Investing in Trends
Investing in Trends: $10 Trillion Big Money Shift
How to stay one step ahead of the curve and beat the institutional
investors to the big prize.
A Taipan Publishing Group Strategy Report
by Andrew Mickey, Editor, BreakAway Investor
The stock market hasn't changed much over the years. When there are more buyers than sellers, stocks go up, and vice versa. It's not that complicated.
But in today's markets, the numbers of buyers and sellers are getting fewer. As more and more investors turn their money over to mutual funds, hedge funds and other institutional investors, the buying and selling decisions - and therefore, which stocks go up and which go down - rest in the hands of fewer and fewer people.
It's a trend you can't avoid. But you can sit back and complain about it or just do what they do - before they do it. Beat them to the punch. After all, with more than $10 trillion in investment capital to throw around at stocks of their choosing, you don't want to get caught on the wrong side of them.
Their power base is only increasing. Just last month, another $20 billion flowed into the hands of institutional money managers. And for the year, more than $100 billion worth of checks were sent to institutional investors. They're not going away. But in this case, we should be thanking them.
You see, individual investors have to do what institutional investors do (before they do it) to win big in today's market. And what do institutional investors look at, you ask? To be honest, they look at everything. But over the past few years, they've been focusing on two key factors.
Wall Street's throng of overpaid, under-performing analysts are pretty predictable creatures. When they find something that works, they do that until it doesn't work anymore.
Over the last few years, the institutional investor community has focused on just two factors. I know it's hard to believe, but price-to-earnings, price-to-sales and price-tobook ratios are pretty much completely useless unless the big money is using them.
And if you've bought any stocks because of a low P/E ratio or high book value over the past few years, you probably understand all too well. The majority of them have been lagging behind the overall markets. Meanwhile, other stocks that appear overvalued under traditional measures have been steadily climbing.
Investing in Trends: P/E Ratios Are Worthless
Here's why. The two most important things that institutional investors look at today are earnings surprises and analyst revisions. Those are certainly not the hard-number ratios we've become accustomed to analyzing, but they're not working. And for the time being, it's best to throw them on the scrap heap.
Taipan Daily "For more than a year I've followed your results and comments... the only word I can use to describe my experience is 'fantastic'." -- John, member Taipan Daily is your FREE resource for late-breaking investment opportunities to help you beat Wall Street to the profits. Filled with investment analysis and insight from every sector (from blue chips to small caps... from options to ETFs... from emerging markets to the tech sector), Taipan Daily delivers just the right mix of safe opportunities with the fast-moving plays, so you have an insider's edge over the Street, and other investors. And as a Taipan Daily member, you'll also receive the Chart of the Day alerts, delivering the best-performing investment opportunities in a few steps... easily your best 5-minute moneymaking strategy of the trading day. Begin receiving these e-alerts today. Enter your e-mail address below and click the Join Us button. |
It's absolutely important to look at analyst revisions. Professional analysts have the advantage of spending all day looking at different companies within an industry. And when one of them catches something that no one else has, he revises his official expectations. Inevitably, the rest of the analysts find that new information and revise their estimates, too. That's why analysts' estimate revisions are so closely watched.
In addition to that, earnings surprises are almost as important. It's rare that a company beats or misses expectations just once in a year. When they beat expectations once, they tend to do it at least one more time over the next year.
For now, institutional investors have been closely watching these two considerations to make their buying and selling decision. And if the institutions do it, we've got to do it, too. In any given day, they control 70% of trading volume and more than half of the cash ready for investment in the United States.
And it's because of these two factors that the tech sector is poised to be the top place to have your money over the next three to six months. The bellwethers are leading the way and they're about to attract a lot of institutional money.
Investing in Trends: Target Identified
Since the start of 2007, there have been 21 companies in the tech sector that have beaten analysts' estimates twice, and analysts have bumped up their estimates for the rest of the year. That's more than any other sector, including the red-hot gold, oil and energy sectors.
But what's important here is that the big players in the industry are doing well, and, so far, we haven't seen big runs in their stock values. Tech giants like Corning, L-3 Communications, Brocade Communications and Qualcomm have met these qualifications.
But the leadership isn't all from the top. There's plenty of second-tier tech companies getting upward revisions and beating expectations twice this year. Smaller tech companies, like Netgear (NGTR) and ADC Telecommunications (ADCT), have been firing on all cylinders.
Heck, even one of Motorola's biggest embarrassments, Gilat Satellite (GILT), which it lost billions on when it was founded more than 20 years ago, is getting in on the act.
Again, I'm not saying that beating earnings estimates and getting positive earnings revisions are signs that a company is doing well. They're just signs of a decent stock. Not a great stock, or one that would I would even look at for more than a few minutes, just one that's likely to go up.
Investing in Trends: Our Own Two-Step Strategy
There is a drastic difference most of the time. But, for now, we've got to pay attention to these two metrics because the big money does - and they're the overwhelming force in the markets.
The writing is on the wall and tech is poised to lead the markets over the next few months. We'll still be hedging our bets though, but technology is going to be one of the top-performing sectors over the next year.
With the way things have been going with a few of these leading stocks in the sector, it almost seems like it's pre-decided. There's $10 trillion in free-flowing investment capital out there. This trend is just one thing we'll be keeping our eye on.
This report is brought to you by Taipan Publishing Group's Taipan Daily -- the Premier FREE Investment Service bringing you just the balance you need in your portfolio for those investment gains you deserve. |
Originally published December 14 , 2007.
More Articles from Taipan Publishing Group's Andrew Mickey
Commodities Investing with Agriculture Stocks
Investing in Uranium Stocks: How You can Profit from the Coming Nuclear Energy Crunch
Why the Commodities Supercycle Just Got Longer
Useful Links on Investing in Trends
Old Investing Trends Return in Style
Stock Investing using Trends & Analysis
Copyright 2007-2008, The Taipan Publishing Group, Taipan Daily and Chart of the Day, 808 St. Paul St., Baltimore, MD 21202. All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the publisher. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.
