Article Following the Clever Money

[T2W Bot]

Some of the best investing and trading results I have had in recent years have been from riding on the coat tails of investors far brighter than myself, investors who have done far more research on a company than I will ever be inclined to do myself.
It can be a tedious process following all the dealings that get reported through the RNS announcements, but I try to maintain a list of major stakes and holdings in nearly three hundred UK companies. This allows me to keep track of who is increasing or decreasing their stakes in certain key companies. (see this

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Companies Act disclosure requirements allow private investors to keep track of the activities of shrewd investors who have a proven track record of successful investing. Websites, such as Citywire, also dig around below the surface by accessing shareholder registers, to...

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[trendie]

excellent article.
certainly another way to filter out good investment stocks from bad ones.
worth significant further analysis for the medium/longer-term players.

a paper-trading test based on the article could be the UK equivalent of wwatsons thread "Im doing great".

 

[Mr. Charts]

Very enjoyable article, well done

 

[TraderPattern]

This was a very interesting article. Thank you.

 

[Anonymous]

Following the clever money? Well, it's something similar, not definitely the same as:

Let's say you go into a casino and observe the Roulette wheel. And say, you observe that every 100th turn of the wheel that small thing lands on 13. Let's say further, you observe 2000 times of that happening. So the next 100th turn you place a bet on 13. You win, you place a bet on 13 on the next 100th turn, and the next, and the next.

If the casino operators realize that you are able to follow the clever money cleverly, I wonder if they will let you stay in the casino for too long? And if you follow the coat tails of investors far brighter than yourself, will they really let you know where the clever money is going?

 

[Simon Gordon]

Hi Dominic

I thank you for a most insightful article.

I find it very constructive to hear how the top guns are operating.

Simon

 

[OpenMind]

One of the best articles I have read in recent times. Thank you Mr Connolly for sharing your method. The beauty of this strategy is that it can be employed by anyone, it should not matter if you are a fundamental trader or technical. Following smart money is common sense.

I plan to look into this more deeply now.

 

[Bluebelle]

I agree that following 'smart' money (I use inverted commas because it doesn't really matter whether it's smart or not, as long as there's enough of it to move the price significantly) is a sound strategy and have used it in a general sense for some years. But once you get to the specifics, how does the average private investor know what the smart money is doing? How does someone maintain 'a list of major stakes and holdings' and, more relevant, how they are changing, so that you can take advantage of them. I am a reasonably active investor, but the number of RNSs that come out in the course of a week, or even a day, is mind boggling and I personally could not hope to keep track of them all and their relevance to an individual share.

Does anyone have any advice on how you can make the process manageable, because without that it seems to me that this is another theory which is fine for the professional or semi professional with access to detailed information sources but, in practical terms, not much use to the ordinary private investor.

(Sorry, that reads a bit aggressively which it's not meant too : just asking in a genuine spirit of enquiry in the hope that someone has the answer !)

 

[Trader333]

Dominic,

A good article and an interesting approach to following Smart money which is different to how others attempt the same.


Paul

 

[OpenMind]

Hi Bluebelle,
One way would be to subscribe to the Citywire 'Investor' service for £99/year. They have a section that allegedly captures 'secret stake building'. This should give you a manageable list.

 

[bracke]

A thought provoking article.

But as is my wont I have to throw a pebble into the pond - to cause a few ripples rather than make waves. All in the interest of learning you will understand.

The author lists a number of people/companies and their clever money purchases but what of their failures and how is the private investor to spot the winners from the losers?

If one thinks that a particular investment group is a cut above the herd on a continuing basis would it not be better to invest in that company if one is permitted to?

Perhaps watching where the clever money goes is an aid to identifying opportunities but one should still apply ones own criteria to the investment rather than blindly following others.

Regards

bracke

 

[OpenMind]

Hi Bracke,
Agree 100% with your statement that one should not follow blindly and always apply one's own filtering criteria.

Minor comment on your other statement about the follies of smart money: I don't think it is that important to know which smart money-man made what mistake in the past.

