Big institutions run the market. They account for more than 70% of all the trading action. They spend millions on research and countless hours to determine which stocks to buy…something the little guy cannot replicate.
Few investors would want to get into a stock that they knew powerful institutions were selling. And conversely, many would want to buy into a stock these powerhouses were building large positions in.
Unfortunately these pros go to great lengths to cover their tracks. Gladly, they do leave a small trail of bread crumbs for us to follow. If you know where to look.
In this article I will share with you specifics on how to interpret and, better yet, profit from this trail of information that the smart money leaves behind. Let’s get started.
You Have to Know Where to Look
By law, institutions that manage $100 million or more are forced to file with the SEC when they trade in a company in which they have a 5% stake or more. They are also forced to show all their holdings. But the holdings data is often stale and not worth as much as the newer, more voluminous filings.
Institutions have to file 13G, 13D and 13F forms with the SEC, and they are available for everyone to see. The information contained in these filings includes the dates they bought and/or sold and the amount of shares. Oftentimes, we see big institutions buying and selling the same name, so several filings for the same stock are likely.
There are two filings that hold the key to success. The 13Gs and 13Ds, which have to be published 10 days after an institution takes a 5% stake. That information is fresh and actionable. We learn what the big boys have been buying, and it is still timely as they are likely to continue to build their position depending on the stock.
Sounds easy?
Not so fast. First, you need a team of people to grab the mountain of filings in real time and get it into a database. Then you need to also have a firm understanding of who the players are in this game. What is their focus? Their current and past holdings? Their level of trading success? Are they a leader or a follower in the field? And much more.
Gladly, we here at Zacks have marshaled our resources to bring this to life. Here are some examples of what we have found to date.
More…
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They Don’t Want You To Get In Early
Big institutional plans and funds try hard to keep others from spotting their key stock moves too soon. They move their assets slowly and want to buy in at the lowest prices.
Now, a Zacks research breakthrough can alert you to the very best of this “smart money” at the first sniff. These gains are expected to easily surpass the Zacks #1 Strong Buys average of +26% per year. Although we’ve reopened this service this week, access to this new strategy is still limited. We must close it to new investors again on Sunday, September 2.
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From Theory to Action
Case in point would be the March 12, 2012 filing that FMR took a 14.99% passive stake in Threshold [THLD]. That is a lot of stock no matter the size of the company. Plus, it’s FMR, which the common investor might not recognize, but when FMR is decoded into Fidelity Management & Research then it becomes a little clearer.
On March 12, when this information was disclosed, THLD closed higher by $0.10 to $6.56. A mere 16 days later on March 30, the stock closed at $8.80, a 34% increase. As a Zacks #2 Ranked stock at the time, this large trade was something that our resources alerted us to. The subsequent move higher in the stock was proof positive that following the smart money pays off.
Here is another great example. In early February 2012, a filing came across from an institution that is widely followed. Capital Research Global Investors announced that it now owned 2.8 million shares of LeapFrog Enterprises [LF]. That position of 5.8% of LeapFrog forced the filing when the stock was only at $6.83.
In the days following the initial 13G filing, we saw several other positions being made by other institutions, including another 5% position by LiteSpeed Master Fund. In less than three months’ time, the stock closed at $9.34. The +36.8% gain told us we were on to something here.
Not All Institutional Trades Are Made Equal
Some institutions are well known for spectacular returns. They have earned their reputations over time with market beating performances. These are the thought leaders of industries. And these are the folks worth following.
The task is made difficult as they try to hide their fillings by changing CIK codes and other tricks up their sleeves. The other institutions keep track of the thought leaders so that when a hot hand announces a new position in a stock, we often see several other institutions pile on top.
This is the “monkey see, monkey do effect” that happens rather frequently. And those who have a technological advantage to mine this information can get in early to enjoy the ride higher.
And yes, Zacks does have that advantage in place.
What to Do Next?
Beat the big institutions at their own game with the Zacks edge. With our latest service, Zacks Follow the Money Trader, you can join the “smart money” as they ride the price of their stock buys up before the rest of the market catches on. I’ll lead you through every step of the way as editor.
You’re invited to join and receive all of our moves along with explanations of why they’re recommended. Demand is running high. We are forced to close access again on Sunday, September 2, so I suggest you look into this right away.
Good Investing,
Brian Bolan
Brian is our Aggressive Growth Strategist and provides commentary and recommendations for the brand-new Zacks Follow the Money Trader.
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