Page 318 - How to Make Money in Stocks Trilogy

I = Institutional Sponsorship 195

Note New Stock Positions Bought in the Last Quarter

A significant new position taken by an institutional investor in the most
recently reported period is generally more relevant than existing positions
that have been held for some time. When a fund establishes a new position,
chances are that it will continue to add to that position and be less likely to
sell it in the near future. Reports on such activities are available about six
weeks after the end of a fund’s three- or six-month period. They are helpful
to those who can identify the wiser picks and who understand correct tim-
ing and proper analysis of daily and weekly charts.
Many investors feel that disclosures of a fund’s new commitments are
published too long after the fact to be of any real value. But these individual
opinions typically aren’t correct.
Institutional trades also tend to show up on some ticker tapes as transac-
tions of from 1,000 to 100,000 shares or more. Institutional buying and selling
can account for up to 70% of the activity in the stocks of most leading compa-
nies. This is the sustained force behind most major price moves. About half of
the institutional buying that shows up on the New York Stock Exchange ticker
tape may be in humdrum stocks. Much of it may also be wrong. But out of the
other half, you may have several truly phenomenal selections.
Your task, then, is to separate intelligent, highly informed institutional
buying from poor, faulty buying. This is hard at first, but it will get easier as
you learn to apply and follow the proven rules, guidelines, and principles
presented in this book.
To get a better sense for what works in the market, it’s important to study
the investment strategies of a well-managed mutual fund. When reviewing
the tables in Investor’s Business Daily, look for growth funds with A, A-, or
B+ ratings during bull markets and then call to obtain a prospectus. From
the prospectus, you’ll learn the investment philosophy and techniques used
by the individual funds as well as the type and caliber of stocks they’ve pur-
chased. For example:

• Fidelity’s Contrafund, managed by Will Danoff, has been the best-per-
forming large, multibillion-dollar fund for a number of years. He scours
the country and international equities to get in early on every new con-
cept or story in a stock.
• Jim Stower’s American Century Heritage and Gift Trust funds use com-
puters to find aggressive stocks with accelerating percentage increases in
recent sales and earnings.
• Ken Heebner’s CGM Focus and CGM Mutual have both had superior
results for many years. His Focus fund concentrates in only 20 stocks.