Government Reports From Big-Money Investors: Three Things You Need To Know (But Don’t)

Four times a year big-time money managers are required to file form 13F with the SEC. This always sparks news stories naming the most important investors, people like George Soros and Warren Buffett, and drawing conclusions about what they are doing. The implication is that you might benefit from looking over their shoulders.

You won’t! The information is worse than worthless — it is misleading. Here is why, the three things you should know:

The reports are old news. The law provides 45 days to file after the end of the quarter and there is no incentive to be early. The process for filing has been streamlined for the modern age, but the requirements have not. This delay is an eternity in the modern investing world. The consumer of the information has no idea whether the positions are still valid. Has recent news been important? Could the firm reporting be selling into the strength generated by the report? They have no obligation beyond the legal reporting. They are free (and should be) to trade in the best interest of their investors as they get new information and opportunities.

The reports cover only long positions. There is no requirement to report “shorts.” The implications of this gap invalidate the reports. Bill Ackman, for example, is widely known for his short position in Herbalife (HLF) and his very public attacks on the company and its business model.

If you relied upon the government to inform you about Mr. Ackman’s short positions, the 13F would tell you absolutely nothing!

Here is another example. George Soros reported long positions in Barrick Gold and a call (a bullish position) in a gold ETF. What do we know from this? Nothing at all. He might actually have a neutral gold position like a pairs trade, long Barrick and short another gold stock that he believes to be weaker. We don’t know, because shorts are not reported.

His long call position in the gold ETF might be paired with a short call. Whether the overall position is long or short depends on which strike and expiration date was bought and sold. Once again, we know nothing about the overall position. I do not know from the filing whether Mr. Soros is really bullish on gold, and neither do you.