Even Wealthy Money Managers Can Be Wrong

NEW YORK (TheStreet) -- If you purchase individual stocks, you're sure to experience some losing trades from time to time. When you do, know that you're in very good company.

Warren Buffet lost a fortune investing in silver back around 1996. At another point he had his head handed to him when he invested heavily in U.S. Airways Group ( LLC) only to see shares go the opposite direction.

This prompted the Oracle of Omaha to ask a now-famous question: "What's the quickest way to become a millionaire? Start as a billionaire and buy an airline."

Buffett has recovered nicely from his own misfortunes in life and will also be remembered as one of the most authentic philanthropists of our age. He advises investors and traders to learn from their mistakes and have a generous heart toward those who are less fortunate.

Another billionaire investor who's learned how to lose as well as win is Leon Cooperman, who founded Omega Advisors, a multi-billion dollar hedge fund in New York City. Cooperman knows what it's like to start from humble origins and how to learn from the polarity of life's lessons.

Cooperman began life as the son of a plumber living in the South Bronx, N.Y. He worked his way through Hunter College employed by Xerox ( XRX) doing quality control projects until he went to Columbia Business School for his MBA.

It was his good fortune to then become employed by Goldman Sachs ( GS). There he worked hard and eventually became the general partner, chairman and CEO of Goldman Sachs Asset Management.

When he left GS in 1991 he founded Omega Advisors. Everyone I know agrees he's done very well for himself. But he and his team at Omega have not had a perfect track record.

A good example is his recent large investment in Linn Energy ( LINE). As of March 31, he and his firm owned over 7.1 million shares of LINE. Shortly before LINE's sudden SEC inquiry, Cooperman was publicly defending the value of the company. LINE shares have plummeted ever since.

In his latest quarterly 13-F filing dated July 31 he had reduced his holdings in LINE to a still-robust 6,265,645 shares. So even though there are a number of unanswered questions and the ongoing SEC inquiry, he's hanging tough with over $146 million worth of LINE shares. The following one-year chart of LINE demonstrates how badly an investment can burn an investor in spite of careful due diligence.

LINE Chart LINE data by YCharts

Last quarter Cooperman increased his investment in telecom company Sprint ( S) to over 95 million shares, a smart move in light of Sprint's in-progress acquisition by Japanese information company SoftBank ( SFTBF) and the share price rocketing to over $7.

Omega Advisors and Cooperman also bought Apple ( APPL) shares, about 31,000 of them.

In a recent CNBC interview, Cooperman agreed with another billionaire, Carl Icahn that AAPL stock was undervalued.

Even though he likes APPL, Cooperman clearly prefers Qualcomm ( QCOM) as an investment theme in the mobile technology arena. Cooperman's position in QCOM grew to 3.75 million shares last quarter, up from 3.3 million in the previous quarter.

The following one-year chart compares the price performance for QCOM including its trailing 12-month (TTM) revenue per share growth.

QCOM Chart QCOM data by YCharts

As you can see, QCOM's stock price has fluctuated wildly but the revenue per share (TTM) has increased impressively. If Cooperman accumulated shares during pullbacks his total return should also be remarkable.

The 13-F also revealed Cooperman had thrown in the towel on small positions in the Market Vectors Gold Miners ETF ( GDX) as well as the iShares Silver Trust ETF ( SLV).

Both GDX and SLV have had a good run higher since then, so the timing of those sales didn't work well. Being a big investor or a small investor demands discipline, a careful resolve, and the willingness to stand your ground if you think the markets are wrong. You must also allow yourself to be wrong.

So far LINE has been an example of how a legendary investor like Cooperman can be caught flat-footed and blind-sided by events beyond his control. It usually behooves all investors to remember the old bromide, "Cut your losers and let your winners run."

Most of all, don't let your self-worth or self-respect be attached to your investment decisions. As we've seen with both Buffett and Cooperman, even the best and the brightest don't always win.

At the time of publication the author was long AAPL, LINE, GDX and SLV.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ┬┐herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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