by winston » Sat Aug 06, 2016 3:50 pm
Forms 13F & 13D
All big investors that are managing more than $100 million are required to publicly disclose their holdings every quarter. They have 45 days from the end of the quarter to file that disclosure with the SEC. It’s called a form 13F.
While these filings have become very popular fodder for the media, what we care more about is 13D filings. Those are disclosures these big investors have to make within 10 days of taking a controlling stake in a company. When you own 5% or more of a company’s stock, it’s considered a controlling stake.
In a publicly traded company, with that sized position, you typically become the largest shareholder and, as we know, with that comes influence. Another key attribute of this 13D filing, for us, is that these investors also have to file amendments to the 13D within 10 days of making any change to their position.
By comparison, the 13F filings only offer value to the extent that there is some skilled analysis applied. Thousands of managers file 13Fs every quarter and the difference in manager talent, strategies and portfolio size run the gamut.
With that caveat, there are nuggets to be found in 13Fs. Let's talk about how to find them, and the take aways from the recent filings.
First, it’s important to understand that some of the positions in 13F filings can be as old as 135 days. Filings must be made 45 days after the previous quarter ends, which is 90 days. We only look at a tiny percentage of filings, just the investors who we know have long and proven track records, distinct approaches and have concentrated portfolios.
Through our research over 15 years, here’s what we’ve found to be most predictive:
1. Clustering in stocks and sectors by good hedge funds is bullish. Situations where good funds are doubling down on stocks is bullish. This all can provide good insight into the mindset of the biggest and best investors in the world, and can be a predictor of trends that have yet to materialize in the market’s eye.
2. For specialist investors (such as a technology focused hedge fund) we take note when they buy a new technology stock or double down on a technology stock. This is much more predictive than when a generalist investor, as an example, buys a technology stock.
3. The bigger the position relative to the size of their portfolio, the better. Concentrated positions show conviction. Conviction tends to result in a higher probability of success. Again, in most cases, we will see these first in the 13D filings.
4. New positions that are large, but under 5%, are worthy of putting on the watch list. These positions can be an indicator that the investor is building a position that will soon be a “controlling stake.”
5. Trimming of positions is generally not predictive unless a hedge fund or billionaire cuts a position by 75% or more, or cuts below 5% (which we will see first in 13D filings). Funds also tend to trim losers into the fourth quarter for tax loss benefits, and then they buy them back early the following year.
With some of the best investors in the world--for the past 15-20 years--working out of drawdowns and poor performing periods, it will be interesting to see how they've been positioning. After all, some of their best performance, historically, tends to come following a drawdown.
Source: Forbes
It's all about "how much you made when you were right" & "how little you lost when you were wrong"