Investing with the Gurus – Differing Sentiments About the Same Investment

In investment circles, it’s often said that a great company doesn’t necessarily make a great investment. So, when investing Gurus like Bill Ackman (Pershing Square Capital Management), Joel Greenblatt (Gotham Asset Management) or Warren Buffett (Berkshire Hathaway) put their money to work in a stock, one automatically assumes that the opportunity was about a great company and a great investment.

That’s not entirely true!

Guru mindset

It’s very common to see Guru’s investing in different companies in the same sector. Ordinary “mortals” like us, looking to learn from the great Gurus, look at such moves and get a sense that a particular segment of the economy is in favor. We could then narrow our focus to other names within those segments and pick our investments.

But what’s eye-opening is when several Gurus have differing sentiments about the same company. That’s something that happens quite a lot actually! Are we receiving conflicting signals about the same investment from different investment masterminds? Well, yes…and no! And here’s why:

  • Most investment Gurus have a unique style of investing. Some like large cap stocks, others like to stay away from growth names, still others buy and hold for a long time
  • When a stock, in the portfolio of a particular Guru, deviates from their (the Gurus’) investment thesis – a growth name turns into a value play – the Guru will usually dump it for something else

For instance, if one of the Gurus loved General Electric (NYSE: GE) for its dividend profile a year or so ago, the fact that GE cut its dividend by half several months back would now make it unattractive for the Guru to hold. Guru’s invest with a particular mindset. And when a stock doesn’t conform to their line of thinking, they usually jettison it from their portfolios.

Speaking of mindsets however, one Guru’s challenge could mean another’s opportunity. For instance, while one hedge fund manager might reject GE because it is no longer an attractive dividend play; another may scoop it up because he/she believes it is now fairly valued (value play) and can appreciate in time.

Guru Sentiment

And that’s the main reason that some Gurus sell (or trim) their position in a particular name, while others enter or add to theirs! The company’s business fundamentals are there for all Gurus to see, yet some will interpret it one way, while others might have a totally divergent view. The sentiment each Guru might have on a specific name can change from quarter to quarter – even though the long-term fundamentals for the stock don’t change.

With that background in mind, lets take a look at a few names that clearly outline how differently Guru’s think about those names.

Investing with the Gurus, Warren Buffett, Joel Greenblatt, Bill Ackman
Source: sec.gov/edgar

 

The above table illustrates our point very clearly. It shows how investing Gurus like Ackman, Greenblatt and Buffett, each hold differing sentiments of the same stocks in their portfolios. For instance, Buffett’s holdings in Walmart Inc. (NYSE: WMT) haven’t changes between Q4-2017 and Q1-2018, indicating a more neutral sentiment this Guru holds for the name. However, by increasing his stake in the name by 89.84% during the same timeframe, Greenblatt seems to indicate a more bullish sentiment for WMT.

In a similar vein, neither of these three Gurus seem to hold the same sentiment for restaurant industry investment Restaurant Brands International Inc. (NYSE: QSR). While Ackman seems bearish, reducing his position between quarters, Greenblatt has piled into the name in Q1-2018, with Buffett seemingly neutral in his sentiment for the name – keeping his holdings the same.

Guru Takeaways

So, what can we learn from watching and studying Guru portfolios?

  • If you are using Guru portfolios to construct your own, check to see why an investment was dumped or trimmed. For example, Buffett’s exit from International Business Machines Corp. (NYSE: IBM) seems to have been a case of “flawed valuation” by the Guru. Yet, with their promise in cloud technologies and artificial intelligence applications, Big Blue is seen as a promising investment to Greenblatt
  • Don’t just look to change in portfolio value, but instead check whether individual names were added or trimmed. For instance, don’t exit WMT just because Buffett “lost” nearly 10% in Q1-2018. That’s not the takeaway from that change. The Oracle of Omaha hasn’t bought any more of WMT – but he hasn’t sold anything either. You may therefore want to hold onto your WMT for a while, because Greenblatt seems to like that name a lot!
  • One final learning point to glean from portfolio changes highlighted in the table above relates to profit-taking. While Ackman’s lightening of QSR could signal a sign trouble ahead for the stock, it is very likely a shrewd game of profit-taking, because the position had run up more than the Guru likes

One final word of advice: If you would like to invest like the gurus, its vital that you get into their mindset and learn how they think. Very often the reason for a specific portfolio change (buy, sell, hold) might not be what you initially think it is.

Author have an investment in GE stock. Sign-up for our newsletter so you don’t miss any hot investment opportunities. Also download our recently published Best Blockchain Stock To Invest In Right Now or Volatility Survival Guide report absolutely free.

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