“Small investors” own roughly 10% of the market since the wealthiest 10% control 90% of the country’s wealth.
By Daniel at 21 August, 2009, 8:21 am
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Market assessment:
1) Is the majority of money going into equities coming from 401K funds? That is, employees making monthly contributions and “dollar cost averaging?”
I would expect 401k contributions to be a large part of it. However, it is said that 90% of the wealth in the U.S. is controlled by the wealthiest 10%. I would assume these people are more sophisticated than the average investor and make some effort to time the market….unlike the 90% that continually buy and hold.
2) If so, then are the rises also supported by tactical trades made by GS and their ilk?
Individually…not sure… but they are certainly a force. However, consider that the 10% of Americans who have 90% of the wealth would typically have advisors such as Goldman, Wachovia Wealth Management, or whoever. I can guarantee that these people are getting different advice than the 90% of Americans buying mutual funds in their 401k from Schwab, Fidelity or American Century.
3) Does that mean that the banks can keep going up endlessly?
No. Assume a bank has 1,000,000 shares outstanding. Assuming the 90/10 thing to be correct, the average small investor only controls just 100,000 shares…mostly through mutual funds. This 10% seldom turns over or times the market (just look at the performance of mutual funds). That means 90% of the stock, or 900,000 shares, are in the hands of trading firms (e.g., Goldman) and the wealthiest individuals who pay their advisors (very well I might add) such as Goldman to preserve their wealth. Those upgrades and downgrades you hear about…the 10% of Americans that have 90% of the wealth are getting those upgrades and downgrades well before Goldman or any other firm puts it out there for the other 90%.
4) At some point, then, will the powerful elite “take profits” and let the market collapse?
Yes. Don’t have to look far for evidence. The 2000 collapse….the 2008 collapse. The more sophisticated investors will also try to capitalize on downturns by shorting. Back in the spring of 2008, the top 10 short stocks on the NYSE had over 1.5 Billion shares short. That’s just the top ten out of over 3,000 stocks listed on the NYSE. Seven of the top 10 short stocks were financials (no surprise there). That wasn’t the 90% of Americans shorting stocks in their 401k account nor was it the mutual funds owned by 90% of the people that were doing the shorting.
5) As an aside, what percentage of the market is owned by small investors?”
I would have say “small investors” own roughly 10% of the market since the wealthiest 10% control 90% of the country’s wealth.
Vics
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