Today is the deadline to file 13F forms with the Securities and Exchange Commission, which investment firms and hedge funds will be doing at a fast and furious pace throughout the day. The Internet and TV will be jammed with reports of who bought this and who sold out of that. The focus will be on the big firms, and there will be breathless reports on what the marquee-name fund managers -- Bill Ackman, David Einhorn, John Paulson and others -- did with their clients' assets in the final quarter of 2012. I will read all these filings because they usually contain valuable information, but I don't see any value in adding to the already noisy mix by writing about them.
But there are a few filings worth mentioning that no one else is following as these funds are not super famous and do not go out of their way to court publicity. They have racked up market-beating returns and generated very profitable ideas for me over the years. The newest addition to the list of must-read filings is one I discovered just last year, thanks to an article in Barron's. Paul Isaac of Arbiter Partners is not only the nephew of investing icon Walter Schloss, his father was an arbitrageur who once worked with value investor and fund manager Max Heine. Isaac has racked up returns of around 20% since founding the fund, outperforming the broader market and most investment managers by a very wide margin.
It has often been said that the surest sign of a man's intelligence is that he agrees with you. If this is indeed the case, then Isaac is brilliant. Among his new positions and add-on buys this quarter are some of my favorite stocks. He also has decent positions in the types of small banks that make up my Trade of the Decade.
One of Isaac's new buys in the last three months of 2012 was one of my favorite long-term stocks. Corning (GLW) has seen its stock price improve somewhat in the past few weeks, but the stock is still very cheap given the long-term potential of this company. Its glass products are used in smartphones, consumer electronics, medical and biotechnology research and environmental-emissions-control products. I have no doubt that this stock will be a growth leader and Wall Street darling in the next decade, but for now it is out of favor and cheap. At 10x earnings and less than 90% of tangible book value, this stock is a buy and should be owned my most, if not all, long-term value investors.
Isaac's fund also opened a stake in Annaly Capital (NLY), the giant mortgage real estate investment trust. Annaly is not my biggest mortgage REIT, but I do own a little bit of the stock and expect to own it for a long time. There has been a lot of bearish chatter on mortgage REITs and lengthy treatises on why they will blow up over the next few years due to interest rate movement. Perhaps the cynics will be proven correct, but in addition to smart investors like Arbiter Partners, insiders have been buying heavily across the sector. The president of Annaly, Kevin Keyes, picked up 100,000 shares in November and executives have been exercising options and holding the shares for most of the last year.
Another favorite that the fund bought in the final quarter of 2012 is pigment manufacturer Tronox (TROX). Isaac also increased a stake in Cowen Group (COWN), the brokerage, asset-management and investment-banking firm that I have owned as a long shot for a while. He was also a buyer of the Capital One (COF-WT) warrants previously mentioned in my discussion with the folks at PL Capital. To see the rest of the buying activity in Isaac's fund, I highly suggest you read the filing.
Before moving on, it is worth noting that unlike most value types, Paul Isaac takes strong short positions in stocks that he finds overvalued. At year's end, he was short Salesforce.com (CRM), Barclays (BCS), Cliffs Natural Resources (CLF) and the Australian dollar via the CurrencyShares Australian Dollar Trust (FXA). The fund also closed its short position in Apple (AAPL) at what one suspects was an enormous profit for its investors.
Given his pedigree and results, Paul Isaac is on my short list of must-follow investors that are off the radar screen of the media and most pundits.
