How to read Form 13F

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

Let's say you got Form 13F. What should I look into after that?

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

The report contains a lot of information, but the most important ones are:
●The name of the securities issuer
● 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 talks about part of the trading strategy, and in order to gain a deeper understanding, it is necessary to also look at changes in the shares held by institutional investors.

The reason why changes in holdings are more important than fund portfolios in 13F analysis.

Changes in shareholding indicate whether fund managers increased or decreased their holdings of specific shares, bought shares in new companies, or sold shares in a certain quarter. This information may be useful for discerning fund managers' actions.

As an example, let's take a look at the Baupost Group's 13F report for the first quarter of 2021, managed by well-known value investor Seth Clerman.
Looking only at the top 10 holdings in his portfolio, eBay had the third highest holdings based on market value for that quarter. Therefore, it is thought that the Baupost Group was bullish on eBay.
However, looking at the change in position again, the number of shares held by the Baupost Group on eBay declined 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 a bit more cautious about the company than before.
However, fund managers may change positions for a variety of reasons, such as due to changes in the macroeconomic environment or fundamental factors of a company. Therefore, it is necessary to speculate on individual reasons for changes in shareholding.

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

If the fund manager you're researching buys new shares and continues to increase the number of shares they hold over the past few quarters, you'll want to know why. If that's the case, you should take a closer look at the circumstances behind that company.
Conversely, if you notice that the institutional investor you are investigating continues to reduce a specific stock, we recommend doing a deeper analysis to confirm whether the management factors of that company have deteriorated.

Let's go back to the previous example. If you keep reading Seth's 13F, you can see that the fund has continued to reduce the number of shares held by eBay since the first quarter of 2021. It completely withdrew in the fourth quarter of 2021.
Again, this does not mean that you should always look at your senpai's 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 only on information obtained on 13F.

Furthermore, books, annual reports, and interviews with well-known fund managers are also good references when analyzing changes in 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 you've got a general overview of the 13F. Let's summarize the key points here.
13F can seize the holdings of major Wall Street funds. However, Form 13F is only part of an investment strategy, and there is a significant time lag from actual trading.
Research the fund's investment strategy before reading 13F. Reports from long-term investment institutions that have a long-term outlook and excellent performance records are generally more valuable as sources of information.
The key to reading 13F is analyzing changes in stocks held and tracking long-term changes.