Like everything else in life, there are always two ways to do things. The easy way, or the hard way.
Unfortunately, when it comes to investments, a lot of beginner investors insist on doing things the hard way. This is not intentional. They didn’t purposely seek to lose money, but things just work out this way. They learn how to invest in stocks the hard way.
In other words, they start with ten thousand dollars, screw around and get that money down to two thousand bucks. Then and only then do they figure out the big picture and they start detecting patterns and start clawing their way up.
Unfortunately, this often does not lead to a happy ending. Maybe they were able to increase their money. Whatever the case may be, it takes a tremendous amount of time to get to where they started.
Well, I’ve got some good news for you. You don’t have to do that. You don’t have to figure things out the hard way. Investing in stocks can be easy. Don’t believe me? Here’s the secret…
There Is Such A Thing As “SMART MONEY”
What if I told you that there are professionals in the stock market that make money all day, every day?
I’m not talking about a random guy who makes a thousand bucks here and there. I’m talking about professional money managers who make millions of dollars every single day.
We’re talking clockwork profits here. Now, how can this happen? These people are institutional investors. This is their life’s calling. This is what they get paid to do. They are professional stock market investors. They know how to pick stocks. They know how to move money in and out. They know how to time their trades correctly.
If you know going into the stock trading game that these people exist, wouldn’t it be smart of you to pay attention to what they’re doing? Wouldn’t it be a good investment of your time and resources to copy what they’re doing right and possibly guess at what they’re doing wrong?
Let’s put it this way, wouldn’t learning from people who know how to make money on the stock market on a regular basis be a better use of your time than trying to figure things out on your own?
Unfortunately, a lot of people insist on learning the hard way so they pay for that expensive learning curve. They make trade after trade on one seemingly hot stock after another and end up losing again and again.
It doesn’t have to be this way. You just have to look at people who are making money on Wall Street and figure out what they’re doing.
Why Should You Do It?
What are the advantages that smart money brings to the table? What makes their patterns so compelling?
First of all, they have a lot more resources than you. They have hundreds of millions of dollars to invest. This tells you that they can’t screw around. They can’t make bets on a hope and a prayer. Instead, when they move huge chunks of cash, it’s under the assumption that there will be a positive return.
In other words, pay attention to what they’re confident in. If they make too many bum calls, they’re going to be out of the job. A lot of people would pull their money from those institutions and invest it on somebody who knows what they’re doing. See how this works? The fact that institutional investors have a lot more resources should give you some measure of confidence in their positions.
Mutual Funds & Other Big Institutional Investors Are Required To Reveal Their Investments
According to securities and exchange laws and SEC regulations, big mutual funds are required to provide enough information to the public.
This means that due to market factors, a lot of big institutional investors, like mutual funds and retirement funds, reveal their holdings. Some don’t reveal all, but you get an idea where their money going to. This is a big deal because you can simply reverse engineer what they’re doing.
Warren Buffett Is Required To Reveal His Investments
Warren Buffett owns a company called Berkshire Hathaway. According to SEC rules, Berkshire Hathaway has to disclose it’s essence.
This means that people would be able to see which companies Berkshire Hathaway is buying into. By getting that list of companies, you would be able to reverse engineer whatever Warren Buffett, the world’s most successful investor, is up to.
This doesn’t mean you should just blindly copy his stock purchases. This doesn’t mean that you just have to copy and paste mutual funds and company holdings to make a profit. You need to pay attention to the following additional steps.
Steps For Winning Long-Term Plays
The key assumption here is that you’re going to be buying these stocks for the long term.
The following steps won’t do you any good if you’re a short-term player. This is only for people who are looking to hang on for long-term gains.
The first thing that you need to do is to get the list of stocks and major holdings of institutional investors. After you go through the list, pick stocks that fit your budget.
Next, filter the stocks based on whether the industry they’re in is growing or not. This is very important because there are a lot of institutional investors who are locked into some companies that are actually on the way down. These companies industries are declining or are not experiencing significant growth. Those are precisely the companies you need to stay away from. After that, look at the remaining list of companies on your stock list to see if they actually own or dominate the industries they’re in.
Get rid of third placers. The main reason why these companies that dominate their industries may not fetch high stock prices now is that Wall Street has a low opinion of them. Maybe their industry’s not sexy enough. Maybe Wall Street is obsessing about fast moving or high growth stocks.
Whatever the case may be, you may be looking at companies that are underappreciated. Those are precisely you need to buy into because you’re buying in at a discount.
Remember, these players own their industries. They’re dominating. It’s only a matter of time until Wall Street gets a clue and gives them the respect they deserve.
Finally, buy these companies and hold on for the long term. I’m talking about a lifetime.
Still, if you go through these steps properly, you would have picked companies that would probably increase substantially over the mid-term.
Recommended Read:
Stock Market Investing is a beginners level book written by David Morales. This book will take your stock market knowledge to the next level. A must read for the stock market beginners.
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