In this article we discuss quant billionaire David Siegel’s top 10 stock picks. If you want to skip our discussion about Siegel’s investment strategy and his thoughts on the future, go directly to Billionaire David Siegel’s Top 5 Stocks Picks.
Billionaire David Mark Siegel is an American investor, hedge fund manager and computer scientist. A computer enthusiast since childhood, Siegel is a big believer in using data, AI and machine learning in investing. He has a PhD in computer science from MIT, where he conducted research at the Artificial Intelligence Laboratory. Siegel is the cofounder of Two Sigma Investments, a quantitative hedge fund that oversees $60 billion in funds.
Siegel argues that investing needs to adapt the scientific method. In his famous piece for the WSJ titled “Quant’s Best Strategy Is From the 17th Century,” the billionaire said:
“It may be tempting to take for granted our ability to do each of these well, but don’t be fooled. Using the power of advanced algorithms and huge data sets to uncover valuable economic, behavioral, or market insights takes a classically scientific mind-set. That means basing the entire endeavor—from data collection to trade execution and beyond—on the formulation of carefully crafted hypotheses, followed by a recurring process of measurement, learning, and adjustment.”
“Looking out into the future, it is in fact quite hard to predict what might go wrong. No one anticipated that the pandemic was going to be around the corner and have the kind of global impact that it had,” the billionaire said in a CNBC segment. When asked about what could be the biggest risk possible that our society and the market economy may face for the next 5 to 10 years, he said: “I am quite concerned about the impact of the changing nature of work on the overall human experience.”
David Siegel of Two Sigma Advisors
Two Sigma uses different technological techniques for its trading activities such as distributed computing, artificial intelligence, and machine learning where it processes a massive quantity of data to come up with a specific projected price for a certain security.
Seigel said that society today is building a world that is not meant for humans. “That’s what I mean by the human experience. We are supposed to be building a world that we like. Everything around us is for the purpose of us. We want to have an enjoyable life, we want to live in an environment that we find pleasant, we want to have rewarding careers, we want to have an education that is enlightening. There are all these wonderful things that we can create that will make our lives rewarding and enjoyable. But that will only happen if that’s exactly what we’re focusing on doing, ” he said.
One of the big winners in today’s world during the pandemic was the tech companies. People were able to maximize the use of technology and almost everyone was able to adapt to the changes that our present situation requires. A lot of new investments were placed in technology and these tech companies were able to accumulate a large sum of wealth either through IPO’s or prior to the company’s specific developments.
Asked about what he would suggest to a government official or to a tech company owner about things that should be created that is more meant for humans, he mentioned that a lot of people focus on the Gross Domestic Product (GDP) or the overall value of goods and services that are put together within a certain country during a particular time, as a metric to measure if people are creating a better place or doing good within their own societies. According to him, majority of us humans believe that if GDP is going up, then we seem to think that we are doing a great job. “But I think that GDP is an overly simple measure and is just one number. Quality of life is not necessarily measured or exactly correlated with GDP. In addition, GDP isn’t measuring how the rewards are actually deviated up. They might have very inequitable growth. At the very least I think everyone can agree that as society evolves into something much more influenced by technology, the benefits really have to go to a broad range of people. It can’t just go to a very small minority of the population.”
Siegel also talked about how difficult it is to measure the productivity that is present in our economy today. “It turns out that how society is doing, is just like how a business is doing, that is very hard to capture in one number. Ultimately, there are a lot of different things that you would actually need to measure to get a picture or a snapshot of how we are doing. Things concerning health, things concerning happiness and satisfaction.” In addition to that, Siegel stated that we need to measure how fairly things are being divided up among people. “So the short answer here is that, the measurement of the health of a society is a very hard problem and because it’s a hard problem, people try to oversimplify it down to 1 or 2 numbers which I think is quite inappropriate.”.
Speaking about the possible negative impact of technology on occupying people’s jobs, Siegel said: “I’m not worried about there being a lack of jobs in the future. There is plenty of work for people to do. We’re not going to run out of work. The question is that, will this be a work that people want to do? And will it be a work that pays well enough?”
For David Siegel, people can get rid of traditional employment to a large extent and one way to do that is thru creating online applications that can basically lessen the need for human work. “A good example might be Uber (UBER
). You don’t really need to do much. If you want to be an Uber driver, you can get the app, and then the app will tell you what to do. It will tell you who to pick up, it will automatically collect the fares for you,” he stated while adding that people might enjoy these perks to some extent because it gives them the flexibility to work when they want to, but on the other hand, for some people, driving is a meaningful career but they aren’t really learning a new skill here and they are only bound at the algorithms that Uber has put on its application. “I’m not here singling out Uber, what I’m really trying to focus on is that we have the ability through technology to change the nature of work and these changes may not be good for people.”.
“A key part of this is to raise awareness,”. For Siegel, people should not be ‘innocent bystanders’, and that as the world changes around us, we need to be part of the process of making these changes occur in a way that we like. “If we feel that essentially we are detached from, in other words, the world will change and we don’t have any agencies, it will become something(like that) and we have to put up with what it is, I think we’re going to have a bad outcome. On the other hand, if we become essentially part of the transition, by paying attention to who are we electing and how democratic functions operate and through our own personal education, then that will lead to a better outcome,” stated Siegel.
