On Wednesday, July 20 at 6:00 p.m. EDT, The Street's Options Profits is hosting a webinar featuring John Carter of Trade the Markets. John will show you how to pick stocks in various market conditions and incorporate options strategies to hedge positions. During this information-packed presentation, you will also learn about John's disciplined approach to trading and the tactics he employs to be a successful trader. The back half of the webinar will include an interactive, exciting Q&A session.
Please email: email@example.com to secure a slot for the session as space is limited. Additional details including the webinar link will follow as we get closer to the presentation.
Most of our readers should be aware of the tendency of portfolio managers to add to winning positions that they already own just before the end of each calendar quarter. Why would they want to buy more of these shares at elevated prices -- and right as the quarter was ending?
Virtually all money managers are paid based on a percentage of assets under management (AUM) at the end of each specified time period. They are also judged against their benchmarks and versus the returns of other managers based on how they performed as of quarter's end.
Piling into an already large position at 3:50-4:00 PM on the day of reckoning revalues their entire positions by marking all those shares up when the end of day price is posted. On a less liquid stock, a market order to buy right before closing could potentially add tremendously to performance by sending the shares temporarily higher simply because of that order. Buying an extra 1,000-2,000 shares that way (if you already held 100,000 shares), revalues the entire position for accounting purposes.
If the stock in question had been a good performer in general during recent days, it also makes for good PR. Fund investors smile when they see a big winner from the previous quarter as a large holding. This practice, buying more shares of large positions just before the close of a quarter or year, is called 'window dressing'. It artificially inflates the look and performance of a portfolio in order to attract new investors and/or hold onto exiting ones.
What looks worst for professional money managers on their end of period statements? Poor performance, of course, but also showing big holdings of the latest quarter's dogs. Who'd want to fess up to owning lots of Research in Motion (RIMM) , Cisco(CSCO) - Get Report or other laggards on a summary that people often use to decide whether to redeem or add to their investments with you?
Because of this, many professionals also add window 'undressing' to their end-of-quarter tactics. They often dump stocks that did badly to avoid showing them on their end of period holdings list. This avoids answering to unhappy clients that want to know why you owned those doggy stocks.
If you invest for your own account (answering only to yourself) you might consider buying some recent laggards this Wednesday and Thursday as money managers make their adjustments.
Some good quality stocks worth considering on this basis would include: Buying shares or selling puts on the names above could see fast results as portfolio managers often quickly reverse their quarter-end trades once the reporting period is over. They may buy back the dumped bargain stocks right away -- hoping to profit from a rebound and the chance to look like heroes as the beaten down issues finally start recovering.
Buying shares or selling puts on the names above could see fast results as portfolio managers often quickly reverse their quarter-end trades once the reporting period is over. They may buy back the dumped bargain stocks right away- hoping to profit from a rebound and the chance to look like heroes as the beaten down issues finally start recovering.
Trades: Buy shares and/or sell puts on any or all of the stocks listed above.