Chapter 19


Strategies for picking stocks and size positions from money manager trades and their investing techniques are the focus of Part Three. The techniques employed are a little bit more involved than the models presented so far. The mechanical models in Part Two work well for individual investors who prefer to stay relatively passive; they can still expect to realize superior long-term returns by adhering to proper manager and compatible model selection.

There are techniques that can be applied to the 13F stock picks to filter positions on the basis of money manager bias. Some models in Part Two charted this course to arrive at model portfolios based on filtering for the largest new positions. Obviously, those models were price-neutral, as they factored neither the price at which the manager traded, nor the price when the information became public. This is a glaring risk, as the purchase price of the stock involved in the model portfolio can be like apples and oranges from the manager’s actual traded prices due to the time lag (i.e., the time period from when the manager traded the stock and when that information became public through a 13F filing). The actual time can vary anywhere from 45 days (if the trade was on the last day of the previous quarter) to as long as four-and-a-half months (if the trade was on the first day of the previous quarter). Many a proverbial slip lurks in that duration, in fact, more so with volatile stocks. Appraising price information ...

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