Now, thanks to some assistance from a former hedge fund research manager, you can consider whether to follow the investing lead of the richest hedge funds. Below, we present a list of the 10 best stock picks of the 10 highest-paid hedge fund managers.
According to AR Absolute Return, the 10 highest-paid hedge fund managers of 2009 were:
- Appaloosa Management's David Tepper ($4 billion in 2009 compensation)
- Soros Capital Management's George Soros ($3.3 billion)
- Renaissance Technologies' James Simons ($2.5 billion)
- Paulson & Co.'s John Paulson ($2.3 billion)
- SAC Capital's Steve Cohen ($1.4 billion)
- Icahn Capital's Carl Icahn ($1.3 billion)
- ESL's Eddie Lampert ($1.3 billion)
- Citadel Advisors' Ken Griffin ($900 million)
- Centaurus Advisors' John Arnold ($900 million)
- Harbinger Capital's Phil Falcone ($825 million)
- High Return on Capital Employed (RoCE) as measured by earnings before interest and taxes (EBIT) divided by the total of net fixed assets plus working capital); and
- Low Valuation -- counted by their earnings yield (EY) which is calculated by dividing EBIT by enterprise value (the market value of stock plus debt minus cash).
Here are the top 10 stocks:
- Raytheon (RTN) (100%). This defense contractor's RoCE was 47.5% and it has an EY of 17.5%. Duquesne, whose Stanley Druckenmiller made $450 million in 2009, owns 1 million shares.
- Microsoft (MSFT) (99%). RoCE: 57.2%, EY: 13.7%. Appaloosa owns 2.8 million shares.
- General Dynamics (GD) (98%). RoCE: 46.7%, EY:14.7%. Duquesne owns 823,000 shares
- Wellpoint (WLP) (96%) RoCE: 40.6%, EY: 37.7%. Duquesne owns almost 608,000 shares
- Medtronic (MDT) (95%) RoCE: 57.2%, EY: 11%. Appaloosa owns 1.4 million shares.
- Altria Group (MO) (94%) RoCE: 410.5%. EY: 9.8%. Duquesne owns 5.6 million shares.
- Hewlett Packard (HPQ) (93%) RoCE: 52.1%, EY: 9.9%. Appaloosa owns 3.7 million shares and Harbinger holds16 million shares.
- Mckesson (MCK) (92%) RoCE: 31.3%, EY: 13.4%. Och-Ziff Capital, whose Daniel Och made $390 million in 2009, owns more than 1 million shares.
- Constellation Energy (CEG) (91%) RoCE: 30.7%, EY:14.7%. SAC owns 3 million shares.
- Hewitt Associates (89%) RoCE: 27.3%, EY: 14%. Paulson owns 7.6 million shares.
But by at least one respectable measure, these 10 stocks may be the best of the best from the best, and that's a good place to start when looking for long-term buy-and-hold opportunities.