am obsessed with solving crossword puzzles.

With crossword puzzles, I have to concentrate enough that I can’t think of anything else, and it’s also pretty boring, and it makes me sleepy.

Crossword puzzles have become one of the last parts of my evening routine. What can this activity be for you?

 7. Focus on One Thing You Can Do to Promote the Ideal

Focus on what you can change, and leave the rest.

It helps to do something.

When Russia attacked Ukraine, it helped me to host a Ukrainian family in my home. I focused on that. There were a lot of task involved. Finding a school for their son. Getting them registred. Getting their dog to the vet. Helping figure out the bus system. 

What could it be for you?

Maybe you can donate some money? Maybe you can volunteer for an organization?

Perhaps you can learn something? If, for example, you are afraid of losing money in the stock market in a new financial crisis, learn about investing.

My usual subject is investing and creating a prosperous mindset.

If you want to learn how I invest in stocks without fearing a crash, you can download my free e-book Free Yourself here.

Warren Buffett’s Latest Stock Moves

Warren Buffett’s Latest Stock Moves

Many people scrutinize Warren Buffett’s moves on the stock market.

Why? Some want to copy his trades. Others simply want to understand the choices he makes and how he thinks, to emulate his entire style.

Fortunately, it’s easy to gain insight into what he’s investing in.

Every quarter, he has to disclose what stocks his company Berkshire Hathaway has bought or sold to the U.S. Securities and Exchange Commission (SEC).

It’s that time of year when those trades are being disclosed for the third quarter.

Let’s take a look…

Warren Buffett’s Stock Purchases

 

In the third quarter, Warren Buffett bought shares in:

– Media company Liberty Media Corp (LLYVK and LLYVA)

– Media company Sirius XM Holdings (SIRI)

– And baseball team Atlanta Braves Holdings (BATRK).

Before you rush out to buy shares in these three companies, you should know that he bought very small positions.

Together, these three companies make up less than 0.20% of his portfolio of publicly traded stocks.

This tells us that it’s probably not Warren Buffett himself making these investments, but one of his two managers, Ted Weschler or Todd Combs. They run their own portfolios that are small, relatively speaking.

It may be challenging to draw any meaningful conclusions from tiny purchases without looking at what Berkshire Hathaway is selling…

Warren Buffett’s Stock Sales

The Oracle of Omaha has spent the third semester doing some fall cleaning in his stock portfolio. He has completely sold out of seven companies and reduced his stock position in six others.

Completely out are:

– Shipping service company UPS

– Industrial conglomerate Procter & Gamble

– Food company Mondelez International (known for Toblerone, among other things)

– Medical, pharmaceutical and personal care company Johnson & Johnson

– Car manufacturer General Motors

– Gaming company Activision Blizzard

– Chemical company Celanese

He has trimmed and cut positions in:

– Insurance company Globe Life

– Insurance company Markel

– Software and IT company Hewlett Packard (HP Inc).

– Energy and oil company Chevron

– Consulting company Aon

– Retail giant Amazon

Warren Buffett’s company Berkshire Hathaway still owns shares in 45 publicly traded companies (as well as many companies where they own 100%).

You can see Warren Buffett’s portfolio of publicly traded stocks here and stock trades here, and the entire portfolio of subsidiaries here.

What Can We Conclude About Warren Buffett’s Stock Moves?

Berkshire Hathaway sold far more stocks in the third quarter of 2023 than they bought.

They sold approximately $7 billion USD (about 48 billion DKK) and bought for $1.7 billion USD (just under 12 billion DKK).

It may sound like a lot of money, but it’s not for Warren Buffett, who has a war chest of over $157 billion USD.

It’s an enormous amount of money to keep out of the market.

What is he doing? Either the 93-year-old investor has fallen asleep… or he’s reacting to the fact that…

…The Market is Overheated

 

Shiller’s P/E ratio – which is a measure of how expensive the market is – is now around 30, which is as high as it was just before the crash in 1929. You can see Shiller’s P/E ratio here

P/E relates the stock price to earnings (hence the name price/earnings).

A P/E of 30 essentially means that you are paying 30 dollars for one dollar of profit in the company. The historical average and reasonable level for stocks is a P/E of 15-16.

