BuzzH
Well-known member
My opinion is the market really wants to grow and its just orange related foolishness that it's not. I'm not a conspiracy guy at all, but I also can't disregard what @Nameless Range posted in his last sentence.
Anybody Buying Yet? Where’s the Bottom?
- Thread starter NEWHunter
- Start date
LopeHunter
Well-known member
I have a theory on why the market since 2010 has not seen a 10% pullback which stagnated for a year or more before reaching a new high.
My grandfather bought stocks starting just after WW2. He bought stocks for the next 55 years before he died. I think he had to buy in 100 share blocks until the 1960s. No simple way to reinvest dividends. No mutual funds. No EFTs. Diversification meant needing enough money to buy 100 shares of several different companies. That might requires $1000s to invest to achieve diversification when a decent, new car was $5000.
My grandfather would walk into the brokerage to place a purchase order for a stock. Was an expensive process with broker fees and the spreads on buy/sell. Might need to pay a fee to have your stock certificate held at the brokerage or else you put the certificate in a lockbox or safe. To sell, your handed over the certificate. No easy way to be an active trader when you lived on a rural farm.
My father began investing in stocks in the late 1950s. I think he had less pain if wanted to buy less than 100 shares at a time but there was a penalty even if was in the pricing rather than a specific fee charged so you were not going to buy 10 shares. Mutual funds were launched in the 1960s so my father could then buy into a basket of several stocks for $100s rather than $1000s each purchase. Eventually, he could call the brokerage to buy (or sell if the certificates where stored at the brokerage).
I bought my first mutual funds with money I earned starting in the late 1970s. Every pay period I used 10% of my gross to automatically buy my company's discounted stock. That was the only automatic purchase plan I was ever part of for an individual stock in my career. I could also have part of my paycheck go into a 401K with partial company matching so did that also selecting mutual funds that held a basket of stocks.
Have been gifted some individual stocks such as when graduated high school, university then grad school. I inherited some individual stocks.
I think was in the 1990s when became simple to reinvest dividends. That is a quasi-automatic stock purchase plans but just four times each year rather than each paycheck.
In the late 1990s I had shifted so I was buying individual stocks but capped the total of all individual stocks at 10% of total investments. I think around 2000 that I could buy/sell online. No need to have a physical stock certificate in hand to sell. Was fun to own a "brand" rather than a "bucket" but I kept careful records and my brilliant stock-picking was not out-performing the S&P 500 index on a regular, sustained basis. I felt smart until would do the math.
I rarely am in Vegas but am confident I am more lucky than the average gambler except polls of gamblers find a overwhelming percentage feel they also are luckier than the average gambler which means some of us are full of it. (Aside: I am part of a trust where the 10 stock holdings are almost unchanged over 22 years. That trust has not performed as well as the S&P 500, either, over that period.)
I switched to buying EFTs in the early 2000s. Might be when I could first buy the S&P500 as a bucket of stocks in one ETF.
Was 2015 while in my mid-50s when I bought my first bonds and continued to do so until represented 10% of my investments. Not an active trader at any point nor a market timer. Except of a few months in 2020. My intent was to reach 40% bonds by age 65.
In mid-February 2020 I began hearing rumors of the "Chinese Flu" impacting rates of sick days per year of employee and maybe result in more deaths than average. I went 100% cash the next week. I had no plan. I did not want to market time as never had. Covid became the hot topic. ERs got hammered in big cities. States began to "shut down" normal work and social gathering rules. Masks were suggested yet were sold out for weeks. Everyone had an opinion of where Covid was headed and if was a serious matter and if states were over-reacting or under-reacting. People I knew got seriously ill then one died in his 40s though were "pre-existing conditions" at play.
In late-March I shifted back to 100% invested. There was a bounce. I would have held but I felt that when the Q1 401K statements were opened that a lot of casual investors would freak and sell sell sell. I was not wrong on there was a new wave of panic selling. My strategy was I only bought individual stocks of "blue chip" tech companies I would be happy to hold for a decade if the market fell and I was underwater for a long time. I set up guidelines. I would shift from cash into stocks when the market pulled back more than 10% then sell if went up 10%. Some weeks I sold/bought 100% of my entire holdings once and then was a stretch of 3 weeks before hit 10% gain on my holdings so then I sold again.
The up/down craziness in 2020 moderated by mid-July so I shifted to using 5% as the trigger for buy/sell then by late September that year was fully invested and have made perhaps 20 trades in the 6 years since.
