Billionaire investors like Warren Buffett and John Paulson are leaving money on the table.
Today we’re going to show you exactly how they are leaving money on the table and how you can pocket some of that money for your own portfolio.
We love digging into the quarterly SEC filings that big investors need to file for their publicly-traded investments. Last month, for example, we looked at how the billionaires changed their asset allocations from one quarter to the next.
This week we’ve honed in on a new question to ask of the billionaires… a question that we think you will find very interesting as well.
The question that we asked is, “What color was the TradeStops Stock State Indicator (SSI) for all of the stocks that the billionaires sold in 3Q 2017?”
We were quite surprised to see that fully 60% of the stocks that the billionaires sold were stocks that were in the SSI Green Zone when the billionaires sold. Take a look.
Why then would some of the world’s greatest investors sell stocks that were technically strong and moving higher? Great question and it’s a question that we’ll return to shortly after we look at a couple of examples.
One billionaire in particular made two big sells in the SSI Green Zone in the third quarter of 2017 – John Paulson.
For example, Paulson bought FedEx (FDX) in the middle of 2016 and rode it higher before selling it recently.
Intuitive Surgical (ISRG) is another stock that Paulson sold while it was still in the SSI Green Zone. He bought it in the fourth quarter of 2016 and sold it with a nice gain of more than 50% in 3Q 2017.
But the stock has continued moving higher and is up another 17% since the end of the quarter. That’s even more money that Paulson has left on the table.
So, why are these super-smart investors getting out early and leaving money on the table?
Of course, we don’t have the luxury of picking up the phone and asking Paulson why he sold FDX and ISRG but there’s one big reason why a billionaire investor may have to sell early… and why you can pocket the profits that they’re leaving on the table.
As I’ve often said, as small and agile investors, we enjoy some serious advantages over the world’s better-known investors. One of those advantages is that we don’t have to figure out how to buy and sell billions of dollars of stock!
Think about it. It takes large investors a long time to sell out of a stock. We can do it in one trade without upsetting the market. The billionaires can’t do that.
It takes them time to work their way out of a stock. It’s easier for them to sell if their stocks are moving higher and there are many buyers for the stock.
As individual investors, we don’t have to sell when the billionaires sell. If a stock is in the SSI Green Zone, there’s no reason to exit the position. We can hold the position for as long as it will continue to move higher. That’s what we call un-limiting our gains.
In our Beat the Billionaires portfolio, one of the rules is that we stay in a stock if it’s not in the SSI Red Zone even if the billionaires have sold it. This rule is responsible for a large part of the huge outperformance TradeStops has had over the billionaires themselves.
TradeStops members who still own FDX and ISRG are more than happy to pocket some of the money that Paulson left on the table.
To recap, the billionaires often make moves we don’t immediately understand. In the examples I shared above, they tend to get out before their winners have completed their run.
Also, the billionaires face challenges we don’t, which could account for some of their market behavior. But the biggest take-away for us, is that once we’ve identified a winner in their portfolio – we don’t have to get out, just because they do.
As long as we follow the TradeStops model of letting our winners run – and staying in the stock as long as it’s not in the Red Zone… we can still profit massively from their ideas.
Richard Smith, PhD
CEO & Founder, TradeStops