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  1. Home
  2. / Investing
  3. / Energy

When in Doubt, Steal

Following successful under-the-radar investors.
By TIM MELVIN Feb 18, 2015 | 12:48 PM EST
Stocks quotes in this article: BEN, ANCB, PGC, HBKA, GLF, CLR, COP, APA, PAGP, HAL, FCNCA, LSBK, LPSB, OFED, BHI, EROC, PBT, SWN, XOM, PBF, PARR, WLL, AMZN, TSLA, WFM, NFLX, ATHN, CRM, ARCP

The 13f deadline was last night, and today the headlines are full of stories about who bought and sold which stocks in the last quarter of 2015. Warren Buffett, David Einhorn, Bill Ackman and Carl Icahn are getting the bulk of the attention, and while I will read those filings I do not think that's where we can gain an edge of any sort.

Everyone will read, comment and trade off these filings and we cannot gain any real edge by doing the same thing everyone else is doing. There are many smaller investors racking up huge gains who are off the radar screen of most investors, and it can be quite profitable to steal from them.

Today I want to look at two investors who have roots going all the way back to the early days of value investing. Max Heine was the founder of Mutual Shares, a value-oriented investment fund that is today part of the Franklin Templeton (BEN) complex. In the late 1930s, he read Ben Graham's security analysis and became a very talented investor. He opened his fund in 1949 and managed it until his death in 1988. His protégé Michael Price picked up the reins of the fund and managed it with great success until he sold it to Franklin in 1996 and then retired five years later. Today he manages a hedge fund and I have stolen some wildly successful ideas from his filings over the years.

Price has been a fan of the community banks for several years, and the last three months of 2014 were no exception. He was buying Anchor Bancorp (ANCB), Peapack Gladstone (PGC) and Highlands Bankshares (HBKA). The trade of the decade is very real, and we are in the early stages of the game with the community banks. Our very first takeover of the trade of the decade was Danvers Bank, and it was lifted from Price's portfolio at the time. When he is buying a small bank, it is worth investigation and coattailing.

He also jumped out on the ledge with the rest of us and was buying energy stocks in the quarter. Price's fund bought shares of GulfMark Offshore (GLF), Continental Resources (CLR), ConocoPhillips (COP), Apache (APA), Plains GP Holdings LP (PAGP) and Halliburton (HAL) during the quarter.

When Max Heine was establishing his fund, he had a lot of help from his friend Irving Isaac, an arbitrage trader. Isaac had a brother-in-law by the name of Walter Schloss, who of course went on to become one of the greatest deep value investors ever. Isaac had a son who followed in his father's and uncle's footsteps. Paul Isaac has run Arbiter Partners since 2001 and has earned very impressively during a period when many have struggled. We have stolen several of his best ideas for our portfolio over the years and earned solid profits doing so.

Paul Isaac is also a fan of the trade-of-the-decade stocks. He owns a bunch of them and in the quarter added to his positions in First Citizens BancShares (FCNCA), Lake Shore Bancorp (LSBK), LaPorte Bancorp (LPSB) and Oconee Federal Financial Corp. (OFED). Both Price and Isaac have been buying the community banks for several years and seem to share my outlook for the trade of the decade. Not buying these little banks is a lot like leaving piles of money on the ground, in my opinion.

He also is in the energy trade with us. His funds were buyers of Baker Hughes (BHI), Eagle Rock Energy Partners (EROC), Permian Basin Royalty Trust (PBT) and Southwest Energy (SWN) in the quarter. He also has existing positions in Exxon Mobil (XOM), PBF Energy (PBF), Par Petroleum (PARR), Whiting Petroleum (WLL) and Halliburton, so the fund id s pretty committed to energy stocks.

He also has some short bets against momentum and growth favorites. At the end of the year he had put options on Amazon (AMZN), Tesla (TSLA), Whole Foods (WFM), Netflix (NFLX), AthenaHealth (ATHN) and Salesforce.com (CRM). He has done pretty well on the short side in the years I have been tracking his filings, and it is worth noting his short bets every quarter. Even if you are not interested in shorting these highfliers, you might want to avoid those Isaac has identified as vulnerable.

Both Price and Isaac joined a list of noted investors buying shares of battered REIT American Realty Capital Properties (ARCP). The stock is trading at about 80% of book right now and has attracted the attention of some of the best on Wall Street today. George Soros, David Tepper and Jeremy Grantham were among the 192 institutions that purchased over 149 million shares of the stock during the last three months of the year.

I am quite content to let others discuss the filings of the big, better-known investors. Value investors and activists flying below the radar are a much better source of ideas. These two are among the very best on the planet today.

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At the time of publication, Melvin was long ANCB, GLF and LPSB, although positions may change at any time.

TAGS: Investing | U.S. Equity | Energy

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