The 13F season is coming to an end and although there will be the usual stack of last-minute filings to keep me busy over the weekend I feel a little like a little kid in the last weeks of August.
The week of quarterly Securities and Exchange Commission (SEC) filings that list the holdings of money managers and hedge fund types is an incredibly valuable period. You can see what the best and brightest in Wall Street have been doing with actual money instead of just prophesizing in the media. I have often said it is like having the best research department in the history of the world for the price of an internet connection.
When I first started in the world of investing you actually had to send away to the SEC for the reports and they would show up in the mail a few weeks later. We actually paid for a service that broke down who was buying what that would come in a few weeks after the deadline. When I started writing for RealMoney back in 2008 the filings were available online but they did not attract anywhere near the attention they do today. I was one of the few people who covered them every quarter. That has changed a little over the past five years.
Warren Buffett's filing had barely cleared the SEC before the world was abuzz with the news of his large stake in Exxon (XOM). People have sliced and diced the report and puzzled long and hard about why Warren bought the oil and gas giant. They may be over thinking the matter as it's probably just that oil stocks are cheap, fossil fuel demand is not going away and Berkshire Hathaway (BRK.B) could buy a lot of shares without owning the entire company.
I tend not to comment too much on the filings of the larger, better-known investors as a couple of dozen other people will be doing so, and I can't real add much value either for myself or readers. I do follow some of the lesser-known investors who have compiled strong track records and can be a valuable source of overlooked ideas. One such firm is Arbiter partners run by Paul Isaac. I had the pleasure of meeting Isaac in New York recently. Not only is he a fantastic stock picker, he is a genuinely good guy, carrying on a family tradition with deep roots in the history of value investing.
He runs a long/short fund and is not afraid to use options to create short bets. During the third quarter he made specific short calls on stocks like Salesforce.com (CRM), Cliffs Natural Resources (CLF), Barclays (BCS), TAL International (TAL) and Groupon (GRPN). While I hope he is dead wrong about Cliffs as I am long, he has done pretty well on the short side since I started tracking his holdings.
Isaac is apparently a fan of the trade of the decade as he owns several small banks in his portfolios and has commented on the sector in the Columbia Business School's Graham and Doddsville newsletter. It looks like he currently owns a total of 15 community and small regional bank stocks and he held firm with the bulk of them in the quarter. He opened one new position In Independent Bank Corporation (IBCP) a 72-branch bank in Iona, Mich. The bank has about $2 billion in assets and recently completed an equity offering that allowed them to exit TARP. The shares currently trade at a small premium to tangible book value. The firm also increased its stake in Intervest Bancshares (IBCA) by about 30% in the quarter.
I was pleased to see that the firm doubled its stake in ARMOUR Residential (ARR). I have been long the mortgage REIT for some time now with less than wonderful results. He also increased his position in bond insurer AMBAC (AMBC) over the summer and added warrants to his stake in that company as well. According to the firm's SEC filings, the warrants are exercisable for cash at any time on or prior to April 30, 2023 at an exercise price of $16.67. With the stock currently at $21.51 and the warrants at $12.94, it is an interesting 10-year bet on the company's survival.
Isaac has outperformed the market by a substantial margin over the past decade and appears to me to be positioned to continue to do so for years to come. I do not have the space to cover all his holdings here, but it is worth your time to check out the entire filing.
