Search Strategy: Copying Others

Search Strategy

If you plan to look through the investment positions of other known investors like Marty Whitman, Michael Price, Seth Klarman, etc., make sure you have as good an understanding or better of the particular company that you buy. Never cease to do your own work or you will neither learn nor probably profit.  Mr. Mohnish of www.pabraifunds.com uses this technique shamelessly. I personally doubt that Mr. Pabrai has a solid grasp of what a franchise is by his investments in Pinnacle Airlines, Exide (XIDE), a battery company, and Lend, a subprime originator. You may be copying others who, in turn, are copying others–a reflexive circle of ignorance and sloth.

An interesting blog post: Trolling through 13-Fs or a Search Strategy: http://classicvalueinvestors.com/i/2012/04/i-am-an-investor-not-an-inventor/

Don’t forget to view other blogs:www.simoleonsense.com and www.greenbackd.com

Enjoy Your Easter.

3 responses to “Search Strategy: Copying Others

  1. Do you have any search strategies when it comes to looking at 13-Fs? I did get one idea by looking at skimming 13-Fs and seeing which stocks funds had added in size, and then seeing whether the current price was still near the price average/lows for the past quarter.

    Would it be better to look at all major additions first in VL to see if any are potentially franchise companies since you could buy at a higher price and still come out okay in the end, and then use the prior rule I used to potentially filter out on special situations?

    Hope you have a good Easter as well.

  2. One other pitfall i have found when looking at 13Fs is that these investors only disclose their longs. Some of their longs may be hedges for undisclosed shorts, put positions, or part of a pair trade. There is huge difference between, for example 1) Seth Klarman thinking a particular stock is a great long versus 2) Seth Klarman thinking a certain industry is doomed, shorting the worst company in the industry while hedging with the best (just in case he’s wrong). Only the long gets disclosed, and if an investor is tight-lipped – you’ll never know whether the situation is scenario 1) or scenario 2). Investors who follow 13Fs need to watch out for this!

  3. One other scenario I forgot to mention. Sometimes hedge fund guys will have a big, undisclosed, and illiquid position (say, a put position) and will use a partially offsetting long common stock position to “trade around” or give them a bit more liquidity. Same 13F interpretation pitfall applies.

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