Understanding Stock Ownership

One of the variables investor-analysts should understand when conducting research is the reporting of stock ownership figures.  This data provides not only a glimpse into the major shareholders in a company, but also the recent changes in shares held by those same institutions or individuals over time.

Statements of Stock Ownership Information

A company's stock ownership information is usually reported in a standardized format, which includes the total number of shares outstanding, institutional ownership, the top 10 institutions, mutual fund ownership, 5% or insider ownership, and float.  Each of these concepts is discussed below.

Institutional Ownership

As the name implies, institutional ownership is the percentage of the outstanding shares of stock issued by a company and owned by institutions.  These organizations primarily consist of asset management firms such as TIAA CREFF Investment Management, Barclays Global Investors, and Fidelity Management & Research.

Institutional ownership is further broken down into several subcategories, including:

  • Top 10 Institutions (%):  the proportion of outstanding shares of stock held by the top 10 institutions in terms of shares owned.
  • Mutual Fund Ownership (%):  the proportion of outstanding shares held by institutions invested in mutual funds.

5% / Insider Ownership

Shares held by insiders or individuals and institutions owning 5% or more of the total number of outstanding shares is known as 5% or Insider Ownership.  A five percent stake in any large company is significant, and large companies typically don't have such shareholders.

That being said, there are 5% ownership positions held by individuals and institutions.  At one time, Bill Gates owned about 5% of the outstanding shares of Microsoft.  The investment firm of Berkshire Hathaway owns about 8% of Coca Cola's outstanding shares.

Stock Float

The term "float" is used in many different ways, but when used to describe stock ownership, float refers to the percentage of outstanding shares that are not owned by insiders of the corporation.  The exact calculation of float is:

Float % = (Shares Outstanding - Share Owned by Insiders) / Shares Outstanding

Detailed Information

In addition to the overall percentages held by institutions, insiders, and individuals described above, stock ownership data also includes the exact positions and names of those mutual funds, institutions, and individuals.

Stock Ownership Example

As of September 2017, Bill Gates held 167,000,000 shares of Microsoft with a market value of $12.5 billion, which represents roughly 2.2% of the total shares outstanding.

In addition to the securities held by each of these large shareholders, the change in their position over the last 3 months is also available to the public.  For example, here is some actual information on Institutional Ownership in Microsoft (9/2017):

  Shares Held Change in Shares % Change
VANGUARD GROUP INC 564,052,011 25,053,413 4.65%
STATE STREET CORP 477,160,372 5,959,942 1.27%
CAPITAL WORLD INVESTORS 334,919,849 -2,833,563 -0.84%

The above table tells us that Capital World Investors sold around 2.8 million shares of Microsoft, which was 0.8% of their total holdings.

Stock Ownership Activity

Publications typically summarize ownership activity for the investment community.  Here again, the best way to explain the concept is by using an actual table of information:

Microsoft Ownership Activity (9/2017)

  Holders Shares
Total Positions 2,541 5,801,185,717
New Positions 119 95,602,929
Sold Out Positions: 47 14,235,388
Buyers 1,062 312,829,978
Sellers 1,286 226,336,603
Net Position Change -224 86,493,375

Explanation of the above information includes:

  • Total Positions:  the total number of institutions and the number of shares held by those institutions.
  • New Positions:  the number of new institutions taking ownership of this stock, and how many shares they own.
  • Sold-Out Positions:  the number of institutions that have sold all of their shares of this stock, and how many shares were sold.
  • Buyers:  the number of institutional owners buying shares of the company's stock, and how many shares were purchased.
  • Sellers:  the number of institutional owners selling shares of the company's stock, and how many shares they sold.
  • Net Position Change:  the number of institutional buyers minus the institutional sellers.

Interpreting Stock Ownership Information

Institutions buy and sell stock for a variety of reasons. For example, institutional investors may want to capitalize on what they perceive to be a short-term inefficiency in the stock market.  This can happen when the price of a stock on the NYSE Euronext, and its corresponding futures contract on the Chicago Mercantile Exchange are out of sync.  An investor can buy the less expensive security and sell the more expensive item.  This is also known as stock arbitrage.

This type of activity tells the investor that institutional trading of stocks cannot be completely explained by the financial health or the fundamental analysis that an individual may have performed while researching a stock.

Investors use stock ownership information to augment research and to understand the affect these institutions can have on the price of a share of stock.  Large institutions can own enough stock to single-handedly drive the price of the security either up or down.  By analyzing stock ownership information, it's possible to gain a better understanding of the opportunities for that movement to occur in a stock's price.  For example, a stock with a relatively large proportion of their shares held by institutional owners may be more volatile.  This attribute would also be reflected in the stock's beta.  Some investors view these relatively rapid swings in stock price as a risk they'd prefer to avoid.

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