What are the wealthy investing in? This is a common question often asked by aspiring entrepreneurs. Chances are, if you’ve seen news or read books about wealthy business owners or executives who achieved fortunes, you’re right, they are rich because of their investments. Investing is one of the core activities that drive any business to success, whether personal or corporate. That’s why knowing what rich investors are investing in can be your stepping stone to becoming a successful investor yourself.
It’s a fact, the wealthy have a great portfolio of investments. In this article, we’ll show you what those investments are. By applying some of those strategies, you could turn from rags to riches within no time at all.
At the end of the year 2015, the number of global high net worth has increased to 15.4 million, increasing by 5.1% from 2014. High net worth is the term used for an individual with investible assets of more than 1 million USD (approx. 35 million THB). By regional distribution, the statistic indicated – for the first time, a higher number of HNWIs in Asia Pacific than in North America or 5.1 and 4.8 million people, respectively.
* HNWI = High Net Worth Individual
The total wealth from this segment is at 58.7 trillion USD, almost 5% increases from 2014. The growth rate of total wealth is relatively low comparing to the previous years. One of the reasons was low global interest rates and lowered rate of return from stock markets comparing to the previous years.
They understand the importance of liquidity
Some may see keeping substantial amounts of cash on hand as being too conservative or having a fear of the market. A high net worth investor would be quick to tell you otherwise. More than half of these investors keep their liquidity high so that they are in a position to act quickly when great opportunities present themselves. Not only do they make sure that they have access to cash before they need it by forming healthy savings habits, but they also make sure they have access to multiple sources of liquidity.
Large cash positions are commonly found in their portfolios
To add to our above point, nearly 6 in 10 high net worth investors have at least 10% of their portfolio in cash. Remember that for these investors, this isn’t sign of ultra-conservatism. It’s a sign of their desire to capitalize on the right opportunities at a moment’s notice. This serves as another source of liquidity, allowing their cash on hand to flow opportunistically.
Their investment philosophy is geared toward the long-term
Six in 10 high net worth investors seek well-balanced, risk-managed growth. Even if it means lower returns, it was still more important for them to lower the risk of their investments. The wealthy keep their focus on funding long-term goals, while keeping near-term opportunities in mind as they go. A vast majority (83%) have made their investment gains through a long-term buy and hold strategy. Take it straight from Warren Buffet, who has said time and again that money is made in investments by investing, and by owning good companies for long periods of time. This disciplined approach to investing helps the wealthy minimize their emotions and tune out market noise.
They make tax-conscious investment choices
More than half of high net worth investors say that it’s more important to minimize the impact of taxes when making investment decisions. Even more important than pursuing higher returns regardless of the tax consequences. This can be attributed to the point that really counts is your net pay – how much you are really making in returns after taxes. Poor tax management will add up over the long haul, and can easily cause you to sacrifice large portions of your gains for the year.
Top Stock Picks That Billionaires Love
Cisco Systems
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- Market value: $186.4 billion
- Billionaire investor: Generation Investment Management
- Percent of portfolio: 3.9%
When it comes to Cisco Systems (CSCO, $44.11), Generation Investment Management isn’t fooling around. The London-based advisory – which was co-founded by former Vice President Al Gore, who currently still serves as chairman – started a new position by purchasing more than 18 million shares of CSCO during the third quarter.
The position now accounts for 3.9% of the company’s $18.8 billion in managed securities, putting it just outside its top 10 stock picks.
Although the technology conglomerate’s stock has frequently been a market laggard over the past five years, it’s having a strong Q4 so far. Since the beginning of October, CSCO shares have gained 12% to the S&P 500’s 9%.
Analysts expect the company to generate average annual earnings growth of 6.7% over the next three to five years, according to S&P Global Market Intelligence. Their average recommendation stands at Buy.
Delta Air Lines
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- Market value: $27.4 billion
- Billionaire investor: PAR Capital Management
- Percent of portfolio: 4.1%
If you’re an investor looking for beaten-down stock picks, look no farther than the airline sector. After all, the global pandemic crushed air travel.
PAR Capital Management, a Boston-based advisory, sees value in this nook of the market. The firm not only added to several positions in airlines, including Delta Air Lines (DAL, $42.95), Southwest Airlines (LUV) and United Airlines (UAL), but it also more than tripled its position in travel site TripAdvisor (TRIP).
As for Delta Air Lines, PAR Capital Management made an incremental addition to its DAL holdings, adding 9,450 shares to bring its total to more than 3.5 million. That’s good for a top-10 position at about 4.1% of assets.
All told, it looks like PAR is betting on a big rebound for the sector once the pandemic is gone sometime next year.
Barrick Gold
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- Market value: $42.0 billion
- Billionaire investor: Platinum Investment Management
- Percent of portfolio: 4.2%
The best-known investor in Barrick Gold (GOLD, $23.61) at the moment is probably Warren Buffett’s Berkshire Hathaway. The Oracle of Omaha initiated a position in the gold and copper miner in the second quarter of 2020, buying 20,918,701 shares worth $563.6 million.
The move had Buffett-watchers scratching their heads. After all, Warren Buffett is the farthest thing from a gold bug. Be that as it may, at least miners produce cash flow. In the case of Barrick, it even pays a small dividend.
Despite what its name might indicate, Sydney, Australia-based hedge fund Platinum Investment Management (AUM $16.2 billion) isn’t exactly big on commodities, either. But they do allocate a notable portion of their portfolio (4.2%) to Barrick Gold.
Platinum Investment, which has owned shares in GOLD since 2012, raised its stake by 81%, or 2.7 million shares, in Q3. Prior to the latest investment, Barrick accounted for just 2% of its total portfolio value.
Johnson & Johnson
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- Market value: $392.2 billion
- Billionaire investor: Levin Capital Strategies
- Percent of portfolio: 5.0%
Johnson & Johnson (JNJ, $149.00) operates in several different segments of the healthcare industry. In addition to pharmaceuticals, it makes over-the-counter consumer products such as Band-Aids, Neosporin and Listerine. It also manufactures medical devices used in surgery.
The stock hasn’t done much this year, but long-term income investors know how valuable it can be. This Dow component is a stalwart dividend grower, having increased its payout for 58 consecutive years.
Levin Capital Strategies (AUM $1.3 billion), a New York-based hedge fund, is a believer in JNJ. The fund raised its stake in the healthcare giant by only 1% in Q3, but it accounts for 5% of a highly diversified portfolio, making it third largest among its top stock picks. Levin’s top holding, Microsoft (MSFT), claims 6.5% of the total portfolio value.
Levin has stuck with JNJ through good times and bad, first buying shares way back in 2006.
Conclusion:
The question of what makes the rich different is one that has long fascinated people. The fact that many people dream of becoming wealthy in the future only adds to the intrigue. The popular belief among many people is that it is easy to get rich, but if truth be told, it is not easy to achieve.