(Source: Gurufocus)
#2 GuruFocus
Have you ever had the thought; “Man, I really wish I had a trustworthy second opinion on the research I’ve done on this company...’ or maybe “If only I knew what the Warren Buffets of the world were investing in, I’d have somewhere to start...
Well now you have access to both of those concepts! And that’s all thanks to an awesome website.
Gurufocus is an excellent resource for finding out which companies the best fund managers in the world are buying, or which ones they are selling. The website does this by compiling all the well known fund managers 13F filings, and reports them in an easy to understand format. Let’s start there.
13F Filings, what the heck is that?
A 13 F is a Quarterly filing that Institutional Investment Managers must release if they have more than $100 million in qualifying assets. This filing contains information of the fund manager as well as a list of their recent holdings.
In other words, fund managers must tell us what they have bought and sold every three months. Kinda cool right?
What gurufocus did is collect all that information, and put it into one convenient place. The idea of the site is basically to help us reach our investment goals by allowing us to ‘stand on the shoulders of giants’.
The Two main ways I use this site
There really are only two things I use this site for:
For generating stock ideas from the guru’s themselves &
For validating or dismissing a stock idea I already have.
Idea Generation
The first way to use this website is by having a list of exceptional investors to follow. It can be anyone you like, from Warren Buffett to Mohnish Pabrai. Once you have that list, all you have to do is insert the person's name into the search bar at the top left corner. This should bring you to the ‘Stock Picks’ tab and show you all the recent transactions from this fund manager. Here’s an example of what the site showed me after I searched one of my favourite investors, Mohnish Pabrai:
(Source: Gurufocus)
As you can see, all his recent acquisitions and sales are shown in an easy to read format. Pabrai’s most recent 13F filing was September 30, 2016. You can see that his most recent purchase was of Southwest Airlines, while he reduced his positions in a number of other companies.
Note: This is the free information I’m showing you. This means that the buying and selling of Guru’s is usually delayed to at least 3 months. You can pay for a premium service and lower the delay time and get a few extra features, but it’s not necessary for anything i’m showing you here.
Why this list is Awesome!
This is an amazing resource for us as investors. I’m not sure that you noticed, but if you look at the picture of what Pabrai owns, not only does it show what he’s buying and selling, but it also shows the average price he paid for that company. This means that, even though we have a delay in the information we receive, we still have the potential to get into a company that we love, at or below the price that an incredible investor like Pabrai bought into at. Not only that, we can also do this for any investor we choose. Pretty awesome right?
For example:
Today we can see that when Pabrai bought Southwest Airlines (LUV), he was buying the stock from $35.54 a share to $43.18, with an average cost basis of $38.01 (this average is more accurate for Premium subscribers). It also shows us that the current share price of LUV is at $46.69. This tells us that Pabrai thinks that if the stock is below that $38 mark, it’s a good price to be a buyer (at least based on his actions in september).
How we can use this information
Now that we know what Pabrai is buying, we can use this information to do more research on the companies he owns. It would be especially exciting if the share price was below his basis price, meaning we could buy a company at a price that’s lower than one of our Guru’s paid for the company. That can feel pretty darn good.
Extremely important to remember
Just because a Guru bought a company, does not mean we just blindly buy it too, even if the share price is below the Guru’s average price. Remember, this data is delayed. A lot can happen from the time of the purchase, to when the 13f was filed, and today's date. We also often don’t know the reasoning behind why the guru bought the company in the first place, so we must tread carefully.
Any purchase made without doing your own homework is NOT investing, it's speculating. Simple as that.
All of our original investment rules still must apply:
We must be capable of understanding the business
The business must have a durable, competitive advantage
It must have honest, shareholder oriented managers
It must be on sale
We still have to always do our own homework, and value the company based on what we believe to be true. Having a Guru invested in the company you like, at a price above what you paid for the company, is just icing on the cake. Delicious icing.
It’s basically a way to get confirmation that your investment may be a good one, and therefore can act as support for your original thesis on the company. Just be careful to stay as objective as possible.
Idea Confirmation
Now we move on to the other way I like to use Gurufocus, and that is to double check that my investment idea, is in fact, a valid one. This method is best used when you already have an investment idea. You're wondering ‘Is this company really worth the time and effort it will take to do the research, and really get an understanding of its value?’. This next step can not only help confirm your idea, but can be used as excellent motivation to do the research.
How we confirm our idea
One of the best ways, that I know of, to confirm an investment idea is to see if any of the best investors in the world have the same idea. How you ask?
Simple; search the company name on Gurufocus. Let's continue with our example of LUV (Southwest Airlines) and see if any Guru’s are buying. Here’s what it looks like after you do a general search of your company and land on the ‘Summary Page’:
This website has a ridiculous amount of information. As you can see it gives you a large list of fundamentals, which you can use to get a snapshot of the overall health of the company you’re researching. Try holding your cursor over one of these metrics. It will give you more information about how that number ranks against the industry, and against its own history. Pretty cool right?
When you get some time, play around with the website and see what you think. But we’re getting distracted. For our purposes, I’m going to direct you to the ‘Guru Trades’ tab to the right of summary.
