“13F Disbursement Plans: Wall Street’s Free Money Factory” Ann Sosnowski

By Travis Johnson, Stock Gumshoe, July 23, 2008

This one is from an old friend (in the sense of, “I’ve never met her, but I’ve had plenty of practice spelling her name) — and the one who still has the top position on the Stock Gumshoe tracking spreadsheet with her pick of Lynas for a different newsletter (though that spot is being challenged by both Eromanga Hydrocarbons and Mosaic at the moment).

Ann Sosnowski has edited a couple different newsletters for the folks at Taipan, including Diligent Investor and MicroCap HotSheet, but she has a newer one that’s called “Ann Sosnowski’s Safe Haven Investor” — and the ads have been flowing, strong and mighty like a river.

Today I’m working from a good ‘ol printed mailing — as a former practitioner of the dark arts of the direct mail business when I used to raise money for charities, I always enjoy a good ‘ol letter that I can hold in my hand. And plus, it somehow seems extra special since they spent significantly more money to get this ad to me than they would have via email … so maybe, deep down, it means they really, really care about me. You think?

Anyway, this one is teasing us about what Ann calls the “13F Disbursement Plan” … here are some lovely quotes for you:

“U.S. Government unlocks $35 billion in ‘free money’ payouts to American Citizens … Starting tomorrow — 9:30 am — you can use a government issued “Authorization Code” to add $4,750 per month to your bank account.”

So right off the bat, I hope your little heebie-jeebie feelers are tingling — there are several things that sound great in that sentence but are misleading, including the “4,750 per month to your bank account” … completely meaningless if they don’t tell you how much you invest to get that return. As we’ll also see, the “authorization code” is just silly, too. As are all the references to “income” from these investments, Sosnowski may well pick dividend payers from the 13f filings, but that has nothing to do with the filings themselves.

“In fact, thanks to a federal law, you can now divert thousands of dollars per month from Wall Street’s wealthiest institutions … directly into your own bank account.”

There is a lot of babble in this one, the letter is about a dozen pages long … and it teases a half dozen different stocks. I’ll explain the basic premise of the thing here, and will move on to spit out the individual stock ideas in future writeups over the coming days (just to keep you waiting with bated breath … OK, really, just to give me time to lounge on the couch with my bonbons).

So Sosnowski tells us that you could have gotten these “Free money” payouts thanks to filings that big Wall Streeters have to make with the SEC about the investments they’re making.

That first part is arguable, but the second part is certainly true … and unlike the old USG-4 teaser I looked at last year, Ann didn’t even both to change the name of the SEC filing to make it more confusing. Note that, as always, when she talks about “payouts” or adding money to your bank account, she’s talking not about any kind of money that folks on Wall Street will direct your way — there is no secret waterfall of cash into which you can dip your hat, she’s just “colorfully” describing what might happen to your portfolio if you make good investment decisions based on this special information she has for you.

And yes, the bones of this teaser are all about the 13(f) filing rules — which do exist, and are named after a section of the securities code.

All investment managers and advisors who “exercise discretion” over a significant amount of money ($100 million or more) have to file quartelry reports with the SEC listing all of their holdings — that’s all a 13(f) filing is.

OK, not quite all of their holdings — they have to list any holdings they own that are “reportable” — what they call “Section 13(f) securities”. Ann Sosnowski notes in her letter that “the current 13F Disclosure Form contains roughly over 15,266 securities,” which must mean that she’s just talking about the quarterly update the SEC provides about exactly which holdings are reportable — essentially, it’s every exchange traded stock, option, warrant, closed end fund, ETF, etc.

Ann mentions the huge number because it makes it seem more like you need her to find these stocks for you, and it’s true that it’s a big number (it’s actually 15,532 as of the last update), but that’s a red herring.

You see, anyone who uses 13F filings to find interesting investment ideas doesn’t start with the quarterly list of reportable securities — that would be like trying to find a stock by staring at a list of all the shares traded on the NYSE, Nasdaq and AMEX.

No, they start with the actual names of big investors they want to follow, and just look at their quarterly 13Ffilings. A huge listing of all of the stocks and other investments you would have to report on your 13F is of no importance to most of us who have less than $100 million in play.

But still, there is probably room for guidance in this area — and you can certainly test out the guidance from Ms. Sosnowski if you’d like to, that’s your call. But don’t sign up just because you think there’s free money in here somewhere, or because the starting list of 15 thousand potential investments is too daunting.

So that big form has no meaning, we don’t care about the long list — what we care about are the individual filings of big investors. Sosnowski specifically mentions a few in her letter, including Steven Cohen of SAC Capital and Daniel Loeb of Third Point, two famous and hyper-rich hedge fund managers who you’ve probably heard of. She implies that reading up on the 13F filings of these guys and their firms will let you follow in their investments, and make your own bazillions and build a fabulous estate in Connecticut.

So … is that really true?

Again, kind of, though it’s a bit of a stretch. These guys do file quarterly, as do nearly all mutual funds and other big institutional or hedge fund investors, so you can certainly see their “latest” holdings if you review the SEC Edgar database.

But the filing comes 45 days after the end of the quarter, so for an extremely active trader like Steven Cohen the official filing might not bear all that much resemblance to his current favorite holdings. It’s like buying a car online based on a photo of what the car looked like 2 years ago — it might still look the same, but it might have also had an accident since then.

The idea of following the big institutional investors — “Whale Watching”, in popular Wall Street parlance, is certainly not a new one. Sosnowski claims that her ability to screen that information for her favorite fundamental and technical indicators is going to make the difference for you, and that she’ll be able to look at the filings of the big guys and let you know which are the best and safest investments for your portfolio.

Maybe she can.

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But if you want to follow the big insiders and institutional investors, and the superstar fund managers, do note that you will not be the only person doing so. Guess what happens on the 45th day after the end of each quarter, when Warren Buffett and George Soros and, yes Steven Cohen file their quarterly 13F forms?

Yes, the new stocks on that list — the ones they now hold that weren’t on the list as of the last quarterly filing — immediately catch the attention of investors around the world (another part of the ad that’s misleading — there’s no reason you would have to be an “American Citizen” to follow SEC filings). If Warren Buffett even mentions a company in a TV interview the shares are likely to climb instantly, so you can imagine what happens on the day that everyone finds out about any new investments that he (or, more accurately, Berkshire Hathaway) has made.

There is also no “authorization code” that I can possibly imagine — all you need to find someone’s SEC filings is their name or the name of their institution (I wrote about this a few months ago when I last talked about whale watching). Here’s the official page from the SEC that explains exactly what a 13(f) is and how you can find them in the Edgar database (there are lots of services that follow famous investors, too, but Edgar is always free).

And as always, I think there may well be some value in having a trusted advisor help you make decisions about which investments of the famous investment stars might be worth following — but it always pays to understand the landscape first. Look at a few SEC 13f filings, think about what it actually means to you to know exactly what stocks were in Warren Buffet or Daniel Loeb’s portfolios at the end of the last calendar quarter, and consider which of the “investment stars” might actually be people who come up with the kind of investments you want to be a part of … the informed investor is