Whalewisdom Blog

I’ve been playing around with a heat map for 13F’s that would show stocks that generated the most interest in the latest quarter.  Check it out at http://whalewisdom.com/report/heat_map.

I could use some suggestions on the best formula to use to determine the top 100 hottest stocks.

Portfolios to sample:
For starters, I’m restricting the population of filers used to only those that at least 3 whalewisdom users have registered to receive updates for.  My reasoning being that the more popular filers are the ones investors most look to for investing guidance. You can see the current list at http://whalewisdom.com/report/heat_map#filers.

The current Formula:
The formula used to find the 100 hottest stocks uses the following attributes:

• (TFI) – Total number of filers increasing or starting a position in the stock
• (TFD) – Total number of filers decreasing or selling out of a position in the stock
• (R) – The average ranking the stock had in the portfolio’s being sampled.
• (TOP10) – The number of times the stock appears in the top 10 holdings of the portfolio’s being sampled.
• (TF) – Total number of filers being sampled that held any kind of position in the stock

These attributes are compared to the attributes calculated for the prior quarter and the percent change is determined. From there the following algorithm is used to determine the final score:

TFI% – TFD% + R% + TOP10% + TF%

Also, I limit eligible stocks to only those that are held by at least 10% of all portfolio’s being sampled.

It’s been a while since I’ve posted an update here, but things have been busy with whalewisdom.com.  I’m constantly tweaking the site and have put out several new search tools over the past few months that I think are very useful:

• Holdings Search – Find holders of a particular stock using specific criteria such as whether the holder was adding to an existing position or creating a new position, or if the stock was within the filers top 10 (or 5 or 20) holdings.
• The Guru Report - allows you to see which stocks are most commonly held by a selected group of funds and how concentrated the holdings are. With this you can find consensus stock picks from your favorite hedge fund.
• Combined Holdings Search - lets you combine multiple 13F Filer holdings into a single portfolio and compare changes over multiple quarters.

New API:
In a week or two I’ll be pushing out a new API for whalewisdom.  It doesn’t let you access anything you can’t already see on the website, but does make it easier for automated programs and scripts to pull information out.  I’ll post more specific details once it’s released.

Subscription Service:
Beyond the API, I’m readying a subscription service for whalewisdom.  Currently every search feature on the site is free to everyone, but restricted to the last 9 quarters of data.  When I put in the subscription service, everything that is currently free on the site will remain that way with the exception of the “Output to Excel”  functionality and some of the export features of the soon-to-be released API.  These will become premium features on the site and require a subscription to use.  Subscribing will also give you access to all filing data in the database going back to 3/31/2001.  This means you can run backtester reports through time all the way back from 2001.

Pricing will be cheap. I’m thinking $5.95 to $9.95 a month with a three month minimum subscription.

Why am I doing this?
I feel that the site has reached a point where there is real value in the data it provides.  As you may or may not know, Whalewisdom is a one-man show and is not my day job.  I love working on the site and the whole process has been a valuable educational experience. However I’ve noticed that the amount of time I am spending maintaining/enhancing the site has slowly been creeping up and I want to get some compensation for my effort. The site already generates some side income from the occasional database snapshot sale and from a few custom reports/data feeds I’ve added for clients, but I feel like I could do a better job of monetizing the site and a subscription service seems like a logical choice.

What are your thoughts?
Do you think this is a good idea?  Will anybody be interested?  Is the pricing off? I’m a software developer, not a professional investor  so my idea of what users would like to see has to come from your suggestions and feedback.

I want to announce a new feature to Whalewisdom.com:  SEC Filings Alerts.

In the past Whalewisdom allowed anyone to receive an email whenever a new 13F was received from a particular filer.  This service has been greatly expanded to include all types of SEC filings and different classes of filers.

Choose to receive alerts for new filings from:

• Individual companies
• Predefined Groups such as Closed-End Funds or the Tiger Cubs
• Individual sectors and industries such as Basic Materials or Independent Oil & Gas.

You can choose to receive alerts in real-time as soon as they are released or receive a single daily email summarizing all of the filings received for the day.

All of this is managed from the Email Alerts Page.

Adding a new Alert or editing an existing one is done through the Email Alert Dialog

This feature does require you to setup an account with whalewisdom.com.  But please try it out and let me know of any ways I can make it better.

I’ve added a new search form to Whalewisdom, sector search.  With this search you can select individual industries and a  listing of the total quarterly market value of a filer’s holdings.  If you wish to see, for example, which filers were holding closed-end funds and whether they were buying or selling more last quarter, you would use sector search to find this out.

Right now the search is restricted to a maximum of 5 industries at one time.  This is due to performance issues.  Eventually I hope to open this up more as I continue to tune the query and implement caching improvements.

Try it out and let me know of any problems or ways to improve it.

I’m exploring the best way to start classifying and grouping 13F filers into specific investment styles. I’ve had several requests for this and I think it would be very useful. For example, indices could be created based on investment strategy and filters could be added to the backtester report and filer search.

