Follow the Smart Money: Why, How, Who

"Follow the Smart Money" is never about the buzz words that stock market pundits and CNBC news anchors frequently uttered in their daily stock commentaries or news hype. It is about learning from the best and increasing your own winning chances.

What is the term "The Smart Money"? 

Cambridge Dictionaries Online defined "The Smart Money" as 

"money that is ​invested by ​experienced ​investors who ​know a lot about what they are doing." 

At HedgeMind, we defined "The Smart Money" as these ledgendary investors/traders: Warren Buffett, George Soros, Julian Robertson, Stanley Druckenmiller, Carl Icahn, David Tepper, Chase Coleman, Lei Zhang, Seth Klarman, Steve Cohen... who already became self-made billionaires through investing. 

We also consider many young, rising star hedge fund managers as the smart money and worth active individual investors and traders to learn and follow. We will introduce them on this HedgeMind page. 

We will use winning stock examples uncovered on the hedgemind.com to illustrate how the smart money produced winners and avoided losses. Hopefully we all will become a better and smarter investors. 

How to use HedgeMind Sentiment Indicator to Find Winning Stock Ideas

What is HedgeMind Sentiment? 

The HedgeMind Sentiment measures the percentage of hedge fund managers who expressed bullish (buying), bearish (selling), and neutral views on the stock. It is calculated on quarterly basis. 

What is the purpose of HedgeMind Sentiment? 

Wall Street has a saying "Following the smart money".  HedgeMind Sentiment is generated just for that purpose to make it easy for investors and traders to follow smart money.

Correlations of HM sentiment with stock prices. 

Lets use FB as an example to illustrate this correlation of hedge funds sentiment with its stock price for the past two years.

Chart below shows FB's sentiment history from 2013Q3 to 2015Q3: 

FB HedgeMind Sentiment as of 2015-09-30

FB's HM sentiment infographic has three critical quarters where hedge funds showed very either bullish or bearish sentiment. The most notable one is FB enjoyed strong bullish buyings, recorded 80% bullish sentiment in 2013Q3. Then bullish hedgies sentiment declined and turned to bearish, 61% in 2014Q1. More recently FB's hedgies sentiment became bullish again and had a 55% bullish sentiment in 2015Q2. 

What's the FB's stock price after these 3 key quarters? Let's analyze HM sentiment in FB stock chart. 

FB Stock chart with its HM Sentiment

Note HM sentiment is calculated 45 days later after each quarter when hedge funds complete their #13F filings. So we can assume the earliest date when an investor possibly can react to the sentiment data will be 45 days later after each quarter when its sentiment data is published. 

Followed FB's 80% bullish sentiment in 2013Q3, its stock price gained 40% in 3 months, 57% in 12 months, 120% in 24 months from 2013-11-15. A very positive correlation is observed here. 

Will FB enjoy positive return again after FB had a 55% bullish hedgies sentiment again in 2105Q3? Most probably in the next 3-6 months. So far $FB gained 20% since Oct 1, 2015 to today, Nov 21, 2015. We will follow up later. 

More analysis is clearly required to prove whether the HM sentiment can consistently and systematically show strong positive correlation with a stock price. At least our early analysis seems to be very encouraging. 

How you can learn from the smartest investors using Consensus Stocks

Today I am going to show you one example how I use hedgemind.com to help me invest like the smartest investors. 

The Consensus Stocks page shows you the top 100 most popular stocks among top hedge fund manages we carefully selected. These 183 or so money managers include legendary investors like Warren Buffett, George Soros, Carl Icahn, as well as emerging top hedge fund managers like David Tepper, Chase Coleman, Daivd Einhorn, Stephen Mandel. 

How do I use Consensus Stocks page to help my investing? 
Every quarter when new 13F data is updated, hedgemind.com will publish immediately Consensus Stocks rankings based on the total number of hedge fund holders. The Consensus Stocks lists the top 100 most popular stocks among hedge funds.  

The first thing I do is to review the top 10 most popular stocks among hedge fund managers since it reflects the collective wisdom of the smartest investors. I study each stock by browsing through its Stock Holders page and then Stock Holding History page of each hedge fund holder. Let me walk you through this process by using AAPL stock as an example:

This quarter, AAPL became the most loved stock among all 183 hedge funds and has 53 hedge fund holders, a 29% of hedge fund manages. To see who are these 53 hedge fund managers, clicking AAPL brings you to the AAPL Stock Holders page. The Stock Holder page shows  the name of hedge fund manager who held AAPL and its portfolio weight in his portfolio. if a holding with portfolio weight of 5% or higher, it indicates strong conviction of hedge fund manager and typically this stock is a top ten holding of the portfolio  as well.

As we can see, Carl Icahn is the largest holder of AAPL with 52.8 million shares (split adjusted), a total value of more than $5.3 billion as of today's price. Clicking Carl Icahn takes you to the Icahn's AAPL holding history page. Here you can see Icahn only used three quarters to accumulate a full position after acquired half of total position initially. It is clear that Icahn likes to initiate a significant stake first, then keep adding more in the next few quarters until it is fully accumulated.  

Now let's take a look another AAPL Holding History of a well known Tiger Cubs fund manager, Philippe Laffont. You can see Laffont held AAPL stock for a while but he traded around actively from quarter to quarter. His active style of investing is in great contrast to that of David Einhorn who chose to buy and hold for a long time and only occasionally decreases or increases slightly. 

Clearly a lot of insights can be learned from studying these pages. I personally benefited from this kind of analysis. In fact, 5 of my top holdings are among the top 10 most popular stocks, AAPL, FB, EBAY, GM, C. All of them produced great return for my own portfolio so far. So if you are an investor who actively manages your own money, hedgemind.com offers you the best resource to study and learn from the smartest investors. Even better, we made it FREE!

Find What the Smartest Investors like Warren Buffett and David Tepper are Buying or Selling now

Today, HedgeMind just released Consensus Stocks screen tool. It helps investors quickly and easily find consensus stock picks among holdings of hedge funds based on key metrics like top holdings, portfolio weight, major stock indexes including S&P 500, NASDAQ 100, DOW 30.

Stock Consensus - help investors find top consensus stock picks

With HedgeMind Stock Consensus screen, you'll be able to: 

• Get quick glance at the most popular stocks among hedge fund managers in the most recent quarter. 
• Have a stock on your mind? Simply enter the stock symbol to see who the fund managers have the same stock as a top holding in their portfolios.  
• Just want to see top stocks within major market indexes like DOW 30 or NASDAQ 100 or ETF? You can use one-click Index button to find out immediately the most favored DOW stocks by hedge fund managers.
• Only interested in what Billionaire Investors or The Highest-Earning Hedge Fund Managers are buying? One-click view to show what they are holding now.