When I first started writing for Real Money I was one of only a handful of people tracking the quarterly filings of leading money managers. Today, tracking of 13H and 13F filings has become a national a pastime of sorts. As the filing deadline approaches, the Internet will be buzzing with articles about the buying and selling activities of Seth Klarman, David Einhorn, William Ackman and other noted investors. I will review those filings as well, but I see no need to add to the information clutter that will develop. Instead, I will focus on not so well known but still very successful value and distressed investors.
One of my new favorite managers to track is Paul Isaac of Arbiter Partners. Isaac was a born value investor. His father was an arbitrageur who worked for Max Heine and he is the nephew of the late Walter Schloss. He has put the information gathered around the dinner table to excellent use as his partnership has been racking up gains of 20% annualized since 2001. His approach is more eclectic than many other value types as he frequently shorts stocks and uses options a bit more freely than his competitors do.
His shorts are what really stood out in the recent filing. He opened a new short in shares of Apple (AAPL) during the quarter, a bet that appears to be paying off handsomely. He also shorted Cliff Natural Resources (CLF) in the quarter as iron ore prices tumbled and took the stock lower. He maintained shorts in Salesforce (CRM), Barclays (BCS) and the Australian dollar exchange-traded fund. He also closed what appear to be successful short positions in Green Mountain Coffee Roasters (GMCR) and Tesla (TSLA).
Isaac is also heavily invested in the trade of the decade. He owns several small banks already and added a few more this quarter. He purchased stakes in several microcaps banks that are simply too small to mention here. It will be worth your time to research the filing. The fund owns 12 small regional and community bank stocks. This is my favorite space for investors over the next decade, and I am delighted to see that at least one very smart and successful value investor seems to be on the same page.
He continued adding to some of his largest positions. Isaac has mentioned Sealed Air (SEE) as one of his favorite media stocks of late and he was a buyer of the shares in the quarter. The company continues to struggle to integrate the acquisition of the sanitation and cleaning solution company Diversey in 2012. Although concerns and weakness in Europe may weigh on the stock in the short term, the long-term outlook for both the Diversey product line and the core packaging products business are bright. As the global economy recovers this stock could easily move back up into the high $20s it reached a few years ago.
Isaac also bought more shares of Cowen Group (COWN), the asset management and brokerage firm. This has been a tough business the past two years and it's reflected in the stock price. The firm has a strong presence in the health care equity business and is gaining traction in the debt markets. It is bringing new asset-management products to market and working on developing new trading strategies to build the top and bottom line in the future. One of the biggest trades the firm is making is buying back its own shares at a substantial discount to book value. The stock trades at about 65% of tangible book and Cowen has repurchased more than 9 million shares since July 2011. I like this stock and I will be a buyer in the days ahead. (I must confess to being a fan of CEO Peter Cohen since I stuck him with an impressive bar bill at a roadshow meeting when he ran Shearson Lehman and I was a lowly broker at the firm.)
Arbiter Partners also established a position in the pigment manufacturer Tronox (TROX) in the quarter. The company recently saw its stock take a hit after announcing weak quarterly results. It had what analysts called legacy inventories at a high cost and older contracts with payments at levels below costs, and this has compressed margins somewhat. This should slowly work itself out in early 2013 and the company will get back on a profitable track. The stock is cheap at 80% of tangible book value and worth further research by long-term value investors.
Isaac has generated spectacular returns over the past decade when many others have struggled to break even. It is worth tracking his filings even if he has avoided the rock-star status of larger fund managers.