Trade Like an O'Neil Disciple: How We Made 18,000% in the Stock Market

1.7. DEALING IN BIG STOCKS AND INSTITUTIONAL SPONSORSHIP

Owning the biggest winners in the market means owning the stocks that institutions are piling into, and O'Neil sees modern-day mutual funds, hedge funds, and pension funds, and other members of the "institutional investor zoo," as akin to the "pools" and "trusts" of Jesse Livermore's and Richard Wyckoff's era. It is the accumulation of stock by large institutions that produces the huge price moves upon which O'Neil methodologies seek to capitalize. And the smart institutions, such as those with the better research and stock selection skills, are the ones in whose footsteps you want to follow. O'Neil asserts, "It takes big demand to push up prices, and by far the biggest source of demand for stocks is institutional investors, such as mutual funds, pension funds, hedge funds, insurance companies, [etc]. A winning stock doesn't need a huge number of institutional owners, but it should have several at a minimum." O'Neil continues, "[Diligent investors] look for stocks that are held by at least one or two of the more savvy portfolio managers who have the best performance records" (How to Make Money in Stocks, 4th ed. [New York: McGraw-Hill, 2009], 193–194).

Knowing where the smart money is moving is central to O'Neil's methodology, and understanding the quality of institutional sponsorship coming into a stock is no different from what Richard Wyckoff advised when he wrote, "It is important to know whether large operators, inside ...