Chris Bloomstran: Investors Should Beware When Cloning 13F’s

In his latest interview on The Investor’s Podcast, Chris Bloomstran explains why investors should beware when cloning 13f’s. Here’s an excerpt from the interview:

Bloomstran: The other thing is securities that are not in the control of the manager. So we’ve got a number of clients that have had for years and accounts come in and we get inherited positions and it meets a size threshold, it’s got to be filed on the 13F.

So you could infer at times that we’re buying things when we’re actually not buying those things, but we’re inheriting those positions into an account that happens to exist on a quarter end filing date. And whether that name stays in the portfolio or not, is really a function of that client relationship.

We will keep things for basis reasons waiting for a tax step-up, a death for example. So, if you look at our 13F we really have about 25 core positions in the portfolio, and our 13F has far more names. And a lot of those names are in there for tax reasons and they’re not businesses that we’ve ever bought.

I’ve never bought a share of General Electric in my life, but we’ve got a little position. My first Anchor client had a huge position in GE when we started the firm and we sold 90% of it. But there’s a trailer there in some taxable accounts where again, this multi-generational planning, we’re waiting for a tax basis step-up.

And the investor that pulls a 13F and sees Semper owning GE or Tom Russo has a partner in the firm, and they have completely different portfolios. And so you couldn’t infer though that Tom owns all of those names. They’re just dynamics inside of businesses where 13F can be misleading. I think in most cases it captures a lot.

But then in the case of a global investor that has a small allocation to US, you look at 13F filing and say, “Well, this guy only owns one or two stocks.” But you’re missing the 90% of the portfolio that exists outside the United States that are not on the SEC’s required disclosure list.

So there was a proposal a couple years ago that would’ve raised the dollar threshold for disclosure. And, I like to see what other investors own, and there’s some utility to that. But I, from a management standpoint, I’d rather raise the dollar threshold.

If you would’ve indexed, when the 13F filing was required, to inflation, a lot of those portfolios that you see on platforms like Dataroma would not exist there. Unless we were running a billion and a half, or I don’t even know what the next would be down, maybe it’s five billion dollars, you wouldn’t have to disclose your holdings to the public.

So there’s pros and cons, but buyer beware and observer beware. So I think it’s a great question that you asked.

You can listen to the entire discussion here: