Stocks have opened the month of March with a bang. After dropping almost 8% globally to start the year, nearly all stocks finished the first day of March higher. U.S. stocks are up over 2%. U.S. yields are moving higher. Broadly, the sentiment about the global economy and stability of financial markets has been terrible to this point. Even former Fed Chair Alan Greenspan was out this morning warning about the scary outlook for the world, should the overhang of fear and negative sentiment persist.
As we’ve said, a lot of it has to do with cheap oil and the threat that it represents to the energy industry, oil exporting countries and, consequently, the financial system. Well, oil happens to be up 32% from its lows of just 13 trading days ago. That helps moderate that negative sentiment. But it still has a long way to go, to take the risk of cascading defaults off the table.
Today, Forbes released its famed World’s Billionaires List. Every year this list becomes one of the most written about subjects on the internet. Today we’ll do our part and take a look at the richest investors in the world, how they’ve done it, and how they continue to do it.
Most of these investors are self-made, and many of them built their fortunes as hedge fund and money managers. Some you have probably heard of, many you likely have not.
We’ve talked about Warren Buffett that past couple of days: 1) how just six stocks make up more than 70% of his exposure to the public equity markets, and 2) why he thinks the American economy still has all of the magic ingredients that have made it the best place to live and do business in the world.
Not surprisingly, Buffett is the world’s richest investor (and the third richest person on the planet).
1) Warren Buffett (net worth $67 billion): Buffett’s publicly traded Berkshire Hathaway investing vehicle has averaged 19% annualized since 1965. That gives him one of the greatest investment track records in history (many argue the greatest — more on that in a moment). Buffett is a pure stock picker that has build his fortune following the Benjamin Graham principles of value investing.
2) George Soros (net worth $24.9 billion): George Soros is the most famous and successful hedge fund manager of all time, returning around 30% annualized during his days running the Quantum Fund. Soros made his billons betting on global macro trends, including a $1 billion profit he made in one day on a bet against the British pound back in 1992.
3) Carl Icahn (net worth $17 billion): While Buffett is widely acclaimed as the best investor alive, Icahn actually has the best track record in history. He’s averaged more than 30% annualized since 1968 (nearly as long as Buffett’s record and better). Icahn is an activist investor who takes big stakes in deeply undervalued value stocks, pushes for change and then exits for, many times, huge profits. Icahn has made billions over the past five years on his activist positons in Netflix and Apple.
4) Ray Dalio (net worth $15.6 billion): Dalio runs the largest hedge fund in the world, with over $150 billion in assets under management. He is an asset allocation specialist, and the pioneer of what he has coined as “risk-parity investing.” In very simple terms he operates on the assumption that, over time, major asset classes rise in value and generate returns better than cash. And that’s because he shares the belief with Buffett, that, over time, the world will improve, will grow and will be a better and more efficient place to live than it was before. Dalio weights asset classes based on volatility which has given his two major hedge funds, The All Weather Fund and The Pure Alpha Fund, smooth and consistent returns. Pure Alpha returned almost 5% last year after fees in a very tough market.
5) James Simons (net worth $15.5 billion): James Simons is the king of quantitative investing, and founder of one the best performing hedge funds over his career, The Renaissance Medallion Fund. Renaissance Medallion has returned more than 30% annualized after fees, since inception. Simons is an MIT graduate with a PHD from University of California at Berkley. His fund uses computer models to profit from short-term market inefficiencies.
6) Steve Cohen (net worth $12.7 billion): Cohen ran one of the most famous and best performing hedge funds, SAC Capital. He started SAC in 1992 but was forced to shut down by federal prosecutors more than two years ago. Since then Cohen has run his own money (14 figures) through a family office structure called Point 72 Asset Management which generated almost a 16% return in 2015.
7) David Tepper (net worth $11.4 billion): David Tepper might be THE best performing investor over his 23-year career. He’s averaged 30% annualized returns after his management and incentive fees. That’s almost 40% annualized returns before fees! He runs the $18 billion hedge fund, Appaloosa Management. Tepper is unique in that he combines distressed investing with global macro investing. Last year Tepper returned 11% net of fees in a down stock market, mostly due to a big bet against the euro.
So these are the best and richest investors in the world. Still, they have losses and drawdowns on their investments just like anyone else. But they have some unique traits that also set them apart from everyone else. Among those traits is influence. When they buy stocks, they tend to take very large stakes, and often become the largest shareholder in a company. When they do that, they are in control. And then, with patience, they have the ability to influence the outcome for their investment. In investing, you need an edge to make outsized returns (i.e. better performance than the general, long-term rising tide of stocks –and major asset classes- give you). And they have that edge.
With public disclosures rules by the SEC, they are also required to disclose their stock holdings. With that, at BillionairesPortfolio.com we can follow the moves of these great investors. You can learn more here.