Page 320 - How to Make Money in Stocks Trilogy

I = Institutional Sponsorship 197

An Unassailable Institutional Growth Stock Tops

Some stocks may seem invincible, but the old saying is true: what goes up
must eventually come down. No company is forever immune to manage-
ment problems, economic slowdowns, and changes in market direction.
Savvy investors know that in the stock market, there are few “sacred cows.”
And there are certainly no guarantees.
In June 1974, few people could believe it when William O’Neil + Co. put
Xerox on its institutional avoid or sell list at $115. Until then, Xerox had
been one of the most amazingly successful and widely held institutional
stocks, but our data indicated that it had topped and was headed down. It
was also overowned. Institutional investors went on to make Xerox their
most widely purchased stock for that year. But when the stock tumbled in
price, it showed the true condition of the company at that time.
That episode called attention to our institutional services firm and got us
our first major insurance company account in New York City. The firm had
been buying Xerox in the $80s on the way down until we persuaded it that
it should be selling instead.
We also received a lot of resistance in 1998 when we put Gillette, another
sacred cow, on our avoid list near $60 before it tanked. Enron was removed
from our new ideas list on November 29, 2000, at $72.91, and we stopped
following it. (Six months later it was $45, and six months after that it was
below $5 and headed for bankruptcy.)
A list of some of the technology stocks that were removed from our New
Stock Market Ideas (NSMI) institutional service potential new ideas list in
2000, when most analysts were incorrectly calling them buys, appears on
page 198. The lesson: don’t be swayed by a stock’s broad-based popularity or
an analyst advising investors to buy stocks on the way down in price.

Institutional Sponsorship Means Market Liquidity
Another benefit to you as an individual investor is that institutional sponsor-
ship provides buying support when you want to sell your investment. If
there’s no sponsorship, and you try to sell your stock in a poor market, you
may have problems finding someone to buy it. Daily marketability is one of
the big advantages of owning high-quality stocks in the United States. (Real
estate is far less liquid, and sales commissions and fees are much higher.)
Good institutional sponsorship provides continuous liquidity for you. In a
poor real estate market, there is no guarantee that you can find a willing
buyer when you want to sell. It could take you six months to a year, and you
could sell for a much lower price than you expected.