A Valentine’s Gift: Whale Watching

By Travis Johnson, Stock Gumshoe, February 14, 2008

This is not in response to a specific teaser, but I have seen a raft of teaser emails lately about “watching the insiders” and “whale watching,” including some that mention specific billionaires and tease specific stocks that they’re buying that you, too, should buy.

Why now?

Well, I’m not going to get into the specific teasers right this minute — I’ll try to get back to that and spin out another one before the weekend for you — but I though it might be helpful to a few of you to have a quick primer on following the big activist and institutional investors (“Whale Watching” in popular parlance).

The reason that we’re currently hearing a lot about this is that tomorrow is the deadline for filing form 13F with the SEC — a few investors have already filed theirs, but many wait until the last minute (and it’s a Friday this time around, so they might get lucky and not have their filings noticed by quite as many people).

The 13F is a filing that large investors, or those who control large pools of investable cash, have to make with the SEC. It updates their holdings, essentially, providing a list of what they own and, by inference, a list of what they have bought or sold since the last filing. This includes folks who manage their own millions, people who run investment partnerships that manage gazillions, as well as those responsible for making investment decisions for large pools of capital held by private or public institutions. The cutoff is $100 million, so they don’t even have to be THAT big, though a hundred million sounds like a fair amount of money to me.

The filing is required to be made 45 days after the end of each calendar quarter, so February 15 should be our deadline this time around for the December quarter — and while it might be even more interesting to check in with them in three months about what they’re doing right now, while the market is ridiculously turbulent, it’s still sometimes valuable to consider what they did last Fall.

Now, following 13Fs is not exactly a new pastime for investors — so if someone tells you that they have a secret way to track the “whales” or the activists, they’re exaggerating a little bit. What these services do for you, in many ways, is similar to part of what Morningstar does with it’s mutual fund reports: They actually track the changes, so you don’t have to.

So, much the way Morningstar will have little indications for which top holdings of a mutual fund have been initiated, increased, or reduced during a reporting period (also a quarter), so many newsletters and trading services have cropped up to do the same thing for 13F filings, particularly for the big, famous, activist investors.

This is not too different from the insider trading services that track filings of Form 4 and other insider trading activity reported to the SEC — the SEC makes all of this stuff publicly available, but they don’t sort it for you. The trading services essentially just search and sort, work that you could do yourself if you had the time or inclination.

In the case of the 13F, here’s one simple way of looking them up as they roll in:

Go to the SEC Edgar database — this is the free database that makes all public company and SEC filings accessible to everyone. The page you want is the Company Search page.

Enter the name of a particular investor or investing company who interests you in the “Company Name” box, and hit enter. Here’s an example of what you see if you search for Nelson Peltz, one particularly famous activist investor.

The results are chronological, so you’ll see the most recent filings at the top. What you’ll most likely see at the very top today or tomorrow, if you did indeed search on the right name, is a 13F-HR, which is that quarterly report that we’re interested in. Just click on that, and you’ll see the full text link — these reports are usually very short, just a page or two with a table of current investments.

What you’ll probably notice, however, is that most investors of this ilk report under several different names — their own name, and the names of whatever companies or funds they control. So Peltz, for example, lists only two holdings under his name, when we know just by reading the newspapers that he is certainly more active than that.

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