Cloning those 13Fs – What’s happening at Berkshire and Pabrai Funds?

Investing is hard, especially if you are a picky concentrated value investor. You end up spending a lot of time reading into things that don’t pan out.

Thankfully, you can leverage ideas of others by helpful reports known as 13Fs. In the United States, any institutional investment manager that manages over $100 million or more in Section 13(f) securities (basically public companies but see the Securities and Exchange Commission [“SEC”] for fine print) must report its holdings on Form 13F with the SEC. These reports must be filed within 45 days (where functionally most if not all file on the 45th day to not give advantages to us copycats) and around here we affectionally call this day 13F day.

One key issue with these reports is that they only require the manager to report on effectively U.S. public holdings, where foreign and private holdings could be extremely material and so just looking at the 13F can be very misleading. It might look like someone thinks a holding is a great important idea to them based on it being a large percentage of holdings, but when (or if) you realize their unreported portfolio is many times bigger you might lose some enthusiasm.

Anyway - As we talk about in our Cloning 101, copying ideas is effectively bowling with bumpers - http://www.canadianvalueinvestors.com/cloning-investments-101

To clone Mohnish Pabrai, he said it best:

“When you only basically buy ideas that other great investors have already bought after studying them, the error rate you will have will be a small fraction of what you would have if you went out on the prairie on your own. If you go out on your own and look at 10,000 stocks and pick ten – trust me – your error rate will be off the charts. But if you pick ten out of the 40 that great investors have bought and you have looked into why they bought them, it’s like bowling with bumpers…Never bowl without bumpers when they offer you bowling with bumpers. ”

And so, we follow several different funds, two of them being Berkshire Hathaway (Warren Buffett + Ted/Todd picks) and Pabrai Funds (being Mohnish).

There is one key takeaway from this article that we would like you to have (and to remind ourselves of):

You really don’t have to be very active to do well, and in fact being active is likely counter-productive – The top concentrated investors really are concentrated in that they only make a few big investment decisions a year. You don’t have to find 20 great ideas every time you sit down, you just have to find one or two great ideas a year and frankly likely won’t find many more. This helps us sleep at night.

So what are they buying and selling anyway?

Mohnish practices what he preaches. His top 4 ideas are 72% of reported assets under management (“AUM”) on his 13F, which does exclude some meaningful holdings.

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He doesn’t buy or sell much as you can see from his purchases last quarter.

What’s particularly interesting is that he bought into GrafTech only this year, i.e. you know the range of prices he actually paid for the cost, and that he thinks it is a very good idea based on how much he put into it. Now that you know he bought Graftech, you can then take a look at what’s happening with the stock, and in this case it is likely down or around the price he paid:

Maybe it’s time to take a look!

What about Berkshire?

When looking at Berkshire you have to be a bit careful. Warren Buffett and team hired Ted Weschler and Todd Combs to both run separately managed investment accounts ($13+ billion each and counting) while larger holdings still are effectively Warren’s (where most existing holdings are his). Berkshire’s book is much larger than ours and ends up being a bit more diversified given the size and management structure; an expected and welcome problem for folks with a portfolio over $200 billion. For example, buying $2 billion more of a stock would be very high conviction if it is Ted or Todd but very low if it is Buffett. That said, the top 5 still make up over 65% (and you have to separate picks where both Buffett and one or more of the managers might also have a position given they are all truly separately managed).

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A murky idea is Amazon, where Berkshire bought some shares last quarter but with total holdings of about $1 billion. It means it doesn’t break the top 20 holdings and is very likely a Ted or Todd idea with pretty high conviction. Hmm.

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Something like Bank of America is much more clear, where they made a very large share purchase and it is also a very large holding, meaning it is clearly Buffett making the decision (or at least also buying it along with Ted and/or Todd).

 What does this all mean? Happy hunting, of course.