How to Use Institutional Ownership
In my book, Invest with Success--Big Profits for Small Investors, I refer to institutional investors as the "BIGs." The BIGs are the big money mutual funds, hedge funds, endowment funds, insurance funds, and pension funds. They are buying millions of dollars worth of stock, and their action is necessary for a sustained stock trend. As "small" investors, we ride the trends that the BIGs create.
We can see when the BIGs are buying by watching daily volume. Due to the vast amount of shares they buy, the BIGs cause surges in daily volume. This can generally be seen as any day when the volume is greater than average (50-day average is commonly used).
A bigger picture way to see the activity of the BIGs is to look at the "Percent Shares Held By Institutions." When the BIGs are accumulating a stock, the percent of shares held goes up. This fundamental gauge can be plotted on some charting programs and it enables the trader to quickly see when a stock is being bought up.
See the chart below.
Last week, the stock, DANG, was presented. Over the last week, the stock gained +20%!
Note the two high volume days last week (see two arrows). The BIGs were active.
In the lower chart window, the Percent Shares Held by Institutions is plotted. Note how the BIGs bought up the stock in July and August. That accumulation is contributing to the stock's current rise.
The current percent of shares held is 17% (see arrow). This is relatively low. If the BIGs continue buying and eventually own 50% or 75% of the stock shares, DANG is likely to trend up higher.