Updated July 14th, 2021
This interview was originally published on June 3rd, 2017. Daniel Collins is the Founder & President of WhaleWisdom, a website with tools to analyze the 13F filings of hedge funds. With WhaleWisdom, an investor can replicate the portfolios of the most profitable “Whales” – huge investors with stellar track records.
Can you tell us about what inspired you to start WhaleWisdom, how your company has grown over time, and what services it currently offers?
I’m a software developer by trade, but also a long time individual investor. Around late 2007 I was a CNBC junkie watching Fast Money one night, and they kept talking about “Whale Watching” and these incredibly informative filings called 13Fs. I immediately went online to find a site that would let me view a hedge fund’s 13F portfolio and see what they were buying and selling. To my surprise and frustration there weren’t really any websites offering this, at least not for free.
So I decided to make one myself. In those days 13F’s were much harder to parse then they are now and it definitely took a while to get right. I built the site up slowly over the next few years with a lot of really good feedback from users. The result of these efforts is that WhaleWisdom.com is now a comprehensive research platform for hedge fund 13F filings.
Not only can you quickly and easily see changes in a given fund’s portfolio, but you can also backtest its past performance. You can even combine multiple funds together to create a sort of fund of funds and backtest that performance as well.
WhaleWisdom offers 13F holdings data for the entire 13F universe going back to 2001 and the site gives you a lot of different ways to extract and analyze that data.
I introduced the WhaleScore a few years ago to help users quickly identify good potential cloning candidates and then created the WhaleIndex, an index of consensus stock picks derived from the top WhaleScores. And the site has much more than just 13F’s: 13D and 13G filings are available going back to 2006, insider trading forms 3,4 and 5, N-SAR filings, Form D filings and more are all searchable. Even certain international positions have been integrated into the site.
And I’m still listening to user requests and complaints. Their feedback deserves much of the credit for the site’s success and current composition.
What is a WhaleScore and how can this metric be used in an individual’s investment strategy?
The WhaleScore is a quick numeric indicator of a fund’s cloning potential. Think of it like the Morningstar rating but for 13F filers instead of mutual funds. The higher the number, the more likely this fund’s 13F portfolio has consistently outperformed its peers and the S&P 500 over the past 3-5 years. The WhaleScore is calculated from a mix of risk-return measures (mostly based on the past 3 years of backtested performance data) and then each fund’s measures are ranked against every other fund and the S&P 500 to come up with an overall score.
What is the WhaleIndex? How are the index constituents determined and weighted?
The WhaleIndex is a 100-security index of the top consensus picks from the highest rated WhaleScore funds. The WhaleIndex is rebalanced quarterly shortly after the 13F filing deadline. For simplicity, all stocks are equal-weighted. The site also provides investible portfolio strategies based off the WhaleIndex with a smaller 20-30 holdings size and targeting either aggressive or conservative investing styles.
What originally interested you about the portfolios of large, institutional investors?
Hedge fund managers include some of the best investors in the world. They’ve got the research budgets and brainpower to devote to finding the most advantageous investments. It just makes sense to see where they are putting their money. I don’t think you can just blindly follow these guys, but at the very least getting a glimpse into their portfolio will give you new investing ideas to focus your own research on.
Are there any investors (institutional or otherwise) that have had a profound influence on your personal or professional strategy? How have they impacted you?
I’ve found the value investing managers to be the best to follow. Benjamin Graham has been an influence. I think Graham’s ideas of intrinsic value and margin of safety are the most important concepts in investing. As the Father of Value investing, Graham has strongly influenced some of the most successful and widely followed managers. A very popular use of WhaleWisdom.com is for 13F cloning, mimicking the portfolios of top funds. Value-oriented managers are well suited for 13F cloning, because they tend to be long only and have relatively low turnover. They also tend to have the best long-term performance. So Graham, and his modern day value disciples like Warren Buffett and Seth Klarman, have had a strong influence on me and my business.
In your eyes, what are you most important factors in a successful investment strategy?
