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
Unfortunately these pros go to great lengths to cover their tracks.
Gladly, they do leave a small trail of bread crumbs for us to
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
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.
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.
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.
Learn more now >>
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
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
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.
Click for details about our
Follow the Money Trader
Brian is our Aggressive Growth Strategist and provides
commentary and recommendations for the brand-new
Zacks Follow the Money Trader.
To read this article on Zacks.com click here.