I was checking out the stock for PALM and was wondering what an institutional ownership above a 100% means. I googled my way through and found out that, although there is no 100 % answer for this phenomenon. A possibility is when institutions/money managers have shorted the shares of a company so heavily even there do not real exist shares to cover the short. That’s one reason the ownership can jump. I wonder what will happen if the short sellers cover their position. We will see a very huge jump in the stock price.

As of march 26th the chart looks like this

The textbook book definition for a greater than 100% institutional ownership is

Because shares that are shorted are owned by more than one party (the original lender plus the purchaser on the other side of the short sale), institutional ownership can exceed 100%. If a share sold short is re-borrowed and sold again, short interest ratios can also exceed 100%.

Asquith, Pathak & Ritter. “Short Interest, Institutional Ownership, and Stock Returns.” Journal of Financial Economics.

Another related interesting term is short float.

Short float: The short percent of float is the percentage of shares short in relation to the number of shares that make up a stock’s float.

The short float for PALM is ~43% right now, which means 43 out of every 100 shares in the market are shorted. That’s a very high ratio for any company. This can be the case when there are strong rumors of a company burning to the ground. My bet is against the grain. We’ll see if this a monetary painful or fruitful learning experience

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Positive Bias on Wall street

February 16, 2010

Wall street is a place where people are very biased for their own profits. One angle this can be analysed is when the analysts give out reports, why are there almost always more positive analyst reports than negative ones.
The negative reports target the investors which own the stock. So that is a limited market composed of only the people who own the stock, because they are the only ones who’ll actively be seeking such information( Umm maybe short sellers too, although small in number), while when we see that the greater number of positive analyst reports suggest that there is a bigger market there, which targets people who own the stock as well as people who are considering buying the stock.
So more coverage, and creating a small positive bias for all the investors to buy the stock, one of the factors, maybe a very delicate one, but I guess would affect the direction of the market in general.

Speculation vs Investing

February 10, 2010

I was reading “Margin of Safety” one of the very coveted books which is written by Klarman. He suggests that most investors find consensus with the crowd, one fool buys at a price without analyzing the fundamentals and he is looking for another fool to pay even more . I do agree that this benefits the value investor in the way that it creates opportunities when the market starts falling , and Mr. Market ( term coined by Benjamin Graham) starts selling good businesses on a firesale. This might sound like old advice wrapped in a new cover. But  I still think human nature is still the same, We still find comfort in consensus and in investing, act on a feeling(What goes down has to come up) rather than the numbers. Although some short term opportunities do exists due to this behavior by most of the stock market. I believe, The smartest people are the ones who take the dough.