An interesting question

This interesting question got lost on the “reminder” thread, so I thought I’d repost it. It’s basically “How can a company have more than 100% of its float held by institutions?”

I have a question about JCOM. One of my brokers list per cent held by institutions as “106.11” How is this possible? Does it have to do with the short interest percent of the float being above 20% Should we be concerned?

Hi D

The number of shares short hasn’t changed in the past 12 months, maybe come down a little from 11 million to 10 million. On the other hand if institutions hold 106%, it would seem to me that the shorts should be concerned, not us!

First of all, it means there is 120% of the float available (the 100% + the 20% additional sold by the shorts). Now if institutions have bought up not only the entire float, but more, that means they certainly think highly of the company.

Second, if there is good news and the shorts have to cover, there is only a tiny bit of shares that is liquid, that they can buy, the 14% that remains out of the 120% after you subtract what is held by institutions.

Third - Now if the good news not only impels the institutions to not sell to the shorts, who are trying to cover, but to add to their institutional positions, they would also be trying to buy from that small float. It could be an incredible short squeeze. I’d say you have to be insane to be short a stock where institutions own 106% of the float.

But maybe I just don’t understand the mindset of a short.

Saul

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This seems to answer your question. My take is that when institutional ownership is very high there can’t be much more buying by institutions themselves and it is institutional buying more than anything else that drives up stock prices. When institutions can no longer purchase additional shares, the stock almost has to drop.

We are currently seeing the churn in JCOM that the author of this linked article describes.

http://wiki.fool.com/The_Disadvantages_of_High_Institutional…

(sorry if this question has already been answered, still catching up on posts after a long layoff)