Hedge funds and institutional investors must publish their investment activity each quarter for all the world to see. There are many websites which will give you access to various degrees of this knowledge for your potential gain. What I am sharing is my personal belief about how best to use this information. The two main factors I use are as follows:
1. Net Market Value Bought. This is the total market value of an individual stock purchased by the professionals less any market value sold. Obviously larger is better, as it shows that a great deal of money was bought in that stock vs. sold. Each quarter I rank stocks and assign them a score from 0-100%, with 100% representing the largest net market value bought stock (all time, in my data), and 0 the worst. I do the same scoring for the 2nd factor:
2. Price drop as % (relative to global stock index). Since our information is delayed by approximately 45 days, and also the 3 month quarter, I subjectively select the most likely average price that each stock would have been purchased at by the pros, calculate the change from that price as a percentage, then assign a score from 0-100%, where 100% is a stock that has dropped by the most (all time, in my data). The bottom line is that I prefer getting a stock that's gone down 20% vs. one that has gone up 20%, since I'm getting a better value for my purchase price. I throw out many stocks that clearly have already taken off to the upside. I'm not a trend follower. I seek stocks that I can buy cheaper than the pros have.
As I've disclosed in previous articles, the following chart shows my purchases using an imaginary $300,000 portfolio, and 1% per position resulting in amounts centered around $3,000. I simply invest more or less than $3,000 in accordance with how well the stock does in the two factors listed above. I then compare the returns I get (after buy and sell commissions) vs. those I'd have gotten in the Vanguard Total World Index (VT) (no commissions).
|Ticker||Date Bought||Pos Size ($)||Sold Date||Net Alpha vs VT|
New buys for this quarter are in bold. You'll note that several stocks have seen significant enough net market value sold that I've decided to sell from my portfolio (and therefore this portfolio). The following table shows the overall results of the entire portfolio:
|net alpha all:||$8,504.86|
|net alpha %:||5.39%|
In conclusion, the system continues to beat the world stock index soundly by about 5.4% overall. My confidence in the system remains extremely high, and I continue to use it in my personal investing with great success.
Disclosure: I am long AAPL, ABT, AIG, FTR, AMGN, AMT, AMZN, BIDU, BNS, BRK.B, BSBR, BXP, C, CFX, CMVT, COF, COP, COV, CSCO, CSX, CTL, CVX, DIS, ECL, EGO, ESRX, EXC, GOOG, HCA, IBM, JPM, LMCA, LVS, MDT, MMI, MON, MOS, MSFT, PCLN, PFE, RDS.A, RIG, SIRI, SLB, SNDK, SPN, TEL, V, VIV, VT, VTR, WFC, WPX, XLS, XOM, XYL, ZNGA.
Additional disclosure: I am long every stock mentioned in this article with the exception of the stocks listed with sold dates in the table. The only exception is COF, which I sold and am now back long.For COP, I simply add together the Conoco and Phillips portions and consider it one position for purposes of alpha calculation.