Best Way to Follow Big Players in Market?

[J.Apple902]

Yeah whats the best way to follow trade volume, such as the direction of many large mutual and hedge funds? Thanks!

[ZZZ]

Rather than trying to emulate big players, I suggest investing in a set of low cost mutual funds that follow the market. Vanguard has good low cost funds that do the trick. If you are thinking about investing, I suggest reading about the Bogle investing strategy. Type in Bogleheads in google and read through some articles and the wiki.

[J.Apple902]

Thank you for your comment but I already do that. This post is focused on finding info on the movement of holdings by large market players.

[msnln]

I work for a finance company (been in industry for 20+ years) and there is no real way to know what a particular fund is buying instantly. You can look at the chart of a particular stock to see volume change but there is no way to know who are the investors that are buying or selling the shares. Also, funds when they purchase/sell particular company shares will do small allotments over a period so they will not disrupt trading and make prices jump/fall. BTW, you might want to look up technical trading if you want to figure out the trades based on psychology of the market but I have to caution you that this is dangerous way to approach the market and chance of winning trades are random.

Better way to approach the market, in my opinion, is to find undervalued blue chip stocks (low PE, low PEG, high earnings growth, etc, but not low priced penny stocks or high flyers) and wait for the companies to be fashionable in the market. These companies tend to pay higher dividends as well so you get compensated for time waiting as well.

You may use the charts to pick the entry/exit points for trade after doing fundamental study and your probability of winning trades will increase.

[J.Apple902]

This is really good advice, thank you.

I am not interested in market timing via which equities are hot, per say. I think the SP and Dow and stocks in general are super over valued right now due to QE, and expect some pull back in the next 3=6 months or so. I want to of course keep my young portfolio in the market as long as possible, and hope nothing changes at all, but I do think this 30 year bull run is due for a change. I've been looking into how I should be adjusting myself. I also understand these changes should have been made yesterday lol, or months and months ago. This bull run is already longer than average, not to mention the $85/B printing for the last 15 months, being a ridiculous cherry on top lololololll.

[msnln]

I want to preface my reply by saying that I am not in no way advocating strategies described here are suitable for all investors and they should be viewed as alternative to conventional investments by individual investors.

Now back to the program. What you should consider is options strategy. One way to protect the downside is buying options puts. Buying puts are like buying insurance. If the event you anticipate does not happen, you will lose all of investment principal of option price.

http://seekingalpha.com/article/976331-6-simple-steps-to-protecting-your-portfolio-with-puts

The second way to protect your asset is to replicate your cash stock position with leaps. Leaps are long dated options that currently go out to 2016 in some stocks. You can sell your cash position and replace them with leaps. You should be able to buy deep in the money leaps at almost same price as cash. For example, CSCO ended Friday at $23.51. CSCO $15 call leaps expiring January 2016 was $8.50/$8.60. This leap gives you right to buy CSCO at $15 before January 2016. So your cost to purchase the stock would be $23.60 ($15 leap price plus $8.60 leap price). What is good about this is that while you have CSCO position, your maximum loss is $8.60 you put in, instead of current market of $23.51. You can purchase higher strike calls, say $22 calls at $3.60 but now you are paying $3 more than current price to reduce your maximum loss to $3.60 per share. See link below for some more strategies. BTW, you also lose out on the dividends while holding leaps.

http://seekingalpha.com/article/639271-covered-calls-and-leaps-an-alternative-strategy

Another way I have been enhancing return is selling calls on positions I own. Going back to CSCO example, I might sell $24 December call at $0.51. Unless the stock moves above $24 between now and December 21, I get to keep the $0.51. I am even up until the stock price is $24.51, making my potential monthly return 4.1%. I lose any upside above $24.51 price.

