Hitch a Ride with Institutional Investors
By Saghir Aslam Rawalpindi, Pakistan
The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities) At a monster truck rally, there are the monster trucks and the little cars they crush. It’s better to ride in the truck. In much the same way, big institutions dominate the stock market. When mutual funds, banks, insurers and pensions pile into a stock, they drive it higher. They have power. Follow their lead and you’re likely to prosper. Get in their way and you’ll be totaled. Time it properly and Insha Allah, you will win. You need these heavy hitters’ buying power. That’s why it’s crucial to know if they’re building positions in a stock you won or are thinking about buying. Find out where they are putting their money.
A rating of A or B indicates net buying by institutions. Check investors and business daily. Institutions have brains as well as brawn. They have teams of researchers to uncover the best stocks. If mutual funds – especially the best ones – are buying a stock, it’ll likely do well. It will appreciate because of their buying power. Almost all great stocks have at least one mutual fund rated A - or better just before they break out. That’s why investors business daily ( IBD) also gauges the quality of sponsorship. The Institutional Sponsorship Rating is in the stock tables every Tuesday and in the weekly charts of “NYSE Stocks In The News” and “Nasdaq Stocks IN The News.” Read IBD. Institutional backing props up great stocks when they’re correcting and then propels them to new height. When a stock breaks out, volume should be at least 40% to 50% above its 50-day average. That indicates big institutions are driving up the price. Mutual funds will continue buying up shares throughout a stock’s advance. But when the heavy hitters bow out, so should you. Individual investors don’t stand a chance when mutual funds start dumping huge blocks of stock.
Keep in mind that analysts’ recommendations are not the same as institutional buying. You want deeds, not words. And most analysts’ reports aren’t geared toward big, professional investors. Analysts’ are simply predicting from their research what the stocks will do. On the other hand, institutional involvement buying is practical. To put it in simpler words – analysts’ theory and institutional are practical. Who would you follow? Follow institutional, Insha Allah you will be rewarded. Once you follow closely diligently and wisely, the big boys and the major mutual funds you will get an idea yourself what is the fast moving recently. You want to watch and monitor closely. Compare your plans of investing what are your ultimate goals. What am trying to share with you is do not follow the leaders blindly, you need to follow? Yes but according to your needs, according to your plans. Once you do all of this Insha Allah you will succeed and be among the winners. But the homework you must do. (Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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