Page 1082 - How to Make Money in Stocks Trilogy

68 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

Big Rock #3: Buy Stocks Being Heavily
Bought by Institutional Investors.
Avoid Those They’re Heavily Selling.

For a stock to go up 50%, 100% or more, someone has to keep buying shares
at a continually higher price to fuel that move. And they have to buy a lot of
shares—hundreds of thousands, even millions. Only institutional investors—
primarily mutual fund managers—have that kind of buying power.
So if you want to find stocks with the potential to double or triple in price,
focus on those being bought heavily by these professional investors. It’s not
a guarantee of success, but without that fuel, a stock won’t be able to make
a sustained upward move.
And when those same institutional investors start to sell, look out! That
high-volume selling pressure will likely push the share price sharply lower.
Fighting that deluge is like trying to swim up a waterfall. You’re essentially
guaranteed to get pummeled. So move to the sidelines and wait for big
investors to start buying the stock again. You’ll find it’s much easier to swim
with the current than against it. (More on that in Chapter 5, “Selling
Checklist,” and Chapter 6, “Don’t Invest Blindly.”)

Yes, You Can See What Big Investors Are Up To
In some ways, the massive buying power of institutional investors gives
them an advantage. But there is a downside for them—and an upside for
you and me: They’re too big to hide what they’re doing.
The best way to literally see what they’re up to is to use stock charts. If
you’ve never used charts before, I think you’ll be amazed at the “behind-
the-scenes stories” they reveal—how they lift the curtain to show you if fund
managers are heavily buying or selling a stock, or if they’re just sitting tight
and quietly scooping up a few more shares.
I personally find it fascinating that a few simple lines on a graph can tell
you so much about what’s really going on. But they can—and you’ll find that
once you know what to look for, it’s really not that hard to do. In fact, in
many cases, you’ll find the story is actually hard to miss. You’ll see telltale
patterns stocks form just before they launch a big move and early warning
signs that tell you it may be time to lock in your gains.