It's Smart to Copy Great Investors

 | Oct 13, 2011 | 12:30 PM EDT  | Comments
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It's a Herculean task to sift through the thousands of publicly traded companies in order to find a handful of lucrative investment ideas. Thankfully, you don't have to.

The great thing about the sport of investing is that it's OK to copy the other guy's ideas. In fact, it's intelligent to do and foolish not to do.

A few years back, a study was released that concluded that had you bought the stocks that Warren Buffett bought for Berkshire Hathaway (BRK.A) after they were made public via SEC filings, you would have generated annual returns in the neighborhood of 15% over many, many years. If someone offered me 15% returns for 10-20 years today, I'd likely retire and let compounding do its magic.

I am not going to use Buffett today, but I'll start with a connection to the Oracle of Omaha, Ted Weschler, Buffett's recent hire to manage a portion of Berkshire's equity portfolio. Two months, no one knew who Weschler was except his ever-so=grateful investors who enjoyed a cumulative return of 1223% from -- get this -- 2000 to the first quarter of 2011. While Weschler's $2 billion Peninsula Capital Advisors shorted stocks and used leverage, the portfolio was very simple and extremely concentrated.

Weschler's biggest holding is DirecTV (DTV), making up 25% of the portfolio. Trading at $46 a share, DirecTV is an attractively-valued growth story. The company is expected to earn around $3.37 a share in 2011 and $4.24 in 2012. Dialysis service provider DaVita (DVA) is another one of Weschler's picks, making up more than 15% of his portfolio. Shares trade at $63 or 17x trailing earnings. The business is expected to earn $4.82 per share in 2011 and $6.11 in 2012.

Pershing Square's Bill Ackman, well known to the public investment due to his big and bold activist announcements, recently touted his investment in retailer JCPenny (JCP) in a Bloomberg interview. After disclosing his stake, Ackman was invited to join the company's board. Since that time, the company has brought in some of the best names in retailing, including the hiring of Ron Johnson to be CEO. Johnson was the brain behind Apple's (AAPL) retail success.

The immense of success of Apple's retail stores is the work of Johnson and Ackman believes that magic touch can be transferred to JCP. In the interview, Ackman also said the highly-successful Missoni line at Target (TGT), which sold out in hours, will be coming to JCPenny in the future. Shares trade currently trade for $30 down from a 52-week high of $41 and up from a low of $23.

Investors are well served in using the resources available to them in selecting successful investments. The fact that investors can copy and piggyback other successful investors should not be underrated over the long run.

No investor, no matter how successful bats anywhere close to 1.000, so successful outcomes are no guarantee. But instead of initially looking at thousands of stocks, look to see what the smart money is doing first.

Happy hunting.

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