The 13-F filings are starting to trickle into the Securities and Exchange Commission (SEC) this week. That will turn into a flood by the weekend deadline but, so far, we have only seen a few of our favorites. The press in the days ahead will be full of commentary on what big investors such as Seth Klarman, Warren Buffett and Bill Ackman are buying.
I have little to add to the tidal wave of coverage that will be dedicated to the position moves by the superstars. I sometimes miss the old days when only a handful of us were reading the regular quarterly filings that disclose the quarter-end holdings of the nation's money managers and large investors, but getting baseball scores on demand and the instant gratification of book buying on the Web means instant access to everything for everybody.
While the superstars and big names will be covered and discussed ad infinitum there are still a lot of under the radar investors racking up big gains buying undervalued stocks and those filings I will be tracking and writing about the rest of the week. One of the investors who has been an excellent, if unwilling, source of ideas is Donald Smith & Co. The firm buys stocks in the lowest decile of companies as ranked by price-to-book value and has outperformed the market by a pretty fair amount since opening its doors in 1975.
The firm was not particularly busy during the quarter but it did make a few interesting purchases worth noting. The company added to its stake in a couple of insurance companies by buying Validus (VR) and Unum (UNM) over the summer. It also bought newly formed packaging company Veritiv (VRTV), as did several other noted value investors.
Like many fellow value types (including me), Smith is still buying natural resources stocks. He added to his stake in Yamana Gold (AUY) and took new positions in Kinross Gold (KGC) and HudBay Minerals (HBM). His firm also added to many energy names including Tidewater (TDW), Seacor Holdings (CKH) and Parker Drilling (PKD). His firm initiated news positions in Peabody (BTU) and Cloud Peak Energy (CLD) in the coal sector. Energy, metals and coal are not the most comfortable stocks to own right now. Therefore, I find a bit of a relief in seeing that some folks way smarter than me share my long-term optimism for these stocks.
Donald Smith & Co. also did a bit of selling in the quarter. The company sold out of Southwest Airlines (LUV) entirely and dramatically reduced its stake in JetBlue Airlines (JBLU). It also sold out of oil-and-gas refiner Tesoro (TSO). For a lesson in the power of the bottom-decile approach to stock picking, investors would do well to study these three sales by Donald Smith & Co. The firm started buying these stocks back in the second quarter of 2009 and is selling them five years later at gain of 2x to 5x his original purchase price. The firm also sold shares of Diamond Rock Hospitality (DRH), Sanmina (SANM), Covenant Transportation (CVTI), and Royal Caribbean Cruise Lines (RCL) for what appear to be huge long-term gains.
Kahn Brothers also filed early and the long ime value shop was not very busy in the third quarter of the year. This is one of the firms that can trace itshistory all the way back to Ben Graham's Columbia University -- Chairman Irving Kahn was Graham's teaching assistant. Kahn is currently 108 years old and still finds his way to work most days. The firm purchased GlaxoSmithKline (GSK) in the quarter and added to its stake in IBM (IBM) and Flushing Financial (FFIC). The firm trimmed its holding of several stocks with the largest reduction in shares of AT&T (T), Patterson UTI (PTEN) and PHI Corporation (PHIIK), all at pretty sizable gains from their original purchase price. Investors who want to learn how to make money in the stock market should study the holdings history and eventual sell points of deep value types such as Irving Kahn and Donald Smith.
The 13-F filings are off to a slow start but that's going to pick up as we get closer to the end of the week. I expect that we will see a lot more buying in resources and energy from the deep value types during the third quarter -- along with continued strong interest in my "trade of the decade" small bank stocks. After five years of straight-up market movements, we will probably also see more selling than buying activity among the very best investors over the summer.