There’s an old saying: Success breeds success. When it comes to investing, many people take this saying to mean that it might make sense to pay attention to what other successful investors are buying and then follow their leads into the same investments. After all, even if you don’t get it complete If you get the same returns as these other people, you might be able to ride on their coattails and make some decent profits.
Luckily for people who want to follow in the footsteps of billionaires, many of the world’s biggest investors are required to disclose what they are buying and selling on a quarterly basis. To see what these potentially market-moving asset managers are buying, three Motley Fool contributors looked for signs of what transactions these big investors have reported. They found that billionaire investors were buying Nvidia (NASDAQ:NVDA), Starbucks (NASDAQ:SBUX)And Chevron (NYSE:CVX). Read on to find out why, and decide for yourself whether following these investors’ lead could help you build your own wealth.
This Magnificent Seven stock is hot, hot, hot these days
Eric Volkman (Nvidia): Billionaire Ray Dalio’s monster hedge fund Bridgewater Associates is clearly betting on the future of artificial intelligence (AI). That’s the strong signal Bridgewater recently sent by more than fivefold increasing its position in one of the “Magnificent Seven” stocks more associated with AI, Nvidia.
Nvidia’s commercial inventory consists of graphics processing units (GPUs), many of which are used to provide AI capabilities in data centers. The rush to develop these features has greatly increased the demand for all sorts of hardware needed to support them, and Nvidia GPUs are at the center of it.
No wonder the company’s most recent quarterly results were so impressive. Do you consider doubling sales compared to the previous year to be a masterpiece? Well, that’s nothing compared to Nvidia’s 265% revenue increase in the fourth quarter, not to mention the nearly 500% increase in non-GAAP (adjusted) net income.
AI is a technology with a very long lifespan, and because it can be applied to a wide range of processes and systems, it has the potential to open up many revenue streams. If Nvidia’s products continue to play a central role in this scenario – a likely scenario – we can expect the company to experience more record quarters in the future.
The only serious caveat about Nvidia is that the company is on many investors’ radar screens these days; It seems that almost every individual and institution in the market wants the stock in their portfolio. Despite these exceptional current fundamentals, the company’s valuations are very high, so its explosive share price rise may be a thing of the past.
More than a quick jolt
Jason Hall (Starbucks): As I was recently reviewing the SEC’s Form 13-F filings, I noticed something interesting for Starbucks: Two of the largest and most successful quantitative trading firms, DE Shaw and Renaissance Technologies, both bought shares in their most recent reporting quarter. For those who don’t know, David Shaw and Jim Simons, the co-founders of the former and the latter, are collectively worth nearly $40 billion, with their two firms easily the two most successful quantitative trading funds.
Both Shaw and Renaissance make most of their money relatively quickly. Their business consists, at least in part, of high-speed trading and using data to make lots of bets on lots of stocks. For example, DE Shaw opened almost 594 new Stock positions were increased by another 1,607 in the last quarter and completely sold off another 535 shares. That’s more than 2,700 stocks in a single quarter.
We do not know exactly when Shaw or Renaissance purchased, held, or sold some of their Starbucks shares. But we know they both still had some at the end of the quarter. And with shares of the global coffee giant down over 6% since the start of the fourth quarter of 2023 and down 20% from their peak, there’s likely a near-term profit opportunity for these companies.
But this is her Game. We can’t win for individual investors.
However, in the long term, Starbucks looks very attractive. Business in China has recovered, with comparables up 10% and strong same-store growth of 5% in the US as well. Management expects earnings per share to grow 15-20% again this year. Combine this growth with a reasonable price of under 23 times earnings and a dividend yield of over 2.5%, and long-term investors can also benefit from owning Starbucks.
Buffett believes oil still has a future
Chuck Saletta (Chevron): Warren Buffett Berkshire Hathaway recently decided to buy nearly 16 million shares of oil company Chevron, according to its most recently published quarterly holdings filings. This is another clear signal – in addition to Berkshire Hathaway’s massive investments in energy pipelines – that Buffett and his crew believe hydrocarbon-based fuels still have a future.
You are not entirely alone on this front. According to the latest study from the US Energy Information Administration Annual Energy OutlookNet demand for oil and natural gas is expected to remain relatively constant at least through 2050. And of course, in a world where this demand remains constant over the next few decades, it is unlikely that people will simply stop using these fuels once 2051 is over.
The reality is that even assuming a limited future of carbon-based fuels, an investor can make a reasonable return at the right price by owning shares in companies involved. It’s a value investing strategy based on the old-fashioned practice of looking at what the company’s cash flows will look like over time.
With the company trading at around 14 times earnings, an investor doesn’t need to forecast massive growth to have a chance at reasonable returns from Chevron. This is especially true when you consider that Chevron pays its investors a decent dividend yield of around 4%.
Even if you look at it in simple terms, if the return was consistent at 4%, an investor would get his money back over a period of 25 years. This provides a potential path to a full return on invested capital over this period while the investor continues to own the stocks that generate these dividends. And since demand is expected to continue beyond that, there is of course the chance to earn even more.
Net – even if there isn’t massive growth, there are good reasons to believe there is still value to be extracted from the oil patch. And if that’s good enough for Buffett, it might as well be good enough for us mere mortals.
Are you ready to follow these leading investors?
Ray Dalio’s acquisition of Nvidia, DE Shaw and Renaissance’s acquisition of Starbucks, and Buffett’s acquisition of Chevron by Berskhire Hathaway show that there are many ways to profit from the market. These leading investors appeared to take three very different approaches to figuring out which stocks were worth their money.
That should give you good reason to believe that you too should be able to find a path to reasonable investment returns. No one – not even successful billionaires – can guarantee what you’ll make in the stock market, but as their successes over time have shown, a big part of making money in the stock market is simply showing up and following a sensible strategy all the time.
So get started now and decide to follow these great investors into the market today, regardless of whether you actually make the exact same investments as them.
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Chuck Saletta has no position in any of the stocks mentioned. Eric Volkman has no position in any of the stocks mentioned. Jason Hall has held positions at Berkshire Hathaway, Nvidia and Starbucks. The Motley Fool has positions in and recommends Berkshire Hathaway, Chevron, Nvidia and Starbucks. The Motley Fool has a disclosure policy.
“3 Stocks Billionaires Are Buying” was originally published by The Motley Fool