A P/E of 30 also means that you can expect a return of around 3% in the market. That’s below the interest rate of many bonds. So what is he doing? He is waiting for good opportunities and is probably frustrated that he isn’t finding any elephant-size opportunities.

In the next blog post, I will take a look at what other value investors are buying stocks in.

Not everyone is as restrained as Warren Buffett.

Make sure to get on the mailing list so you don’t miss out. You can sign up to receive emails at the bottom of this page.

If you want to learn how I invest in stocks without fearing a crash, you can download my free e-book Free Yourself here.

Five Steps You Can Take to Avoid the Biggest Mistakes in the Stock Market

Five Steps You Can Take to Avoid the Biggest Mistakes in the Stock Market

We have all made mistakes in the stock market – mistakes are a natural part of a learning process.

But that doesn’t mean you should just shrug off your mistakes and make them again.

You should examine them, and you should learn from them.

What are the typical mistakes that private investors make?

The Stock Market Is a School for Life

You never graduate as a stock investor. The stock market is a big playground where you can continue to learn new things and improve as an investor.

However, the typical mistakes that many make can be avoided right from the start – if you inform yourself.

The typical mistakes are:

– Investing without researching

– Selling stocks too early and missing out on a larger gain

– Selling in panic with losses

– The biggest mistake we all fear is investing in something that is declining or going bankrupt.

How do you avoid making mistakes?

Here are five concrete steps you can take:

1. Learn and Read

The best investors are constantly learning and keeping up to date.

Warren Buffett reads more than 5 hours a day. He says that knowledge accumulates, just like money does. The new things you learn are built on top of something else you’ve already learned, and over time, you have an exponential learning curve.

What should you read and learn?

You should make sure to stay updated on major societal and business news.

You should read newspapers like Wall Street Journal and New York times every day, listen to investment podcasts, read blog posts like this one, and read investment books.

If you want to be a good investor who buys shares in individual companies, you should also get used to opening and reading financial statements.

2. Research Your Company and Use a Checklist

If you invest randomly – maybe because someone mentions the company – you will make more investment mistakes than if you familiarize yourself with the company before investing.

You should look at the financial statements and research the product to be sure you understand what is going on in the company.

The best way to ensure that you answer the most important questions about the company and its products and services before investing is to follow a checklist.

Your checklist should ideally change over time as you gain more experience and discover your weaknesses.

You can use my checklist by clicking here.

3. Discuss Your Investments With a Good Partner

Every year, Warren Buffett holds an auction where you can win lunch with him and his partner Charlie Munger.

Guy Spier and Monish Pabrai won the auction in 2008 for $650,000. One of the best pieces of advice they received at that time was exactly this: to have a partner to bounce your ideas off of.

Warren Buffett has long bounced ideas off of Charlie Munger before investing in a company. Guy Spier and Monish Pabrai bounce ideas off of each other.

Do you have a person you discuss investment ideas with? Someone who can show you different sides of a company than the ones you’ve fallen in love with? Someone who can challenge you intellectually?

It doesn’t have to be just one person – it can be several. If you have a group of like-minded individuals to share your ideas with, this is invaluable.

At the Value Investor Academy, we discuss different cases selected by members.

Here, you can present a case and receive critical questions from multiple people at once – perhaps you’ll find your future investment partner there?

4. Argue Both Sides of the Case

Just like in a courtroom, you should hear both sides of the case when analyzing a company. That means you should act as both defense and prosecutor for the same company.

First, you should take a look at the company fairly neutrally to examine whether you would invest in it. If you arrive at a yes, it’s time to bring out the prosecutor.

Now, you should look for all the reasons you can think of why it’s not a good investment. Then you should come up with counterarguments to the negative accusations. If you need inspiration for the counterarguments, you can Google and find those who are shorting the company and see if you have argued for their case.

5. Get Educated About the Stock Market

When we learn to drive a car, we take driving lessons. When we learn to sail, we go to sailing school and tie knots endlessly.

When you’re going to invest in the stock market, it’s also a great idea to get education that equips you to make fewer mistakes and become faster at making money. If you really want to elevate yourself to a new level, it’s a good idea to follow a structured program and perhaps even get a coach.

I run the Value Investor Academy 1-2 times a year, and you’re welcome to join. If you want to secure a spot in the next class this fall, you can send me an email at info@moneyandfreedom.com.

