Imagine buying a stock and then calling up billionaire investor Carl Icahn and saying:
Carl, I want you to pay Lazard $50 million to get them to come up with a plan to get this stock higher. I want you to dish out another $5 million in legal fees. I want you to alert the media and really bang the drum on this one. You got that, Carl? And, listen, if you mess up
(insert Donald Trump voice here)
, you're fired. Got that?
Well, you can do that with every trade.
That's the main impetus behind a Web site like Stockpickr. When you can "piggyback" a hedge fund (i.e., buy positions that it's buying, maybe at even cheaper prices than it's paying), it's as if you are hiring that fund to do all the dirty work while you get to trade in and out of stocks without much fuss.
And there are three main reasons why piggybacking an activist hedge fund -- a fund that's going to take a large position in a company and start shaking all of the trees -- is particularly worthwhile.
One, these funds do a lot of research to find hidden value. Activists typically move in where the value isn't immediately obvious and they press management to unlock that value (for instance, trying to get
to sell real estate holdings).
Two, these funds are typically long-term holders. Activists tend to take 5% or greater positions in a company. They aren't able to nimbly trade out of those positions.
Three, these funds usually publish their research in 13D filings with the
Securities and Exchange Commission
in order to help convince shareholders to vote their way.
Here's a list of the top activist funds that are worth following (click on each link to see their top holdings):
- Shamrock, which is run by Stanley Gold and Roy Disney (yes, that Disney). Its recent successes include Intrado, now acquired by West Corp. (WSTC) , and Disney (DIS) - Get Report. They've recently gone activist on Coinstar (CSTR) - Get Report, disclosing a 6.28% stake in the company a month and a half ago.
- Barington Capital, which hasn't had a bad investment since 2001. According to DealBreaker magazine, the fund has never had a negative investment.
- Jana Partners, a $5 billion activist fund based in San Francisco. The fund, run by Barry Rosenstein, has a value-oriented and research-intensive approach to special-situation public securities.
- Carl Icahn, among the world's richest people, is going wild with recent activism in Motorola( MOT) and an offer to buy WCI Communities( WCI).
- Chapman Capital, an extreme activist fund that normally files very detailed 13Ds. Chapman has recently called for eSpeed( ESPD), which provides a number of financial technology products, to sell itself.
- Third Point, the fund with probably the highest returns on this list. It was most recently active in independent oil and gas company Pogo Producing (PPP) .
- Steel Partners, a $4 billion activist fund based in San Francisco. It is run by Warren Lichtenstein.
- Pershing Square, which has been active recently in Barnes & Noble (BKS) - Get Report and McDonald's.
- Newcastle Partners, a $585 million Dallas-based hedge fund founded by Mark Schwarz in 1993.
- Fine Capital, the largest shareholder of specialty retailer RedEnvelope( REDE)
So how can you piggyback these funds? Simply go to their Stockpickr pages and bookmark them by clicking on the stars above their name to rate them. These portfolios are updated whenever the funds file a new 13D or become active in a position. Once you bookmark a portfolio, you will receive an email each time there's a new position or update.
In addition to activist funds, I also like piggybacking the top value-oriented investors, a topic I plan to discuss in a future column.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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