Mission Statement
Saunders Capital helps investors find more confidence in their investments based on what financial professionals are doing. We conduct unrivaled equity research by utilizing the highest quality market data, cutting edge technology and proven methodology to deliver quality information to our members and help develop the most informed investors worldwide.
About Our Strategy
As the old saying goes, "if you can't beat 'em, join 'em." The truth behind the stock market is that in order to profit somebody has to lose. It's time for you to stop losing and join'em - the winning team. More often than not the loser is the retail investor, not the professional. Trading stocks can be tough business if you don't work on Wall Street. But what if you could model your trading after the professionals and do what they do? Chances are you'd see a dramatic improvement in your trades since you'd be going with the tide (big money) instead of against it.
Mutual funds, pension funds, banks and other big financial institutions are appreciated by investors as "smart money" investing entities estimated to account for 70 percent of all trading activity. Stock buying in this regard by professionals is called “institutional sponsorship.” Many stocks "institutional sponsorship" expresses a strong message about a company's health and financial future.
A fundamental approach from investors requires an understanding of the connection between a company's basic beliefs and practices as well as large institution interest the company attracts. Institutional sponsorship is not always a good gauge of stock quality because factors other than fundamentals can play a role.
The Dependability of Institutions
Big institutions bank on profits from buying and selling stocks. They employ strategies for buying undervalued stocks with great potential. Investors from these big institutions hire analysts, researchers and specialists to create the best investing strategies and plans. They meet regularly with CEOs to evaluate industry conditions and project the outlook for every potential investment company
Institutions have a great deal of interest in increasing the value of their shareholdings for the companies where they're large stakeholders. Big institutional investors flex their muscles with significant voting power and greatly impact crucial decisions. The idea is to promote value-based decisions that build shareholder wealth and ensure management maximizes the earnings stream. Research shows that when ownership is concentrated there is better monitoring of management which leads to an increased stock value.
Institutional holdings pay off. In the Institutional Investors Journal study, "Does Smart Money Move Markets?" Scott Gibson of the University of Minnesota and Assem Safieddine of Michigan State University, compare changes in institutional ownership versus stock returns over each quarter from 1980 to 1994. Over those 15 years, stocks that had the largest increases in quarterly institutional ownership (approximately 20% of all stocks) posted consistent positive returns.
William J. O'Neill, founder of Investor's Business Daily, says in How to Make Money in Stocks that it is knowing how many institutions hold positions in a company's stock is very important. It's also important to know if the number of institutions purchasing the stock is increasing. When a stock has no sponsorship it's likely that investors looked at the stock's fundamentals and turned it down.
When the Dependability Becomes Instability
Too much of a good thing is a possibility. O'Neil points out that while institutional sponsorship is something to look for, a great deal of institutional ownership can be a sign of danger. If the company starts to struggle, and an institution bails, then the stock evaporates regardless. So, we also use our platform to find excellent shorting opportunities.
Institutions are also traders. They put money into stocks after plenty of fundamental analysis. They identify where stock prices should be, compared to where they are. Institutions will bypass fundamental analysis when technical indicators show potential. Whether the stock price is going up or down is what they're worried about. So, institutions will concentrate on whether the price has any momentum in a particular direction.
A stock with a lot of institutional support has often peaked in value, giving it nowhere to go but down. An example is the downfall of technology stocks at the beginning of the millennium. Cisco, Intel, Amazon and others had an amazing amount of institutional backing. As the subsequent collapse of their share price demonstrated, they also had unattractive fundamentals.
Smart Money Involvement
Portfolio managers will employ teams of analysts and utilize their access to corporate data that the typical investor could only dream of, giving them the upper hand.
This doesn't guarantee money in the stock will be made, but it does expand the probability they will earn a profit. Most likely they'll put themselves in a better position than individual investors will be.
Institutions Market the Stock
After mutual funds and hedge funds establish a position in a stock, their next move is to promote the company to increase interest in the stock and raise the share price value.
That's why you'll see top-notch portfolio and hedge fund managers bragging about stocks on television, radio or at investment conferences - just to drive up their profits. Finance professionals like to educate people, but they are in it to make money. Essentially, they're advertising their product, generating interest, and making money off the exposure they create.
The next step is to find other ways to drive up value. Investors who got in at the beginning of the institutional investor share takeover have the greatest potential to make big money.
Institutions Can Be Great Shareholders
The institutional turnover in most stocks is fairly low. It takes a great deal of time, money and effort to become fully invested in a company and to then build standing in it.
When funds do obtain large positions, they want to secure their investments. To secure themselves they'll create communication with the company's board of directors and look to acquire stocks other firms might want to release before they hit the open market.
Hedge funds get the most recognition as "activists," but many mutual funds have increased pressure on the boards of directors as well. For example, Olstein Financial generated a lot of press, in late 2005 and early 2006, for peppering several companies, including Jo-Ann Stores, with a host of suggestions for driving shareholder value. They even suggested the hiring of a new CEO.
Summary
Individual investors need to learn that there are instances when institutions and management teams can work together to enhance common shareholder value and that they'd be wise to be there when they do. We also believe that a great investor is an informed one. An individual investor's goal should be to find the best opportunities and capitalize on them - That's what we help you do!