At the end of the day, demand overcoming supply means price will move upwards. This demand would normally come from large buys (or stakebuilding or accumulation, whatever you call it). They don't come from small punters like you or me. So if you know someone has just bought £5m worth of stock ABC, it might be a useful piece of information. It still may not be worth a buy just yet because another institute might dump £100m worth of stock on the market the next day. So you have to see the supply-demand picture and your potential exit point carefully. But you can use information like these intelligently and make money. We do exactly the same thing when we read price-volume charts: we try to spot big buys and watch if big sells are coming to swamp the market (among other similar things). This is just another source of getting the same kind of information.

And don't forget, as Dominic says, you and I have the distinct advantage of liquidating our paltry £5k worth of shares any day we like. Just imagine you are trying to offload £5m worth of shares.

 

[Bluebelle]

Hi Bluebelle,
One way would be to subscribe to the Citywire 'Investor' service for £99/year. They have a section that allegedly captures 'secret stake building'. This should give you a manageable list.

Thanks OM. I have looked at that in the past but it doesn't, to my mind, consistently provide the specificity which is one of the most attractive features of D's article.

 

[OpenMind]

Thanks OM. I have looked at that in the past but it doesn't, to my mind, consistently provide the specificity which is one of the most attractive features of D's article.

We can ask Dominic what other data sources he suggests. Not sure if he has a user id here. We can perhaps ask one of the moderators to forward this question to him.

 

[Bluebelle]

Hi Bracke,
At the end of the day, demand overcoming supply means price will move upwards. This demand would normally come from large buys (or stakebuilding or accumulation, whatever you call it). They don't come from small punters like you or me. So if you know someone has just bought £5m worth of stock ABC, it might be a useful piece of information. It still may not be worth a buy just yet because another institute might dump £100m worth of stock on the market the next day. So you have to see the supply-demand picture and your potential exit point carefully. But you can use information like these intelligently and make money. We do exactly the same thing when we read price-volume charts: we try to spot big buys and watch if big sells are coming to swamp the market (among other similar things). This is just another source of getting the same kind of information.

OM

I think that's precisely the point I was making in my first post : volume is a proxy for smart money at the aggregate level but, as Bracke also implies, I can't see a way of the privat e investor consistently profiting from smart money moves in the sense that Dominic is talking about. The information, as far as I'm aware, simply isn't there nor - even more important - is the background data to interpret it. Other than, of course, with the benefit of hindsight, but what an investor wants to know is what's going to happen tomorrow not (other than in exceptional circumstances) what happened yesterday and why !!!

 

[bracke]

Hi Bracke,
Agree 100% with your statement that one should not follow blindly and always apply one's own filtering criteria.

Minor comment on your other statement about the follies of smart money: I don't think it is that important to know which smart money-man made what mistake in the past.

At the end of the day, demand overcoming supply means price will move upwards. This demand would normally come from large buys (or stakebuilding or accumulation, whatever you call it). They don't come from small punters like you or me. So if you know someone has just bought £5m worth of stock ABC, it might be a useful piece of information. It still may not be worth a buy just yet because another institute might dump £100m worth of stock on the market the next day. So you have to see the supply-demand picture and your potential exit point carefully. But you can use information like these intelligently and make money. We do exactly the same thing when we read price-volume charts: we try to spot big buys and watch if big sells are coming to swamp the market (among other similar things). This is just another source of getting the same kind of information.

And don't forget, as Dominic says, you and I have the distinct advantage of liquidating our paltry £5k worth of shares any day we like. Just imagine you are trying to offload £5m worth of shares.

OpenMind

I do not think that there appears to be much difference between us.

Clever money is useful in alerting us to potentially profitable opportunities to which we apply our own criteria but investing purely because X has is risky; unless of course X always gets it right.

As an aside, I am always a willing recepient of paltry sums of money particularly if they come as large as £5000.

Regards

bracke

 

[RUDEBOY]

The big boys have to be careful also, guys and girls.

 

[Tomerep]

Nice Article

 

[RUDEBOY]

Price and volume, support and resistance. Psychological problems are not the markets fault, they are yours. Deal with them! If you only ever break even....that's not too bad! However, to make money on the markets is not a sign of brilliance. What do you think? RUDEBOY.