How to read the 13F report

In the previous course, we mentioned that investors can peek into institutional positions through 13F reports. However, not all institutions' position reports are valuable. First of all, it is necessary to analyze the institutions' investment strategies and select the right institutions.

So, when you have a 13F report, what should you think of it?

Before delving into the 13F report, let's take a look at what information is contained in the report.

13 the report contains a lot of information, the most important of which is four:

The name of the securities held by ●

Types of ● securities (e.g. common stock, call/put options, convertible bonds, etc.)

Quantity held by ● (as of the end of the quarter)

The market capitalization of ● securities (as of the end of the quarter).

The picture above is a 13F report on Q1 of Pershing Square, INC. Capital Management managed by Bill Ackman in 2022. The first column is the name of the securities held by the fund, the second column is the type of securities, the fourth column is the market value of the position, and the fifth column is the number of holdings.

As can be seen from the 13F report, as of Q1 in 2022, Pershing Plaza held long positions in eight stocks, of which the top five by market capitalization were Lowe's Companies Inc (Lowe's), Mexican BBQ (Chipotle), Hilton Hotel (Hilton), The Howard Hughes and catering brand International.

But the data themselves are meaningless, because pure 13F is uncollated data. If you want to better understand the reported data, you also need to analyze the position changes of the organization.

To read a 13F report, you should not only look at the portfolio of positions in the current quarter, but also look at the changes in positions.

Position change refers to whether an institution increases or reduces its position in a given quarter, as well as what stocks have been newly entered and cleared. By looking at the changes in the position of the organization, you can better grasp the dynamics of the organization and get more effective information.

For example, the picture above shows the position report of the famous value investment guru Seth Klarman's Baupost Group fund in 2021.

In terms of the position portfolio in the current quarter, eBay is the third largest position in Baupost Group. From this point of view, you might think that Ebay was one of Seth's top ten stocks in the quarter.

But in terms of changes in positions, Baupost held 18.32 million shares in Ebay in the quarter, down 44.1 per cent from the previous quarter. In other words, fund managers reduced their holdings of Ebay by 44.1% in the quarter. From a point of view, you might think that Seth may not be very optimistic about Ebay.

Of course, there are many reasons why institutions adjust their positions, which may be due to the impact of the macro market, the fundamentals of individual stocks, and so on. It needs specific analysis of specific problems.

In addition, the key to the analysis of 13F report is continuous tracking.

By tracking the positions of your favorite investment gurus over a long period of time, you can see how they apply their investment strategies to actual transactions.

When you see that the fund manager has entered a large position and has been increasing his position in the same stock over the past few quarters. At this point, you may wonder why it bought it, and then conduct an in-depth study of the stock.

On the contrary, if you find that institutions are continuously reducing their holdings of the same stock, you should be careful and need to study whether the company's fundamentals are deteriorating.

Going back to our example, if you have been tracking Seth's 13F report, you will find that his fund has reduced its holdings in eBay since Q1 in 2021 and completely liquidated all its shares in Q4 in 2021.

Again, tracking the portfolio of investment gurus doesn't mean you can blindly buy or sell the stocks they hold. There are times when masters make mistakes, and a position change reported by 13F is not enough to support an investment decision.

In addition, for those well-known fund managers, when analyzing their 13F position reports, you can combine their books, shareholder letters and public statements to analyze the reasons for their position changes.

For example, Warren Buffett writes an open letter to Berkshire Hathaway shareholders every year, setting out his views on the market. By reading these letters, investors can better understand and learn Buffett's investment strategy.

Through the study of the contents of the previous three articles, I believe you already have some understanding of 13F. Here we summarize some key points:

1. Investors can view the institutions' quarterly positions through the 13F report. But not all institutional positions are worth considering, because 13F's data are incomplete and lagging behind.

2. Therefore, you need to understand the investment strategy of the organization. You can give priority to institutions with the following three characteristics, namely, long-term, long-term vision and good performance.

3. Finally, to analyze a 13F report, the key is to look at the changes in positions and long-term tracking.