Stock price is not an objective measurement of whether companies grow or become profitable. Part of the price is determined by investor emotions. This is why the price to earnings ratio that investors are willing to put up with fluctuates.
Part of the price is determined by investor emotions.
how many investors actively manage their portfolios and do so with their emotions (despite statistical evidence saying you should do neither if you want the best returns)? enough to actually move the markets?
what does that look like in a more zoomed in view? 1,000,000 americans logging in every day/week/month/quarter and rebalancing their 401k/IRA/brokerage accounts? realizing losses by selling?
The way I understand it current price of the stock is set by active investors. Passive investors have no influence on the price. If I tell my 401 (k) to put in 5% of my salary to the S&P 500 every paycheck, I have not shown a preference as to whether the S& p 500 should be set at 3,719 (as it is today) or 3,000, or zero.
But if you object to the term "emotion" when describing active investors then let's just say that the stock price is often set by changes in the price to earnings multiple, which usually has nothing to do with the actual value of a company and is inexplicable outside hand wavy appeals to social psychology.
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Stock price is not an objective measurement of whether companies grow or become profitable. Part of the price is determined by investor emotions. This is why the price to earnings ratio that investors are willing to put up with fluctuates.
how many investors actively manage their portfolios and do so with their emotions (despite statistical evidence saying you should do neither if you want the best returns)? enough to actually move the markets?
what does that look like in a more zoomed in view? 1,000,000 americans logging in every day/week/month/quarter and rebalancing their 401k/IRA/brokerage accounts? realizing losses by selling?
The way I understand it current price of the stock is set by active investors. Passive investors have no influence on the price. If I tell my 401 (k) to put in 5% of my salary to the S&P 500 every paycheck, I have not shown a preference as to whether the S& p 500 should be set at 3,719 (as it is today) or 3,000, or zero.
But if you object to the term "emotion" when describing active investors then let's just say that the stock price is often set by changes in the price to earnings multiple, which usually has nothing to do with the actual value of a company and is inexplicable outside hand wavy appeals to social psychology.
What's the ratio of active investors vs passive investors?
How many "total investors" are there making trades in the average month?
Even passive investors can panic sell when they see their 401k balance shrinking fast.
They really aren't being passive at that point, are they? They've become an active investor due to panic.
Maybe not if we're using a strict definition, so I'll add some words to what I said before:
Even passive investors can turn into active intestors and panic sell when they see their 401k balance shrinking fast.
Here's an example of someone trying hard to stay passive during the 2008 downturn: https://www.bogleheads.org/forum/viewtopic.php?t=25126
Interesting link. I see the poster is still active (and likely relatively wealthy) today at age 88. Good for him.