The Biggest Mistake of All

Now we’ve talked about blunders you make when you invest. But there’s a much more serious mistake than those… and that’s not getting started at all.

If you don’t start investing, you’re not only missing out on the opportunities that could have arisen if you had started. You’re also missing out on all the learning.

When you make mistakes as an investor by investing in something you regret, you at least learn something from it.

You learn nothing from not getting started.

Learn something today. You can download your free investing e-book Free Yourself here.

 

6 Steps to Finding a Stock That Feels Like a Safe Investment

6 Steps to Finding a Stock That Feels Like a Safe Investment

How does it feel for you when you invest? Do you get nervous when stocks fall? Do you get frustrated when stocks rise without having invested?

When I invest, I pay close attention to my emotions.

Firstly, I check if I’m influenced by fear or greed.

 If that’s the case, I do nothing. Neither buy nor sell.

It Should Feel Like a Safe Investment 

Secondly, I check if it feels “safe.” 

I want to invest based on a sense of robustness, security, and certainty. Of course – who wouldn’t want that?

I’m here to tell you that it’s possible.

This doesn’t mean that the price won’t fall after I’ve invested. But if it does, I buy more shares.

How do I achieve that sense of safety and security? 

Well, I’m not an oracle. To reach that feeling, I go through a checklist and answer a lot of questions. 

I do the research, and then I check in with my inner barometer.

Here are some of the things I look at:

1. The Company’s Products

Do I believe in what the company sells?

Is it a good product or service? Do I personally like it? Do I use it? Or do I know someone who uses it? 

Will there be more of the same in the future?

Are they good at innovating with the product and coming up with more products?

 2. The Company’s Leadership

Who is the management?

Do I trust them? What do they stand for? What are their values?

I especially like owner-led companies or companies where the CEO owns shares and thinks like an entrepreneur.

Here, I carefully examine the management’s letters to shareholders and read them chronologically. I look at what they have promised in the past and whether they have succeeded.

If they haven’t succeeded, are they honest in explaining why? Or do they sweep it under the rug?

I also look at whether they have conducted share buybacks and at what price. It should be at a reasonable price. If the management just buys back shares at unreasonably high stock prices, they dilute the value – perhaps in the hope of maintaining or plumping up the share price – but it’s not a viable strategy.

I also look at how the management is compensated. Are the bonuses fair? Is there a sound incentive structure?

Finally, I examine the composition of the management. Are there diverse competencies and types of people? I’m not interested in investing in companies where the top management and the board consist of only one specific type (e.g., only men).

3. Growth and Development

How do the numbers look?

Is revenue growing consistently? What about profit?

And the equity? Is it also growing at a steady pace?

I prefer to invest in companies with high growth on all three fronts.

Some people talk about growth investing versus value investing. That’s nonsense.

Without growth, it’s difficult to make a good investment. As a value investor you should focus on investing in growth companies – at reasonable entry prices.

When I quickly skim their numbers, I also check that they don’t have too much debt (they should be able to pay off their long-term debt within three years).

4. Competitive Advantages

Can the company protect itself against threats from competitors? How do they retain customers?

Here, I go through a range of possible competitive advantages. I prefer the company to have at least two, preferably three of them.

Competitive advantages can be, for example:

  • Size (economies of scale)
  • High entry barriers in the industry
  • Branding
  • Network effect in the use of their products
  • Switching costs
  • Special knowledge, data, or secrets
  • Power position regarding suppliers or distribution

Most students who come to the Value Investor Academy easily overlook this point.

Competitive advantages are something you need to train yourself to spot.

5. Peer Comparison

Lastly, I compare them to their competitors.

Who are the others out there?

How do their growth, profitability, and equity development look?

Is our candidate a market leader? Is it growing faster than the others and hence eating up market shares? 

Or are there others out there who are even better candidates in the industry?

6. Value vs. Price

I calculate the company’s intrinsic value and ensure it’s higher than the stock price. In other words, you get more value for your money than what you pay. 

If you buy stocks when the stock price and market value are above the intrinsic value of the company, there’s a high risk of losing money in the long run – even if the company is a wonderful company.

It may sound complicated to calculate a company’s value, but it’s not. It can be done on the back of a napkin (you can learn to do it in my e-book Free Yourself).

I also check that the stock price is not at its all-time high. If it is, it’s probably not a good time to invest – at the very least, it’s a good time to reassess.

