Lessons on Reading a 13-F

For those who look at 13-F filings, here is advice from a money manager (Tilson Funds www.tilsonfunds.com) who files 13-Fs since he manages over $100 million.

Lessons on reading a 13-F

Like every other “institutional investment manager” with over $100 million in securities, we filed our Q1 13F with the SEC recently (you can see ours at: http://sec.gov/Archives/edgar/data/1327388/000139834412001831/fp0004886_13fhr.txt). It’s very easy to misread a 13F and reach erroneous conclusions – let me highlight a few, using ours as an example:

A) Right up top, under the “Form 13F SUMMARY PAGE”, it says, “Form 13F Information Table Value Total: $ 345,109 (thousands).” I wish we had $345 million under management, but we don’t, so why does it say this? The answer is that when call option positions are reported on a 13F, the dollar amount listed is NOT the market value of the option but rather the full value of the underlying stock. For example, to pick a random stock we don’t own, let’s say we owned call options on 10,000 shares of Procter & Gamble stock that expire in a month, with a strike price of $67.50. With the stock at $64.36, each option costs a mere 12 cents, so the value of this position would be $1,200 – yet on a 13F filing, it would appear as a $6.436 million position! Thus, the seven call option positions listed in our 13F are nowhere close to being worth the $104.1 million they are listed at. Specifically, our Berkshire call option position, listed at $76.3 million, more than 4x larger than any other position, is worth only a tiny fraction of that amount, as the great majority of our position is in common stock.

B) Short positions are not disclosed in 13F filings so it’s impossible to tell what a manager’s actual exposure is. For example, a manager could appear to be very heavily exposed on the long side to the market, a particular sector, or a specific stock, but in fact have the exact opposite exposure in reality. I recall one time that our 13F showed that we owned a few shares in InterOil, which caused some to question whether we’d reversed our long-standing bearishness on this company. In fact, it was (and still is) one of our largest shorts, so why did we have a small long position? The reason is that it can sometimes be hard to get the borrow on the stock, so when we do get the borrow, we sometimes borrow and short more shares than we want, offset by a small long position that allows us to easily trade around a core position. So, for example, if we wanted a 80,000 share short position of a stock, we might borrow and short 100,000 shares and then buy 20,000 shares. Only the 20,000 shares, however, appear in the 13F.

C) This is unique to us, but our 13F lists securities that Glenn and I didn’t buy because the holdings of the Tilson Dividend Fund, which our friend Zeke Ashton of Centaur Capital in Dallas manages, appear on our 13F.

3 responses to “Lessons on Reading a 13-F

  1. Interesting. Thanks for this. I didn’t realize that call options distorted the numbers so much.

  2. Hello,
    How do you tell what was bought and sold on the the 13-F. All I can seem to find is how many shares of stock were bought or sold and for how much, but not were they sold or purchased. Please help?!

Leave a Reply

Your email address will not be published. Required fields are marked *