13F Filings: Lessons for Investors

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It’s 13F season! In case you don’t know what that is, institutional investment managers with more than $100 million in assets under management are required by law to file a Form 13F with the Securities and Exchange Commission (SEC) each quarter. These filings are made public, and there has been a rush of Q1 releases over the last couple of weeks. They detail the equity holdings of hedge funds and other money managers, and it is often said that they can be used to determine where the so-called smart money is going. There are, however, some important provisos that investors should keep in kind when looking at what major investors are doing, according to their 13Fs.

First and foremost, they only reveal equity positions. As I’m sure everyone is aware, stocks aren’t the only investment available to hedge funds right now. Even the more traditional ones may have bond and commodity holdings in addition to stocks, while things like crypto offer some interesting alternatives too.

Still, you would think it would help to know where fund managers are putting the money they allocate to stocks, but there is another problem with relying on 13Fs for that: They are backward-looking. They are concerned with what these funds did in the first three months of the year, making the information at least six weeks out of date at this point. When you look at the number of changes made to positions in any given quarter, it is clear that six weeks is an eternity in this case, and that the forms are a snapshot of money managers’ views at one point in time rather than an insight into what they are feeling right now.

That is why I tend to ignore things like sector trends that the filings reveal. It isn’t really a surprise that these releases show that a lot of money was moved from tech in the first three months of the year and into “safer” areas of the market. If you had been paying attention to the Nasdaq over that period, you would already know that, and would have known it for a couple of months. Stories like this from Reuters, saying that funds dumped Netflix and Meta during Q1 tell us absolutely nothing useful.

There are, however, some valuable lessons that can be learned from this information.

It is telling, for example, that Warren Buffett’s Berkshire Hathaway was very active in those first three months of the year. The Sage of Omaha frequently said last year that he didn’t see much if any value in stocks at their levels then. Clearly, though, that was about price, not fundamental value. As markets adjusted back, he and his team found plenty of places to deploy cash.

The other major lesson from these filings for investors is that flexibility is an important part of successful investing. You will often hear “Big Short” type stories of fund traders who risked everything on one big play and kept the faith to the point where they came close to bankruptcy … then everything turned around and they made billions!

Those are good stories, but they are just that: stories. The reason you hear about them is because they are so rare. What you don’t hear so much about are the guys who stubbornly ran something into the ground and then got fired. I’ve met plenty of these guys in my years in the markets, and hardly any heroes who stuck it out.

Successful traders, both institutional and retail and in any market, know that if something fails to perform as you expect, you get out. Even if you are convinced that it will come back at some point, you must accept what the market tells you. You have to have a level at which you will sell out of even your strongest conviction positions. You can always get back in later if things turn around, and you can do so more effectively if you have freed up capital to make money elsewhere rather than just watched something drop and pile up the losses.

These, then, are the two main lessons for investors from these filings. Don’t hold on to losing positions but, even as you sell, understand that if markets overall keep falling, there will be value to be had on the way down. It really doesn’t matter what individual stocks certain funds bought two months ago, but if you remember those two things, you will be a better, much more successful investor in the future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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