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Martha Stokes CMT is the CEO of TechniTrader a stock market educational company. She is a former Buy Side Technical Analyst. Since 1998 has co-created over 40 TechniTrader Stock and Option training courses for investors and traders. She has been a guest speaker for TradeStation, MetaStock,... More
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Market Review Blog by Martha Stokes CMT
  • Shareholder Supremacy In The Stock Market 0 comments
    Apr 19, 2014 3:25 PM

    With so much of the market commentary focused on short term trading activity such as High Frequency Traders, volatility Exchange Traded Funds and Exchange Traded Notes, and new derivative trading regulations, a quieter revolution is underway. Most people forget that the stock market is not just "Wall Street" but is actually two distinct giants, the Buy Side Institutions and the Sell Side Institutions.

    The Buy Side has been slowly seizing control over the once dominant Sell Side Institutions. Before the 2008 banking debacle, Buy Side Institutions followed the lead of the Sell Side for investment advice, investment strategies, and investment instruments.

    This has changed as the Buy Side continues to wield its massive influence over the average mutual fund investor, over market venues eager for the business of these giant lot buyers, and over smaller fund managers who attempt to follow their lead. With trillions of assets under management and percentages of outstanding shares held by institutions rising steadily over the past few years, corporations are now facing the prospect of leveraged shareholder voting among the Buy Side giants.

    The concerns of many corporations over-diluting insider control was clearly stated in the Google stock split. Instead of doing a normal stock split, Google created another class of shares (Class C) without voting rights.

    The Buy Side Institutions shunned the Facebook IPO for that firm's limitations on voting rights which caused the stock to falter and fumble through its first year rather than being the stellar IPO of its decade.

    Corporations who have huge percentages of giant and large Buy Side Institutions holding are considering the consequences of having so many of their outstanding shares held by giant and large mutual funds and pension funds that could vote as a block and directly impact and shift the direction of the company.

    The percentage of the S&P500 stocks' shares held by institutions of would surprise most average investors.

    200 of the 500 component stocks on the S&P500 have over a 90% institutional ownership percentage. 378 of the same 500 have institutional percentage holdings over 75%. 485 of the 500 have institutional ownership holdings over 50%.

    Institutional Ownership percentages include all investors classified as institutions, which are Sell Side, Buy Side, smaller funds, foreign funds and nonprofit funds. However, the percentages are significant, especially if the largest holders decide to vote as a group.

    With higher institutional ownership in stocks, the influence of the major holders could alter the business structure, model, and future of corporations, both large and small, should these firms come together to vote in a block to overturn Board of Directors' and Officers' decisions. Institutional Shareholders can and do influence corporations, Boards, and Officers. How much they influence may change in the future if this trend continues.

    These high institutional ownership percentages also show that the institutions are continuing to control more and more of the outstanding shares of all of the listed stocks in the US, from big blue chips to new IPOs, and that the percentage of institutional control is slowly rising.

    This may not seem alarming but consider that this phenomenon of institutional ownership leaves little room for the individual average investor. The role of the individual independent investor continues to be marginalized even though the news media and all of the market participants continue to exploit and use the average investor to influence political sentiment for their agenda. What the institutional percentage of shares held shows is that the markets over the past few years are continuing to move further away from the small private investor buying stocks to more and more monies under the control of the institutions.

    It points to a continued marginalizing of the average investor to a passive submissive role, with less of a say in where their investment dollars are placed, the true risk of the investments, and their overall status as investors in the stock market.

    With the numbers of independent investors dwindling and the declining percentage of shares held by the individual investor, one must wonder just how much any of the current chatter about Dark Pools, High Frequency Traders, and Exchanges really affects the average investor and how much of the commentaries are simply fodder for lobbyists attempting to influence Congress for their particular group.

    Written by: Martha Stokes, CMT

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Ā© 2014 TechniTraderĀ®. All rights reserved. All statements are the opinions of TechniTrader, its instructors and/or employees, and are not to be construed as anything more than an opinion. There is risk in trading financial assets and derivatives. Due diligence must be done before trading any issue. At no time is any stock or issue on any list written or sent by TechniTrader and its employees to be construed as a recommendation to buy or sell any stock or issue. TechniTrader is not a broker or investment adviser. It is strictly an educational service.

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