Shadowing activist hedge funds/13D filings

Discussion in 'Strategy Development' started by Vishnu, Sep 23, 2006.

  1. Vishnu

    Vishnu

    I've been writing/investing around the idea of shadowing activist hedge funds and their 13D filings (filings when they accumulate more than 5% of a company with the intention of communicating with management to enhance shareholder value).

    The idea is to get in at prices lower than the activists and also maybe sell puts against the position. For instance, here's Barron's latest 13D filings list:

    http://stockpickr.com/portfolio.php?id=530

    Anyone else have stories about this approach?
     
  2. (1) Focus on other companies in the industry sector where the filings appear to be taking place. (2) Use mental telepathy to read the minds of the people at the hedge funds who employ an activist strategy. (3) Wait for the actual filing to be announced and then trade from there. (4) Be on the lookout for companies whose trading volume and stock price increases dramatically for no "logical" reason and then sell put options on their stock.
     
  3. Vishnu

    Vishnu

    Well, fortunately you can do that (without telepathy) by reviewing not only the 13D filings but the 13F-HR filings at sec.gov.

    For instance, at stockpickr.com here's the top 20 holdings for Carl Icahn:

    http://stockpickr.com/portfolio.php?id=469
     
  4. Study the history of shadowing the activist fund. Can you really make money? I recall studying this approach once and I do not believe I can make money this way. You might have a better activist than those I remember researching. Maybe the approach works for you.
     
  5. Vishnu

    Vishnu

    What activists did you study? RIght now I tend to look at Steel, VA Partners, SAC, Icahn, and a few others.
     
  6. I wouldnt rely on icahn to be right all the time. His IMCL holding looks like a serious mistake, with the company being sued by several different parties in the discovery and manufacturing of Erbitux.

    IMCL is a sinking ship regardless of the captain.
     
  7. In the interest of full disclosure, stockpickr.com is your Web site, correct?

    Are you going to pay for advertising on Elite Trader, or just go about it this way?
     
  8. Normally I would agree with you, but Vishnu has been a valuable member of this board for a long time, he is already well known from his RealMoney articles, plus he has a lot of interesting information. The stockpickr site is very interesting if a bit opaque.

    Vishnu, I wonder if you have any performance stats for this type of shadow investing? Also, I wish you would explain how to use the site a little better.
     
  9. Vishnu

    Vishnu

    AAA, thanks for the post. Its a difficult strategy to test since sometimes someone is active in a 13D filing, sometimes a DFAN14A and sometimes files a 13D but is never active. I've tried the following test: going back to Jan 2002, take the first 5 13D filings each month that appeared to be active. Buy and hold for six months. Through 2006. The results were about positive 21%+ per year (including 2002) but a couple of points:

    a. there was a lot of monthly volatility, drastically bringing down significance.
    b. since 2002 its been a great time for any "short volatility" strategy which these activists exemplify.
    c. In my own trading I like to also find pre-activist situations (where the activists disclose a holding in a 13G or 13F-HR but not yet active). Its harder to backtest that.

    Which brings me to the site. Initially I built and was just using the software for myself to automatically scrape filings and find ideas based on new filings that were correlated with my own picks. But I figured it would be valuable to anybody without hurting my own trading so I decided to open it up to others. I figured it would be a great way to share ideas and to get new ideas.

    There's no ads on the site and the site is 100% free so I don't feel compelled to advertise a non-business that I think is valuable for people. Maybe that would somehow change but I'm busy enough with my fund of funds, trading, and writing.

    Basically, you enter in a portfolio and can then see, Amazon-style, the picks recommended for you "based on the picks of other portfolios". I picked about 300 hedge funds and mutual funds (plus Buffett, Soros, Icahn, etc) that I considered the best and I get all of their top holdings based on13G, 13D, 13F-HR and other filings. Then there's every one else's portfolio and you can choose if you want to see recs from everyone or just the pro portfolios.

    You can then drill down on funds to see all their holdings. Stocks, to see all the funds in them, etc. But I should definitely be more clear about the whole thing.