Who Is Buying In This Market?
A client recently asked, “Who is buying in this market?” It’s a great, simple question. If you turn on the news, it sure sounds like everyone is selling. But that is not the case. SPY, one of the most widely held ETFs has an average trading daily volume of 86 million shares - which equates to approximately $32 Billion trading hands every day.
For each seller represented here, there is a buyer. Even on a really bad day in the stock market, the fact alone that the market doesn’t fall to $0 means that there has to be buyers.
So, who are the buyers? While there is plenty of short-term speculation in the stock market, the great majority of buyers when the market is falling are long-term investors.
It’s retirees rebalancing their portfolio to add to stocks that they don’t plan to touch for a while.
It’s workers contributing to their 401(k) every two weeks come hell or high water.
It’s institutions sitting on mountains of cash looking for a half-decent opportunity to deploy it.
Most of these investors are not affected by what the stock market will do over the next day, month, or year. They are looking for opportunities to invest at reasonable levels that they believe will provide a good long-term return.
So, if those are the buyers, who are the sellers? The sellers are often institutions with short-term objectives or investors who mismatched their long-term investments to short-term obligations.
It’s also filled with plenty of long-term investors who have completely forgotten which game they are playing, believing they can’t afford short-term volatility if they want to reach their long-term goals.
There could very well be a good reason for you to be selling in this market but as Morgan Housel puts it, “Few things matter more with money than understanding your own time horizon and not being persuaded by the actions and behaviors of people playing different games than you are.”
Don’t forget which game you are playing.
Happy Planning,
Alex
This blog post is not advice. Please read disclaimers.