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Hello to everybody. Can
somebody explain me how can i determine is the stock "overowned" or
not? I think it's very important to know. In the book "How to
Make Money in Stocks" said:
"It’s possible for a
stock to have too much institutional sponsorship..."
"Janus Funds alone owned more than 250 million shares of Nokia and
100 million shares of America Online.." "In 2008, AIG had more
than 3,600 institutional owners when it tanked to 50 cents from the over $100
it had sold for in 2000. The government-sponsored Fannie Mae collapsed to less
than a dollar during the same financial fiasco. America Online in the summer of
2001 and Cisco Systems in the summer of 2000 were also overowned by more than a
ok. but i didn't find the
determine criteria of overowned stock.
lets look at the AAPL. It
has 4250 funds (too high for me) and its funds ownership is only 36%. Is this
stock overowned or not? Or look at the UBNT. it has only 148 funds but
its funds ownership is 99% (I think it's overowned). And it has dropped more
than 60 % since April.
What is the relationship
between the number of funds and funds ownership in % term? What is the
percentage that might be considered big?
And another question. Look
again at UBNT. It has 91.9 mill shares outstanding and 4.59 mill shares in
float. Funds own 99% so 4.59*99%=4.544 mill. It means that stock doesn't
overowned by funds. is it right?Management owns 91.9* 65%=59.735 mill. so
we have 4.544+59.735=64.279.
Who owns the another 27.621
(91.9-64.279) mill of stocks? insiders?
And now look at QCOR. It
broke out 64.94 buy point in good volume. But It has 63 mill of shares
outstanding. 54.8 mill of shares in float. Funds own 92% = 50.416. Mgmt has 12%
= 7.56. So there are only 5 mill shares to buy. And it doesn't include
insiders. IS this stock overowned or not?
please, help me understand
all this issues. Thanks
To be frank, I think you are over analyzing the data you have available. In the 10 plus years I have used the CAN SLIM method, I have almost never considered the ownership of a particular stock. There are plenty of stocks that are owned by more than a thousand mutual funds that have made strong moves (see AAPL and PCLN) recently.
It can be an issue when funds begin unloading the shares during a bear market - driving the stock price down a long way. But a savvy CAN SLIM disciple should be out of the stock long before that becomes an issue.
Thanks to your answer. You have a great experience. As regarding AAPL and PCLN I have no questions. These of companies have a great deal of funds, but all these funds own no more than 40% and 65% respectively, so there are a lot of stocks to buy. As I understand it’s less crucial to know how many funds own the stock than to know how many shares are already bought. What do you think about it? For example, if the 90 % of the company’s shares are already bought, how many chances that the stock will make huge run up? Is it a good sign when there are few stocks to buy?
Ok. Here is mainly what I look for. Float<50 mil shares. Float< 100 mil. still acceptable. less than 100 funds owning the stock is ideal, however less than 250 funds is still acceptable. When It comes to fund % of the float I look for mainly less than 70% with less than 50% being the prime spot. But like dtempest said If i find a company with superior fundies and technicals no matter what the ownership or float is I will go for that company. Fund ownership to me is a secondary consideration.But all other factors being equal I will shoot for the company with the criteria I mentioned above since that stock will likely to move faster. 99% ownership by funds is too much especially for a seasoned company. If its an IPO they may go thru secondary offering and float more shares.But if a seasoned company is owned that much it is way too dangerous as there won't be any stock for short sale if the stock breaks, it will break down sharply.
The short answer is IBD does not define specific values; it is more of a feeling. If it helps, this question was asked on investors.com; two of the better threads can be found here, but don’t get your hopes up as the threads will bear out, there isn’t a good answer out there – which is my point. It is more an art than a science for determining over owned, which is why many who follow CAN SLIM don’t spend the time to learn this art. If you do, it will make you a better investor.
You have two indicators to use to determine if a fund is over owned, Number of funds owning a stock, and the % of stock owned by funds.
As for the number of funds, keep in mind that MarketSmith changed how it counted number of funds in November 2010. Just to simplify the change, they expanded what types of institutions from not just retail funds but to include private funds, hedge funds, pension funds, etc. This resulted in the counts increasing by an approximately 4x. IBD recommends a minimum of 50 funds, but they don’t really have an upper limit. Prior to the change the value was much lower and you may see some references to those lower values. (If you attend an IBD Meetup, ask your Meetup organizer if they can get you Lesson 9, it speaks on Quality and Rising Sponsorship). If you don’t attend a Meetup, you should check it out and see if one is near you. I have a shared MarketSmith screen called “I in CANSLIM - Lightly followed Stocks” - this screen is a loose screen, but only looks for stocks with less than 100 institutions. The screen very rarely produces more than a few stocks. It goes to show that you don’t want to waste your time on thinly followed stocks.
As for how many stocks would be considered over owned. You left out an important factor in determining this – Market Cap.
I created a table that shows the relationship between the market cap and the number of funds. You can find it at this link: docs.google.com/open . The larger the market caps the more funds that will own it. For a Micro-Cap stock, the average number of funds owning a stock is 117, for a Mega-Cap the average is 1939 (data is as of 7/28/11). I will leave it up to you to update this chart :-). Don’t use the same ruler to determine over owned for different market caps. How I use No of Funds to determine if a stock is over owned, basically, I look at where it falls on the range for its market cap. The closer it is to average or below average the better, the farther above the average the worse it is. If it is at the extreme values, it is most likely over owned. It is not like ROE, where IBD gives a cut-off.
As for the percentage of stock owned by funds, some of the same rules apply; you need to compare it with others of similar market cap. I created a table that shows the relationship between the market cap and the percentage of shares owned. You can find it at this link: docs.google.com/open – The range provided is 2 Std Dev from the average, it is not the high and lows. As a rule of thumb, I like to see a range from 5% to 80%, outside this needs further investigation – this should be adjusted for market cap; Mega Caps have lower values, small caps have larger values.
Other things to keep in mind when using % of stock owned:
- If you are using sites other than IBD’s, they frequently use outstanding shares, instead of Float, resulting in lower numbers.
- I have seen errors (or at least inconsistent data) for companies with multiple classes of stocks. Frequently, you will notice that companies with a % of shares owned =99%, the company will have multiple share classes, and the one of the classes is heavily owned by insiders or venture capital firms. For firms with a high value, you need to investigate further, the weekly MarketSmith charts shows some of this data including shares in the largest class in () next to the outstanding shares.
- If you have prior values for % of Stock owned, they can be comapred to identify rising sponsorship, confirming an increase in No of Funds that is available in MarketSmith.
When using these two indicators, I usually rely upon % of Stock owned for determining over owned stocks and Number of funds to determine if it is under owned.
Finally, to add to the art of determining over owned, the following are three signs that I use to determine if a stock is over owned:
- It is known by everybody?
- Does it have a tougher time making price moves up (choppy price action and stalling)?
- Look at the base count. Is it a late stage base?
For further research on this topic, the following is a good article on Investopedia.com www.investopedia.com/.../101503.asp . This is in addition to the Meetup Lesson 9, mentioned above.
Hope the helps.
Meetup Organizer for the IBD Meetup in The Villages
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