As always during 13F season, I spent most of the weekend with my head in a stack of filings while one game or another droned away in the background. There are a lot of filings still to come in and the stack will grow larger as the day progresses.
I read the filings from bigger, well-known investors, but there's no point in me commenting on them as everyone with a keyboard and Internet connection will take care of that for me. The real value of 13F season for me is finding those successful investors who are way off the radar screen so I can steal their ideas without a lot of competition.
Arbiter Partners is one of my favorite off-the-radar funds to track. The firm has a fantastic track record and is managed by the nephew of Walter Schloss and I am always surprised that he is not more closely followed. Perhaps because he doesn't invest like his late uncle and does modern stuff like using puts and calls and selling short he is viewed as something of a heretic. All I can say is that I have stolen some really profitable ideas from him over the past couple of years, so his fund is on my list of favorites for idea piracy.
The fund continued to be a buyer of Amkor Technology (AMKR) in the third quarter. Amkor is a packaging and testing service to semiconductor companies and electronics OEMs. Amkor is seeing strong demand in the mobile and automotive markets, but the overall semiconductor market is still pretty soft. It is increasing ownership in a Japanese semiconductor testing and packaging firm to over 80% this year, and that should drive higher revenues and cash flows for the company.
Arbiter was also a buyer of Capital Senior Living (CSU) during the quarter. Capital Senior Living operates 121 senior living communities in geographically concentrated regions with an aggregate capacity of approximately 15,400 residents. We are growing older, and senior living space should see continued demand, so this company should do well over the long term. CSU has expanding in 2015 and closed on three new communities in the third quarter and announced the acquisition of another in late October. This brings the number of deals to 10 so far in 2015.
Arbiter was a big buyer of Micron Technology (MU) as the semiconductor company plunged in the third quarter. The market for its DRAM chips used in computers has been weak, but management is moving to diversify into chip markets for mobile devices and cloud servers. Several of the leading phone manufactures are planning new phone launches this year, so that could help reverse the weakness in revenues and profits for Micron. Arbiter had a lot of company in their Micron purchases as T. Rowe Price (TROW), Greenlight Capital, Goldman Sachs (GS) and Wellington Management were also big buyers of the shares.
Arbiter continued to be a fan of the trade of the decade. It owns a lot of banks, and other than trimming some Atlantic Coast Financial (ACFC), it was not a seller of any in the third quarter. It was a buyer of Equitable Financial (EQFN), Citizens Community Bancorp (CZWI), First Northwest Bancorp (FNWB), Bay Bancorp (BYBK) and Bank of Commerce Holdings (BOCH) in the quarter. If you are not in the community bank stocks, you are making a huge mistake.
Arbiters is a fan, as am I, of what I have always called chicken shorting. It uses puts to bet against the ridiculously overvalued market darlings. Using longer-term options limits your downside, but can explode in value when the much-beloved, priced-for-perfection stocks finally take a dive. You will not be right all the time, but you don't have to be. One of two implosions can make your year. The fund is currently chicken short Amazon (AMZN), Buffalo Wild Wings (BWLD), Salesforce (CRM), Emerson Electric (EMR), the euro (FXE), iShares China Large-Cap ETF (FXI), Rackspace (RAX), Sears Holdings (SHLD), Tesla (TSLA) and iPath S&P 500 VIX Short-Term Futures (VXX). If this market does decide to roll over any time soon, these positions will have an enormous payoff for Arbiter.
Arbiter has done well over the years and stealing its ideas has certainly worked well for me. These are smart guys with a solid track record, so it would be worth your time to read the entire filing and use their holdings as one of the best research lists you will find in your lifetime.
