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.

Near the top of the 13F-HR filing for his personal name, however, in the text of the actual filing, is the “List of Other Managers Reporting for this Manager.” That should provide you with the key names to search for your next 13F search in Edgar. In this case, you’d then want to search on Trian Fund Management, the name of his firm (there are a few other Trian reporting entities, too), and in that case you’d see the list of his holdings that looks much more familiar and includes Heinz, Wendy’s, Cheesecake Factory, and, new this quarter, Tiffany’s.

Carl Icahn, another iconic investor, also files in lots of different places — there’s a main listing under Icahn Carl C which lists a lot of his holdings, including Motorola, Blockbuster, Imclone, etc., but it also lists other entities that report for him: Icahn Management, Icahn Enterprises Holdings, High Coast Limited Partnership, Highcrest Investors, Gascon Partners, and a few others.

Some investors don’t hold anything in their name, and report solely through their company — so you will find a 13F for Berkshire Hathaway, for example, but not for Warren Buffett personally. Buffett always waits until the last moment, since people watch him like a hawk, so you can certainly assume that Berkshire’s 13F-HR will not be up until the 15th, and probably late in the day.

Another one like that, just to expand the horizons a little, would be David Swensen — people follow him very closely, but he manages the Yale Endowment, so you can only find the 13F-HR that he signs by searching for Yale University, and you’ll see that some of their large holdings are Douglas Emmett and AIG, so maybe they didn’t have that great a quarter with that portion of their portfolio. The same kind of information can be found for many other big institutions and endowments, some of which have equally (OK, maybe not “equally”, Swensen’s probably at the top of that list) well-respected managers.

As you might imagine, if you want to track the buying/selling yourself, you can then go back to the prior 13F-HR filing, which will be from mid-November, and compare the list of shareholdings (each report indicates exactly how many shares the reporter controls).

So … you’ll almost definitely get offers from several different folks to track this stuff for you if you’re interested, whether or not the ad tells you that this is what they’re doing. If you want to do it yourself, it will take a little time but it’s certainly possible for any investor — and truth be told, it’s probably good experience for most investors, especially relatively new investors who haven’t dug through too many public filings, to spend a little time searching the Edgar database just to get familiar with the real, unexpurgated stuff. SEC filings can be incredibly boring to read, much of the time, but usually mean much more than the quips on CNBC or the opinions on Marketwatch.com or in the Wall Street Journal. Of course, they’re still much less fascinating than the Gumshoe’s own ruminations.

Finally, let me suggest a little exercise if anyone’s interested: If we want to pool our resources a little, anyone that takes a few minutes to explore 13F filings for a particular big investor can add a comment here sharing what they found interesting — usually, what’s most interesting for most investors are changes from the prior quarter, especially new investments and investments that disappeared from the list since last time. I’ve seen quite a few 13Fs that are out already, and they will all be filed by the end of the day on Friday … so, should you be so inclined, there’s your Gumshoe homework for the holiday weekend!

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February 14, 2008 8:14 pm