This paper presents evidence supporting a theory that short-sales constraints and differing investor opinions influence stock prices. The key insight is that the breadth of ownership—defined as the number of investors with long positions in a stock—serves as a valuation indicator. When breadth is low, it signals that short-sales constraints are tight, implying prices are high relative to fundamentals and expected returns are low. Thus, reductions in breadth should forecast lower returns, while increases should forecast higher returns. Using quarterly data on mutual fund holdings from 1979-1998, the authors find that stocks with the lowest change in breadth underperform those with the highest change by 6.38% in the first year after portfolio formation. After controlling for size, book-to-market, and momentum, the corresponding figure is 4.95%. The authors also find that breadth is positively correlated with other valuation indicators such as book-to-market, earnings-to-price, and momentum. The paper develops a model where differences in investor opinions and short-sales constraints affect stock prices. The model shows that when short-sales constraints are binding, the price of a stock is higher than its fundamental value, leading to lower expected returns. The authors test three hypotheses: (1) breadth should forecast returns, (2) breadth should be positively correlated with other valuation indicators, and (3) after controlling for other predictors, breadth should still forecast returns. The authors find strong support for these hypotheses. They also show that breadth is a robust valuation indicator, and that it is positively correlated with other valuation indicators. The results suggest that breadth can be used to forecast returns, and that it is a useful tool for investors. The paper concludes that breadth of ownership is a valuable indicator of stock valuation and that it can be used to predict future returns.This paper presents evidence supporting a theory that short-sales constraints and differing investor opinions influence stock prices. The key insight is that the breadth of ownership—defined as the number of investors with long positions in a stock—serves as a valuation indicator. When breadth is low, it signals that short-sales constraints are tight, implying prices are high relative to fundamentals and expected returns are low. Thus, reductions in breadth should forecast lower returns, while increases should forecast higher returns. Using quarterly data on mutual fund holdings from 1979-1998, the authors find that stocks with the lowest change in breadth underperform those with the highest change by 6.38% in the first year after portfolio formation. After controlling for size, book-to-market, and momentum, the corresponding figure is 4.95%. The authors also find that breadth is positively correlated with other valuation indicators such as book-to-market, earnings-to-price, and momentum. The paper develops a model where differences in investor opinions and short-sales constraints affect stock prices. The model shows that when short-sales constraints are binding, the price of a stock is higher than its fundamental value, leading to lower expected returns. The authors test three hypotheses: (1) breadth should forecast returns, (2) breadth should be positively correlated with other valuation indicators, and (3) after controlling for other predictors, breadth should still forecast returns. The authors find strong support for these hypotheses. They also show that breadth is a robust valuation indicator, and that it is positively correlated with other valuation indicators. The results suggest that breadth can be used to forecast returns, and that it is a useful tool for investors. The paper concludes that breadth of ownership is a valuable indicator of stock valuation and that it can be used to predict future returns.