buys your stock can be more important than how much of it they
The idea is simple. If a powerful institution is buying up a stock,
then others are likely to follow. Those institutions that follow
will drive the stock price higher.
But sometimes a big purchase may not work out. That's because those
big investments are often times the ones that precede a proxy fight
for control of the company. Those tend to be long, drawn out
battles that do not always have a positive outcome for
shareholders. Investors that follow those false leads do not get
what they were hoping for.
However, lately there have been a number of big moves by stocks due
to institutional investors and their purchases. Most go unnoticed
by investors and the media.
In this article, I will share with you specifics on three different
types of institutional investors. I will show some examples of
each, how to spot them, and then tell you how to profit from this
The Obvious Institution
How would you know the agenda of the buyer based solely on the name
of the firm?
Not all investments are as transparent as
variety. The activists make it clear to the company and investors
that they want to enact some radical changes. Press coverage
generally follows, some getting more than others.
The activist is generally the easiest to spot.
Examples of activists include Carl Ichan, Pershing Square and Third
Carl Ichan has been the subject of numerous shareholder activist
campaigns and has emerged as both the victor and loser. Pershing
Square recently forced change at the top of Canadian Pacific (CP)
via a proxy fight. And Dan Loeb recently won his way onto the board
at Yahoo! and has already made a big impact. These public battles
are easy to follow as the media loves a boardroom struggle.
You can generally see the activist coming even if they don't
announce it to the press. They will file a 13D, not a 13G. The D in
the filing signifies that the investor is looking for some sort of
See the Trades the Institutions are Hiding
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. Even through downturns and
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The Less Obvious Institutional Buyer
The opposite of the activist is
investor. The passive investor does much of what the name implies.
They invest without the notion of imposing their will on the board
of directors. They put their money in the stock and let the company
do the hard work of maximizing shareholder value.
This category comprises most institutional investors. They run the
gambit from FMR (Fidelity Management & Research), Vanguard
Group and Dimensional Funds on the big side to the smallest
investment managers that run only about $100 million.
The 13G is the filing of choice for these institutions. They
generally are just there to invest, but if push comes to shove,
they can change their minds.
The Quick Hitters
Another type of investor is the one that is synonymous with a hit
and run. The quick hitters of the investing world are called
. They can move into a position with great speed and often move out
even faster. They can place much larger bets on specific stocks
than other institutions due to their investment goals and short
term investing horizon.
The category can be equally profitable and dangerous. Here are some
- If Greenlight Capital's David Einhorn suddenly shows up on
the company's conference call, it would be a red flag. He is a
now famous short seller.
- If Kynikos Associates has taken an interest in your stock,
you may be in Jim Chanos' crosshairs, and that isn't the best
spot to be.
- But maybe you learn that S.A.C. Capital's Steve Cohen has
warmed up to your stock; his investment can easily bring other
hedge funds to the party.
Hedge funds are not that easy to spot, unless you know the players
in the game. You could search the SEC.gov database for the 13F
filings from these firms. They are released up to 135 days after
the fact, but show what the firms held at the end of the quarter.
Unfortunately, that information is stale. Often, positions are
unwound close to the quarter end to make sure the strategies are
sheltered from competitive eyes.
How To Profit
There are dozens and sometimes even hundreds of filings from
institutions every day. They are buried under an even greater
mountain of other mandatory forms. Finding the institutions' large
trading positions can easily get lost in the mix.
Sifting through all the other forms to find the ones you want is a
monumental job in itself, much less translating the information
contained within each filing. Make no mistake, these forms and
filings are filled out in a manner that is meant to deceive. The
key is to know what type of institution is buying your stock.
Activists can work for you but patience is an absolute must. Not
all activists are successful, and most power struggles take time.
Hedge funds can be your friend for quick pops, but they can sell
out (or even short) in the blink of an eye. Being nimble is the key
to playing the hedge fund institution. Passive investors are
generally your best bet, and keeping track of which institution
most commonly sees big gains can improve your odds of beating the
Can individual investors see what institutions are buying and what
styles they are using to manage your portfolio?
Yes, but it requires plenty of time and a trained eye to find the
large trades of the activists, passive investors and hedge funds.
Fortunately, Zacks now does all of that work for you with its
trading alert service,
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. Now, you can follow what the institutions are buying and selling
- before the rest of the market figures it out - and share in their
big potential gains.
You're invited to reserve one of the few available spots before
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Brian is our Aggressive Growth Strategist and provides
commentary and recommendations for the brand-new
Zacks Follow the Money Trader.
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