Here’s How You Find Out What the “Big Boys” Are Trading…

You can’t peek over Warren Buffett’s shoulder to learn what stocks he’s buying in real-time…

But you can learn what Buffett and other fund managers are buying by tracking down one simple form every firm is required to file with the Securities and Exchange Commission.

It’s called a 13F. The 13F is a look into long holdings of some of the biggest hedge fund managers. The increase or decrease in positions is a sentiment signal that outsiders can view to learn which stocks the “smart money” is buying.

The big boys of finance are required to file forms, though the disclosed information is for long positions. Data can also be dated because the reporting period may have long passed a month and a half ago.

You can monitor so-called “smart money” trading size by dissecting 13Fs. The rule requires institutional investment managers with 100 million dollars or more to file the form.

A hedge fund might have multiple motivations when it comes to unloading shares of Apple or building a gold position. You can’t always guess why someone is buying. Remember, the snapshot of the portfolio is how it looked that one reporting day. The construction can change continually. A sneak peek at a 13F can put you on the side of insiders, or at least the side they were once on…

Another caution is with only long disclosure, half the position picture is incomplete. It is impossible to determine if the long play is pure and not part of a more complex derivative play.

Initiating a play to piggyback the pros has its drawbacks:

  1. A 13F is delayed data
  2. Only long positions are required to be disclosed
  3. The big money may have cashed out

Another real-world example: The famous fund fight in Herbalife was mainly call options for bullish bettors. That battle of big boys became personal with serious money at stake in the hundreds of millions. The 13F filings failed to fill in facts in that case…

A certain solitude can be found in aligning ideas with the biggest and often brightest. Some sleep better knowing right or wrong they are in good company.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Trading Tip of the Day: How to “Buy the Dip”

Greg Guenthner

You’ve probably heard analysts and market pundits telling investors to “buy the dip” more times than you can count. But you shouldn’t blindly throw money at a play just because it starts trending lower. Instead, you should wait for the right bounce to come along before scooping up shares.

First, you need to get an idea of where your stock should bounce.

How do you figure that out? You can draw a line or use a moving average that fits the play’s uptrend — whatever works best. A simple moving average is the average price of a stock over a certain period. For instance, a 50-day moving average is the average price over the past 50 trading sessions. The main benefit of using moving averages is that they effectively smooth out choppy price action to give you a better sense of a stock’s short-term and long-term trends.

Once you determine your support level, you should wait until the stock moves higher after visiting the line. If the stock fails to bounce in the neighborhood of your support line, then don’t buy. It’s as simple as that.

Sometimes, the stock will bounce nicely off your support line or moving averages. Other times, it will “trick” weak hands into selling by briefly breaking through support before quickly recovering.

It’s best to wait for your potential long-term play to close higher than it opened on the day. That way, you’ll know you’re buying a dip heading into an authentic bounce — instead of a potentially hazardous breakdown.

Of course, this isn’t an exact science. It works better with some stocks than others. You can’t get too hung up on making the perfect move. The key is to watch and wait. You take what the market gives you.

— Greg Guenthner

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Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

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