People like to point to stocks that “smart guys” own as part of an investment case. After all these people have access to proprietary research, management teams and are often the “first call” from Wall Street analysts.
If you have followed the Archegos story it’s a great example of just how much people don’t know.
Stock positions are widely reported and tracked. There are even specialized sites like Whale Wisdom that exist precisely to help investors follow these reports.
There is definitely some value to following the buys and sells of your favorite investors. Just knowing the areas they are active in can be very helpful in prioritizing where your own research cycles might be best spent.
If I were a hedge fund I could buy a million shares of Poshmark (POSH) but then turn around and sell tons of call options and buy puts to give me a large “synthetic short” on the name. And that’s just using standard contracts. Big hedge funds can do even better since brokers will create customized derivatives contracts for them.
In the custom derivative category, the only limit is creativity. These derivatives have been called “toxic” and “weapons of mass destruction.” One truth is that the size of the derivatives market is massively larger than the size of the market of the underlying securities.
Maybe “nothing” is too strong a word to apply to stock ownership. It matters in some cases where the use of derivatives is not allowed or in the case of insiders.
Investors should be careful in using the information. Company management teams should be less liberal in sharing information with their “loyal institutional investors” because depending on who they are they may be using that public long position to get access to management while feeding their synthetic short.
Yup - it’s a dog eat dog world out there.