Page 319 - How to Make Money in Stocks Trilogy

196 A WINNING SYSTEM

This makes it more volatile, but Ken likes to make big sector bets that in
most cases have worked very well for him.
• Jeff Vinik was a top-flight manager at Fidelity who left and started what is
regarded as one of the country’s best-performing hedge funds.
• Janus 20, headquartered in Denver, runs a concentrated portfolio of
fewer than 30 growth stocks.

Some funds buy on new highs; others buy around lows and may sell on
new highs. New fund leaders can emerge over time.

Is Your Stock “Overowned” by Institutions?

It’s possible for a stock to have too much institutional sponsorship.
Overowned is a term we coined in 1969 to describe stocks in which institu-
tional ownership has become excessive. The danger is that excessive spon-
sorship might translate into large potential selling if something goes wrong
at the company or if a bear market begins.
Janus Funds alone owned more than 250 million shares of Nokia and 100
million shares of America Online, which contributed to an adverse supply/
demand imbalance in 2000 and 2001. WorldCom (in 1999) and JDS Uniphase
and Cisco Systems (in 2000 and 2001) were other examples of overowned
stocks.
Thus, the “Favorite 50” and other widely owned institutional stocks can
be poor, risky prospects. By the time a company’s strong performance is so
obvious that almost all institutions own the stock, it’s probably too late to
climb aboard. The heart is already out of the watermelon.
Look how many institutions thought Citigroup should be a core holding
in the late 1990s and 2000s. At one point during the 2008 bank subprime
loan and credit crisis, the stock of this leading New York City bank got down
to $3.00 and later $1.00. Only two years earlier it was $57. This is why, since
its first edition, How to Make Money in Stocks has always had two detailed
chapters on the subject of when to sell your stock. Most investors have no
rules or plan for when to sell. That is a serious mistake. So get realistic.
Another case was American International Group. In 2008, AIG had more
than 3,600 institutional owners when it tanked to 50 cents from the over
$100 it had sold for in 2000. The government-sponsored Fannie Mae col-
lapsed to less than a dollar during the same financial fiasco.
America Online in the summer of 2001 and Cisco Systems in the summer of
2000 were also overowned by more than a thousand institutions. This potential
heavy supply can adversely affect a stock during bear market periods. Many
funds will pile into certain leaders on the way up and pile out on the way down.