In today’s day and age investors have a treasure trove of information available at their fingertips thanks to the power of the Internet. The information, however, is of little value if it can’t be distilled into a cohesive and disciplined investing strategy. For this reason, one of the most valuable resources is the quarterly 13-F reports filed by institutional asset managers.
These filings publicly disclose the long equity holdings of institutional investors which have over $100 million in assets under management. This includes entities such as mutual funds, insurance companies, banks, pension funds and hedge funds. In particular, studying the holdings of successful hedge funds can be of great assistance to individual investors.
Generally, hedge funds are considered among the savviest market players because of their unique investment mandate and the top tier talent lured into the industry by lucrative compensation. Unlike a mutual fund, for example, hedge funds invest in a wide variety of asset classes, hold long and short positions, and attempt to make money regardless of what the market is doing.
Shadowing the long stock positions of these hedge funds by studying 13-F filings is an investment strategy that is certainly viable, and potentially quite lucrative. There are drawbacks to this approach, however, as the information is not up-to-date.
Managers must file within 45 days of the end of each quarter, which means that the publicly disclosed information is a snapshot of the portfolio from a month and a half prior. For this reason, it is often best to put more emphasis on the stock holdings of funds that are known to be long-term investors as opposed to rapid traders with significant quarterly portfolio turnover.
Stephen Mandel and Lone Pine Capital
One of the top stock pickers in the world is Stephen Mandel, the billionaire founder of Greenwich, Connecticut-based Lone Pine Capital. Prior to founding his firm, Mandel was tutored under legendary investor Julian Robertson at the famed Tiger Management hedge fund. In the world of alternative investments, the Tiger pedigree carries a mystique unlike any other. Although the firm closed in 2000, its alumni represents possibly the most powerful hedge fund network in the world.
Former Tiger employees that have gone on to found successful hedge funds of their own include a veritable “who’s who” list of industry titans. Among the most notable are John Griffin (Blue Ridge Capital), Lee Ainslie (Maverick Capital), Andreas Halvorsen (Viking Global), Chase Coleman (Tiger Global), and Paul Touradji (Touradji Capital), among many others, including of course Mandel.
Lone Pine is a $16 billion long/short equity hedge fund which has reportedly racked up average annual returns of 23% over the last 11 years. Below, we examine Lone Pine’s top four equity holdings as of the end of last quarter in an effort to give investors a glimpse into the investing mind of a billionaire stock picker.
Google Inc (NASDAQ:GOOG)
This has been an excellent investment for Lone Pine Capital. The hedge fund purchased the stock in the second-quarter of 2011. The initial stake purchased by Lone Pine was 831,322 Google shares which were valued at $421 million. This implies a price of $506 per Google share at the end of the second-quarter of 2011. Subsequently, Lone Pine added to the position with the hedge fund holding a little over 1,500,000 million Google Inc (NASDAQ:GOOG) shares valued at around $1.1 billion at the end of 2012 when the stock was trading at around $708. At the beginning of the year, Google was tied for Lone Pine’s largest position and the stock has continued to rise in 2013. Over the last year, shares are up better than 30% including a 15% gain year-to-date.
Priceline.com Inc (NASDAQ:PCLN)
Along with Google Inc (NASDAQ:GOOG), this was Lone Pine’s largest position at the time of the fund’s fourth-quarter 13-F filing. The stake was valued at roughly $1.1 billion at the beginning of the year. The stock first showed up in the hedge fund’s filing from the first-quarter of 2011. Like Google, Lone Pine initially purchased a small stake and continued to add to the position as the stock rose. The initial position was only around 360,000 shares valued at $181.4 million. By the fourth-quarter of 2012, the position had been increased to 1,771,000 shares.
Both Google Inc (NASDAQ:GOOG) and Priceline.com Inc (NASDAQ:PCLN) have been major drivers of Lone Pine’s performance during the life cycle of the investments. Year-to-date, Priceline.com shares have risen around 15% and the stock has gone from $400 at the beginning of 2011 to above $700 in recent weeks.
Cognizant Technology Solutions Corp (NASDAQ:CTSH)
This stock was Lone Pine’s third-largest position at the end of Q4 2012. The firm owned almost 11,000,000 shares valued at over $800 million. This made the hedge fund the fifth largest shareholder of Cognizant Technology with a 3.62% stake. The stock has been a relatively long-term holding for the fund, with Cognizant first showing up on Lone Pine’s 13-F filing from the first-quarter of 2010. The Teaneck, New Jersey-based company, which has a market cap of just under $24 billion, is a global information technology, consulting and business process outsourcing firm. The stock has been range bound in recent years after experiencing a substantial run-up in 2010. Based on the timing of the fund’s purchase, it is likely that Mandel’s firm has made a solid profit on its investment.
Dollar General Corp. (NYSE:DG)
Based on an analysis of Lone Pine’s 13-F filings, Dollar General is another example of a stock that the hedge fund purchased a small amount of at first before subsequently making it a major portfolio holding. Dollar General was purchased by Lone Pine in the second-quarter of 2010. The original position, however, was only around 2,400,000 shares valued at $66 million. That compares to the more than 13,000,000 shares valued at roughly $588 million held by Lone Pine at the beginning of 2013. Interestingly, Mandel’s firm also owned a very substantial stake in competitor Dollar Tree and the hedge fund has also traded in Family Dollar shares previously. Dollar General has risen sharply since 2010 with the stock currently trading at around $48.
Conclusion
There are literally thousands of different symbols listed on the various stock exchanges. For the average investor looking to take control of their retirement savings, picking suitable stocks can be daunting. For this reason, 13-F filings are a terrific tool. Many of the top performing hedge funds hold fairly concentrated portfolios that may only include a few dozen stocks out of the thousands of listed companies. Individual investors who shadow these hedge funds’ moves, or use 13-Fs to generate ideas, should feel confident in their strategy as the stocks that show up in these filings have been vetted by some of the top investment minds in the world. Investors that use this strategy don’t have to pay the hefty fees charged by hedge funds in order to profit off of the best ideas of legendary stock pickers like Stephen Mandel.
The article Billionaire Top Stocks: Stephen Mandel’s Favorite Picks! originally appeared on Fool.com and is written by Ryan Glosier.
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