Big Picture Market Perspectives 2/15/17


By Bryan Rich 

February 15, 2017, 4:30pm EST                                                                                 Invest Alongside Billionaires For $297/Qtr

Stocks continue to make new highs – five consecutive days of higher highs in the Dow.  The Trump administration continues to make new news. And the Fed continues to become less important.  Those have been the  themes of the week.

Today was the deadline for all big money managers to give a public snapshot of their portfolios to the SEC (as they stood at the end of Q4). So let’s review why (if at all) the news you read about today, regarding the moves of big investors, matters.

Remember, all investors that are managing over $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.

First, it’s important to understand that some of the moves deduced from 13F filings can be as old as 135 days. Filings must be made 45 days after the previous quarter ends.

Now, there are literally thousands of investment managers that are required to report on a 13F.  That means there are thousands of filings.  And the difference in manager talent, strategies, portfolio sizes, motivations and investment mandates runs the gamut.

Although the media loves to run splashy headlines about who bought what, and who sold what, to make you feel overconfident about what you own, scared about what they sold, anxious, envious or all a combination of it all.   The truth is, most of the meaningful portfolio activity is already well known. Many times, if they are big stakes, they’ve already been reported in another filing with the SEC, called the 13D.

With this all in mind, there are nuggets to be found in 13Fs. Let’s revisit how to find them, and the take aways from the recent filings.

I only look at a tiny percentage of filings—just the investors that have long and proven track records, distinct approaches, and who have concentrated portfolios.  That narrows the universe dramatically.

Here’s what to look for:

  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 or takes a macro bet.
  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 of 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 by a substantial amount, 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.

As for the takeaways from Q4 filings, the best names had built stakes in financials.  That’s not surprising given that the Trump win had all but promised a “de-Dodd Franking” of the banking system, especially with the line-up of former Goldman alum that had been announced by late December.

The other big notable in the filings:  Warren Buffett’s stake in Apple.

Remember, as we headed into the Brexit vote last year, the broad market mood was shaky.  Markets were recovering after the oil price crash, and the unknowns from Brexit had some running for cover. Meanwhile, some of the best investors were building as others were trimming.  They were buying energy near the bottom.  They were buying health care.  And while many were selling the most dominant company in the world, Warren Buffett was buying from them.  The guy who has made his fortunes buying when others are selling, did it again with Apple.  He was buying near the bottom last summer, and in the fourth quarter he ramped up big time, more than tripling his stake to a $6.6 billion position.

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