Where the billionaires are buying

The good times never last too long in the world of high finance.

A few years ago, Wall Street hedge fund manager John Paulson was the man with the Midas touch, after making a staggering $US3.5 billion in 2007-08 betting against subprime stocks and another $US5 billion in 2010 as the US market and gold prices increased.

These days, he’s the beleaguered hedge fund manager whose key fund has tanked in 2011, with investors apparently becoming nervous about Paulson’s dedication to gold and some key financial stocks.

According to a report from Reuters, Paulson recently told an industry panel discussion called “Challenges, Opportunities and What Keeps You Up at Night” that losing money and poor performance was sucking away his sleep.

If that’s the case, he must look pretty haggard these days – according to hedge funds results released last month, Paulson’s main Advantage Plus fund is off an ugly 47% since the start of the year, while his gold fund is down 32%.

At this stage, investors are sticking by Paulson – a memo from his fund said redemption requests are less than 8% of his $30 billion fund.

But last week’s filings on the buying and selling done by Paulson’s funds have been closely scrutinised. Is the man with the Midas touch about to back down on his strategy?

On the surface, it would seem that Paulson’s enthusiasm for gold appears to be waning.

He cut his stake in the SPDR Gold Trust – an exchange-traded fund backed by the precious metal – by more than 35% in the three months to the end of September, although the stake is still worth $US3.5 billion.

However, a report in the Wall Street Journal suggests Paulson is trying to get exposure to gold through futures and other products that do not show up in the quarterly hedge fund filings.

Paulson also appears to have pulled away from his aggressive strategy of buying financial stocks, something he admitted he got wrong in recent months.

He trimmed his stake in Citigroup from 35 million shares to 25 million shares and also reduced his stake in Wells Fargo, a favourite with Warren Buffett.

But Paulson increased his stake in the troubled Bank of America by about $US390 million and also increased his holding in Capital One Finance.

In other words, Paulson’s strategy hasn’t changed too much – he’s still bullish on gold and reasonably bullish on financials. Now all he needs is a market turnaround and he’ll be sleeping better too.

What other investment trends can we spot from Wall Street’s titans? Let’s scan the third quarter filings and learn more.

Warren Buffett

Omaha-based investor Warren Buffett grabbed headlines around the world by buying $US10.7 billion worth of shares in tech giant IBM, amassing a 5.5% stake. It’s the sort of giant deal it seems we’ll see a few times a year by Buffett.

But there was some other buying action below that. Buffett’s Berkshire Hathaway also established new positions in computer chip maker Intel and satellite television company DirectTV, although theses were small positions compared to that of IBM.

Other new holdings include Visa (Buffett already owns a small stake in Mastercard), a drug store operator called CVS Caremark and a defence contractor called General Dynamics.

It’s a bit of a mixed bag, but the interesting angle here is Buffett’s embracing of tech stocks – although they are very much at the blue chip, well-established end.

David Einhorn

While David Einhorn isn’t the best-known Wall Street titan in Australia, in America he’s described a “rock star hedge fund manager”.

He plays poker (he made it to the second round of the recent World Series of Poker in Las Vegas), he’s invested in baseball team the New York Mets and he’s managed to take his investment company Greenlight Capital from a $1 million minnow to a multi-billion dollar giant, thanks in no small part to his decision to short Lehman Brothers just before it collapsed.

Einhorn made some big moves during the third quarter, liquidating his entire stake in drug maker Pfizer (some 23.4 million shares) and cutting a smaller stake in retailer Aeropostale.

But Einhorn kept his faith in the tech sector, increasing stakes in Apple, Microsoft and mobile phone group Sprint Nextel.

Einhorn’s new positions included stakes in money manager Legg Mason, Marvell Technology Group, CBS Corporation, Barrick Gold and Compuware.

Conclusion

There are two things that jump out from these filings. Firstly, the swing towards technology stocks is notable, although it must be pointed out that blue chips are very much the focus. Secondly, Buffett and Paulson retain faith in the US financial sector. Hopefully that is a pointer towards better times ahead.