Institutions—pension funds, mutual funds, endowments and investment banks—hold about 70 percent of all listed stocks on U.S. exchanges. An investment axiom holds that retail investors can improve returns on their own investments by favoring those equities with high institutional buying. This is generally, but not always true.
Read the Investor's Business Daily newspaper to find stocks with strong institutional support. Two related lists tell the story. "Where the Big Money's Flowing" appears at the top of the stock tables and indicates which stocks have had the largest recent volume increases. Since institutional buying dominates the market, a stock with increased volume has strong institutional support. Another column, "accumulation/distribution," shows, for every stock listed in the paper's daily stock tables, a ranking from A through E. Stocks ranked "A" have had the most institutional buying in the previous 13 weeks.
Go to: http://www.nasdaq.com/symbol/ndaq/institutional-holdings to find daily reports on institutional holdings for any stock listed on either the NASDAQ or the New York Stock Exchange. Enter up to 25 stock symbols at a time to receive detailed daily information on these stocks, including percentage of institutional shareholders and a summary of activity: the number of new institutional buyers, buyers with increased positions, buyers with decreased positions and sold out positions. You can save reports for 25 stocks and return to the site for updates.
Go to your online broker's research section for find stocks with high institutional support and recent volume increases. While the details may vary slightly from broker to broker, the process is similar.
- Institutional buying is one of many criteria you can use to determine which stocks to buy. Investor's Business Daily includes six other criteria in their daily stock pages. You can read more about them at http://www.canslim.net/what.asp. The stock research area of any of the online brokerages allows you to specify dozens of additional screening criteria, including advisory rankings, year to date earnings and revenue growth over different time periods.
- A 2011 London Business School study, "Asset Prices and Institutional Investors," confirms that institutional buying has positive effects on stock prices, but also draws attention to a phenomenon often overlooked by retail investors using high institutional support as a stock buying guide. Institutional investors, the study shows,"optimally tilt their portfolios towards stocks that comprise their benchmark index," a practice that requires their buying a "higher fraction of risky stocks" than may be appropriate for a retail portfolio with fewer holdings and therefore less diversification.
Items you will need
- Stock account
- Internet access
- CANSLIM: What is CAN SLIM?
- Investors: Investor: How To Invest: Great Stocks Draw Institutional Buying
- NASDAQ: Institutional Holdings
- Asset Prices and Institutional Investors; Suleyman Basak and Anna Pavlova
- NA/Photos.com/Getty Images