Following the Smart Money

 | Feb 13, 2013 | 12:30 PM EST  | Comments
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Stock quotes in this article:

cvx

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xom

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yhoo

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low

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thrm

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gntx

Over the next few days, one of my favorite investing events take place: The release of money manager 13F filings, which reveal what investment actions they took during the 2012 fourth quarter. The U.S. stock market is near an all-time high and good ideas are hard to come by (as they should be, if you are a price-conscious, value-seeking investor) so piggybacking on the shoulders of some great investors is not a bad strategy to follow.

To be sure, the Securities and Exchange Commission (SEC) requires that 13Fs be filed 45 days after the end of the quarter so most filings will come out at the end of this week. However, some 13Fs start trickling out earlier, so I will devote a couple of columns over the course of the next week or so to highlight some of my favorite investors.

Frank Martin, of Martin Capital Management, is one of them. Martin Capital is a value oriented firm in the purest sense of the word. The fund is based out of Indiana, so he isn't interested in any fast-paced Wall Street market activity. Martin's annual letters are a breath of fresh air and his firm's annual performance has beaten the socks off the S&P 500 over the course of many years. Martin's 13F is out and the first thing that jumps off the page is the reduced exposure to equities: 19 positions worth $75 million in the 2012 third quarter vs. 12 positions worth $50 million in the fourth quarter of 2012.

Martin eliminated all exposure to oil and sold off stakes in Chevron (CVX) and ExxonMobil (XOM). He also sold Yahoo! (YHOO) and Lowe's (LOW), two stocks Martin has held for a while and have appreciated considerably over the past two years. Lowe's is trading at a 52-week high and has more than doubled in less than two years. Martin added only one new position the fourth quarter and that was Gentherm (THRM), a maker of heating, cooling, and other ventilation devices for the automotive sector. Interestingly, Martin's largest position is Gentex (GNTX) -- a name I've written about in detail -- makes rear-view mirrors and other lighting technologies for the auto industry. Given Martin's purchase of Gentherm, there seems to be a general bet that the U.S. auto industry is headed for a multi-year period of robust results which should benefit auto parts companies that supply directly to the OEM's.

What I find most illuminating, however, is Martin's significant reduction in exposure to equities in the midst what many are calling the best time to be in stocks. This contrarian behavior is in the DNA of the true value investor. In the coming days and weeks, when the majority of other investment managers release their quarterly digest of investment activity, I will be paying great attention to the overall portfolio exposure to equities, perhaps more intently, than I will the actual picks. Most investors think about investing in terms of making money. Great investors think about investing in terms of not losing money. That's clearly what Martin is doing, and I will be curious to see if other names like Klarman, Berkowitz, Einhorn, Gabelli, and others are doing the same thing.

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