How has the stock market increased the past three years?

[Nathan Drake]

This may be a silly question, but the following article breaks down inflows/outflows for equity funds and lists retail investors and institutional investors.

http://buzz.money.cnn.com/2012/12/27/in ... cks-bonds/

The net chart makes it look like there should have been a net outflow for the stock market. Is there another investor class I'm missing that can fill the gap?

[neurosphere]

From the article:

While individual investors have been shunning the market, institutional investors, such as hedge funds and pension funds, have been significantly adding to their stock positions.

So individuals are pulling money out, but hedge funds, investment banks, pensions, foreign governments (?) may all be investing in stocks but not be considered individual investors.

[Nathan Drake]

From the article:

While individual investors have been shunning the market, institutional investors, such as hedge funds and pension funds, have been significantly adding to their stock positions.

So individuals are pulling money out, but hedge funds, investment banks, pensions, foreign governments (?) may all be investing in stocks but not be considered individual investors.

Right, but if you look at the chart they provided, retail investor outflows were much greater than institutional inflows.

[bberris]

Net flows aren't directly related to stock prices. As long as the bidders bid higher prices and the sellers ask higher prices, the price will go up.
Also some of the outflow is dividends and stock buy-backs, with very little IPO which aren't really selling pressure.

[zaboomafoozarg]

LOL, the comments on that article... wow.

[grayfox]

1. I think the total world stock market is about $36.6 T. From the chart, I calculated the net flows and percent of the total world market.

Year...Retail....Inst....Net.....Percent of World Stock Market
2010....122... .169....-47.....0.13%
2011.....67....-155....-88.....0.24%
2012.....83.....152....-69.....0.18%

So the net outflow is a tiny percentage of the total stock market.

2. Even of the the net outflow were zero, stock prices could rise or fall. Demand is how much quantity buyers are willing to buy at a given price. If everyone woke up one day and decided that they were willing to pay twice as much for earnings, i.e. P/E=30 instead of P/E=15, prices would double.

3. People are paying $X for $1 of earnings. Suppose X is $20 for a $1 of earnings. If earnings grows 5%, the price can increase 5% without any change in the demand.

One would think that a negative net outflow would reduce the demand for stocks. All other things being equal, it probably would. But the tiny outflow percentage wise is likely swamped by all the other factors.

But I would still be interested in finding out if there are other investor classes that are not included in retail and institutional. What about sovereign funds? Does that count as institutional? What about the PPT? Where is that accounted for?

[ofcmetz]

1. I think the total world stock market is about $36.6 T. From the chart, I calculated the net flows and percent of the total world market.

Year...Retail....Inst....Net.....Percent of World Stock Market
2010....122... .169....-47.....0.13%
2011.....67....-155....-88.....0.24%
2012.....83.....152....-69.....0.18%

So the net outflow is a tiny percentage of the total stock market.

2. Even of the the net outflow were zero, stock prices could rise or fall. Demand is how much quantity buyers are willing to buy at a given price. If everyone woke up one day and decided that they were willing to pay twice as much for earnings, i.e. P/E=30 instead of P/E=15, prices would double.

3. People are paying $X for $1 of earnings. Suppose X is $20 for a $1 of earnings. If earnings grows 5%, the price can increase 5% without any change in the demand.

One would think that a negative net outflow would reduce the demand for stocks. All other things being equal, it probably would. But the tiny outflow percentage wise is likely swamped by all the other factors.

But I would still be interested in finding out if there are other investor classes that are not included in retail and institutional. What about sovereign funds? Does that count as institutional? What about the PPT? Where is that accounted for?

Nice breakdown Greyfox. Interesting to see how small of a percentage these numbers really are.