How to Beat Hedge-Fund Bullies

While the information that can be gleaned from DTC lists does not name exactly who is buying or selling a stock, it can indicate whether the investor is a hedge fund or an institutional investor such as a mutual fund or a pension fund. Institutional investors tend to use custodian banks because they need their services to settle trades, notes an unnamed stock-watcher. However, hedge funds usually hold their stocks at large prime brokerage firms such as Goldman Sachs, Lehman Brothers, and Morgan Stanley.

In addition, stock-surveillance firms can narrow down a list of possible investors based on their familiarity with investors' trading styles and investment strategies. "For example, if we begin to see major trading in derivative contracts as well as purchases of stock, a name like Atticus could be involved," says one stock-watcher.

At least a company can consult stock-trading spies to learn more about their investors when faced with a grown-up schoolyard bully with a lot of capital. "We understand the different hedge funds, who has staying power, and which names to look out for," says the undercover equity-market snoop.

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