The 13F headlines will be flying fast and furious throughout the day today. By the time the deadline rolls around this afternoon, the stack of paper I cleared over the weekend will be replaced by a host of new material.
There has already been some interesting buying and selling among the value investors I follow, as the smart, patient money started to buy as prices weakened in the final three months of 2015. While there is no way to know for sure, I suspect most of the buying was done in December as the Russell 2000 began to break decisively lower. That would fit the pattern of most value investors. The really good news is that the continued market weakness in early 2016 means we can clone the picks of some of Wall Street's smartest at lower prices than they paid.
Today, I want to stick with the community bank stock activists and investors. While community banks have held up much better than their larger cousins, many are a little lower and you can create an "activist bank stock portfolio" at attractive prices. Over the years I have made a lot of money cloning the actions of small bank activists. It is a small, specialized niche that very few investors pay attention to.
Joseph Stilwell has always been one of my best sources for ideas. He has been an activist presence in the community bank space for a couple of decades and a phone call from Stilwell has ruined many a day for bankers all over the U.S.
Stilwell was not very active in the recent quarter, only adding to five stocks. He bulked up positions in HopFed Bancorp (HFBC), Wayne Savings (WAYN) and Lake Shore Bancorp (LSBK) by small amounts, but his larger buying in the last three months of 2015, took place further south. Stilwell added to his stakes in Puerto Rico banks, increasing his First Bank (FBP) position by 31%, and more than doubling his holdings in Popular (BPOP). If these banks survive the economic and debt problems that currently plague Puerto Rico the upside potential is enormous.
Lawrence Seidman is another bank activist I have followed over the years. The former SEC attorney opened his community bank-focused investment firm back in 1994 and has compiled a strong record of successful shareholder activism and profits. In the fourth quarter of 2015, Seidman added to 11 positions, three of which were new. His new bank stock buys were BCB Bancorp (BCBP), Bankwell Financial (BWFG) and MSB Financial (MSBF). His largest additions were to Sunshine Bancorp (SBCP), Malvern Bancorp (MLVF) and Blue Hills Bancorp (BHBK). Lastly, Seidman added to stakes in Equitable Financial (EQFN), Provident Bancorp (PVBC), Melrose Bancorp (MELR), ASB Bancorp (ASBB) and Waterstone Financial (WSBF).
PL Capital has also been a very successful activist in the sector. One observer called the fund the "bogeymen of banking" for its aggressive activist positions in small bank stocks. In the last three months of the year, PL added to eight positions, four of which were new to the fund. New community banks added to the fund are River Valley Bancorp (RIVR), LCNB Corp. (LCNB), Eastern Virginia Bancshares (EVBS) and First Northwest Bancorp (FNWB). PL Capital also added to existing positions in Mutualfirst Financial (MFSF), Old Point Financial (OPOF), Coastway Financial (CWAY) and SB Financial Group (SBFG).
Tracking and stealing ideas from PL Capital has paid for a lot of my bad habits over the years.
Community bank stocks really are the trade of the decade. The fact is, many smaller banks cannot afford to remain independent given the cost of regulatory compliance. Technology costs, especially cybersecurity protection, are another huge obstacle. On the other side of the coin, the only path to growth for the medium and larger institutions is to buy assets and earnings power.
There is an enormous amount of money to be made by patient disciplined investors. The 13F filings of the leading small bank activists are a great way to start building your trade of the decade portfolio.