Institutional Investing and the Stock Market

Institutional investing refers to a non-bank person or organization (mutual funds, pension plans, insurance companies, etc.) that trades securities in large share quantities. When these organizations purchase a particular stock, the market will often have favorable expectations for that stock.

Following what these big players are investing in is believed by many to be a good indicator of where to invest. These large investors have professionals looking into all aspects of the companies of interest and have access to information and direct contact with the company’s management team- small investors just can’t access this level of information. Only if the stock stands up to this very thorough process will they make a purchase decision.

On the other hand, if they reach a sell decision, it could be a good indication that the company is in or heading for difficult times. Because they tend to hold such large positions, though, it can take institutional players days or weeks to acquire or exit from a particular position. When buying, they usually acquire slowly to avoid driving up the price before they reach their acquisition goal. The same is true when they are selling as they will sell their shares gradually to keep the price up as they go through the process.

Tracking Institutional Investing

To see a company’s institutional ownership you can visit MSN Money, enter a stock symbol and got to the “Fundamentals” section (in the left column) and then “Ownership”. The activities of these large investors can also be observed by watching trading volumes, since they usually deal in large trade blocks.

A Word of Caution

It is not recommended that the average investor blindly follow in the path of institutional investors as their goals and priorities may differ greatly from a smaller investor. The small investor won’t know if the institutional investor has acquired the stock as part of a “buy and hold” strategy or whether they are looking to take advantage of a small uptick and quickly exit. When these large investors sell their position, the value of that particular stock may fall dramatically.

It is also worth noting that, even with all of the resources available to them, these institutional investors do, at times, take ill-advised risks in an effort to raise their performance level, which is constantly monitored.

More information on institutional stock investing

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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