Investment Contrarians

The Pros Will Tell You When to Take Some Profits

By for Investment Contrarians |

Pros Will Tell You When to Take Some ProfitsApple Inc. (NASDAQ/AAPL) was trading at $705.07 on September 21, 2012, and there were talks of the tech giant becoming the first trillion-dollar company in the world. That was then. The stock has since made a steady decline down to below $500.00, hitting a low of $435.00 on January 25; it’s trying hard to hold on and instill investor confidence. The sell-off was driven largely by concerns of soft “iPhone 5” sales. My stock analysis suggests that the profit-taking in Apple shares is not a surprise, given the stock’s enormous run-up in share price and the fact that rivals are clawing at the door.

My stock analysis indicates that ownership by institutional investors shows a 0.76% net sale of Apple stock over the last quarter-to-quarter, representing 4.8 million net shares sold by institutions, according to information by Thomson Financial.

Even CEO Timothy Cook sold some of his shares in Apple during the run-up, as my stock analysis notes. On March 9, 2012, he sold 17,322 shares for $545.17 per share, followed by another 20,178 shares for $547.80–$551.51 each a few days later on March 11, 2012. Two weeks later, on March 25, Timothy Cook sold 106,640 shares for $595.96–$606.80 a share for a total $64.1 million, according to data from Thomson Financial. If he had waited until September, he could have got $705.00 per share sold. Perhaps Cook was a bit nervous of the stock’s rocketing share price and wanted to reap some of the rewards. Maybe Cook needed the $85.0 million he received from his sales to invest in something a bit less frothy than Apple stock.

In fact, my stock analysis shows that technology and growth stocks had been the focus of the market selling in 2012, due to some major run-ups in share price.

What I’m getting at is that growth stocks are being sold by institutions, based on my stock analysis.

Following where the professional money is flowing gives us another tool to evaluate the stock markets with and to get a sense of what is happening, as my stock analysis notes.

The concept behind following the money of institutional investors is the belief that these experts are likely to understand the company’s situation more than anyone outside of the executive management group. My stock analysis suggests that by looking at the flow of money from institutional investors and monitoring what stocks they are buying, you can get a much better sense of what stocks may be in favor at that time. This especially holds true for the top-ranked institutional investors and the money managers who are tops in the money management business, producing top returns for clients.

So, understanding the pros have an information advantage, your key to stock market success would be to find out what they are buying or selling, according to my stock analysis.

The reality is that institutional investors control vast sums of capital and can sway the direction of a stock. These institutional investors are also extremely accountable to their investors; hence, there is a high level of quality research and due diligence before taking a position. And this research far exceeds the research of retail investors, based on my stock analysis.

Simply put, following the flow of pro money makes a whole lot of sense.

My stock analysis indicates that we are seeing a pattern in the net selling of other key technology stocks; in particular, there has been heavy selling in priceline.com Incorporated (NASDAQ/PCLN), with 3.7 million net shares sold, bringing institutional ownership down 8.9%. Other sellers include Netflix, Inc. (NASDAQ/NFLX), which is down 31.8%, and Cisco Systems, Inc. (NASDAQ/CSCO), down nine percent. In the case of Netflix, the selling was premature given the recent 30% surge in the stock price.

In the restaurant sector, there is heavy selling in Chipotle Mexican Grill, Inc (NYSE/CMG), with a 4.4% decline in institutional ownership, and in McDonalds Corporation (NYSE/MCD), down 4.5% in institutional ownership.

My stock analysis indicates that there’s some big-time buying in consumer products company Johnson & Johnson (NYSE/JNJ); 49.6 million net shares have been bought by institutional investors over the past quarter-to-quarter, bringing institutional investor ownership up to 2.6%. There’s some minor buying surfacing in Merck & Co., Inc. (NYSE/MRK) and The Procter & Gamble Company (NYSE/PG).

The bottom line is: to improve your stock market success, you need to monitor what institutional investors are doing to get a sense of what stocks could be moving and in what direction they’re expected to go.

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