Hedge funds, expert fund managers and other professional investment firms have, in aggregate, bought the below stocks over the past quarter. And because none of those stocks has vastly outperformed the global index (NYSEARCA:VT) since the previous quarter's end, they represent excellent value and strong buys. My system of buying stocks in which a lot of investment funds have bought in, but the stocks haven't vastly outperformed the global index, has achieved about 2.1% alpha over the past seven years, with articles and a massive Google doc to track and document the returns. I have added the ability to compare also to the US market index (NYSEARCA:SPY) and my system has outperformed that mighty US market index by 0.7% alpha per year.
The below list is the "buy list" from the previous quarter's results. There are no major buys to be had here like there are in a typical quarter.
|Stock||Buy as % of Portfolio|
Here are the consensus sells:
PG is a surprising sell considering how much of it we bought just last quarter. I don't have explanations, but the experts were strongly bailing on PG so take that as a sign to get out.
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. I primarily use whalewisdom.com. 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 second factor.
2. Price drop as percent (relative to global stock index VT). Since our information is delayed by approximately 45 days and also the three-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.
I then compare the returns I get (after buy and sell commissions AND capital gains) vs. those I'd have gotten in the Vanguard Total World Index (NYSEARCA:VT) (no commissions). I track the price of the index from the day I bought the stock so that it is a true apples-to-apples comparison of alpha.
I now use a complex formula called the Kelly Theorem to calculate how much to invest in each stock idea based on a risk of ruin calculation. That is the basis for the percentage allocations of all purchases and has been for the past four years. This is clearly key because my average stock pick has returned 6.1% over the past six years while the average index return has been 5.4%. Clearly I'm generating much more alpha by betting bigger on better ideas and less on worse (but still good) ideas. I'll summarize: few hedge funds or fund managers put enough in their best ideas. One who does is Buffett. You may have heard of him.
I decide to sell stocks using both hedge fund aggregated sale of market value, which is essentially the opposite of a buy signal using my system so it's easy to find, and also a mix of analyst opinion aggregation.
Disclosure: I am/we are long BAC, BKLN, COTY, DOW, FANG, MDT, UBS,VSM, WFC, WFT, XLF.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.