Frank Curzio's WALL STREET UNPLUGGED Podcast

13F Filings: what the smart money is buying… and selling

Ever heard of something called a 13F?

It’s a quarterly document that institutional investors who manage over 100 million dollars must file with the SEC to disclose the positions in their portfolios.

These 13Fs are fantastic for individual investors because they get to follow the “smart money.” These funds not only have to disclose their new stock positions, but whether they increase their positions, decrease their positions, or if they totally had an exit of a position.

And we get to see all of this every single quarter.

Now, before you start buying everything that a hedge fund is buying in their 13F, let me warn you…

Sometimes a fund can be completely out of a position by the time they publish their 13F.

The reporting in a 13F happens quarterly, or over the course of three months. Once the quarter ends, the company has the next two weeks to file a 13F. By the time they publish it, they could have blown out of the position—especially quant funds, like Renaissance Capital, DE Shaw, or any funds that use algorithms and computer programs to trade stocks. These transactions happen in a matter of seconds, leading to incredible volatility.

So, you’ve got to be careful saying, “Renaissance owns this,” or, “DE Shaw owns this,” because those guys are not even looking at the company and not even looking at fundamentals.

It’s all trading patterns and algorithms… and they’re in and out in no time.

That said, there are only a few major quant funds. And not counting them, 13Fs are awesome, because you can see exactly what the smart money’s doing.

Let me give you some examples of how I’ve personally used 13Fs… And how I have used them to make recommendations to my readers…

The Baker Brothers

I call the Baker Brothers the “Warren Buffetts of Biotech.” If you get a chance, look them up. They are 100% focused on biotech healthcare.

They have an amazing performance, have been around forever, and took a huge position in a small biotech name. I mean a massive stake right from the start. This got my attention…

I had never heard the name of this small company before. And I only found out about it because I saw the Baker Brothers’ 13F.

So when the stock fell 15% from where they bought it, I started doing the research.

I realized the potential of it…

And recommended it for my newsletter subscribers. In three, four months’ time we were up over 40% on this name.

Navient

Another idea I got from a 13F is Navient.

Navient is a student loan company that’s always under a ton of scrutiny.

Many analysts out there thought this name was going to zero, that it would get crushed… But I saw that Leon Cooperman, the head of Omega Advisors (worth over three billion dollars himself), owned a huge position in the stock.

There’s so much negativity out there. So you can’t just listen to everybody… You have to do your own homework.

Leon is one of the smartest guys out there. Whether you like him or not, he runs a very successful hedge fund at Omega. And he took a huge position in Navient.

I watched the stock fall from $20 a share to around $9, while he was still a holder.

So… I started doing a ton of homework on the name.

I learned the company was about to repurchase a ton of its shares… and 90% of its student loans are backed by the government.

Most analysts didn’t understand this story.

So, I recommended it for my subscribers—mostly because of Leon Cooperman—and they did very, very well on it. But remember, you have to do your own research as well.

How?

After I read a 13F and find a stock I want to investigate, I look at research reports, do my analysis on the company, go to the company’s website, look at their presentation, look at the stock…

Then, I read the transcripts of one of the previous earnings calls for the stock.

The transcripts of the earnings calls are absolutely free and you can find them on any company website.

And in the case of Navient, the earnings call transcripts were one of the things that made me recommend the stock.

Leon Cooperman was on the call asking questions about the stock’s poor performance.

Management responded, saying, “Listen, our fair value is probably around 20 bucks a share.” The stock was around $11 at the time. And as I mentioned, Navient had a huge buyback in place.

So Leon Cooperman said, “If you really think the fair value is 20 bucks, why don’t you use your entire buyback right now to purchase shares? Do it tomorrow.”

That’s called a super, super buy signal.

Anyone doing their homework would’ve had access to this information. I mean, looking at the 13Fs… doing research on a name that you like… or finding out why a multi-billion-dollar hedge fund is buying shares of a company when 99% of the world hates it… It’s all absolutely free.

I know it’s a ton of work and I know people have jobs. That’s why some people listen to my podcast or subscribe to my newsletter, because this is the kind of research I do.

But anyone could’ve found this name—any individual investor—if you looked in the right place. You didn’t need to know someone important or be in a certain circle. It’s just going out there and doing the homework.

That said, it’s rare to see a big name investor like Cooperman ask questions on a conference call for a small-cap company. Usually these guys have their analysts get on the call.

I saw it one other time thoughin 2008for Standard Motor Parts.

This was a small company—with a share price in the single digits. The stock is trading in the $40s or $50s now.

Mario Gabelli himself got on the earnings call to ask questions. And that means he was very, very interested in what was going on.

It means that call would determine whether the fund would sell their shares or motivate the management team.

These questions can sometimes be buy signals, as was the case with Cooperman and Gabelli.

Remember, we don’t want to buy just any stock that a big hedge fund or mutual fund is buying. It’s a starting point to find new ideas… and you need to keep an eye on these companies or put them on a Watch List.  

Why?

Sometimes a company will report bad earnings. This could result in a 20% drop in the stock.

Now you have a chance to purchase this stock at a 20% discount to where multi-billion-dollar hedge funds purchased it. Plus, it’s likely these funds will add to their positions on this pullback, creating a floor in the stock (where your downside is limited).

So again, use 13Fs as a platform to find new ideas.

Pay close attention to what the smart money is buying… and what they’re getting rid of.

Where to Find 13Fs

These filings can be found in many places.

I use Briefing.com, which is a paid site. (I don’t get a dime for recommending them.)

Benzinga also publishes them, which is a free site.

And any recently published 13F should be pretty easy to find on Google.

But I personally like Briefing because you can find any 13F in seconds. They also come out in real time (when the 13F gets filed with the SEC).

For me, when it comes to research and platforms, it’s all about getting information as quickly as possible, because I want to do as much research as possible.

To help, below are a list of sites that provide what we’re looking for:

Good Investing,

Frank Curzio