By MoneyMorning.com.au

Imagine you’re at a poker table. You’re facing off against some of the world’s greatest pro card players.

Your opponents have read every poker book and played thousands of games. They’ve seen virtually every hand. Clearly, the odds are against you.

Do you battle on gamely in the face of fierce competition — or do you walk away?

We can understand if you’d choose to throw in the towel. But what if the wealthiest, most powerful players at the table are sitting in front of a mirror…and its reflection clearly reveals the cards in their hands?

It would be a game-changer. People would be queueing up to take your seat, or just to watch you play. But if you follow the tip we’ll provide in a moment, investing in the stock market doesn’t have to be any different…

The poker game we’ve just described is what really happens every time you consider buying or selling a stock. You’re competing against the brightest investment minds — not just in Australia, but around the world.

The biggest hitters employ vast teams of highly trained experts to find the most prospective companies, invest in them…and reap the rewards.

It would be easy to think the odds are stacked against you, and that the ‘smart money’ will always win.

But you have a powerful ally in the Australian Securities and Investments Commission (ASIC).

You see, the wealthiest investors — hedge fund managers and the Packers and Murdochs of this world — often find stocks they see going to the moon. When they find these winners, they typically buy as much of the company as they can get their hands on.

That means over weeks or months — but sometimes much faster — the billionaires corner the market in these stocks. They creep up the shareholder register until they own 10%, 20% or more of the total shares available in a company.

This is where ASIC sticks up for you.

The Corporations Act — as enforced by ASIC — requires ‘substantial shareholders’ to disclose their status in an announcement through the Australian Securities Exchange (ASX). Section 9 of the Act defines a ‘substantial holding’ as being a ‘relevant interest’ of 5% or more of the voting power of the shares in a listed company under the control of a shareholder and/or his or her associates.

That means when a heavy hitter finds the stock market equivalent of a royal flush, you’ll hear about it once they’ve bought more than 5% of the company.

Pick off huge gains

It gets better for the small-time player. For each 1% change in a substantial holding, the tycoon must lodge an additional notice disclosing the details of their buying or selling within two business days.

That means an eagle-eyed investor can read the play through the public notices. You can see deep-pocketed players creeping up the list of top 20 shareholders in attractive companies. When you join the dots and conclude that the smart money is buying a stock, it’s often a great sign that the share price is going up.

As you’d expect, big investors are well aware of these duties and of how their disclosure can move the stock market.

That means sometimes that share price rise comes like a bullet after a notice of substantial shareholding hits the market.

If you take that news as a buy signal — especially in riskier, lesser-known small-cap stocks — you can give yourself a strong chance of intercepting huge gains in the share market.

Spot the red flags

This signal works both ways. Sometimes well-informed pro investors see trouble in a company’s future.

When these players bail on a toxic stock, they typically do so in a hurry. Hence the old expression when it comes to share market gains — ‘up the escalator, down the elevator shaft’.

But when substantial shareholders sell out, they have to tell the market what they’re up to. They must announce each 1% decrease in their holdings just as they would announce an increase.

You’ll often see the smart, nimble, ‘fast’ money leaving a stock when red flags are waving. Sometimes, the wealthy investors behind that money see those red flags in private meetings — the kind to which you’re unlikely to ever receive an invitation. Sometimes the red flags come from public information. Either way, whenever you see a notice of decrease of substantial shareholding, you should take it as a sign to review a company’s prospects.

We’re not holding up this method as a magic wand that lets you collect huge stock market gains every time. And you should remember that this information is, necessarily, backward-looking.

But getting in or out of a stock just two business days after a billionaire can be a much smarter strategy than going it alone.

ASIC has installed the giant mirror that reflects billionaires’ buying and selling. To give yourself the best chance of intercepting the biggest stock market wins, you owe it to yourself to take a peek.

Cheers,

Tim Dohrmann,
Editor, Money Morning

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The post How You Can Invest Like a Billionaire appeared first on Stock Market News, Finance and Investments | Money Morning Australia.

By MoneyMorning.com.au