Mining the Filings

• ByTim Melvin, RealMoney.com Contributor
• On 2:31 pm EDT, Monday August 17, 2009

Friday was the last day of the 13 HF filing period for most money mangers and institutions in the U.S. As always many of my favorite investors to piggyback for ideas filed right at the deadline late in the afternoon. This gave me a nice stock of reading material for the weekend. I am just now starting to have some hope of seeing the top of my desk by the end of the week.

One of my favorite managers to follow is Daniel Loeb of Third Point Partners. The fund opened in 1996 and has handily beaten the market over that time period. The firm's Web site describes their approach as event-driven, value-oriented investors. Over the years the fund has not hesitated to take an activist approach and openly criticize management at target companies. His edgy letters to some corporations in the past are passed around trading desks and consider must read material by many, including myself.

Loeb apparently turned aggressively bullish in the quarter. The size of his equity holdings doubled during this period according to his filing. It also shows that he took a lot of new positions in the quarter. The fund took big positions on several technology names including Apple and Sun Microsystems. He joined several other noted investors in the quarter buying Bank of America.

Third Point was also very active in the risk arbitrage markets and had large positions in recent takeover deals like the Pepsi Bottling group merger. According to his quarterly investor letter on the Web site, the firm was also very active in the distressed securities market in the quarter.

The automotive industry was one area where the fund aggressively bought debt in companies like Ford and Dana Holdings. Loeb told investors that he thinks the annual rate of change for auto sales has bottomed and he does not think there will be a another leg down in car sales. Third Point also made significant investments in distressed mortgage backed securities.

One point Loeb made in his shareholder letter was that this is the very early stages of the distressed investing cycle and that the real opportunities will come later in the cycle. He points out that there is $700 billion of securities maturing over the next five years and that default rates are expected to rise another 40% above current levels. Looking at those data points lead him to refer to the proverbial kid in a candy store.

Another must read-report each quarter is the one from Greenlight Capital. David Einhorn was one of the first to speak up about the condition of the banking system and was very publicly short Lehman Brothers coming into the crisis.

His fund was not very active on the buy side in the quarter. He did buy several title insurance companies. I was able to get a copy of his second-quarter investor letter wherein he explained the rational for his purchases in the group.

He points out that the industries was hit hard on both storm loss and investment side last year and have been pushed well below book value. He noted Aspen Insurance Holdingsas an example of the type of opportunities he was seeing in reinsurance. The stock trades well below book value and Einhorn thinks the company is capable of earning $4 a share if "the ground does not shake too much and the wind does not blow too hard." Greenlight also bought shares of Everett Reinsurance and Transatlantic Holding.

Einhorn also comments that his fund has almost no net long exposure to equities. He attributes this to a lack of quality opportunities and the fact that he had taken profits during the quarter as the markets rose. He sounds a lot like I have recently when he writes that he will continue looking for solid long ideas but is cautious because of the severity of the underlying economic headwinds.

One of my favorite investors to track is Seth Klarman of Baupost. The deep value investor is apparently also getting less bullish as prices have risen in the past few months. He added no new positions and sold several during the three months. He added to tobacco producer Alliance One and Liberty Media but appears to have been a net seller in the last three months.

Reading 13HF filings and shareholder letters can be a valuable source of ideas for long-term investors. Like stock screens, keep in mind that this is the starting point. Once you find an idea, do your homework and make sure the stock or bond fits your criteria as a good investment.

Buzz up!