How Does Investors Business Daily Determine Who Is Buying Stocks?
Investor's Business Daily and CAN SLIM, the stock investing system developed by the paper's founder, William O'Neil, emphasize the importance of checking institutional sponsorship and support when selecting stocks. The newspaper routinely talks about investors or institutions buying or selling specific stocks, but its focus is on the percentage of institutional ownership and its dynamics, not who specifically is buying or selling.
Other People Are Reading
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The "I" in CAN SLIM Stands for "Institutional Sponsorship"
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IBD says that since institutions -- mutual funds, pension funds, hedge funds, insurance companies, bank trust departments and charitable foundations -- account for 3/4 of all stock trading, their buying and selling has a strong impact on stock prices. If institutions are net buyers, a stock's price is likely to advance; if institutions are net sellers, a stock's price is likely to decline; if institutions own a large percentage of a stock, it enjoys stability because institutions routinely "support" the stock by buying more of it at certain points to prevent the price from dropping below a key level. Individual investors should follow institutional trading, and the first step is to know what institutions are doing with regard to a particular stock.
Tracking Institutional Trading
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Institutions report purchases and sales of stocks monthly. IBD tracks these numbers for each stock it follows to determine whether institutional sponsorship is increasing or decreasing, as well as to ascertain the quality of sponsorship. The increase/decrease is evident from the overall institutional ownership percentage changes; the quality of sponsorship is determined by which institutions own the stock.
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IBD Accumulation/Distribution (A/D) Rating
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IBD makes it easy for investors to get to the bottom line: each stock has an "accumulation/distribution" rating. A high rating indicates net institutional buying; a low rating indicates net institutional selling. Institutional buying is often referred to as accumulation, and institutional selling as distribution, hence the term. Some investors contend that the data IBD uses is a month or more old and is no longer relevant; IBD says that it is still useful because a large institution may take months to build or sell a stock position.
More Detailed Information
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IBD does not break down stock purchases and sales by institution, but some websites, such as MSN Money, provide a list of top institutions and their ownership stakes in specific stocks. Individuals are not required to report their transactions unless they are insiders or own more than 5 percent of the shares.
Conjecture
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Some action in individual stocks can be deduced by conjecture. If institutional ownership is increasing, institutions are buying. If a stock jumps on unusually high volume, it is safe to assume that some of the buying that pushed up the price was by institutions.
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