Inside the Fundamentals

A reader, Steven Mac, asked me if I could highlight the key fundamental points in the case studies I post on this blog. I will list his questions (in blue) below and then answer them using the numbers of actual case studies in 2007 (MA, BIDU and EDU will be my focus). Read any of these books to understand in depth what I am looking for with fundamental analysis:


1) What is the min number of institutions you want to see holding a stock? What is the max?
2) Shares Held/Previous Period
3) Shares Bought and Sold – total interest of all participants? increasing buy demonstrating demand on expected results? sold indicating institutions are aware of some internal number or news of future performance problems?

Question #1 Answer:
I don’t have a minimum number of institutions that I would like to see holding a stock. I also don’t like to set a maximum threshold. However, I prefer to see a young growth stock have between 50 and 300 institutional investors. This tells me that it has room to grow and more “smart money’ can pour in without saturating the stock’s market.

2/6/07: EDU: 97, 8/23/07: EDU: 159 – 64% increase
4/2/07: MA: 393, 8/23/07: MA: 513 – 30% increase
4/25/07: BIDU: 255, 8/23/07: MA: 238 – a decrease (+18 sellers last period)

*EDU had a 1900% increase in institutional buyers during the case study in february. As you know, the stock moved from $36 to $60 after the case study and sponsorship increased another 64%.

*BIDU moved from $100 to $200 after the case study as institutional investors jumped in but they have been bailing as of late.

Think about this: RIMM has 841 current holders, AAPL has 2,436 and MSFT has 3,746.

Question #2 Answer:
I pinpoint stocks that have had substantial increases in shares held versus shares held previous period. This statistic will directly correlate to the value of shares bought and the value of shares sold. As long as more money is pouring into the stocks, I will keep it on my watch list for a potential buy. The contrary is true if I am looking for reason to sell. Anything above 25% is solid and anything above 100% is substantial (PRXI was my latest case study and the shares held went from 2.8M to 11.7M for a 318% gain).

Question #3 Answer:
Shares bought is very important because it is the true number behind the increase in institutional sponsorship. For example, institutional buyers may increase by 60% but the number of new shares bought may only increase by 10% (not a good sign). But, if the number of new shares bought is a lot stronger than shares sold, we have accumulation.
EDU had 6.3M shares bought and only 22k sold – ACCUMULATION! (286:1 ratio)
MA had 36.2M shares bought and 25.3M shares sold – ACCUMULATION (3:2 ratio)
BIDU has 8.63M shares bought and 4.58M shares sold – ACCUMULATION (2:1 ratio)

Reader Questions:

1) Any particular sizing you would like to see a particular institution own?
2) Any particular institutions owning a stock? such as Fidelity, Morgan Stanley, Goldman Sachs, etc?

Question #1: No – I don’t care how many shares an institution owns – I show this list for fun.
Question #2: No – I don’t care how which institutions own stocks – Again, I show this list for fun.

Key Fundamental Number Questions:

  • Question #1: Market Cap is listed in my case studies to show the size of the company.
  • Question #2: Outstanding shares allow readers to determine if the stock is liquid based on float
  • Question #3: the Float tells you how many shares are available in the open market (is it liquid)
  • Question #4: ROA should be positive and above 15%
  • Question #5: ROE should be positive and above 15% (love companies above 25%)
  • Question #6: P/E should be aligned with its industry. High is above 75 for my research (you must catch these growth stock before they reach these levels. It is a good idea to look to take profits when a stock you own has its P/E run up by more than 100% (example: from 50 to 100). However, the P/E for BIDU was at 90 when I did the study and the stock still doubled.
  • Question #7: Price to Sales is only good for comparing to industry competitors
  • Question #8: Price to Book could tell you that a stock is undervalued/overvalued or that something is wrong (only compare to industry competitors)
  • Question #9: PEG Ratio: below 1.0 is good and below 0.50 is excellent
  • Question #10: Net Income should be increasing by 25%-50% year over year
  • Question #11: Earnings should be increase by at lest 25% year over year
  • Question #12: Revenue should be increasing in proportion to earnings year over year, 25%+

I hope this help when using my case studies. Please ask if you don’t know and I will happily explain!


  1. Chris,

    Regarding your answer to Question #3, you showed stocks with strong accumulation by institutions. For example, you showed that EDU had 6.3M shares bought and only 22k sold. Over how long of period do those numbers represent? Is it over the most current 3 month period?

    Also i am having a difficult time interpreting information on websites like For the trailing 3 month, the site showed the following institutional numbers;

    Purchased: 27M
    New: 36M
    Sold: 28M
    Closed: 11M

    I do not know what they mean by “New” and “closed”. Can you please help me understand these?

    Thank you Chris!!

  2. Steven Mac says

    Hey Chris, thanks for getting this post out here for me and others. This has substantially shed the light on this area concerning what you have been teaching. Again, I appreciate the extensive amount of time you take to answer mine and other reader questions on a daily basis to help further our investing education.

    Steven Mac

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