Warren Buffett famously said that the #1 Rule for investing is: Don’t lose money. Rule #2: Don’t forget Rule #1. He’s referring to cutting losses before they get out of control. I think it’s important to set a stop loss level for an investment before you are invested. People are inherently reluctant to take losses, so setting a maximum loss level of say, 10% or 20% before buying a stock is a good idea. It’s tough to build wealth through investing if you subject your portfolio to big losses. Another risk management concept is diversification. If you study the best performing managers on WhaleWisdom.com you’ll see that they tend to be diversified, though not overly so. The top funds tend to have most of their money invested in their top ten holdings, which are their best ideas. That’s enough diversification so that one bad stock can’t do irreparable harm, but it’s not too many stocks to follow closely.
What areas of investing do you feel are often overlooked by investors?
The contribution of dividends to long term wealth creation is not appreciated by many investors. The S&P 500 is up about 58% over the last ten years. However, the total return of the S&P 500 with dividends reinvested is about 96%. Investors may feel that a 2% or 3% dividend is not big deal, but over time dividends really add up. Dividend reinvestment, by the way, is captured in WhaleWisdom’s backtester.
If you could give investors one piece of advice for today’s markets, what would it be?
Naturally my preference is to build a portfolio based on the holdings of top value managers. Over time this is the best way to accumulate wealth. You get to piggy back on their knowledge while avoiding their management fees.
As for the current market, it’s true that passive investing (think market index ETFs) have outperformed active managers the past few years. We’ve seen investors increasingly pulling money out of active funds and into passive ones. And broader index valuations have continued to go up during this time. But we’re also in a historically long bull market and it might be time to take a contrarian view.
As long as cash continues to flow into passive funds, they have to blindly invest in their index regardless of valuation. The truly disciplined value managers on the other hand don’t hold companies that are expensive relative to fundamentals. So they may miss out on some of the frothy gains at the end of a long run, but will be less vulnerable to a bear market. Focusing on undervalued companies is the best strategy over the long term.
Thanks again to Daniel Collins of WhaleWisdom. Be sure to visit WhaleWisdom’s website here.
We agree with Daniel in that the importance of dividends is far too often overlooked by individual investors. Dividends have been a significant contributor to historical total returns.
We also agree with Daniel that the portfolios of the “whales” of the investing world are great places to look for high-quality stocks suitable for long-term investing.
With that in mind, the following Sure Dividend articles may be of interest:
- Warren Buffett’s Top 20 Highest Conviction Stock Picks
- Bill Gates’ Stock Portfolio: All 24 Holdings Analyzed
- Kevin O’Leary’s 10 Favorite Quality Dividend Stocks
- Pershing Square: Bill Ackman’s 7 Stock Market-Beating Portfolio
- Appaloosa Management’s 40 Stock Portfolio: Top 10 Holdings Analyzed
- Bridgewater Associates’ 411 Stock Portfolio: Top 10 Holdings Analyzed
- Baker Brothers’ 93 Stock Portfolio: Top 4 Holdings Analyzed
- Melvin Capital’s 56 Stock Portfolio: Top 10 Holdings Analyzed
- Alkeon Capital Management’s 121 Stock Portfolio: Top 10 Holdings Analyzed
- RA Capital Management’s 42 Stock Portfolio: Top 10 Holdings Analyzed
- Baupost Group’s 23 Stock Portfolio: Top 10 Holdings Analyzed
- OrbiMed Advisors’ 96 Stock Portfolio: Top 5 Holdings Analyzed
- Maverick Capital’s 614 Stock Portfolio: Top 10 Holdings Analyzed
- Athanor Capital’s 401 Stock Portfolio: Top 10 Holdings Analyzed
- Lone Pine Capital’s 32 Stock Portfolio: Top 10 Holdings Analyzed
- Viking Global’s 69 Stock Portfolio: Top 10 Holdings Analyzed
- Perceptive Advisors’ 74 Stock Portfolio: Top Holdings Analyzed
- Altimeter Capital Management’s 21 Stock Portfolio: Top 10 Holdings Analyzed
- Carlson Capital’s 134 Stock Portfolio: Top 10 Holdings Analyzed