However I’m not sure what the best way to approach this is.

The first step will be to decide on what categories to use for grouping. From my reading it seems that hedge funds are typically classified into the investment strategies listed below. However since Whalewisdom.com only covers a hedge fund’s reportable 13F assets, their investment style may not be reflected by the holdings listed on the site. With that in mind, maybe an alternative classification system should be used.

• Event Driven
  • Merger arbitrage/Risk arbitrage
  • distressed securities
  • activist shareholder
  • multi-strategy
• Arbitrage/Relative Value
  • Equity Market Neutral
  • fixed income arbitrage
  • convertible arbitrage
  • statistical arbitrage
  • volatility arbitrage
  • capital structure arbitrage
• directional
  • long/short equity
  • global macro
  • CTA/managed futures
  • dedicated short
  • convergence trade

The real problem is figuring out which category a fund belongs to.
In my research I’ve discovered that freely available detailed information on individual hedge funds is hard to come by. There are numerous subscription-based hedge fund databases but I need something that is free and can be distributable to the public. I’ve also found that many of these databases are incomplete and fail to take into account the entire hedge fund universe. The funds that are included may also be categorized inaccurately or be out of date. So getting a 3rd party database doesn’t seem like a good choice.

Doing the classification manually is a daunting task to say the least. I have found a few articles and blogs on the Net that I could use as a start, but these are really based on opinion and may be biased.  It may be possible to automatically classify a filer based on their last reported holdings. This would allow filers to be classified by sector (energy-focused, technology, healthcare, etc.), long/short or fixed income.  Clearly this needs to be further defined.   I would also want Whalewisdom.com users to have the ability to submit their own suggestions for classifying a filer.

Tagging
Another simpler option would be to add basic tagging for filers. The site would allow anyone who has logged in to have the ability to add a tag to a filer.  This can be useful if people want to associate a filer with a certain style (closed-end fund activist, sector-specific focus) or origination (Julian Robertson’s tiger cubs, Commodities Corp, etc.). A “filter by tag” option could be added to the filer search and backtester.

The problem with adding a classification system and/or tagging is that the site will depend on users for content. This is really a niche site and doesn’t have a heavy volume so the pool of potential collaborators will be small. It will also need to be extremely easy and simple to use for users to want to contribute. Do you think I will get any participation?

How would you like to see 13f filers classified?

***** UPDATE: This is now in production as of 9/9/2010 *****

In the event of a stock split or reverse-split, Whalewisdom currently does no adjustment of any kind.  When you look at a fund’s holdings for a given quarter, you see the number of shares that existed at the time the filing was released.  This is leading to some confusion when comparing filings between quarters.  A perfect example is E*Trade (ETFC). On June 2, 2010 they did a 10-1 reverse-split. Thus, doing a comparison between the March 31 and June 30 quarters makes it appear as though many money managers sold off shares. Of course market value comparisons are not affected by this however since we are not using the adjusted share price but this still causes confusion none-the-less.

Adjusting for stock splits is something I have long resisted, not just because of the increase in complexity it would bring as far as development goes, but also because I felt that it could lead to confusion for users as they won’t be able to easily reconcile shares back to the original 13F.  However I now believe that it is even more confusing to not adjust for splits.

This will probably be my next project for the site.  Technically this shouldn’t be too difficult. I can pull stock split info from Yahoo’s historical price quotes. I would use Yahoo’s Splits Calendar instead, but it doesn’t include reverse splits. In any case, after the stock split data is in the system I will need to adjust the shares displayed for all quarters prior to the stock split date as well as adjust the stock price.

No timetable on when this change will be implemented. Hopefully within the next couple of weeks.

A little history
I built Whalewisdom in the winter of 2007 as both an educational experience and as a way to use some extra free-time productively.  I was a fan of CNBC’s fast money and they were always referring to “Whale Watching”- tracking the quarterly filings of the big hedge fund managers.  These quarterly filings are called 13F’s and list the holdings of a hedge fund or other institutional investor on the last day of the quarter.

These filings are made publicly available on the SEC’s website in their “raw” form with no way to really search within the filings for a particular stock or to do any comparisons between different quarters.  Doing a little digging, I was surprised to find that no other site was offering this functionality either.  Actually that’s not true, there are companies out there who track this information, but they are not freely available to the public or carry certain limitations.

So I figured how hard could it be to write my own 13F parser and setup a searchable website?  Jumping in with both feet, I soon discovered that the project would not be as easy as I had hoped.  While the SEC has published specifications on how a Form 13F is to be formatted, in practice each individual firm files theirs in slightly different ways. Further, many filings use incorrect or out-of-date CUSIP numbers to identify stocks. Then there are issues with tracking stock prices, ever changing ticker symbols, and a host of other little details you don’t think of until you really get deep into it.

