Mining the Data

 | May 15, 2012 | 3:45 PM EDT
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Today is the final dead line for 13HF filings. These Securities & Exchange Commission (SEC) filings by money managers, hedge funds and other large investors give us a look at the buying and selling of some of the best and brightest on Wall Street. The data are 45 days old, they but can still help gain some insights into what these types of investors are actually doing and not just what they are saying. Years of studying these filings have taught me that there is often a disconnect between words and buy and sell tickets in the investment business. Many of the leading value and distressed types will file at the last minute late today but some of my favorite investors to follow have already send the info in and we can see how they were positioning themselves for the final three months of 2012.

One that I found very interesting this quarter was the report from Seth Klarman of Baupost Group, who I consider to be one of the best investors of the past 20 years. He has an extraordinary track record and has used the concept of "safe and cheap" with great success. In the first quarter of this year, he was selling stocks in what appeared to be a meaningful way. His filing indicates an equity total of $2.9 billion, down from $3.3 billion of equities at the year's end.

The fund bought more shares of two biotech companies, Idenix Pharmaceuticals (IDIX) and Theravance (THRX), as well as additional shares of NovaGold NG. Since the end of the quarter he established a position in Tronox (TROX) the titanium oxide manufacturer. He seems to have sold part or all of many of his other positions in the quarter including Microsoft (MSFT), PDLI Biopharma (PDLI) and BP (BP). Baupost has more than $20 billion of assets, so selling a relatively small equity position gives us a glimpse into the market opinion of one of the smartest investors in the world. In addition to a large cash position, the fund appears to be finding more value in the debt and mortgage markets so far this year.

I have also been paying attention to Kyle Bass of Hayman Advisors for the past few years. Not only has he made some great calls on the market and global economy, I found that we own many of the same stocks. Bass has made negative comments on the stock market and has followed that up with his actions. According to his filings, at year's end he owned about $540 million of equities and on March 31 that was down to just $147 million. Among the few stocks he was buying are two cheap stocks I own: Tellabs (TLAB) and Monster Worldwide (MWW). He was also buying Alcatel Lucent (ALU), a stock I have not yet purchased, but mentioned recently as a longshot candidate. It is the largest position in his fund right now. At the recent SALT hedge fund conference in Las Vegas, Bass told attendees he was pessimistic on U.S. stocks, as he has little faith in the government's ability to avoid a troubling future. He does like mortgage bonds and thinks that housing prices may stop going down over the next year.

So, these are two very smart and successful investors who have voted with their shareholders' cash against U.S. stocks. I do not follow anyone blindly, but it is food for thought as we go forward. I am also intrigued that a lot of smart money is moving into mortgages. It makes me think that I may want to own some of the better run, more flexible mortgage real estate investment trusts (REITs). Ellington Financial (EFC) comes to mind as one that operates much like a hedge fund and is cheap at its current price.

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Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...
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