Controlling Shareholders, Public Holdings and Liquidity: Who Really Owns the Stock?

A controlling shareholder is someone with real power to influence the company—this can be an individual, a family, an investment fund, or a group of investors acting together. They do not always have to hold more than 50% of the shares to control the company; if the remaining shares are dispersed among many small investors, even a smaller holding enables them to appoint directors and determine the company's direction.

A strong controlling shareholder can be a positive thing, giving the company stability, vision, and long-term commitment. On the other hand, they have the power to decide on sensitive matters: executive compensation, dividend distributions, mergers, and even transactions between the public company and other private businesses they own (related-party transactions).

Public holdings include all shares held outside the hands of controlling shareholders and interested parties. This concept defines how much of the company is "free" for trading (Free Float).

Investors tend to confuse the two, but they are complementary measures:

Tradability

Amount and volume of activity: the number of transactions executed in the stock each day, its monetary trading volume, and the number of shares that change hands.

Liquidity

Quality of the ability to act: how easily and quickly the stock can be bought or sold at the current price, without your transaction causing the price to surge or crash.

Think of it this way: tradability is the amount of activity. LiquidityThe speed and ease with which money can be withdrawn from an investment and converted into cash in a bank account without significant penalties. is the quality of the ability to exit and enter.

A stock can trade every day, but if there is a large gap between the bid and ask prices, or if there are very few buyers and sellers at each price level, it is still not truly liquid.

When few shares are held by the public, the trading structure becomes very thin. In this situation, every small flow of money moves the chart dramatically:

• If one buyer tries to purchase a relatively large number of shares and there are not enough sellers in the market, the price will soar.
• If a stressed investor tries to exit their position and there are not enough buyers on the other side, the price will crash sharply.

The common mistake: looking only at the price chart

Many investors see a stock that has surged by 20% and assume the company has achieved an incredible business breakthrough. In practice, it may be an illiquid stock that rose only because someone bought shares for just a few thousand shekels. Before getting excited about the chart, check whether there is a real market behind it or only a handful of random transactions.

Public holdings also play a crucial role behind the scenes of ETFs and index-tracking funds. Stock exchange indices do not determine a stock's weight solely according to the company's total value; they use a formula that incorporates the value of its public holdings. The exchange explains that a stock's weight in an index reflects the ratio between the value of its public holdings and the total value of the public holdings of all stocks in the index.

This means that a huge company with particularly low public holdings will receive a small weight in the index, while a smaller company that is widely held by the public will receive a higher weight. Because ETFs are required to buy stocks exactly according to that weight, the public-holdings rate directly affects the automatic flow of money that reaches—or does not reach—the stock.

It is important to clarify: not every stock with a strong controlling shareholder is a bad stock, and not every company with low public holdings is a bad investment. But these characteristics create risk, and when the following signs appear, you must stop and investigate:

• Too much absolute control: if the controlling shareholder holds almost 100% of the shares, the public is merely "decoration," and your opinion at meetings will not change anything.
• A trading desert: exceptionally low trading volumes mean one thing—on the day you decide to exit, you may not find a single buyer on the other side.
• A hidden purchase tax: an excessively wide spread (Spread) between the bid and ask prices means you lose money simply by executing the transaction.
• An insiders' party: a large number of transactions between the company and the controlling shareholder or their private companies is a classic warning sign. You need to ensure that money is not flowing out of the company on questionable terms.
• Brain drain (or cash): when interested parties and senior executives sell shares on a significant scale, you must ask yourself: "What do they know about the company's future that I don't know?"
• Creeping dilution: private placements repeatedly made for the benefit of certain investors, reducing the public's share of the pie.
• A volatile chart in a vacuum: a stock that moves sharply up or down following small transactions worth a few thousand shekels. This indicates near-zero liquidity.

1. The Stock Exchange — Public Holdings and Interested Parties in Shares — A data page presenting the value of public and interested-party holdings in shares traded on the exchange.
2. The Stock Exchange — Determining a Stock's Weight in an Index — An explanation of the relationship between the value of public holdings and a stock's weight in stock exchange indices.
3. The Stock Exchange — Key Data for a Security — Stock data pages show trading data such as average daily turnover, median turnover, and additional data that help assess tradability.