Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag: Supporting Stock Prices



Editor's Note: Minyanville is a community of people who share an interest of fiscal literacy. As perspective is an important aspect of our daily routine, we share this email with hopes that it adds balance to your process.

Prof. Succo -

Let's say four big holders own 80 % of the float in a company. The remaining 20 % is owned by the public and other smaller players. Let's also assume that the big four also have the muscle power to buy the remaining 20 % if need be. I would think that this situation is highly plausible with most stocks being with institutional investors.

My question is, is it possible for the big four to just keep the stock price wherever they want? It does seem that big players can assign any value to the company as long as it stays above their basis. Can it be termed manipulation? Is it legal?

Minyan SS


Institutions report their holdings, so no secrets are allowed. Normally, mutual funds do have rules about how large as a percentage of their fund they want in any one stock. Also, once a holding gets larger than 5% of the float of a company the holder must file with the SEC and delineate their intentions.

In certain stocks this does occur, but in large capitalization names it obviously becomes more difficult and long term manipulation/collusion is difficult. Fannie Mae (FNM) is a good example. Despite deteriorating fundamentals and increasing uncertainty in the company's "franchise", and a complete stoppage of the company issuing any financial statements at all, a few large holders increased their holdings substantially, perhaps in an attempt to support the stock. But one large holder decided to sell instead and out-trumped the buyers. So you can see that economic interests normally prevent collusion in at least large companies.

In smaller companies it is easier to "control" the stock price, at least in the short run, but ultimately fundamentals will prevail. I am intimately involved in an option position in a smaller capitalization company where one mutual fund owns 30% of the company. This holder obviously not sell the stock into a weak stock price and must wait for strength to do it. I have noticed that the fund does increase their buying when the stock price is weak on bad news. Ultimately unless they really are right in the long term, this strategy of buying into bad news will not work.

Prof. Succo

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos