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I just noticed that some stocks are largely held by institutions while some are very less.

What can we conclude/learn from this number?

Comparing two companies inst. own %

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    The only thing you can conclude with absolute certainty is that institutions own a higher fraction of the company when "inst. own" percentages are higher. – ChrisInEdmonton Aug 29 '14 at 12:38
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There are a LOT of reasons why institutional investors would own a company's stock (especially a lot of it). Some can be:

  1. The company is in one of the indices, especially big ones.

    Many asset management companies have funds that are either passive (track index) or more-or-less closely adhere to a benchmark, with the benchmark frequently being (based on/exactly) an index.

    As such, a stock that's part of an index would be heavily owned by institutional investors.

    Conclusion: Nothing definitive. Being included in an equity index is usually dependent on the market cap; NOT on intrinsic quality of the company, its fundamentals or stock returns.

  2. The company is considered a good prospect (growth or value), in a sector that is popular with institutional investors.

    There's a certain amount of groupthink in investing. To completely butcher a known IT saying, you don't get fired for investing in AAPL :)

    While truly outstanding and successful investors seek NON-popular assets (which would be undervalued), the bulk is likely to go with "best practices"... and the general rules for valuation and analysis everyone uses are reasonably similar. As such, if one company invests in a stock, it's likely a competitor will follow similar reasoning to invest in it.

    Conclusion: Nothing definitive. You don't know if the price at which those institutional companies bought the stock is way lower than now. You don't know if the stock is held for its returns potential, or as part of an index, or some fancy strategy you as individual investor can't follow.

  3. The company's technicals lead the algorithms to prefer it. And they feed off of each other.

    Somewhat similar in spirit to #2, except this time, it's algorithmic trading making decisions based on technicals instead of portfolio managers based on funamentals.

    Obviously, same conclusion applies, even more so.

  4. The company sold a large part of the stock directly to institutional investor as part of an offering. Sometimes, as part of IPO (ala PNC and BLK), sometimes additional capital raising (ala Buffett and BAC)

    Conclusion: Nothing definitive. That investor holds on to the investment, sometimes for reason not only directly related to stock performance (e.g. control of the company, or synergies).


Also, does the fact that Inst. Own % is high mean that the company is a good investment and/or less risky?

Not necessarily.

In 2008, Bear Stearns Inst Own. % was 77%

  • Haha seems my questions is stupid. But what a great answer, thanks, DVK! – AGamePlayer Aug 30 '14 at 12:36

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