One last strategy (I can think of at this moment), is to sell puts on new position I am considering. Going back to CSCO example, instead of putting a limit order on the market to buy this stock, I sell December $23.50 put for $0.72. If the stock falls below $23.50, whoever sold the puts will exercise the put and I have to buy the stock at $23.50/share. But, I was ready to buy at the current market price of $23.51 already! So, I am paid $0.72 per share to wait until Dec 21 to buy. If the stock moves up, my put will not get exercised but I get to keep $0.72 (or 2.9% return). If stock moves more than 2.9% in a month, I lose the upside above that.

I hope you can use some of these strategies to enhance/protect your investments.

[msnln]

Another way to hedge out the market risk is shorting S&P futures. Mini S&P trading on CME is $50 per point so if you short June 2014 emini futures, that would be equivalent of hedging $87,6373.50 of portfolio (1752.75 X $50). If you have bigger portfolio, you can use two or more of these products to fully hedge the market, or use regular S&P futures at $250 per point (or $438K cash basis). Exchange margin requirements are $22,500 for regular S&P and $4,510 for emini but your brokerage may require more. Note that by doing this, you are hedging away all market risk and your return will just be alpha of your positions. BTW, these products also have options.

http://www.cmegroup.com/trading/equity-index/us-index/sandp-500_quotes_globex.html

I know we are going into very esoteric and exotic investment products that 99.99% of general investment public will not venture into but I wanted to show different ways of structuring your portfolio.

[J.Apple902]

yeah this is all great and admitadly, over my head. you have given me a few things to research. Why is it that these techniques are not more popular?

My portfolio is a few different mutual funds but overall it's about:

50% total US stock fund
35% SP Index fund
10% total international stock fund
5% total US Bond fund

so it would seem I can make puts on just a funds and be okay. i just need to figure out how to run the numbers.

[tim126]

Hi J.Apple902,
Could you explain why you think the SP and Dow and stocks in general are super over valued right now due to QE? I am new to investment, and am thinking whether it is a good timing to buy a S&P 500 index fund. Thanks!

This is really good advice, thank you.

I am not interested in market timing via which equities are hot, per say. I think the SP and Dow and stocks in general are super over valued right now due to QE, and expect some pull back in the next 3=6 months or so. I want to of course keep my young portfolio in the market as long as possible, and hope nothing changes at all, but I do think this 30 year bull run is due for a change. I've been looking into how I should be adjusting myself. I also understand these changes should have been made yesterday lol, or months and months ago. This bull run is already longer than average, not to mention the $85/B printing for the last 15 months, being a ridiculous cherry on top lololololll.

[msnln]

I think the reason options are not very popular is because of stigma attached to them. They are leveraged and if the investor does not manage the risks well, whole investment can be wiped out. Most investors that invest in these products use them for speculation. Not fully understanding the behavior of these products, many make directional bets with bulk of investment funds and if wrong, 100% invested becomes zero. Strategies I listed are mostly hedging strategies that can reduce your risks or enhance returns.

Another reason options may not be very popular is because years ago, brokers used to charge commission based on the percentage of funds invested. If an investor can protect or replicate investment with fraction of cash value of underlying, this would conflict with broker's interests.

I have been using options for both speculation and hedging for over 20 years and if used correctly, they are great investment tool. These days, I do a lot of call writing on the positions I own (third strategy), especially after a stock has made a strong run. Options become expensive because many investors feel the run will continue. I sell weekly or following month's call option and wait for the pullback. I collect about 1% per month on options that expire worthless.

[delemag]

etoro ? it does exactly that, follow other investors.

[J.Apple902]

etoro is an investment social network. its basically the same as "the masses" investing and all sharing and talking about it. I'm interested in tracking volume handled by Berkshire and big players etc etc, hedge and mutual funds, all that.

Thanks!

[msnln]

You will be able to see the changes in positions through 13f that must be filed quarterly with the SEC bu the fund manager. For instance you can see BRK holdings here:

http://online.wsj.com/article/BT-CO-20131115-703816.html

Only downside is you have to wait about 45 days after quarter end to get this info so it will not be timely.