The Power of Institutional Investors

Few investors pay attention to the power of institutional investors in the stock market -- a major mistake considering the immense influence institutional investors have in the dynamics of the stock market. Research estimates institutional trading represents 70 percent to 80 percent of market volume - clearly the power of institutional investors is a force to be reckoned with.

First, it is important for the individual investor to understand who these institutional investors represent. You might be surprised to learn that the majority represent you or people just like you. The largest segment of institutional investors are comprised of pension and retirement funds from large corporations, government, school systems and other employment-sponsored retirement benefits.

This is important to the average investor for two reasons: if you invest in the same stocks that your pension fund is investing in, you are at double the risk should the market decline. Not only will your company-sponsored pension or retirement lose money, but so would your individual investment portfolio.

Next, as an individual investor, keeping an eye on the purchase and sale of stock by major institutional investors can provide a tremendous advantage to understanding market trends impacting domestic and foreign stocks.

Finally, keep in mind that as an individual investor you can see the percentage of a company's stock held by Institution investors. A company whose stock is thinly held by institutions has the potential to soar higher when those institutions buy in. When institutional investors buy a stock, it has the same effect of when a fat lady gets into a bathtub.

« PREVIOUSNEXT »