Saturday, December 5, 2009

What The Big Money Is Buying

Tags

Stock market investing today and making money at it comes down to figuring out one thing for the small investor. That is by buying what the big money is buying. Even though our portfolios might seem large to us (or maybe not so large), our investments are a drop in the bucket compared to the big institutions and the amount of stock that they buy. The stock market operates on one fundamental law -- the law of supply and demand.

The law of supply and demand states that the more demand for something like a stock moves the price up. The less demand for a stock, the lower the price must go to attract buyers. When we purchase a block of shares of stock, it would hardly move the demand for the stock. But when the big money flows into a stock, they have to do it in stages. This is because if they bought the stock all at one time, it would be hard for them to hide it and make their overall stock purchase prices higher than they would need to be. By spreading out their purchases, they hide their activity better and save money by spreading out the demand. The fact is that they have so much purchasing power sometimes, that they impact the demand in a big way that raises the price.

It's the exact opposite when it comes to when they decide to sell. Because they can flood the market with their shares and put downward pressure on a stock's price. They unload it slowly and because there is more supply than the demand, the price has to go down. One of the things that they do to counteract this in my opinion besides spreading out their purchases, is to then get the investment houses to promote the stock by upgrading it to a buy. This in turn creates some demand and before those investors know what happened, the stock has fallen because the big money has sold out and now there just aren't enough buyers (demand) to prop the price up.

You can use a stock chart to see big money buying or selling a stock. If you see the price of a stock move higher in price on volume higher than the day before you know there is strong institutional buying going on. And, it's the exact opposite when they are selling. The price moves lower on higher volume than the day before. By watching these signs you can ride the coat tails of the big money investors and do what they do and not what they say.

Related Article

Stock Market Investing Today

Stock Market Investing Today - Smart Investing.


EmoticonEmoticon