Follow the Leader Or Get Trampled: Herd Mentality in Stocks ~ market folly

Friday, March 27, 2009

Follow the Leader Or Get Trampled: Herd Mentality in Stocks

Great chart illustrating how so much capital is controlled by so few. This is the herd mentality at its finest. If you aren't with the herd, you're most likely getting trampled by it. It does NOT pay to bet against the herd. And, this somewhat plays into the rationale behind why we started Market Folly in the first place: to track hedge funds. While using their portfolio for investment ideas has its pros and cons, it certainly pays to at the very least be aware of what the bigger money is doing. Because, after all, they control a lot of the capital these days. If you're a smaller fish, you've got to know where the bigger fish are so you don't get eaten alive. You don't have to mimic their every move, but you've got to at least know where they are and attempt to pinpoint where they are headed. Hat tip to Cliff Küle for flagging this, as he explains the chart:

"Marty Chenard of provides a chart on institutional buying and selling...takes all the Institutional buying on a given day, and subtracts the Institutional selling to give the net difference which equals accumulation or distribution... if the green bars are above zero.. Institutions are accumulating..if the green bars are below zero..Institutional Investors are in Distribution."

(click to enlarge)

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