I cleared significant profits in 2020 though part of that was from holdings in our taxable account so was some pain as all short-term gains with high quarterly estimate payments. Was definitely not relaxing to repeatedly move that much of my net wealth into and out of the market.
My offspring are adults and every paycheck they have money go into a 401K which makes a purchase which is usually mostly the S&P500 index. Every pay period they are effectively buying a few dollars worth of 500 stocks.
They have done this for twenty plus years and will do this for another 20 plus years of accumulation phase. No individual stock picking goes on. They have a full-time job and are very comfortable to let indexing manage their purchases. They have surplus money each month so also buy EFTs with post-tax money but not automatically. Still, when they do deploy those idle funds then they are buying a few dollars of 500 stocks (or 10,000 stocks if is a whole market ETF).
They do not sell holdings so if the market is up or down or everyone says you just have to own Company X or will be stupidly missing the boat then my offspring may not even notice the market is down or up 10% that month. They certainly don't care as a falling market means more shares are acquired as are “on sale” that pay period.
Their holdings are ballast for each of the 500 companies and they are creating locked-in future demand for more of those shares every pay period.
Do these "passive" holdings and dividend reinvestments and auto-purchases within millions of worker’s 401K accounts introduce distortion in the demand/supply by dampening flash sell-off stampedes of a particular company? There is a much larger percentage of American adults which own stocks today vs. 1950. Very few workers are trading massive amounts of their 401K holdings on a recurring basis.
So, the market may be much more “sticky when seems should be significant moves downwards.
What happens when us old guys start selling holdings to fund retirement? Don't know but there are a lot of us in the sell off phase either now or the next few years. And, a lot of owner-occupied homes will also go on the market the next decade or two as we pass away. That cycle might create a drag on housing prices rising.
Last edited:
SAJ-99
Well-known member
When you have to warn your staff that they shouldn't trade on inside information, you can safely assume you may not have hired the more moral or legally insightful people. The part that makes me laugh is that the people issuing these warnings to "the staff" are probably the ones sharing the info.
That was a great summary of the the changes in market structure over the last 40yrs. Even into the late 90's trading commissions were $70/100shares for blue chips. That seems like robbery at this point.
A couple of data points for your last paragraph. Something I found that may be surprising is that equity mutual funds have seen pretty consistent outflows for the last 15+ years (last I checked, at least) but prices have still gone up. Boomer's slowly but surely changing portfolio allocations is probably the reason, but it hasn't resulted in prices going down. Maybe the other factors overwhelm it? Good news for the rest of us I guess. I think the same thing will happen in RE. There are plenty of people waiting to buy these homes, but I also see a lot of homes just sitting empty for years, which I don't understand given the taxes, insurance, and maintenance cost. When politicians cry that we have "housing crisis" it seems to ignore the unusually large number of homes with no one in them.
While the money may be leaving those funds, much of it is getting spent in the broad market- which would, in theory, lead to continually rising share prices for those companies that are the recipients of the sales.
SAJ-99
Well-known member
There is definitely a long term transition out of active mutual funds into low cost passive funds and etfs. The numbers there are clear. The other data generally shows small net outflows from all equities, with some periods reversing the trend briefly. That isn't intuitive. The best way I can describe the reasoning is that in any given day the number of buyers and the number of sellers are equal, as are the dollars that exchange hands. They just argue over the price before the transaction takes place. Then, if only 100 shares get traded in a day, the other shares all get priced at that day's price. Prices and dollars can be disconnected.
People will also tend to hold more equities in retirement today than would have been suggested 40 or 50 years ago. Pretty standard to see a 50/50 allocation for someone in their 70's. That shift in financial advice would have seemed crazy in the 1980's or 90's. The lack of prolonged downturns encourages people to stay in equities so the volume of selling isn't as much as would've been predicted.
Nice post, several good points.
One other factor to consider is that the velocity of stock repurchases has really increased in the past few years- I’m not smart enough to digest the full implications of that on the mutual vs broad market, but I would assume it has an impact on the mix.
One other factor to consider is that the velocity of stock repurchases has really increased in the past few years- I’m not smart enough to digest the full implications of that on the mutual vs broad market, but I would assume it has an impact on the mix.
Addicting
Well-known member
With Iran firing on ships this weekend I am curious if Monday will see the market stagnate or fall. There may be peace talks but this will fester for a longtime to come.
Similar threads
