Understanding Institutional Accumulation

Throughout the annals of finance, the influence of institutional investors on the markets has proven to be substantial, if not profound. The sage words of my mentor come to mind: “Pay close to institutional accumulation. Institutions are the main driver behind stock moves, not retail investors.”

The Weight of Institutional Investors

Institutional investors command significant attention due to their substantial capital allocation in the financial markets on behalf of their clients. Unlike retail investors, institutional players trade in millions of shares, yielding unparalleled market influence. Armed with vast research teams, cutting-edge software, and privileged information, they preside over the market tug-of-war. However, hidden within their seeming invincibility, lies the Achilles’ heel that can be advantageous for retail investors.

Benefits of Retail Flexibility

Lack of Flexibility: Institutional investors may require lengthy periods, even years, to accumulate shares without affecting prices. Conversely, retail investors have the freedom to enter and exit positions swiftly, leveraging this advantage to navigate market dynamics.

Embracing Concentration in Retail

Over-Diversification: Institutions often spread their investments thin due to restrictive mandates, impeding outperformance. Contrastingly, retail investors can leverage this by concentrating their holdings as they see fit.

Risk Management in Retail Investing

Risk Mitigation: In the face of an adverse trade, institutions are often compelled to double down and weather the storm. In contrast, retail investors have the power to exit positions at their discretion.

Leverage Institutional Accumulation for Alpha

Spotting institutional accumulation is a powerful tool to outperform the market. Recognizing when “elephants are jumping into the bathtub” (a figurative nod to institutional accumulation) allows retail investors to indirectly benefit from institutional insight and research. Quick position sizing grants retail investors the potential to ride the coattails of institutions as they amass shares. The following are three stocks currently experiencing institutional accumulation:

Palantir’s Stellar Earnings

Palantir (PLTR) operates in the AI realm, specializing in data analytics, integrations, and visualizations for government agencies, financial institutions, and enterprises. Following robust quarterly earnings that doubled year-over-year, CEO Alex Karp enthused, “Our commercial business is exploding in a way we don’t know how to handle. We don’t know what to do with the onslaught of demand.” The stock soared over 30% in Tuesday’s trading, eclipsing even its IPO day volume records.

The Resurgence of Carvana

Carvana (CVNA) weathered a storm in late 2022 as interest rates spiked and used car prices plummeted. After securing emergency funding and cutting expenses, the stock has rebounded from $4 to near $48 today. Subsequently, it broke above the 50-day moving average amidst surging volume, propelling it back into the limelight.

MercadoLibre’s Institutional Surge

MercadoLibre (MELI) is referred to as the Latin American counterpart to the retail giant Amazon (AMZN). Its recurrent appearance of institutional accumulation on the weekly chart has not gone unnoticed.