Everybody talks their book, everybody.
And no I am not talking about the “Talk Your Book” show on StockTwits TV.
It is one thing to know that everybody talks their book. It is another thing altogether to know what to do about it.
First off, what exactly is “talking your book” mean? Talking your book is a phrase used to describe what portfolio managers are doing when they discuss their portfolio holdings.
It is generally assumed that this discussion is to create interest (and buyers) of these securities. This will ultimately benefit the price of the security and the manager’s portfolio. The more cynical out there might see any sort of stock rise as an opportunity to exit a position as well.
Even that might be too simple an explanation. A manager might take the opposite tack an bad mouth a position hoping for a drop in price to allow further accumulation. Some are speculating that is exactly what happened when George Soros decried a growing gold bubble despite having increased his positions in the shiny metal.
As you can see there are no shortage of motivations involved here. A portfolio manager might also be giving interviews as a form of marketing for his or her business. For example, does Bruce Berkowitz, Morningstar Domestic Stock Fund Manager of the Year (2009), really need to spend his time speaking with Kiplinger’s? He might very well like talking to reporters, but he also might also view this as an opportunity to market his fund.
The bottom line is that is difficult to take fund manager’s public security selections at face value. There are simply too many cross-currents at work to put much weight on their public pronouncements. Now government filings are another thing altogether.
Thankfully there are other resources one can use to track what various managers, especially hedge fund managers are up to. Many of them focus on the 13-F filings managers are required to file with SEC in regards to their holdings.
Paid resources like AlphaClone allow the user to build and track portfolios based on the holdings of hundreds of hedge funds. Blogs like market folly do yeoman’s work in tracking down the letters to investors of various funds and culling fund data from within. Morningstar does the same type of service on the mutual fund side compiling stocks from their “Ultimate Stock Pickers.”
Not that this data is perfect either. It is filed with a lag so by the time the data comes out a manager may could very well have eliminated a position by the time you learn about it. In addition, outsiders don’t necessarily see a portfolio’s overall positioning. For example unreported short positions may be offsetting some of the risk of reported holdings, etc.
Some of the best investors in the world cull investment ideas from other investors. Whitney Tilson and Glenn Tongue writing at Kiplinger’s (via World Beta) note:
For some savvy practitioners, a fertile source of investing ideas is to look at what other smart investors are doing.
This of course presupposes you can identify “smart” investors in the first place. In addition, even smart investors make mistakes as well. However for fundamental managers this type of approach can help leverage their research.
Portfolio managers talk their book. They talk their book for any number of reasons: some benign, some less so. But they are still talking their book. Thankfully there are some resources we can use to check what they say publicly against what they are actually doing, albeit with a lag.