What the Smart Investors Are Buying

Fool.com,

According to the World Federation of Exchanges, there were 45,358 publically traded companies worldwide at the end of 2009. That's a lot.

Asked years ago how he finds gems when so many companies exist, Warren Buffett said he "starts with the A's."

Impressive -- but impractical for most of us. We need a faster, more efficient way to find good investment ideas.

One smart approach: Copy the masters. Watch what they do. Get your ideas from them, then dig a little deeper.

That's what we do several times a year, when the world's greatest investors are required to disclose what they bought and sold in the previous quarter. Here's what six of them have been up to recently.

1. John Paulson
Fresh off a $5 billion payday last year, hedge fund dominator John Paulson upped his bet on the energy sector last quarter, buying 7.8 million shares of Anadarko Petroleum.

This isn't terribly surprising, since the bulk of Paulson's fund is already positioned to wrestle with inflation. As he recently wrote to investors: "While we know there is very little inflation today, we are concerned about the impact quantitative easing could have on future inflation. Accordingly, we have put in place numerous portfolio strategies that could both protect capital and provide high absolute returns with minimal risk if inflation becomes an issue in the future."

Paulson also opened a 6 million-share stake in J. Crew and a 3.5 million-share position in Whirlpool (NYSE: WHR - News).

2. Warren Buffett
Berkshire Hathaway's (NYSE: BRK-B - News) quarterly filing spread confusion, after several positions were liquidated by former Berkshire employee Lou Simpson, not Buffett himself. But one transaction very likely came directly from Buffett: The purchase of 6.2 million shares of Wells Fargo, already one of Berkshire's largest holdings.

When Wells traded below $9 per share two years ago, Buffett said that if he had to put his entire net worth into one stock, he'd choose Wells. Shares apparently still look attractive at more than three times that price.

3. George Soros
Soros's fund more than quadrupled down on its position in Delta Airlines (NYSE: DAL - News), buying more than 11 million shares last quarter.

You probably forgot that airlines could make good investments. So did everyone else. But in truth, the airline industry cut out so much excess capacity during the recession that its pricing power is now returning. Seats are full. Ticket prices are rising. The end of 2010 was the first time in more than 10 years that the industry had a profitable fourth quarter.

4. David Einhorn
Einhorn's hedge fund bought a massive 55.9 million-share stake in Sprint (NYSE: S - News) last quarter.

Admittedly, this was already known. Einhorn revealed his Sprint position to CNBC in December, saying:

Sprint has been a disaster stock. It's practically gone from a high number to a low number. The Nextel acquisition absolutely killed the company. They almost went bankrupt. But we think they're in a good spot for a turnaround right now. The churn has improved. The customer service has improved. Their reputation has improved. Their lineup with handsets has improved. But that's more short term. What's interesting is, as telecom expands, these new devices use more and more bandwidth. And Sprint along with its partner Clearwire has much, much more spectrum than most of the competing companies that are out there ... So I think there's an opportunity for Sprint to gain market share over time.

He also opened a new 3.3 million-share position in BP (NYSE: BP - News), which has nearly doubled since bottoming amid the oil spill last summer.

5. Bill Ackman
Ackman more than doubled his stake in J.C. Penney over the quarter, buying more than 19 million shares. His fund now owns roughly 16% of the company.

Like Einhorn, Ackman's J.C. Penney stake has already been known for a while. He said in an interview last week: "The margins are lower than where they could be, I think the revenues are lower than where they could be, and I think the business has an opportunity. It's got a very strong balance sheet, and it's got a very strong position in the minds of consumers."

Ackman also bought 7.2 million shares of GM (NYSE: GM - News), which went public in November.

6. David Tepper
Tepper, who made billions riding bank stocks as the economy recovered, more than doubled his position in Citigroup (NYSE: C - News), buying 66 million shares last quarter. He also bought 1.4 million shares of GM, 2.6 million shares of Bank of America, and 3.2 million more shares of Microsoft.

Tepper's economic bullishness was rekindled last year after the Fed began a second round of quantitative easing. "What'd the Fed [just say]?" he asked in September. "They want economic growth. And not only do they not care if there's inflation, but they want a little inflation. Have they ever said that before? No. They say they want the market up. So what, am I going to say, 'No Fed, I disagree with you? I don't want to be long?'"

Guess not.