Page 1085 - How to Make Money in Stocks Trilogy

Buying Checklist 71

If the manager tried to buy all those shares in one go, it would quickly
drive up the price of the stock beyond the price he or she wanted to pay. So
instead, over a few weeks or months, the fund’s traders will quietly buy
shares in smaller increments until they’ve established the desired $20 mil-
lion position around the average cost-per-share they were targeting.
And that’s just one fund. If dozens, hundreds, or even thousands of funds
are moving in to the same stock, do the math! By the time Apple topped in
2012, it was owned by over 4,300 funds.
That doesn’t happen overnight. It can take many months of continued
buying before all these professional investors establish their positions.
That gives you time to get in and ride their coattails.

Good Gains Come to Those Who Wait for Confirmation
The table below shows how it pays to be patient and make sure the number
of funds with a position in the stock is rising before you jump in.

Examples of Rising Fund Ownership Before a Big Run
Starting # of Funds Owning
Year Stock in 4 Quarters
Company of Run Prior to Price Move Subsequent % Gain

Green Mountain 2009 148 ➔ 187 ➔ 201 ➔ 227 1104% in 30 months
Coffee Roasters
Watson Pharmaceuticals 2009 606 ➔ 586 ➔ 619 ➔ 669 154% in 26 months
Netflix 2009 300 ➔ 375 ➔ 395 ➔ 436 683% in 28 months
Ulta Beauty 2010 149 ➔ 149 ➔ 152 ➔ 169 165% in 11 months
Chipotle Mexican Grill 2010 327 ➔ 360 ➔ 436 ➔ 463 186% in 19 months

In the table above, look at the four quarters of fund ownership for Watson
Pharmaceuticals and Ulta Beauty. In the first two quarters, the number of
funds that owned Watson Pharmaceuticals actually dropped, and for Ulta
Beauty that number stayed flat. But in the most recent quarter just before
both stocks launched their big runs, note how the number of funds jumped
significantly higher. That’s the kind of “material increase” you want to see. It
shows institutional investors are moving in and picking up shares.