The Feeling of Security Comes From Research

The sense of investing in something safe comes from knowledge and research.

Clearly, nothing is certain in this world. Everything you do will come with a degree of uncertainty. 

Even when you cross the street, you can’t be 100% sure that you’ll safely make it to the other side… but you can feel safe while you do it. 

If you know the area and the traffic rules, you can cross the street without getting a feeling of anxiety at the sound of the smallest scooter. 

In the short term, we cannot be sure how the stock price will develop. But in the long run, we can have quite a lot of certainty if we know the rules of the game and understand what a “wonderful” company is.

One thing is certain in the stock market. Stock prices go up and down, and down and up – all the time. They’re like goldfish in a bowl. 

That’s part of the game.

Security comes from doing solid research and understanding the mechanisms of the stock market.

Just like you feel more secure crossing the road when it’s one you’re familiar with and you know the traffic rules. 

So get to know the traffic rules in my e-book Free Yourself here.

 

What Keynes Can Teach You About Stocks and Investing

What Keynes Can Teach You About Stocks and Investing

John M. Keynes is known for being a groundbreaking economist, but few know that he was also a talented value investor.

 He achieved an average return of 12% per year from 1927 to 1947, which is an impressive performance considering that the overall stock market declined by 15 percent during those years.

It was a period in history marked by the crash of 1929, the Great Depression of the 1930s, and a world war. Despite these challenges, Keynes managed to achieve phenomenal returns.

Before 1929, he was a macro speculator, always trying to figure out if the market was moving up or down. He did suffer losses during the big crash – losses that led him to transform his investment approach.

He shifted his focus from speculating on overall market trends to analyzing the businesses he invested in.

Keynes lost 80% of his personal wealth after the 1929 crash but learned a valuable lesson from it. He realized that attempting to predict market trends as a whole was too difficult because the market is inherently unpredictable and capricious.

Once he understood this, he changed his investment philosophy and transformed his personal wealth, as well as the fund he managed.

Keynes Became a Value Investor 

When he died, he left behind $30 million (adjusted for today’s value). He neither inherited anything nor received payment during the last six years of his life. He sponsored art and different events. 

 The Financial Times commented on his death:

 “Some surprise has been expressed about the large fortune left by Lord Keynes. Yet Lord Keynes was one of the few economists with the practical ability to make money.”

 In addition to his personal wealth, he managed the Cambridge King’s College Chest Fund, which achieved an average return of 12% annually during that period.

 How did he do it?

 The following quote summarizes his investment style well:

 “My purpose is to buy securities where I am satisfied as to assets and ultimate earnings power, and where the market price seems cheap in relation to these,” Keynes said.

 Well, hello. That’s the essence of value investing.

 In a memorandum from May 1938, he summarized his own investment philosophy.

 Here are the three pillars of his style:

 1. Careful selection

He carefully selected a few investments, considering whether they were cheap relative to both the current intrinsic value and the potential intrinsic value in the future. He also compared each investment to alternatives.

In other words, he only bought stocks when the company’s actual value (intrinsic value) was significantly higher than the stock market price. 

2. Holding on steadfast 

Keynes was a patient long-term investor.

 Stocks sometimes crash, and Keynes learned to remain calm in the face of such situations.

 As he famously said, “The markets are moved by animal spirits, not reason.”

 After 1929, he understood that there was no logic to how high stocks could rise or how deep they could fall.

This is because the stock market behaves irrationally at times, driven by greed or fear. As an investor, you need to endure these fluctuations and hold onto your investments based on reason.

“I should say it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself,” Keynes said. 

 3. Portfolio balancing

Keynes had a few large investments, but they were well balanced against each other, exposing him to different types of risks. 

He invested internationally, leaned towards mid-cap and small-cap stocks and avoided technology IPOs (at that time, technology typically referred to the automobile industry).

After 1930, he typically held positions for at least three years (you can read about this in the essay “Keynes the Stock Market Investor” by David Chambers and Elroy Dimson, which you can find online).

He was sometimes criticized for having too few and large positions.

To this, he apologized with the sarcastic response, “I was suffering from a chronic delusion that one good share is safer than 10 bad ones.”

If you want to learn more about how to select a few good companies as a value investor (instead of ten bad ones), I suggest downloading my e-book Free Yourselfhere.