Given these problems and my limited resources, it is just not possible to completely automate the import process and guarantee a 100% accurate 13F database.  While most filings are imported without errors, there will always be filings that are not picked up.  To get perfect accuracy, an actual human would need to manually check and verify each filing.  This just isn’t feasible for Whalewisdom.com.   However I feel that despite the occasional error, taken as a whole, the database gives a pretty accurate representation of what the “Whales” are buying or selling in a given quarter.

A New Partnership…
In 2008, my site was noticed by Jon Steinberg.  He thought the site useful enough that with a little tweaking we could possibly turn a profit and make a business out of Whalewisdom.  So we combined forces and formed Web Financial 2.0 LLC in July 2008.  Jon had some great ideas and with his help the site has grown quite a bit, however we have recently decided to part ways.  As of August 16, 2010 I am once again sole owner of Whalewisdom.com.

Current Status
Whalewisdom.com is a one-man show. During the week the site checks the SEC website and imports any newly released 13F filings.  These imported filings are made available to the public in real-time without any human error-checking first.  Again, please remember that this opens up the possibility that a given filing may contain an error.  I do randomly select filings and review them from time-to-time and get the occasional error-report from users, but with my limited time/resources, checking each incoming filing isn’t going to happen.

I’m comfortable operating the site in this manner for the foreseeable future. Whalewisdom is on Amazon’s EC2 cloud and operating expenses are within reason. However I’m always open to the possibility of new partnerships or collaborations.

Some new changes:
I’ve just released a new build with several new features and tweaks.

• An Options Search – This is a new search page where you can find filings that contain CALL or PUT holdings.  This was a request by several users.  You can find filers that are holding options in a certain stock or with a certain market value of option holdings.
• Facebook authentication – In addition to the already available login options of using your Google account, OpenID, or creating an account directly with whalewisdom, you may now login with your facebook account.
• Public Backtester Reports – Backtester basically allows you to create a portfolio of portfolios.  You can combine the holdings of any number of filers into a single portfolio based off each filers top 10 holdings by market value for example.  Now there are system-generated backtester reports of common and popular filers that you can use without the need to create your own.  I only have a couple setup so far, but would love ideas for some others.
• Expanding on the one above, you may now share your own backtester report (or not). These reports can be publicly viewed by other users who may copy them for their own purposes. If this proves useful, we could expand and allow rating and commenting on other users backtests as well.

The Future…
I’m not really sure where to go with the site from here.  One change I am considering is to remove the Upgrades/Downgrades, Insider Trading (Form 4), and Schedule 13D sections of the site.  Honestly this information is readily available for free on several other sites and I’m not really adding anything here.  Removing them will free up resources for other features.  Is anybody using these sections of the site?

I’m open to any other suggestions you may have as to the direction you would like to see the site move and any opportunities you may see to help me monetize the site.   One possible source of revenue is custom reporting.  I can prepare any report tailored to one’s needs based on the ever-growing whalewisdom 13F filing database.  Read this post for further details.

Thanks again for using whalewisdom.com and for reading this post.  I look forward to hearing any suggestions you may have.

Daniel

The Whalewisdom 13F database has been steadily growing since its inception and contains a great deal of data that can be extracted to help provide insights into where the market may be heading . While whalewisdom.com provides an easy way to search for individual stocks and do quarterly comparisons, you may have a need for a more customized report or query.  Whalewisdom.com can offer this custom reporting service at extremely fair (i.e. cheap) rates.  These could be reports needed daily, monthly, quarterly or even just a one-time deal.

The “Pain” Report
As an example, one custom report I have previously done is the “Pain” Report.  This report basically tracked the “pain” that hedge funds might experience making them likely to sell certain positions, making certain stocks more “dangerous” than others for you to own.  The theory being that if a stock held by a fund is down significantly relative to the market, the fund will be under pressure to sell it.  If the stock is illiquid, that sale is more likely to drive the price down making it dangerous for anyone to buy that stock.

To create this report a table was prepared for each fund that my client wanted to track and listed the current quarters holdings with the following columns:

• The number of days of average volume that the fund held as of the last filing for each stock – The number of days of trading volume a fund holds.  For example if the fund has 1,000,000 shares and the stock trades 250,000 shares a day, it would take them 4 days to unload.
• Each stocks performance since the filing date relative to the S&P’s performance
• The percentage of the funds overall portfolio that the stock represents.

Then a list was prepared that ranked each fund by:

• overall negative performance relative to the S&P since the filing date
• overall concentration of portfolios – defined as the percentage of portfolio held in top 10 stocks

A list of stocks from each individual hedge fund table was then created showing:

• Which stocks overall had the most days of volume held by the funds
• of those stocks, which was down the most relative to the S&P
• What percentage of the free float of these funds is held by the funds on the list

The entire report was setup to run weekly in Excel format.

Some Other Ideas
That is just one example of a report I can custom build for you.  Another request a user recently made was for measuring the degree of concentration of a fund doing something similar to the Herfindahl-Hirschman index.  That would certainly be doable with the information in Whalewisdom’s database.

Get in contact with me to discuss the details and determine the amount of effort involved.