RSS feedThe analysis of companies is an understandably daunting task. You have to take into consideration financial strength and relative value. After performing all this analysis, there’s still no guarantee that the rest of the market will come to the same conclusions that you did. You can wax poetic all you want about possible catalysts, but with little ability to affect change and limited confidence in your business analysis abilities, waiting for something, anything to move the stock in the right direction can be quite daunting. There is, however, an easier way. No, it’s not simply handing your money over to some money manager, but it’s almost as good.
Follow a big manager! You might not have the money to invest in the funds run by famous investors like Warren Buffet, George Soros and Carl Icahn, but, with increasing availability of information online, it is easier than ever to follow the stock choices of these great investors. The traditional way to follow stock choices by big managers and their firms is to follow SEC 13-F filings. These are available from the SEC EDGAR database. These filings are made each quarter by money management firms with more than $100 million under management and allows them to list their holdings. But, there is an even easier way to follow these holdings. StockPickr, a terrific website for getting stock investment ideas, aggregates the results from 13F filings and puts together hypothetical portfolios for many of the top money managers in the industry.
To go a step further than simply looking for what your favorite managers are holding, certain investors these days are making a name for their “shareholder activism.” This strategy is involves buying at least 5% interest in a company’s stock and then proceeding to lobby for changes to the company in hopes of providing catalysts for stock price appreciation. Following the right activist managers is oftentimes one of the easiest ways to banking nice returns on your investments. Again, the old fashioned way of doing this involves heading over to EDGAR and searching for 13-D filings which are filings made by any investment firm to announce that they’ve acquired at least a 5% stake in a company but more importantly often also include their motivations for doing so. Again, the beauty of the internet has brought us some great sites which aggregate the most interesting of these filings for easy use. One such site is a terrific blog - StreetInsider.com’s 13-D Tracker.
A few particular investors you might want to look out for include Nelson Peltz and his Trian Fund Management, Eddie Lampert, Carl Icahn, and Newcastle Partners. These investors and funds are well known for their ability to take minority to majority interest in companies and turn around their stocks (and sometimes their businesses as well). For example, Eddie Lampert turned a bankrupt K-Mart into a cash cow parlaying it into a mega merger with Sears. He also used his influence at Autozone to enact a share buyback program which resulted in the stock gaining 390% since 1999. Last year, Nelson Peltz used his 5% share in Heinz to shake up the board and attempt to realize value from the company’s stock. The stock rose 22% over the first 6 months of 2006 seemingly just on his announced intentions. Once again, you can use Stockpickr to track top activist hedge funds - just click here.
As you can see following smart investors, particularly activists, can save you a lot of worry and effort. You can take solace in the knowledge that their expertise and know-how likely coincide with your personal analysis. Further, you can often count on them to create a catalyst and unlock value in your stocks sooner rather than later. Sometimes, just their involvement acts as a catalyst, at least in the short run. That’s not to say you shouldn’t do your own homework and analysis. When you’re not directly invested in funds run by famous managers, you need to always be on your toes and aware of the motivations of the managers you’re following. Could they be invested in the stock simply to enact several shortsighted changes to management in hopes of artificially inflating the stock price and get out (something Carl Icahn is often accused of) or are their interests truly aligned with the long term interests of the company and its stock holders? What are these investors’ time horizons in the positions they have taken? Can you count on appreciation in the stock in the time horizon that you are most concerned with?
Piggybacking great investors can be helpful, but it is also a game that needs to be played with a bit of caution and only after having done your own homework. Famous investors can give you great ideas for where to hunt and also act as a sort of confirmation of your own analysis but you’ve always got to watch out for yourself because, unless they’re actually handling your money, they’ll be more than happy to take their profits at your expense.
