Financial institutions like banks, insurance companies, hedge funds and pension trusts own the vast majority of shares of stocks around the world. As an example, the largest public mutual fund that only owns shares of companies in the Standard & Poor’s 500 Index -- the Vanguard Index Trust 500 Portfolio -- has less than $50 billion in assets. In contrast, the world’s financial institutions are estimated to hold more than $600 billion worth of S&P 500 stocks.

These financial institutions have the best investment research in the world available to them, and regularly visit the management team of companies in which they buy shares. Consequently, they are considered to be the "smart money" that everyone talks about.

When these institutions decide to invest in a company, the move is generally considered to put a stamp of approval on the firm’s prospects. Every time that institutional ownership wanes, however, the stamp of approval fades.

Diminishing institutional ownership has the further effect of destabilizing the price of a stock, and creating a "ceiling" or line of "resistance" for its value. That’s because an institution that sells significant chunks of a company's outstanding stock puts those shares into circulation for the general public, diminishing their scarcity. Investors who want to buy the stock subsequently don’t have to offer as much as they did before because the supply is greater -- a situation that tends to make the stock cheaper.

By itself, however, a decrease in institutional ownership is not a reason to sell or hold a stock. It is just a clue that the stock is in less demand by some pretty smart folks -- perhaps because their research shows that it is fully valued and has limited upside price-appreciation potential.

To determine which large institutions hold this stock, check Form 13-D and Form 13-G SEC filings in Stock Research. Any owner of more than 5% of a stock must tell the government -- and, by extension, you -- of any changes in their holdings within 10 days.