I don't know about you, but in the first two weeks of February
there is always this nagging feeling in my head that I am
forgetting something. Do you get that? Then, inevitably, my wife
will hand me a red envelope and it will dawn on me that once again,
I have totally forgotten Valentine's Day.
, anyone worth listening to has a secretary to take care of the
spouse on Valentine's Day. What they are worried about is getting
their SEC filings completed. Certain big holders of stocks --
Warren Buffett, T Boone Pickens, Carl Icahn, Wilbur Ross -- have to
let the feds know what they're sitting on. It can be a gold mine of
information, a free tip sheet available to anyone willing to read
through a few pages of 12-point Courier legalese.
I like to keep an eye on Seth Klarman. He's known as a value
investor, which some see as a long way from the aggressive growth
newsletter seeks. But that's not the whole story. He's not just
looking for companies that the
is undervaluing... he's looking for companies that the Street
hasn't fully valued yet.
There is a difference. It's one thing to buy a company that has
beaten down. It's another thing entirely to buy a company that
investors haven't discovered yet. That type of value investing is
exactly what I try to do with
If you want to get a sense of Klarman, check out his cult classic
Margin of Safety
. It's one of the most "insider" books out there. Be warned,
though. It's pricey. The cheapest copy I found on bookfinder.com
was $779 -- this for a book that sold for $20 when it first came
out. (I confess I went to the Johnny Faulk Public Library in Austin
for this one. They made me leave my wallet at the reference desk as
Klarman now runs a
called Baupost Group. Here are its holdings as of Dec. 31, 2011
(the largest ones are in bold):
As I have often said before, no number on Wall Street makes any
sense in and of itself -- you always need another number for
context. For devotees of a certain stock-picker, the best thing to
do is to look at the previous filing from 90 days earlier.
Ten positions are unchanged from the 3Q 2011 filing: Alliance,
Central Pacific Financial, Genworth, Ituran, Microsoft Multimedia
Games, Sycamore Networks, Syngeron Medical, Theravance and Viasat.
I grouped the two News Corp. positions together and count them as
One position, a 2.6 million-share block of
Breitburn Energy Partners (Nasdaq:
, was completely cut from the portfolio. Four other positions were
, by 35.5%, from 3.1 million shares to 2 million;
, by 12.4%, from 13.7 million to 12 million;
Hewlett Packard (NYSE:
, by 9.6%, from 20.8 million to 18.8 million; and
PDL Biopharma (Nasdaq:
, by 45.2%, from 14.6 million to 8 million shares.
No entirely new stocks were added to the portfolio in the fourth
quarter of 2011. Klarman did add to three positions, however, and
in some cases quite significantly. His stake in
Allied Nevada Gold (NYSE:
was increased 14.3%, from 3.5 million shares to 4.0 million;
Aveo Pharmaceuticals (NYSE:
marginally, from 5 million shares to nearly 5.1 million; and
Novagold Resources (NYSE:
, which had a dramatic increase of 50%, from 5 million to 7.5
After examining the portfolio in the micro for the changes, the
next thing to do is to take a look from 35,000 feet at the
macro-view. What is Klarman really betting on with this portfolio?
Clearly the answer there is deep value: He thinks News Corp.,
Microsoft and Hewlett-Packard are undervalued, and he's likely
waiting for the companies to post some improved results so that
Wall Street will return them to their more typical (richer)
But there's another holding in the "Large" positions I highlighted
in the chart above --
, a largely anonymous $2 billion maker of satellite and networking
systems. When a guy like Klarman places a nearly $500 million bet
on a company that most have never even heard of, it's time to take
a closer look.
Risks to Consider:
It's worthwhile to follow the moves of the big money managers,
but keep in mind you're not always going to read the tea leaves
correctly -- nor is the
. That said, following the moves of a guy like Klarman is likely to
pan out more times than not.
Action to Take -->
A look at this portfolio and the moves Klarman made should be a
valuable starting-off point for further research. As for myself, I
intend to look into ViaSat a little further. In the meantime, if
you're looking for strong candidates for your general growth
portfolio -- the 80%, as opposed to the 20% reserved for aggressive
plays, then I think Hewlett-Packard and Microsoft are both
Andy Obermueller does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of MSFT in one or more if its "real money" portfolios.
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