August 16, 2016, 3:45pm EST
Yesterday was the deadline for all big investors to submit, to the SEC, a public snapshot of their portfolios for the quarter ended June 30th.
On that note, as we’ve discussed, this information is covered hot and heavy by the media. You often see headlines like these (these are actual headlines from yesterday): “Activist hedge fund ValueAct takes about 2 percent stake in Morgan Stanley” or “George Soros sells off Apple stake during the second quarter.”
On the above stories, if you own Morgan Stanley should you feel good about it? Conversely, if you own Apple, should you be worried? The heavy coverage of the topic both online and on television implies “yes” to both, which likely gets the average investor stirring. But there’s never context given as to whether or not the information is meaningful, and there’s never evidence given as to what the results tend to be for those that follow. The reason is, it requires a lot of hard work, experience, ingenuity and proprietary research to draw any conclusions from the information.
For perspective, these Q2 filings show positioning just five days after the UK voted to leave the European Union. And this event was broadly speculated to be a crushing blow the global markets and the global economy. As you recall, we made the case that it was over-exaggerated and could actually be good for markets and the economy by invoking some much needed fiscal stimulus.
Still, it’s safe to assume the UK event had considerable influence on the holdings of the world’s biggest investors. Global markets swung violently on the news back in June. Remember, between June 23rd and June 27th, the S&P 500 fell as much as 5.7%. It made it all back the subsequent four days.
So given the timing of the portfolio snapshot with the Brexit fears, let’s talk about Apple, the most widely held stock in the world and the largest constituent in the market cap weighted S&P 500. The headlines were scrolling fast and furious on Apple yesterday, following the filings from billionaire investors David Einhorn, George Soros and Chase Coleman – all of which sold Apple shares in the quarter. Now, it’s important to understand that these funds can trade Apple with virtual anonymity between quarters. The stock is too large for anyone one investor to take a 5% “activist” stake, which would trigger the requirement of a 13D filing with the SEC, which would require updated filings (or amendments) within 10 days of any change in the position size (sell one share, you have to report it).
On that note, let’s start some perspective on Einhorn’s Apple stake: Going into the second quarter Einhorn’s biggest position, by far, was Apple. He had 15% of his fund in the stock (a huge position). It would only make since that he would trim the position and neutralize some risk into an uncertain macro event. In fact, in his second quarter letter, Einhorn brags that they have done a good job of “trading” Apple (i.e. managing the downside). Still, as of the end of Q2, Apple was a very large position, at 12% of his fund.
What about the tech investing genius billionaire Chase Coleman? Coleman had 9% of his $7 billion fund (long public equities) in Apple going into the second quarter. By the end, he had cut it by 75%. Again, playing defense into Brexit. Apple stock is 16% higher than it traded on June 30. Coleman may very well have put the full position back on since the June 30 snapshot (likely).
George Soros? First, we should note that Soros is the world’s best global macro investor. He’s an agile investor that will load up on a theme and just as quickly reverse course and position for another probable outcome. For a career, Soros’ bread has been buttered betting on the unexpected outcome. That’s where the big wins come. Brexit was unexpected, thus his trimming of Apple, the stock with the biggest contribution to his view on a slide in the S&P 500.
And then we have arguably the greatest investor of all-time, Warren Buffett. While others ran from Apple, Buffett increased his stake by more than 55%. Why? Buffett has made his living for more than 50 years buying good companies when everyone else is selling. As he says, “be greedy when others are fearful.”
That’s a sliver of perspective on the popular 13F filings of the past few days. As I said yesterday, the presence of a big investor in a stock is rarely valuable information. Only a small percentage of those reporting investors have the powerful combination of size, influence and portfolio concentration to make their presence alone a potential catalyst for change in a company/and a repricing of the stock.
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