High institutional ownership in an individual stock signals what?

Question

One of my favorite stocks over the past few years has been Western Digital Corp.(WDC), a manufacturer of hard drives. I bought in at a good price and the stock has treated me very well but I want to re-evaluate sort of where I stand.

I am just curious if I should pay any attention to the high "institutional ownership" (95% according to Google Finance) of the company. The only reason I can see this being bad is in the event of really bad news/a huge sell off where it would probably be very hard to dump my shares?

Anyway, any input would be appreciated.

(Also, part of the reason for this question is that I'm 99% sure that I read in a book somewhere to be wary of stocks with high institutional ownership)

Answer 1

Here is what you are facing.  As people pull their money out of mutual funds due to the poor performance that they are currently experiencing, the funds have to liquidate certain of their holdings to meet the redemption request.  Those holding could include WDC.  In fact they probably will include WDC although the stock has held up admirably well so far.

Answer 2

It does open the stock up to more voliltility.  They have more access to information than you likely do and if they dump it the price will respond more severely.  On the other hand, they are into that stock for a reason (not that the reason couldn't change;) that same added info has told them that the stock is a good investment.  WDS is at the top of the game as far as product, name recognition, and market share, so I would think that's why they're there.  Finally, your portfolio should be balanced so that the risks of loss are spread around; if it's a huge part of your investment portfolio, I would divest some and find something else.

Answer 3

you are correct in your assumption. But that just indicates that some one smarter than you thinks highly of the way it is performing as well. I might sell some at this point if it is a concern

Answer 4

One problem is that stocks with high institutional ownership receive less pressure from shareholders because the institutions are typically friendly to management.

There is also a liquidity problem is so much is held by so few. Poor liquidity always reduces the performance of any financial instrument.

Answer 5

Mutual funds don't perform at really high levels often because they are in fact diversified. Some of the high gains are offset by high losses.