As per Siegel, fundamentally, investments and businesses need to operate putting essentially the health of their business first. “I don’t think we can have this expectation that somehow, through corporate social responsibility, we’re going to solve all the problems of our society. It’s never worked that way in the past. That being said, I do believe that there are investment opportunities out there that will deliver excellent returns that take into account the workforce and the impact that investing will have on society.”.
Finally, Siegel talked about how big the opportunities for humans are waiting just around the corner to make our own lives better than what it was before. “I like to really emphasize that the opportunities are enormous. I am not afraid that AI is going to rule the world. I don’t think that we are on a path that is terribly regrettable. I’m quite the opposite. I’m extremely optimistic. I just think that we need to have a level of caution that makes sure that we don’t go in a direction that is really not what we want, so we have to be purposeful about this. The good news is that the technology that we are talking about here today is truly remarkable and will continue to bring enormous benefit to society.”
With Siegel’s investment ideology and philosophy in mind, let’s take a look at some of his biggest stock holdings by examining Two Sigma’s 13F holdings disclosed for the third quarter of 2020.
10. Paypal Holdings Inc (NASDAQ: PYPL)
Two Sigma loaded up on PayPal in the third quarter, increasing its hold in the payments company by a whopping 9000%. The hedge fund now owns 1.87 million PayPal shares, having a total worth of $369.25 million. BTIG analyst Mark Palmer recently upgraded PayPal stock to Buy from Neutral, citing the company’s Bitcoin and crypto service. The analyst thinks that crypto could add more than $1 billion to PayPal annual revenues by 2022.
Overall, 150 elite hedge funds tracked by Insider Monkey held stakes in PayPal entering the fourth quarter.
Wedgewood Partners said the following about PayPal in their Q4 2020 Investor Letter:
“PayPal continued its torrid pace of payment volume growth, up +38% during the quarter, driven by over 15 million new accounts (almost double the pre-pandemic rate) and continued increases in transactions per account. This led to +25% growth in revenue and hefty margin expansion as the Company continues to effectively leverage its fixed cost base. PayPal’s addressable market continues to be a multitrillion dollar opportunity, with the Company particularly focused on the faster growing and more lucrative e-Commerce channel.”
9. Merck & Co., Inc. (NYSE: MRK)
Two Sigma decreased its stake in Merck by 14% in the third quarter. Still, the fund owns 4.48 million shares of the pharmaceutical company. The total value of this stake is $371 million. The company recently said it will discontinue development of its SARS-CoV-2/COVID-19 vaccine candidates, V590 and V591. The company announced positive interim data from the Phase 2a trial in adults evaluating the safety of its oral islatravir tablet for preventing HIV infections in people who are at risk of contracting the virus.
A total of 80 hedge funds in Insider Monkey’s database held stakes in Merck entering the fourth quarter, up from 76 funds a quarter earlier.
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8. Procter & Gamble Co (NYSE: PG)
Two Sigma shed 27% of its stake in Procter & Gamble in the third quarter, ending the period with 2.74 million shares, worth $380.83 million. Last month, Stifel lowered Procter & Gamble stock rating to Hold from Buy, citing weaknesses in household and personal products sector. The company recently reported organic sales growth of 8%, versus the consensus estimate of 6.4%.
Donald Yacktman’s Yacktman Asset Management is one of the leading hedge funds having stakes in Procter & Gamble, with 3.14 million shares of the company.
7. AbbVie Inc (NYSE: ABBV)
Illinois-based AbbVie is one of billionaire Siegel’s top 10 stock picks. Siegel’s hedge fund entered the fourth quarter with 4.35 million shares of the company, worth $381.1 million. In January, Mizuho analyst Vamil Divan gave a Buy rating for AbbVie, with a price target of $117. The analyst brushed aside market’s concerns about the company’s impending loss of exclusivity for Humira in the U.S. The analyst is bullish on the company’s synergies and aesthetics business.
A total of 82 hedge funds tracked by Insider Monkey reported owning stakes in AbbVie, as of the end of the third quarter.
6. Tesla Inc (NASDAQ: TSLA)
Tesla is receiving love from David Siegel, as Two Sigma upped its hold in the company by 226% in the third quarter. The hedge fund now owns 955,935 shares of the company. The value of these shares is $410.11 million. Tesla shares jumped on Feb. 1 after Piper Sandler gave a $1200 price target to the stock. The firm said that Tesla has now resolved its scalability and profitability issues, and the stock can no longer be overlooked.
A total of 67 hedge funds of the 816 tracked by Insider Monkey held stakes in Tesla entering the fourth quarter. The total value of these shares is $8.2 billion (see Billionaire Chamath Palihapitiya: Tesla Can Triple or Double so Don’t Sell a Share)
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Disclosure: None. Billionaire David Siegel’s Top 10 Stocks Picks is originally published at Insider Monkey.
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