Page 316 - How to Make Money in Stocks Trilogy

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• C HAP T E R •

I = Institutional Sponsorship

It takes big demand to push up prices, and by far the biggest source of demand
for stocks is institutional investors, such as mutual funds, pension funds,
hedge funds, insurance companies, large investment counselors, bank trust
departments, and state, charitable, and educational institutions. These large
investors account for the lion’s share of each day’s market activity.

What Is Institutional Sponsorship?

Institutional sponsorship refers to the shares of any stock owned by such
institutions. For measurement purposes, I have never considered brokerage
research reports or analyst recommendations as institutional sponsorship,
although a few may exert short-term influence on some securities for a few
days. Investment advisory services and market newsletters also aren’t con-
sidered to be institutional or professional sponsorship by this definition
because they lack the concentrated or sustained buying or selling power of
institutional investors.
A winning stock doesn’t need a huge number of institutional owners, but
it should have several at a minimum. Twenty might be a reasonable mini-
mum number in a few rare cases involving small or newer companies,
although most stocks have many, many more. If a stock has no professional
sponsorship, chances are that its performance will be more run-of-the-mill,
as this means that at least some of the more than 10,000 institutional
investors have looked at the stock and passed over it. Even if they’re wrong,
it still takes large buying volume to stimulate an important price increase.

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