Is the Market Rigged? Competing against giant institutions when investing

Is the Market Rigged Against Small Investors?

Your Big Investing Advantages

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Last week’s Alibaba (BABA) IPO had several readers mentioning the challenge of competing against giant institutions when investing.

With greater resources, faster computers, and (sometimes) inside access to information before it becomes public, institutions do have obvious advantages.

But there are several advantages that you have that they never will, and the sad thing is, experts seldom tell you how lucky you are. Reminding you of these advantages is my focus today.

Your first advantage is the relatively small size of your account, which confers maneuverability. If you want to get out of Apple (AAPL) or Google (GOOG) today, you can probably sell your whole position easily, without even moving the market.

But if an institution like Fidelity wants to get out of Apple or Google, they need to do it over days, if not weeks. And the faster they try to get out, the more they risk disrupting the market, and pushing the stock down. They simply own too much to be able to move quickly. The same advantages pertain to buying, too.

Your small size, in short, confers the advantage of nimbleness, which is not to be taken lightly.

Second, as the manager of your own portfolio, you have free rein to put your money anywhere you want. You can focus on big liquid growth stocks, or sleepy illiquid value stocks, or undiscovered penny stocks.

Or you can go farther afield, and take it out of stocks altogether, choosing to own cash, or REITS, or silver mines, or bitcoins or condos in Florida.

Most institutional investors, on the other hand, are restricted. Many need to remain nearly fully invested at all times, because that’s their mandate. You can sidestep bear markets by moving to cash, but few institutions even try to practice market timing, in part because their large size makes it impractical.

Also many institutional investors are restricted to owning specific industries, or stocks of minimum market capitalizations, or stocks paying dividends, or companies with records of earnings, all of which confine the manager to sectors that are at times uncomfortable, if not costly.

You, on the other hand, can do whatever you want.

Of course, there is a downside to this. With so many choices, it’s easy to make bad ones. But that’s where Cabot comes in. Each one of our expert analysts specializes in a particular successful investing style, and each one will happily guide you down that path, with the goal not just of helping you make money but actually making you a better investor.

Today’s stock pick is HealthNet (HNT), a company that provides managed health care services through both private and government-sponsored plans.

I’m including the write-up of HNT that appeared in the September 8 issue of Cabot Top Ten Trader, our advisory that’s emailed every Monday that summarizes the 10 strongest stocks of the previous week (but only if the stock trades in double digits, has sufficient trading volume and positive momentum). Top Ten recommendations give you a wealth of technical information, fundamental numbers and chart analysis, giving subscribers a complete analysis of why a stock is strong on just one page.

Why the Strength

California-based Health Net administers health benefits to about 5.5 million people across the U.S., primarily through group, individual, Medicare, Medicaid, DoD, TRICARE and Veterans Affairs programs. The company gets nearly 95% of its revenue from health plan premiums, and investors see the Affordable Care Act as a powerful driver of growth in this industry. The company experienced uncharacteristically weak earnings in 2012, earning just 31 cents per share. But they rebound to $2.12 per share in 2013 signaled a return to normal. Interest in Health Net got a boost on May 7 as the company’s slightly disappointing quarterly numbers were accompanied by very strong guidance on future results. The company’s August 6 quarterly report featured a nice beat on revenues and guidance that was in line with expectations. The latest good news for the company was the announcement on August 26 that it had received disease management reaccreditation from URAC, an independent, nonprofit accrediting organization. This reaccreditation is expected to contribute to Health Net’s marketing success. The company’s business looks healthy, and earnings should continue to grow nicely next year.

Technical Analysis

HNT blasted out of a long base in May after strong guidance rescued an otherwise disappointing quarterly report, jumping from 34 to 37 on monster volume. HNT put in five weeks rebasing at 40, then stepped up to 43 in July. The reaction to Q2 earnings was delayed, but ultimately produced a rally that began on August 8 and broke out to new highs in late August. From its high of 47 on the last trading day of August, HNT has corrected to 46 and is now holding above 46 as it consolidates its gains. HNT is a buy anywhere near 46, with a stop at its 50-day moving average, now at 43.5.

I’m including the page from the issue so you can see what a complete analysis each Top Ten stock gets.

Yours in pursuit of wisdom and wealth,

Timothy Lutts
Chief Analyst, Cabot Stock of the Month
Publisher, Cabot Wealth Advisory

P.S. For more information on Cabot Top Ten Trader, click here.



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