Follow The Smart Money

Follow the smart money can sometimes be an easy way of identifying winners. Imagine you are at a horse racetrack and your aim is to double the cash in your pocket by placing a bet on a winning horse. But assuming you are like me and you know absolutely nothing about the science of horse betting, handicaps, thoroughbred racehorses and the ones that run better on wet track versus dry track etc…

So just how are you going to pick a winning horse?

Follow the smart money might be one way of doing it. The amateur and professional stands out a mile at a horse racetrack. The latter often has binoculars dangling from their arms, in one hand they can be seen clutching papers or an iPad, which probably has horse statistics information and they tend to be better dressed, albeit more somberly. The punter described above makes a living picking winning horses and if you bet how he bets, if you follow the smart money then your odds of picking a winning horse is greatly improved. If you don’t believe me then try it for yourself one day.

Follow the smart money might also improve your odds at picking winning stocks too.

But who is the smart money in the financial markets?

Stock Market - Follow the smart moneyFollow the smart money entails following the smart insiders of a company. The Smart Insiders are the directors and senior employees of a company. Moreover, a valuable clue as to the trajectory of the stock price can be found by tracking the transactions made by smart insiders.

Put another way if insiders are selling heavily the company’s stocks that could be an early indication that the company’s stock is about to head south. But don’t read too much into one director selling his company’s shares, after all, he could be selling stocks to pay for an unexpected expense or a holiday home, a yacht etc. Nevertheless, several directors and senior employees selling should be viewed as a red flag for investors and a shorters delight. Smart insiders monitors around 60,000 companies. From the companies website, they cover every stock across global markets where insiders share transactions reported.

In short, if traders investors follow the smart money trading partners of directors and senior employees that can lead to investment gains that outperform the stock index performance.

‘Smart Insiders’ gives their clients a concise insight they manage the thousands of directors trades reported to global regulators each day.
“With around three million transaction records growing by 1,000 per day, our insider transaction data may sound to some like a big data product. Big Data it is not! Each transaction has been scrutinized by our production analysts ensuring consistency, accuracy, and timeliness. Data is processed under consistent criteria using bespoke software tools which ensure records are accurate and complete.”

The Financial Times Director Dealings is another source of information regarding who is buying and selling in the boardroom. The FT’s director dealings take a deeper look into a company’s insider transactions by viewing director purchases and sales by an individual director.

Follow the smart money also entails studying how the grand masters of the game are playing it

Studying the moves of the world top investors can often give traders/investors a heads up on where assets prices are heading. But focus more on the grand master’s actions (their trades) since that is what will more often than not make traders/investors profits. What the grand masters say on stage can sometimes be a red-herring.

But there is another less known way to follow the smart money

The information gathering intelligence agencies around the world could literally self-fund their entire operations if they traded the information they possess. The CIA is an investor in a venture capitalist firms (and its UK equivalent MI6, a law onto itself, and Israel’s equivalent Mossad might probably be too.

Perhaps the most intriguing venture capitalist firm on the planet is In-Q-Tel, the US Central Intelligence Agency’s venture capital arm. In-Q-Tel is literally a signpost for some of the most disruptive technologies to come. According to the website, “IQT identifies startups with the potential for high impact on US national security. Bridging technology, capital, and intelligence.”

So it might be prudent to follow the smart money and tag IQT investments because the CIA’s venture capital arm has an uncanny habit of picking winners.

For example, IQT invested company $2 million in Palantir, which specializes in big data analysis, back in 2004. Palantir worked with the US government on several serious cyber security problems which it solved. There is now talk of an IPO, if so Palantir could be worth $20 billion which means the CIA’s venture capital arm has made a cool 100% return on their investment.

Obviously, the most interesting investments are kept secret. But trawling through the IQT website I noticed a page entitled, Our Portfolio, Featured Investments.

In summary here are some of the interesting ones that will help traders & investors follow the smart money. Sonitus Technologies, In-mouth microphones and speakers to allow for secure and high fidelity communication in any environment. SnapDNA, Portable chip-based DNA analysis to identify anyone on Earth in real time by their genetic fingerprint. Keyhole, a satellite imagery company, sold to Google in 2005, where it became Google Earth.

So you don’t have to be a financial wizard at picking stocks. Just follow the smart money, invest (play the game) and ride the money wave all the way to the bank.

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