We are into the heart of it now. The 13F deadline is this afternoon, and the financial press is into high gear covering the filings. It is fascinating that when these reports came out, the media all cover the same handful of investors and stocks. What is Warren Buffett doing? What did Carl Icahn buy? What is David Tepper doing? How about George Soros? What is he doing?
It reminds me of the press coverage of Hollywood. They are reporting on celebrities as much as looking for investment ideas. They might as well have them all in tuxes and gowns, strolling down a red carpet to file the reports. There is very little investable information gained from such intense coverage, and at least one trader associate of mine has been shorting some of the widely mentioned stocks this 13F season, anticipating a pullback when the frenzy fades next week.
Do I gain any real value knowing who bought Apple (AAPL) in the second quarter? Who bought Apple? I already know the answer to that one. Everyone did. Same with Microsoft (MSFT) and Intel (INTC). If you join the herd to rush to buy these stocks and the other popular favorites such as Wells Fargo (WFC) and Exxon Mobil (XOM) because the largest hedge funds and managers added to their already massive stakes in the quarter, that is probably not going to add a fraction of a percent to your long-term returns.
However, knowing what Paul Isaac of Arbiter Fund has been doing could make a huge difference. I have been following Walter Schloss' nephew for a few years now and have stolen some great ideas. His fund has been shooting the lights out since it opened in 2001. He invests on both sides and will go long or short stocks in his search for returns. It is working very well for him so far.
On the short side, it looks like he has some fairly bold bets on right now. He has puts related to highfliers such as Tesla Motors (TSLA), Netflix (NFLX) and Salesforce.com (CRM). He also has a short bet against high-yield bonds with put positions on the iShares High Yield ETF (HYG).
His fund was also doing a good bit of selling in the quarter. The fund sold significant amounts of its positions in Exxon Mobil, Capital One (COF), Amkor Technology (AMKR) and Assured Guranty (AGO). Isaac also sold out of his stakes in Apollo Commercial Real Estate Finance (ARI), Annaly Capital (NLY), Aercap Holdings (AER) and TiVo (TIVO).
Arbiter continues to be a fan of the "trade of the decade" in community banks. The fund currently holds 17 banks that fit the profile of trade-of-the-decade stocks. He added two new ones in the quarter, opening new stakes in Shore Bancshares (SHBI) and Clifton Bancshares (CSBK), a New Jersey bank that just completed its second step conversion offering. He also added to his stake in Lake Shore Bancorp (LSBK), HopFed Bancorp (HFBC) and Oconee Federal Financial (OFED). Isaac also likes a few large-cap financials. He added to his Citigroup (C) holdings in the quarter, increasing the position by about 20%. Arbiter was also a buyer of Hartford Financial Service Group (HIG) during the quarter.
Arbiter also purchased a little over 1 million shares of Extreme Networks (EXTR) during the second three months of the year. The network equipment company has been out of favor on Wall Street and has fallen more than 20% so far in 2014. It doesn't fit the classic value profile that I use, but Isaac and his team clearly sees value in the stock. His opinion is shared by at least two insiders, as we saw the CFO and one director buying shares in the open market in May of this year.
Most of the excitement surrounding the big-name 13F filings is going to provide very little in the way of investable ideas. When everyone is jumping at the same limited pool of ideas from the same group of investors, there is no edge to be gained. Looking at the less-well-known, successful fund managers such as Paul Isaac can still give long-term investors solid ideas that have huge profit potential.
