By John Jagerson
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Most stock ownership is held by institutions. These entities may be pension funds, insurance companies, mutual funds, hedge funds or investment banks. Because the largest holders of most stocks are institutions knowing what they are doing with their stock could be useful information for traders. Fortunately the holdings for most institutional investors are publicly available and can be found categorized by stock symbol.
Here are a few quick tips to help you understand what institutional ownership is and how it can be useful for traders investing in individual stocks. To illustrate these tips we have included a screen shot of the institutional ownership records of Google Inc (GOOG). You can find this information yourself, on other stocks, at www.nasdaq.com.
VIDEO: Understanding Institutional Ownership
1. What percentage of institutional ownership is normal?
Because most stocks in the market are owned by institutions it is perfectly normal to see 70% or more of any individual stock to be held by institutional investors. There isn’t a “good” or “bad” percentage but stocks with very low institutional ownership are likely to be very small cap stocks and could be much more volatile than others.
2. How many institutional investors is good?
Once again there isn’t really a “good” or “bad” number here but as a general rule the more investors the better. That way, the moves made by one or two investors will not affect the stock as much as if there were very few institutional investors holding very large percentages of the outstanding stock.
In most cases, widely traded large and small cap stocks will have a sufficient blend of institutional investors. The largest institutional holders can be identified for individual stocks as shown in the image. You can even investigate what other holdings a particular institutional investor has in their portfolio by clicking on the name of the firm.
3. Net activity shows whether institutions are accumulating or distributing stock
The difference in institutional holdings from one filing period to the next is shown as a net increase or decrease in the report. If institutions are distributing or selling stock the number will be negative. If institutions are accumulating or buying stock the number will be positive.
In a bear market, most stocks will show a net decrease and the opposite is true in a bull market. However, periodically you will find stocks that stand out with extreme selling or buying. It could be helpful to look at this information before making a buy or hold decision.
