Digesting the Data

 | Feb 15, 2012 | 3:00 PM EST  | Comments
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It is once again time to focus on the stack of 13HF filings that have piled up on my desk. The deadline is today, and they have been coming in fast and furious since the weekend. I was curious to see filings from managers who have had a long run of success but really struggled last year.

The prime example, of course, is John Paulson. After legendary success in the credit crisis and strong gains since then, Mr. Paulson had a terrible 2011 in his flagship fund with a decline of near 50%. I discussed earlier this year that I didn't think that Mr. Paulson had suddenly gotten stupid rather he was just early in buying his large positions in major financials.

Apparently, he felt the pressure of the position, as he sharply reduced his holdings in the sector during the quarter. He exited his Bank of America (BAC) position entirely and replaced it with the warrants. He bought 31 million Class B warrants, so he still has substantial exposure to the stock between now and the 2028 expiration. His funds also exited Citigroup (C) during the quarter. He drastically reduced his holdings in other financials as well, including Wells Fargo (WFC), Capital One (COF) and SunTrust (STI). This has to sting a little for Mr. Paulson and his investors, since these stocks have rallied since the first of the year.

A large and early position in financials also took a toll on the performance of Bruce Berkowitz last year, as his Fairholme Funds turned in rather dismal results, falling more than 30% in 2011.

Although he also exited most of his Citigroup position and sharply trimmed some regional banks such as Regions Financial (RF), he actually seems to have increased his exposure to the money center banks. He also turned to warrants, buying 8.4 million Bank of America warrants, 818,000 Wells Fargo warrants and 484,000 JPMorgan Chase (JPM) warrants. Mr. Berkowitz has apparently soured on the telecommunication companies, as he sold out all of his AT&T (T), Verizon (VZ) and Vodafone (VOD) in the quarter.

If the big banks and the economy continue to recover, this fund could return to the top of the pack rather quickly, as Mr Berkowitz now has enormous exposure to large-cap financials in this fund.

David Einhorn of Greenlight Capital may not have had the stunning numbers he has put up in the past, but his fund did manage to eke out a gain last year.

He is apparently very bullish on technology, as he loaded up on tech stocks in the quarter. He bought over 14 million shares of Dell (DELL) in what would seem to be a bet on pent-up personal and business demand for computers. The same rationale would appear to apply to his new position of almost 17 million shares of Xerox (XRX) in the quarter. He also took new stakes in two of the more troubled and controversial tech-related companies, adding 3 million shares of Yahoo! (YHOO) and 2.9 million shares of Research In Motion (RIMM) to his portfolio. He is also bullish on the auto industry, as he opened a new position in Delphi Automotive (DLPH) and added to his General Motors (GM) holdings in the quarter.

When I turned to the filing of longtime favorite David Tepper of Appaloosa Management, there was an apparent change in market outlook. After being a well-publicized uber bull last year, Mr. Tepper sold a lot of stock in the last quarter.

He sold out of major tech stocks such as Microsoft (MSFT) and Google (GOOG) during the last three months of the year. He also exited his airline holdings, selling shares of United Continental (UAL) and Delta (DAL). He sold out or reduced his stake in dozens of stocks during the quarter and was only a buyer of a select few names. He bought new positions in Oracle (ORCL), Boston Scientific (BSX) and Delphi Automotive. He also purchased 2 million shares of the Financial Select Sector SPDR (XLF) and added to his Apple (AAPL) position.

It is noteworthy that he sold a lot more stock than he was buying as the market rallied in the quarter. This could be a major change for the formerly bullish fund manager.

Although it can be time-consuming and even boring at times, flipping through the quarterly filings of the best value and distressed managers is an activity that most investors should add to their repertoire. The information gained is too valuable not to possess.

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