How to read form 13F

In the previous chapter, you saw that the 13F provides investors with an opportunity to follow stocks held by famous Wall Street funds. However, not all reports provide valuable information. Check the fund's investment strategy before reading the report.

Let's say you get Form 13F. What should I look into then?

Before we get into the details, let's first take a look at what's in the report.

The report contains a lot of information, but the most important ones are as follows.
●The name of the issuer of the securities
● Types of securities (stocks, put/call options, A shares, preferred shares, convertible bonds, etc.)
●Number of shares held (as of the last day of the quarter)
●Market value of shares held (as of the last day of the quarter)

The image above is a snapshot of Pershing Square Capital Management's 13F report for the first quarter of 2022, led by Bill Ackman. Column 1 shows the names of securities held by the fund, and column 2 shows the class of securities. The market value and number of shares for each security are listed in columns 4 and 5, respectively.
According to the report, Pershing Square held 8 shares as of the end of the first quarter of 2022. The top 5 holdings (based on market value) are Lowe's Companies Inc (Lowe's Companies, Inc.), Chipotle (Chipotle), Hilton (Hilton), The Howard Hughes (The Howard Hughes), and Restaurant Brands International (Restaurant Brands International).
However, the data itself only describes part of the trading strategy, and in order to gain an even deeper understanding, it is necessary to look at changes in shares held by institutional investors.

The reason why changes in stocks held are more important than fund portfolios in the 13F analysis.

Changes in stock holdings refer to whether fund managers increase or decrease their holdings of specific shares, buy shares in new companies, or sell shares in a given quarter. This information may help you see through fund manager behavior.

As an example, let's take a look at the Baupost Group's 13F report for the 1st quarter of 2021 managed by Seth Klerman, a well-known value investor.
Looking at only the top 10 holdings in his portfolio, eBay was the third-largest shareholding based on market value for the quarter. Therefore, it is thought that the Baupost Group was bullish on eBay.
However, looking at the change in position again, the number of eBay shares held by Baupost Group decreased by about 41.1% from 32.12 million shares in the fourth quarter of 2020 to 18.32 million shares in the first quarter of 2021. This makes it clear that fund managers are slightly more cautious about the company than before.
However, fund managers may change positions for various reasons, such as changes in the macroeconomic environment or the company's fundamental factors. Therefore, it is necessary to guess the reason for changes in stock holdings individually.

One of the key factors in analyzing 13F is looking at corporate reports in chronological order. This allows us to investigate how our respected investors apply their investment strategies to market changes.

If a fund manager doing research buys new shares and continues to increase the number of shares they hold over the past few quarters, it makes me want to know why. If so, you should probably take a closer look at the circumstances behind that company.
Conversely, if the institutional investors you are investigating notice that specific stocks continue to decline, we recommend that you conduct a deeper analysis to check whether the company's management factors have deteriorated.

Let's go back to the previous example. If you keep reading the 13th floor of Seth, you can see that the fund has continued to reduce the number of shares held on eBay since the first quarter of 2021. It completely withdrew in the fourth quarter of 2021.
Again, that doesn't mean you should always look at your seniors' portfolios and imitate them. Even the best fund managers can fail, so it's not a good idea to make buying or selling decisions based solely on information obtained at 13F.

Furthermore, books, annual reports, and interviews with famous fund managers are also good references when analyzing changes in stock holdings.
For example, Warren Buffett writes an open letter (letter) to Berkshire Hathaway shareholders every year to share his views on the market. By reading these letters, you can get an overview of his investment strategy.

After studying these 3 lessons, I think I've got a general overview of 13F. Let's summarize the key points here.
13F can seize shares held by major Wall Street funds. However, Form 13F is only one part of the investment strategy, and there is a considerable time delay from actual trading.
Research the fund's investment strategies before reading 13F. Reports from long-term investment institutions that have a long-term outlook and excellent performance records generally have greater value as sources of information.
The key to reading 13F is to analyze changes in stocks held and track long-term changes.