Let’s click on that and see what we find…After you’ve clicked, scroll down a bit until you reach the ‘Gurus Latest Trades’ section on the page. Here’s some of the Guru’s buying and selling LUV as of Nov.22/16:
(Source: Gurufocus)
Kinda cool right? Just like you saw of what Pabrai was buying earlier, with this you get to see every Guru who's buying and selling the company.
Next, you simply scan the list to find the gurus you recognize. Right away I see some names I recognize; Mohnish Pabrai, Joel Greenblatt (who you should remember from Part 1), and George soros. So, we know some heavy hitters have invested in this company in the past. You can see that two of the three Gurus recently added to their position, while Soros completely sold out of his (with what looks to be an 11% gain).
Now, if we look at my favourite Guru again, Mohnish Pabrai, you can see that he added to his position in LUV, and now owns 512,220 shares as of Sept.30 2016. It also looks like he and Greenblatt are already up 25% from where they were buyers. If I was interested in LUV this would tell me that maybe I already missed the plane on this one… (I know, I’m hilarious).
But, I don't know any Guru's...
If you don’t recognize any names on this list, try not to fret. You can learn more about the individual Guru by clicking on their name, then clicking the ‘Profile/Performance’ tab. It will give you a brief overview of their investment style and where they work. Or, you can find out more by doing a simple google search of the person you're interested in.
Here's a list of some of my favourites:
Mohnish Pabrai
Julian robertson
Guy Spier
Seth Klarman
David einhorn
Lou Simpson
Edward lampert
Bill Ackman
Does your investment style match theirs?
Personally, my investment method is value, mixed with growth, charting, and something I like to call ‘Next Level options’. So for me the above list is fairly in line with how I do things (and yes, Warren Buffett does use options).
I think to get the best results out of Gurufocus, your investment style should match with the Guru's you're using to prove your idea. It just makes the comparison that much more legitimate if you have similar investment principles, making it much more probable that they like the company for similar reasons as your own.
Price Check
Now that you know a Guru is potentially interested in the company you're looking into, you’ll want to check what price they are a buyer at. In other words, what was the lowest or average price they paid for the company? When did they buy the majority of their shares? Next, compare that to the current price the stock is selling for. If the share price is lower, you may want to immediately move on to doing more research, and really diving into the company.
What if the stock price is above what the Guru paid?
No biggie, you can still do the research and figure out what you think the value of the company is. Then see if it’s on sale by whatever discount rate you are happy with, in other words, your margin of safety price (MOS). For me, I’m never excited about owning a company with anything less than an expected return of 15% a year.
After that, I’d compare my MOS price with the price the Guru was a buyer at and see how far off they are. You may find that you need a larger MOS then the Guru, which is totally normal. Sometimes they aren’t looking for as large of returns as we are, because they are much less nimble than us.
Ok Sure, But what if no Guru’s are buying the company I’m looking at?
Well, then you should get ready to be really really sad…
I’m just kidding, it’s really not a big deal. Remember, This is just the icing on the cake. Your investment thesis could still be completely valid, and you can absolutely still move on to the research phase. You just won't have that added peace of mind that comes with a Guru owning the same business you’re looking into (again, just the icing. It doesn’t mean that the cake still won't be delicious. It just may not be AS delicious…).
On the other hand, if you find that the Guru’s are mostly selling their shares in the company, then watch out. There may be some negative catalysts that could permanently affect the future of company you’re looking at.
Conclusion
As you can see, if used properly this can be an extremely powerful resource. I don’t know about you, but i’m not a genius, and it helps to have some of the greatest minds in the investing world at your fingertips. I truly believe this will not only help lower future mistakes, but also generate great ideas, and thus greater overall returns. That’s definitely Next Level Investing.
Bonus: Some other great resources to check out
Both of these resources could probably use an article unto themselves, but today I just want to show you they exist, and that they’re awesome.
The first is a site called Whale wisdom. I usually use this by first entering the Guru’s name in google, then adding Whale behind it.
It looks like this:
Go ahead, give it a try. The first result to pop up is the one we’re looking for:
Dalal Street is the fund Mohnish runs. Click the link, then you’ll see a list of all his holdings, activity, sector allocation, buys, and sells. Simple as that.
The second resource is called Dataroma. This site is a little less intuitive, but it’s free, and has all the relevant information we’re looking for. It can be an excellent resource for idea generation as they hold some useful stats on their homepage.
They call the investors they follow the ‘Superinvestors’ and they regularly update the information.
Some interesting metrics they follow are the portfolio stats, and insider buys. Here’s what it looked like today (November 22 2016):
Pretty Awesome right? This is amazing for finding new ideas for stocks to research. Honestly, just writing this article reminded me just how powerful a resource like this can be.
Anyways, that’s it for today. I hope you enjoyed it and most importantly, I hope it helps take your investing to the ‘Next Level’.
Part 3 Coming soon...
Thanks,
We’ll talk again soon,
~Ryan Chudyk~
So, What did you think? If you liked it, please let me know in the comments below. It will seriously make my day (maybe even my year). If you didn’t like it, email me, and I’ll give you the biggest Canadian ‘Sorry’ you’ve ever heard.
This is part 2 In a 5 part series. If you missed the intro and part 1. I check them out here:
The 5 Absolute Best Resources for any investor Part 1: It Starts with Magic…
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