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The only thing that pushes up prices is demand.

That’s where the ‘big boys’ come into play.

Otherwise known as the “smart money.”

Otherwise known as institutional sponsorship.

Institutional sponsorship refers to the investment made by large financial institutions, such as mutual funds and pension funds.

Any winning stock should have the backing of at least several of these institutions, and that number should be steadily increasing, especially in the last quarter.

Additionally, the quality of the institutions matter. You want at least one of these institutional sponsors’ to have a good track record over the last several years.

You can check a mutual fund’s 36-month performance rating in Investor’s Business Daily.

You can also look at any mutual fund’s top 25 holdings at Morningstar.com.

If a stock has excessive institutional ownership, stay away from it.

That is because it can create significant selling pressure should some bad news arise.

In general, stay away from the “Favorite 50” and other widely owned institutional stocks.

Read the next chapter here.

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