Tuesday, November 16, 2010

The Three Wise Men

Yesterday was 13-F day in Hedge Fund land. Thus, average speculators (us included) got to peep the holdings of our more well endowed/experienced competitors. Specifically, we now know who owns what. There were no real surprises. So without further adieu let's dive in...


We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'

We surmise Mr. Buffet aimed this quote at those investment banks (Goldman ahem) whose P&L fluctuate due to a voltile revenue stream based on FICC trading.   Mr. Buffet is a man of his word and went hunting for steady revenue streams. Hence, he purchased 1.99 million Bank of NY Mellon shares. BK is a well diversified Financial Services conglomerate and does not rely on investment banking as a main stream of income. In addition, Mr. Buffet upped his stake in WFC by 16.5 million shares bringing his total to 336.4 Million. He increased his stake in Well Fargo four out of the last seven fiscal quarters. We believe Mr. Buffet is betting on WFC's traditional savings and loan franchise, borrow at 0 current rates and lend at higher rates. Meanwhile, he still holds Goldman's feet to the fire with those warrants he purchase at $125/share during the heart of the crisis.

Finally, Berkshire increased their cash position by 23% to $34.5B from $28.05 B last quarter. Mr. Buffet eliminated his stake in Home Depot, reduced his stake in Nike by 52%, and and sold nearly his entire Comcast stake, 12 million shares. Thus, Berkshire Hathaway's equity sales outpaced purchases by $1.2 billion. Let profits run and cut the losers!


An open society is a society which allows its members the greatest possible degree of freedom in pursuing their interests compatible with the interests of others.

Indeed it is. Mr. Soros exercised his right to pursue interests compatible with others in that he took some profits and diversified his Gold positions. Soros Fund Management Sold approximately 550,000 GLD shares last quarter and now hold a cool 4.7 million. This is significant in that the Soros' holdings are down from 1.5 Million GLD shares under management from the peak in December of 2009 when 6.2 million shares were held.  As we noted in our last post, the gold trade is a crowded one and the GLD is the most popular vehicle. In lieu, Mr. Soros diversified his holdings and purchased 5 million shares of The BlackRock managed iShares Gold Trust (IAU). Again, no surprises here. If we recall correctly, Soros called Gold the ultimate bubble not too long ago. Suffice it to say he still feels this way.

John Paulson

There is a chance – a very good chance – that gold will be the next NASDAQ.

Mr. Paulson shows some hubris. To our delight he puts his money where his mouth is. Paulson & CO. maintained 31.5 million shares of the SPDR GLD ETF, approximately 7.4% of the entire float, last quarter. Essentially, he must think $1500 Gold will come sooner than later. Also, Mr. Paulson was a heavy seller of financial equities. Paulson & Co. sold 1.1 million GS shares, 82.7 million C shares, 2 million JPM shares, 2 million WFC shares, and 30 million BAC shares. For what its worth, this may explain negative HF bias towards the XLF last quarter and go a long way into explaining why financials did not participate in the September/October equity rally. Though we are not conspiracy theorists here, just backward guessing speculators.


Even though we did not rigorously detail the nuances of each manager's portfolio, the major changes were noted. What do we think? Safety and profit taking were the prominent themes. Soros ensured he has more liquidity in case Gold dips. Buffet took the consumer-related risk out of his portfolio. Paulson reallocated capital and took money off the table a la profits and losses in financials. Why are these men wise? All three stuck to their principle investing thesis. In times of turbulence many of us question our positions, logic, rationale, and sanity. However, it is times like these in which we can also become wise men and clarify our unique trading styles.

-Patrick M. Ambrus


1 comment:

  1. Hi there Pat and Alex,

    I hope that you're doing well. If I may express a very quick opinion, the general consensus around funds that we've held in high esteem over the years is that looking at 13Fs is almost useless in terms of incorporating into any strategy or mindset. Sadly, we share the opinion.

    I'm certain that you two, given how smart you are, would know some reasons why. First off is of course that they only report holdings as of the end of the quarter. And within days, such as the case this quarter, they could completely alter their entire strategy/portfolio/mindset in an instant. The first week of October in this year was seen by many in the industry as being a gamechanger.

    Secondly the 13Fs don't report everything. While it is true hardly any HFs truly "hedge," the 13Fs will never include any Fut/FutOpt/Currencies which many prominent HFs use as daily trading vehicles to hedge (even Buffett was rumored to use these before 2008 which could have cost him in the crash).

    Thirdly, and this one is definitely more subjective than anything, many of the people who use 13Fs as an important part of their strategy are often among the "morons" of the industry. I mean the James Altuchers of the world aren't exactly among the upper tier, and I believe I'm being very kind.

    I know that you two don't incorporate the 13Fs as a big part of what you do, but just thought I'd give a refresher about their shortcomings anyway. There's no harm in looking at them, but be wary drawing conclusions or inferring anything significant out of them IMO.


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