Buffett Is Onto Something…….But This Is Even Better
My recipe for successful investing is pretty darn simple.
Build a portfolio made up exclusively from the highest conviction investment positions of the world’s elite investors.
By elite I mean the cream of the crop…….money managers who have generated annualized returns for long stretches of time that have smashed the overall market.
Investors like Dan Loeb who has generated 18 percent annualized returns (after his outrageous fees) for almost 25 years.
Investors like Warren Buffett who has smashed the market since the 1950s.
By building a diversified portfolio made up exclusively from the top picks of these investors I believe that at the very least an investor can match their market smashing returns.
Except there are a couple of other things to consider….
One, a portfolio like this should actually beat the returns that these investors put up since it avoids their fees which typically suck 2 to 5 percentage points off their returns.
Two, since this portfolio is made up of the highest conviction ideas from these investors it is made up exclusively from their very best ideas and not diluted by their so-so ideas.
Three, this portfolio is diversified across multiple different great investors so you don’t have exposure to the possibility of one of those investors “losing it”.
Does this approach make sense?
You are darn right it does………that was a rhetorical question!!!!
All that you really need is a kind-hearted soul to fish the top ideas from these great investors and serve them up to you on a silver platter.
Well…….good news! Because I’m just that guy, your Robin Hood of Wall Street.
I steal the ideas from these fancy-pants hedge funds that are accessible to only the wealthy one-percent and give to you.
Multiple Top Managers Are Saying It – Banks Are Cheap!
If I haven’t already convinced you that the banking sector is a place to be investing right now I’m not sure why.
If you missed it, you may want to revisit my article where I took a look at what Mr. Buffett was doing in the third quarter of this year.
If you don’t feel like doing that I’ll just give you the crib notes…..
Buffett bought $13 billion of bank stocks, now has more than $80 billion invested in the sector and his portfolio has half of its top ten positions are in American financial institutions!!
Now some good news. Since Buffett was loading up in Q3 all of these stocks have gotten cheaper. We can now get in at better prices than Mr. B was paying.
I suspect that right now he continues to add shares of these stocks himself right now.
But let’s stick a pin in Mr. Buffett for a second.
I think I can even do better than that for you. I think there is a place where the share prices of financial institutions are even cheaper.
To be clear though….I don’t actually do a lot of thinking myself. Instead what I do is more along the lines of stealing (legally of course, this info can be dug out with some effort). Stealing the best ideas from people who are exponentially smarter than me.
Like for instance the smart folks at Causeway Capital, the source for a place where bank stocks are even cheaper than the United States……..jolly old England!
How cheap are the Queen’s banks? On the whole Causeway Capital shows that the sector is trading at roughly 60 percent of book value.
Chart Source: Causeway Capital
That is a price that implies we are near a point where banks are about to start failing. Healthy banks should trade at a slight premium to book value, not at 60 percent of it.
Arguably there is almost 100 percent upside in the entire sector to have it valued properly.
But here is the thing. European banks aren’t on the verge of failing.
Causeway Capital zeroed in on banks in the UK and found that capital ratios are more than three times where they were a decade ago.
Chart Source: Causeway Capital
Even under the most dire scenario painted in the recent round of stress testing showed that UK banks would have twice the capital ratio today than they did a decade ago.
And this is where I start to really pay attention. When multiple top investors start finding value in the same sector.
The message that I’m starting to gather from multiple great investors is that the banking sector both here and abroad is both healthy and dirt cheap.
That sounds like a great combination to me.
Yes I know there are worries about the economy and Brexit and an inverted yield curve…..but there always worries. My buy signals come from what the great investors are doing, not what the talking heads on television are telling me to worry about.
The banking sector is cheap.
Now let me dig up a way to play it…….and don’t worry it won’t be my idea.
I’m going to steal it from the best and give it to you.
Just like Robin Hood.