Investors looking for investment ideas often turn to billionaires’ investment ideas. This can make sense, as one often gets to billionaire status by making wise investing decisions.
One problem with this approach is that a billionaire may have different investing goals than an average investor looking to accumulate wealth over their lifetime. Instead of seeking long-term gains, a billionaire may buy a stock as a short-term trade. We don’t know what billionaires are going to do ahead of time, and we likely won’t know why they make the investing decisions they do. So while it makes sense to see which stocks the super-wealthy like, average investors have to go the extra step and confirm that a stock suits their investment needs.
Let’s dig in on three stocks that billionaires have bought shares of recently.
Admittedly, Amazon (NASDAQ: AMZN) is more of a known quantity to investors of all wealth levels. Its online retail and cloud computing leadership has made it a favorite among consumers and investors alike.
Although its online sales business has not been a growth center, it has benefited from subscription sales, third-party seller services, and advertising. Additionally, amid strong growth in cloud computing and AI, its AWS arm continues to drive most of Amazon’s operating income.
Although net sales rose by only 11% yearly in the first half of 2024, a continued recovery from 2022 weakness took profits higher by 141% over the same period.
Moreover, while its 45 P/E ratio may not sound cheap, it is far below the stock’s average 87 earnings multiple over the last five years.
AMZN PE Ratio Chart
That may have helped draw several billionaire investors into the stock in the second quarter of 2024. Ken Griffin, Ray Dalio, and Paul Tudor Jones are just some of the billionaires who added positions during that quarter.
With numerous business lines and $89 billion in liquidity, Amazon is among the safest individual stocks to own, likely making it an excellent choice for average investors.
Another noteworthy “stock” choice of billionaires is an exchange-traded fund (ETF) that owns the 100 nonfinancial stocks on the Nasdaq-100 index. The Invesco QQQ Trust(NASDAQ: QQQ) tends to attract investors at all interest levels since individual components tend to have little influence.
Although it contains 100 stocks, its weighting tends to vary. Its top holding, Apple, constitutes just under 9% of the fund as of this writing. Also, the top 10 stocks, all but one of which is a tech stock, make up just over 50% of its assets.
The Invesco QQQ Trust has performed well for investors. While its 37% return over the last year closely approximates the S&P 500‘s performance, its 436% return over 10 years nearly doubled that index.
Thus, it is little wonder that investors such as billionaires Cliff Asness and Steven Cohen added shares in Q2. For them, this was likely a way to balance safety and considerable growth. Given the safety of the fund owning multiple stocks and its returns, the ETF is a wise option for most investors.
Super Micro Computer (NASDAQ: SMCI) shot out of obscurity in recent years as a partnership with Nvidia led to a massive increase in demand for its servers.
The volatility has been particularly pronounced over the last year as the stock surged past the split-adjusted level of $120 per share in March. However, investors began to sell, and sentiment worsened after a short-seller report from Hindenburg Research in late August and the announcement that it would delay filing its latest 10-K report to the SEC. (Remember, short-sellers make money when the stock they are short on falls, so they have a reason to spread pessimism.)
Millennium Management — led by billionaire Israel Englander — purchased shares of Supermicro in the second quarter, before the short’s report, and I think, considering that its P/E ratio is 24 and analysts forecast 51% profit growth in fiscal 2025, some risk-tolerant investors may feel justified in buying shares now despite possible accounting issues that may come to light if the short-seller is correct.
However, it’s impossible to know how things will shake out, so I think Supermicro is a stock for speculative money, and one that risk-averse investors should probably avoid.
Billionaires can make excellent stock picks. Indeed, billionaires do not obtain that status by making lousy stock picks. Though no one’s right 100% of the time, and average investors need to perform their own due diligence to figure out if any particular stock is right for their portfolio.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Super Micro Computer. The Motley Fool has positions in and recommends Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy.
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