This time marks the seventh installment of William O’Neil’s Growth Stock Discovery Series. For those who missed the previous articles, please take a moment to read them through the following link:
I would recommend purchasing William O’Neil’s book to thoroughly understand the details of his investment methodology.
CAN-SLIM’s “I”: Institutional Sponsorship
CAN-SLIM’s “I” stands for “Institutional sponsorship,” referring to the level of support a stock receives from institutional investors such as major brokerage firms and investment funds.
Here are several points related to “I”:
- Institutional Ownership: Successful stocks often have substantial ownership by institutional investors. This indicates that experts have high expectations for the stock’s future growth and profitability.
- Increase in Institutional Ownership: When a stock’s price rises, and institutional investors increase their holdings, it enhances the stock’s credibility in the market. An increase in major institutions can reflect greater overall market confidence in that particular stock.
- Tracking by Institutional Investors: Successful stocks may draw attention from well-known institutional investors or funds. Investors can track the portfolios of such institutional investors to understand which stocks they are focusing on.
- History of Institutional Ownership: Ideally, a stock has a favorable history of being held by reliable institutional investors over an extended period. This suggests that the stock has sustained attractiveness.
In summary, CAN-SLIM’s “I” emphasizes the importance of assessing how much interest and ownership a stock has from institutional investors and leveraging this information in investment decisions.
Pay Attention to the Quality and Quantity of Shareholders
When approaching investment seriously, careful investigation of institutional investors’ activities and shareholder composition is crucial in stock selection. Here is a brief guide on information to pay attention to:
Institutional Ownership:
- When considering a stock, check how many institutional investors hold that stock.
- Verify if the number of institutional investors has increased in recent quarters and assess if steady support is present.
Increase in Shareholder Numbers:
- Check if the number of shareholders for the stock has significantly increased in the recent quarter.
- An increase in shareholders suggests heightened market attention and increased expectations for the company’s growth.
Quality of Institutional Investors:
- For stocks held by institutional investors, check if these institutions are well-regarded within the industry.
- Stocks held by high-performing and reputable institutional investors may have gained a certain level of credibility in the market.
Evaluation of Investment Trusts:
- Verify the performance evaluations of investment trusts over the last 36 months.
- An “A Plus” rating indicates being in the top 5%, suggesting strong performance. Note that growth-focused investment trusts may receive lower ratings in bear markets.
Portfolio Manager Changes:
- If there have been changes in portfolio managers, investigate the skills and historical performance changes of the new manager.
- Understanding the impact of manager changes on performance is crucial.
Considering these points comprehensively allows for a more accurate evaluation of the quality and future growth potential of a stock.
Pay Attention to Stocks Recently Purchased by Institutional Investors in the Last Quarter
The positions newly acquired by institutional investors are more crucial than existing positions. Since these new positions are likely to be added to in the future, they provide significant information in the market.
Reports are typically publicly released about six weeks after the end of the institutional investor’s quarter, making the information available to investors. While some investors may feel that the value of the information is lost due to the time it takes to obtain the reports, this is not necessarily the case.
The large trades by institutional investors usually appear on the ticker tape of brokerage firms, having a substantial impact on the market. These investors are key players in the market, especially on the New York Stock Exchange (NYSE), where institutional trades make up a significant portion of the market.
Direct information not included in the reports can be found in the large trades appearing on the ticker tape. This allows market participants to understand which stocks institutional investors are focusing on and what moves they are making.
While stagnant stocks may be part of this information, there is a possibility that noteworthy investment opportunities exist among the newly purchased stocks. Investors can leverage this information comprehensively, accurately interpreting the trends of institutional investors to establish advantageous positions in the market.
Institutional Ownership Signifies Market Liquidity
One of the advantages that individual investors have over institutional investors is the ability to trade in the market smoothly.
Stocks held by institutional investors tend to be relatively easy to sell when they want to, thanks to the liquidity they provide in the market.
On the other hand, stocks with little institutional ownership may face challenges in finding buyers, especially in a bear market.
The high liquidity in stocks, particularly in the quality stocks of the U.S. market, provides a significant benefit to individual investors.
In contrast, real estate markets often have lower liquidity compared to stocks, making buying and selling more challenging.
Moreover, real estate transactions involve broker fees and commissions, which need to be taken into account.
In summary, individual investors can leverage the liquidity of stocks held by institutional investors for smoother trading.
Additionally, focusing on stocks that have seen an increase in institutional ownership in recent quarters can enhance market attention, making it easier for individual investors to identify promising investment opportunities.
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