I was taken to task recently by a reader and subscriber over my constant use of the Stern Agee study on activists and community bank stocks. I use it all the time most recently in a Real Money article on building an Earl Weaver portfolio. I wrote last week that “The ultimate three-run homer portfolio is community banks stocks with activist involvement. You may recall the Sterne Agee study released in late 2014 that detailed what happens when activists take a position in a community bank. Analyst Matthew Kelly and his team looked at 80 13D filings from known bank stock activists between 2004 and 2014. What they found was that the average stock outperformed the Nasdaq Bank Index by 29 percentage points during the holding period; 29% of the banks were eventually taken over.” He pointed out that the holding period was generally longer than a year so the outperformance over time was actually less than the piece might imply. That’s a more than fair point as bank activists tend to hold these stocks for several years and that 45%+ total return during the holding period is nowhere near that on an a annualized basis.
This of course made me very curious so I started doing a little research. Looking at the current portfolio of Joseph Stilwell he has 22 13D positions in his portfolio right now that have been held for more than a year. Some were bought as long as a decade ago. I computed the annualized returns from the close the day he filed the 13d through today and the numbers are not bad at all. The annualized returns of his current 5%+ positions is a solid 15.28%. That compares favorably to the broad market and bank indexes over the past 5 and 10 year periods. ...
