The Major League Baseball playoffs are here. The Tampa Bay Rays seek to win the World Series following hockey's Tampa Bay Lightning’s Stanley Cup victory Sept. 28. The games evoke the old song: "Take me out to the ballgame, take me out to the crowd … "
That official anthem of North American Baseball conjures good vibe bat-swingers in front of their childhood worshipers. The 1908 song was written by Jack Nortworth and Albert Von Tilzer. Neither had ever even been to a game. Even more interesting is that Jack originally wrote the lyrics as a feminist anthem about a woman wanting a baseball game instead of a date. She was actually his girlfriend Trixie Friganza – a strong feminist. Back then, games were a vastly man's affair.
The song's surprising history is another example of norms being redefined over time. Humans tend to quickly latch onto the familiar and assume that it is the norm. Nearly everyone knows the chorus of the song. But only because the rest of the song was forgotten over time. And there lies the real story of a woman wanting equality.
To me, it's no different in the world of stocks. Once, long ago, the big money moved markets. "Operators," as they were known, could sling around huge amounts of money on leverage and affect stocks at will. Back in the 1920s, it was perfectly legal to spread misinformation; you could even pay reporters to print false stories to influence prices. There were bull and bear raids – where groups of trader-cronies would puff up stock prices only to trap everyday investors by unloading stocks onto them as prices melted lower.
It was a big money man's game, but over time, it nicely served their purposes to perpetuate the perception that anyone can make money in stocks. After all, big players needed an ever-revolving door of new could-be traders to manipulate and beat up on.
Through the 1980s and '90s, stocks became an everyman's game. Day trading sparked the dream of taking a small grubstake and turning it into millions. By the 2000s, anyone with $5,000 could open up an Interactive Brokers account and trade stocks globally. Today, we have Robinhood and online, commission-free brokers that give literally anyone instantaneous access to trade stocks for free on their mobile phones.
Therefore, the perception may now be that big money is the quiet, gentle whale in a huge sea of aggressive fish. Don't bother them, and they won't bother you. And if you're lucky enough to spot one, you look at them with curiosity, but beyond that, they don't really affect you.
Well, I'm here to tell you that couldn't be further from the truth. Big money is what really moves markets, and it's here to stay. The big money players are quite content to remain out of the limelight. That way, they can operate freely and below the radar. Algorithms and big institutional brokers (like the ones I used to work for) are today's cloaking tools for big money accounts.
But like Sherlock Holmes was able to find the truth by seeing things a different way, if you know what to look for, big money is there in plain sight. And it is influencing prices perhaps more than ever.
Three years ago, JPMorgan estimated that just 10% of stock market trading volumes are regular stock picking. But media and more importantly their broker-advertisers would have you believe that you're in control. We know the truth: logically, if you want to know what drives markets, or more importantly where they might be headed, you need to focus on what the big boys are doing.
In September, they were selling. And that was consistent with expectations. Remember, every election year since 1992, big money accounts reduced risk by selling into an election and increased risk by buying right after. So when markets softened in September, it seemed right on schedule.
It appears that, for this election, buyers have returned early – at least for now. To me, this indicates that big money adding risk before Nov. 3 is more certain over the pending outcome. Remember, when you manage huge money, you don't like uncertainty, so you reduce risk. Increasing risk indicates confidence and certainty.
Last week, I pointed out that nearly every sector was being bought. General buying suddenly slowed, but we saw big buying in industrials, financials, and utilities. These are less exciting groups. Financial stocks kicked off reporting earnings this cycle, but I'd rather see growth buying: technology and discretionary. Below is last week's big money activity by sector:
Just because buying is back doesn't mean volatility is over. Assume for a moment that Joe Biden is expected to win this election. Certainty returns. But as the world witnessed in 2016, Clinton was the assumed winner, and Trump shell-shocked the world. Now, we have a lull in uncertainty and volatility, but no one knows for how long.
There is one thing I am sure of: if you can identify big money buying the best quality stocks, you can have an edge. If there is a market drawdown, these are the stocks to be ready to buy. Despite the rags-to-riches dreams being sold to you, the whales still drive markets. And they move with the most confidence that their money can buy. It makes sense to place your bets alongside them.
The game of stocks is exciting. But don't think that because big money prefers anonymity, it's not the major driver – because it is. Big money plays hard ball. If you know this and understand how to use it to your advantage, you'll confidently sing: "Take me out to the ball game."
The Bottom Line
We (MAPsignals) are bullish on high-quality U.S. equities in the long term, and we see market pullbacks as areas to pick up great companies.
Disclosure: The author holds a no positions in the securities mentioned at the time of publication.