How to copy the 13-F filings of the world’s best hedge fund managers (2024)

In 2009, I was a young Portfolio Manager at a large asset management firm. In the middle of a slow trading day, I struck up a conversation with a colleague about a hedge fund manager named David Einhorn who was being interviewed on CNBC.

I first became familiar with David while watching him on ESPN in the 2006 World Series of Poker where he stood out with his cagey play…and hideous sweatshirt.

I was intrigued and looked him up. It turned out he ran an extremely successful hedge fund called Greenlight Capital and was known in the industry for an infamous speech that exposed accounting fraud at a company called Allied Capital. By 2009 he had become a Wall Street celebrity for his very public and successful “short” of Lehman Brothers stock.

David is a Cornell grad, so I may have been biased, but I was convinced he was the smartest stock investor on Wall Street and was attempting to convince my colleague of such.

Little did I know my boss was behind us listening to our entire conversation. “If you think he’s so smart,” he chimed in, “why don’t you just look at his 13-Fs and buy what he’s buying?”

I turned around to face him, paused, and then asked him what you’re probably asking yourself right now:

As it turns out, a 13-F is a form hedge fund managers are required by the SEC to fill out every three months that lists every stock their fund owns at the time. These filings are made available to the public on the SEC’s website. Seriously! You can start searching through them right here.

Had I had known this, I could have seen exactly what stocks David liked in 2009 simply by looking at his fund’s filings.

This realization was quite a shock to me. After all, it’s tough to read a single article about hedge funds that doesn’t describe them as “secretive.” This is what makes the existence of these 13-F filings so ironic. The hedge fund industry’s most valuable secrets— the stock picks— are completely transparent and available to the public. You just have to know where to look.

Maybe I’m greedy — or maybe my boss planted an idea in my brain “Inception” style — but I soon had this lingering thought that I couldn’t let go:

I quickly found out that it’s not quite that easy. As I began to investigate 13-F data I came across two major stumbling blocks (in addition to the SEC’s cumbersome text files):

1. The data is stale — funds are only required to report their holdings 45 days after the fact, and they usually wait until the very last minute. So if you want to know what a fund held on December 31st, you probably won’t be able to find out until February 14th.
2. The data is not complete — many funds “short” stocks (bet against them) and use derivatives. Short positions and many derivative positions are not reported on these forms.

Given these shortcomings, I reasoned the 45-day lag destroyed the value of 13-F data for funds that actively trade in and out of their positions. Likewise, it was unhelpful to track data from funds that invest primarily in derivative positions that are not included in their filings.

These conclusions presented a real problem. Didn’t all hedge funds operate exactly this way? Didn’t they all use complicated algorithms to trade in and out of complex derivative positions thousands of times a day? Isn’t that why they were able to charge such exorbitant fees?

I started to wonder if this 13-F data had any value at all.

I kept digging, and after researching thousands of 13-F filings I discovered that there are a handful of fund managers that predominantly buy US stocks and simply hold them for extended periods of time. In what would come as no surprise to Warren Buffett, these fund managers also happen to be some of the most successful investors in the industry.

I hypothesized that these 13-Fs could be quite valuable, regardless of the 45-day lag. Since these managers generally hold their positions for a long duration, it was probably a lot more important to know what they were holding versus exactly when they were buying and selling it.

I began to test this theory and picked a group of ten well known and successful “value” oriented investors who generally bought US equities and held them for an extended time. David Einhorn was included (obviously). So were investors like Julian Robertson, David Loeb, and David Tepper.

I researched the following:

Why ten? I’m a big fan of keeping things simple, especially when it comes to investing. I’m all for diversification, but the truth is you don’t need to buy hundreds of stocks in companies you’ve never heard of to achieve it. Ten is enough to be to fairly diversified — but few enough to wrap your head around, follow, and have some conviction about.

Ten fingers, ten toes, ten managers, and ten stocks. It helps me sleep at night.

Now I’ll be the first to admit that my timing was very good. The overall market has performed extremely well since 2010, and you could have invested in almost anything back then and ended up pretty happy.

That being said, the stocks identified using this 13-F strategy have outperformed the S&P 500 Index by over 85% since the first 13-F filings of 2010:

[UPDATE: The total outperformance is now 101.1% (269.9% versus 168.8%) after the Stock Genius picks outperformed the S&P 500 Index 9.0% to 3.1% in the latest quarter]

Even with the 45-day reporting lag, it turns out 13-F data is still extremely valuable if you know where to find it, which managers to follow, and how to put the ideas into action in your own portfolio.

That’s a lot of alpha for a simple idea, but it makes sense if you think about it. In addition to being brilliant and experienced investors, all of these fund managers have teams of analysts and accountants working day and night for them. They have access to the CEOs of the companies they invest in, and are probably trading on insider….err….difficult to find information. It’s not a surprise their stock picks perform so well. What is a surprise is how easy it is to copy their picks in your own portfolio.

I don’t know if this strategy is going to continue to work this well. As they say, “Prediction is very difficult, especially if it’s about the future”.

[UPDATE: It’s working very well this quarter]

I do think there’s a lot of merit to the idea, however, and it turns out I’m not alone. Meb Faber (CIO of Cambria Investment Management) wrote a book about tracking 13-Fs called “Invest With The House — Hacking The Top Hedge Funds.” Goldman Sachs actually launched an ETF based on this same concept late last year.

I’m pleased to announce that I’ll be publishing the stock picks generated by my strategy in a new iPhone app called Stock Genius:

Download today and you can start a 30-day free trial. Inside the app you’ll find:

• Ten current stock picks identified using the strategy described above. As soon as new 13-F data is public each quarter we’ll push an updated set of picks right out to you.
• Real time performance tracking of our picks, both daily and since the date of the pick being identified. Performance is measured on both an absolute basis as well as relative to the S&P 500 Index.
• Historical data — all of the picks identified by this strategy since 2010 and their absolute and relative performance.
• A share calculator that helps you mimic the weighting of our top ten picks in your own portfolio.
• Additional picks that didn’t quite make our top-ten but are also widely held by the managers we follow.

After your 30-day free trial, the app costs just $5-a-month — less than you probably pay for a single trade in your brokerage account. Sign up, billing, and cancellation are all handled through your iTunes account — cancel anytime in your Settings app.

Any questions? Feel free to reach out to me at brian@makeHijinx.com. Happy investing.