Investor's Business Daily, April 16th, 2007
Individual investors tend to overestimate how much impact they have on the stock market.
In fact, it's the big investors -- mutual funds, insurance companies, pension funds and banks -- that control 3/4 of the market's movement.
The big buying power of those professional investors can make or break a stock.
If they're grabbing shares, that demand can boost a stock's price. If they're unloading their position, their selling can send share prices tumbling.
As a rule, the more institutional sponsors, the better. But it also pays to look at the quality of those big-money investors.
Do the funds investing in the stock you're eyeing have a history of picking winners and of logging big returns for their own investors? Or are they laggards, turning in lackluster performance year after year?
IBD's Your Weekly Review table, which runs each Thursday, lists the top-performing mutual fund with a stake in each stock, as well as the percentage of the fund's portfolio that's invested in that stock.
A portion of a recent Weekly Review table is shown in the above graphic. It also lists the fund's IBD rating, which is based on its performance over the past 36 months.
When you're evaluating the quality of the funds invested in a company, you want to see at least one fund that's rated A- or higher. The more of those you see, the better.
Another way to get an idea of the quality of the funds invested in a stock is to check out the stock's Sponsorship rating, which appears in the daily stock tables on Tuesdays in the print edition of IBD. Those tables are also available at IBD's Web site, investors.com.
The rating factors in whether the number of funds owning a stock has increased or decreased in recent quarters. Like the mutual fund rating, it also runs from A to E, with A being the best.
Copyright 2007 Investor's Business Daily, Inc.
