Investing Advice from the Bigwigs

investing advice

Big names in the financial world are a great place to look for ideas about potentially solid investments. We can’t all be Dan Loeb, Seth Klarman, or David Einhorn, but we can learn from where their companies choose to invest their time, energy, and money.

For Dan Loeb’s Third Point, the investment focus lately has been on medical company Baxter International and flooring maker Mohawk Industries. These companies personify what Loeb has noted as the most important factors in his investments—strong management teams, free cash flow, and a proven track record of capital allocation that raises the value per share.

Third Point had a 7% stake in Baxter International in August, which made it the largest single investor in the company. Since then, Third Point’s stake has risen to 9.9%.

Loeb’s approach with Baxter has been far less aggressive than his usual MO—he praised outgoing CEO Robert Parkinson for his business decisions, including spinning off a pharmaceutical subsidiary Baxalta in June. In return, Baxter has granted Loeb’s request for two seats on the company’s board as the search for a new CEO begins. Loeb hopes to ride the gains to be found in supporting a pharmaceutical company as the world’s Baby Boomer population continues to age.

Third Point’s interest in Mohawk Industries, based in Georgia, began in the fourth quarter of 2014, when the stock was averaging around $145 a share. Subsequently, Loeb raised his stake twice, making Mohawk the fifth-largest holding in Third Point’s portfolio at 4.3%. So far, so good: shares are now at about $194.

As with Baxter, Loeb is taking a softer approach to Mohawk. Rather than trying to oust the CEO, he actually referred to the company as being “exceptionally well managed,” noting that CEO Jeff Lorderbaum “has created a culture and a system of processes that allows Mohawk to gain scale by empowering local managers to pursue acquisitions and capacity expansions.”

Obviously big-time investors like Loeb and his compatriots aren’t all right all the time; however, by looking at the businesses and company traits they gravitate toward, newer investors can learn a lot about what’s a sure shot and what’s more of a risk.

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About DevonJ140
I am currently an Accounting Director living in New York City. I love reading and learning more about business, finance, tech, and current events.

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