I have to disagree with this statement. It is a misreading of what goes on:
The institutions load up quietly, the big name analysts come out and say buy, the institutions quietly off load to the lemming retail crowd AKA "bagholders" and when the whole ponzi scheme runs out of fresh meat the stock price collapses leaving all the real investors shaken, disillusioned and poorer.
The institutions often buy stocks for no other reason except that they are cheap. This is what Battery Marche does with computers alone. Many institutions send their money managers to conferences, shows, demos, exhibits, where various companies can display their wares or make their pitches. Many of these companies are not even public, but the institutions have large dossiers on them anyway. They are far in advance prepared if the company undergoes significant change in profit expectations. When an analyst then makes a positive recommendation other institutions or individuals who may not be privy about the developments and try to get on board quickly.
Then a "lemming" finds an institution on a list and concludes that the analyst used the whisper circuit to alert them of the impending upgrade. So people reach the conclusion that an institution which has held the stock for years when it was a dog, has bought on "insider" information. They are guilty of accidental success, but the public sees them as operating on insider information.
This is pure nonsense although it has happened. Ask any institutional money manager if they are inclined to do this. They are abhorrent about the suggestion, because it has an extremely poor R/R. They as individuals lose a lot of money, their jobs, go to jail, and are permanently disbarred vs gambling to make some more for someone else, for their fund.
As for the Ponzi Scheme it doesn't intentionally happen ever. Disagree? Show me an example. When companies make misleading or false statements about their operating results their stocks often gap down. The seller that sells above the gap is rarely an institution. Some institutions sniff out anomalies in reported and operating results, but they keep it to themselves and may start selling early. That's why they keep the big dossiers and are always calling and visiting their investments. Nothing wrong with that and it does give you superior knowledge. If they sell, you can bet they are just guessing. Most institutions are the bag holders. They sell below the gap. Others buy below the gap only because the stock is cheap.
The institutions as a group act very much like the public as a group and individual institutions act like individual investors. To believe that institutions necessarily know more than the public is ridiculous. The institutions are more and more reading the public bulletin boards because it is a free market in information and in all the noise the truth is found that escapes the finest analysis by institutional managers.
This is the point I was making to Adam. It doesn't matter who discusses or to what extent there is discussion about a company. The company is off doing its own thing. Who knows or who ferrets out or who anticipates the prospects for the company best? Hundreds of individuals all scratching away, desperate to make a dime, or fat institutional money managers being worked by the company with tickets to the Pro-Am?
The answer can be found for example, on the ATHM thread. That thread knows the thoughts in the company manager's minds months before they think them. The thread investigates every conceivable thought and that is way beyond the resources of institutions or of analysts.
This is the nature of a free market. It makes adjustments to valuations at the margin. It finds the truth in all the noise. It is unequalled in efficiency although none of the participants is privy to insider doings. It is no wonder the institutions are reading the patzer debates. Since price is set at the margin and since the public is the margin, the institutions have to keep up with the public perception. They have failed to do that very well and have been left behind in this bull market. They are not happy with that fact. |
