Investment Contrarians

Why You Need to Follow the Pro Money

By for Investment Contrarians |

Follow the Pro MoneyI just took a look at my friend’s Samsung “Galaxy III” smartphone and must admit that it looks pretty impressive compared to my “iPhone” by Apple Inc. (NASDAQ/APPL). However, the applications available for the iPhone are what will keep me from switching, at least for the time being.

Apple was trading at $705.07 on September 21, but the stock made a steady decline down to the $505.00 level on November 16 prior to rallying back to the current price of $578.00. Based on my stock analysis, there’s profit-taking in Apple shares, which is not a surprise, given the enormous rip-up in the share price.

My stock analysis tells us that institutional ownership 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 from Thomson Financial.

In fact, my stock analysis shows that technology and growth stocks have been the focus of the market selling so far in 2012. The NASDAQ is down four percent as of Monday, versus a 0.07% advance by the S&P 500 and blue chips.

What I’m getting at is that growth stocks are being sold by institutions.

Following where the professional money is flowing helps gives us another tool to evaluate the stock markets and get a sense of what is happening.

Behind the concept of 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 is 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 because they are they are the best at producing top returns for clients.

So, now that we’ve established that the pros have an information advantage, your key would be to find out what they are buying or selling.

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, which far exceeds the research of retail investors, before taking a position, based on my stock analysis.

Following the flow of pro money makes a whole lot of sense.

My stock analysis is that we are seeing a pattern with net selling of other key technology stocks, including heavy selling in priceline.com Incorporated (NASDAQ/PCLN) with 3.7 million net shares sold, a decrease in institutional ownership of 8.9%. Other sellers include Netflix, Inc. (NASDAQ/NFLX), which is down 31.8% in institutional ownership, and Cisco Systems, Inc. (NASDAQ/CSCO), down 9.0%.

In the restaurant sector, there is heavy selling in Chipotle Mexican Grill, Inc (NYSE/CMG), with a 4.7% decline in institutional ownership, and McDonalds Corporation (NYSE/MCD), with a 4.5% decline.

The vast majority of DOW 30 stocks are seeing institutional investors selling, based on my stock analysis.

My stock analysis is that there’s some big-time buying in consumer products company Johnson & Johnson (NYSE/JNJ), with 49.6 million net shares bought by institutional investors over the past quarter-to-quarter, up 2.6% in institutional investor ownership. There is some minor buying surfacing in Merck & Co., Inc. (NYSE/MRK).

The bottom line is that you need to monitor what institutional investors are doing to get a sense of what stocks could be moving and in what direction, which will improve your stock market success.

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