Markets and Current Events

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Markets and Current Events

Postby tphp99 » Thu Aug 29, 2013 12:02 pm

What really happens? Recently when I read the news about Syria, it did not immediately occur to me that the market would dip (and since recovered a bit). So what are people doing? Do they assume bad news = sell? Do fund managers factor in: imminent war = sell some percentage of all holdings? Do brokers call and tell clients to dump stocks b/c...? I remember my dad used to get calls from his broker all the time. And then, when do you get back in?
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Re: Markets and Current Events

Postby Andyrunner » Thu Aug 29, 2013 12:10 pm

Syria is just the cover story. There are many reasons why the markets dipped recently. Single items such as this are just selling points for brokers to increase activity.
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Re: Markets and Current Events

Postby livesoft » Thu Aug 29, 2013 12:11 pm

If 90% of share owners are just buy-and-hold-and-rebalance, then the other 10% of traders pretty much cause all the action in the market.

If 99% of share owners are just buy-and-hold-and-rebalance, then the other 1% of traders pretty much cause all the action in the market.

If 99.9% of share owners are just buy-and-hold-and-rebalance, then the other 0.1% of traders pretty much cause all the action in the market.

So the effects that you are seeing are probably caused by a very very small minority of folks and computer programs which buy/sell to each other. And the same person could buy and sell several times a day.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Markets and Current Events

Postby Valuethinker » Thu Aug 29, 2013 4:48 pm

tphp99 wrote:What really happens? Recently when I read the news about Syria, it did not immediately occur to me that the market would dip (and since recovered a bit). So what are people doing? Do they assume bad news = sell? Do fund managers factor in: imminent war = sell some percentage of all holdings? Do brokers call and tell clients to dump stocks b/c...? I remember my dad used to get calls from his broker all the time. And then, when do you get back in?


Note also oil prices went up. That's bad for the economy and it's bad for company profits. And higher inflation might mean higher interest rates.

So generally the market sells off on fears of significant oil price rises. Syria is not a major producer of course, but there is a risk any war could spread to, for example, Iraq and Kurdistan, which is a significant producer.
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Re: Markets and Current Events

Postby JoMoney » Thu Aug 29, 2013 5:02 pm

There are lots of numbers thrown about regarding how much money is passive, here's a quote from a recent article discussed elsewhere on this board:
"10 years ago passive investors controlled only about 20 percent of assets. That figure is now up to about one-third of assets"
http://www.cbsnews.com/8301-505123_162- ... wn-demise/
I don't know how accurate that is, but it seems in line with other quotes I've heard. There was a Morningstar report some time ago, but I can't find the link.

financial economists acknowledge that most investors are not rational, or there would be a lot less trading than is observed in practice. Few people would actively trade stocks knowing that the person on the other side of the transaction may know something that they do not. If all investors were perfectly rational, volume would be reduced to "liquidity traders" (passive investors adding to or liquidating retirement accounts) and a small number of rational "information traders." The reality of high stock market volume has caused efficient market theorists to create a third category of investors called "noise traders." Fisher Black first described noise trading in his 1986 American Finance Association Presidential Address: "Noise trading is trading on noise as if it were information. People who trade on noise are willing to trade even though from an objective point of view they would be better off not trading. Perhaps they think the noise they are trading on is information. Or perhaps they just like to trade." Financial economists believe that the bulk of the trading volume in U.S. equity markets is due to noise traders.
http://marriottschool.net/emp/SRT/passive.html
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Markets and Current Events

Postby Levett » Thu Aug 29, 2013 5:09 pm

The question is not "what really happens?"

The question is: "What happens to you (behaviorally), the investor?"

And Vanguard has come to your rescue in the form of a wise essay written by Edward Hocknell (and posted at VGs website) back in April of 2012:

Pay careful attention to the section that begins with the following paragraph:

"It seems to me that the greatest enemy of
successful investment is “Events.” We are willing
or unwilling participants in an endless parade of
happenings. Being human, we continuously try to
integrate them into our worldview—but there are
too many events for us to treat them critically or
test them for relevance. With our wealth at stake,
we adopt a semiconscious policy of worrying about
as much as possible, and discounting as little as we
can—especially if it sounds alarming. There is plenty
of academic evidence for this. It is best summarized
in Daniel Kahneman’s excellent book Thinking, Fast
and Slow. He shows how we instinctively default to
the most recent or striking piece of evidence, and
that our urge to leap to conclusions overwhelms
our better, rational selves."


http://tinyurl.com/ouujkjq

Are you event-driven or investment-driven? That is the question. :happy

Lev
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Re: Markets and Current Events

Postby jimkinny » Sun Sep 01, 2013 12:41 pm

tphp99 wrote:What really happens? Recently when I read the news about Syria, it did not immediately occur to me that the market would dip (and since recovered a bit). So what are people doing? Do they assume bad news = sell? Do fund managers factor in: imminent war = sell some percentage of all holdings? Do brokers call and tell clients to dump stocks b/c...? I remember my dad used to get calls from his broker all the time. And then, when do you get back in?


Good points. I think the bottom line approach to all of this stuff is to accept that investing is simply all about risk. Invest with this in mind, get a plan with this in mind, stay with your plan. Of course, this assumes you have thought about risk a lot and get it right the first time.

After watching the indices for a few years I do not think too much about a few % points swings. I would not listen to anything a broker told me, even if it had to do with the weather, outside my window. Read the books on the list provided on the Wiki. Bogle, Swedroe, Ferri, Bernstien, The Boglehead Guide books etc.....

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Re: Markets and Current Events

Postby nedsaid » Sun Sep 01, 2013 1:19 pm

Don't sweat the current events.

The truth is that markets fluctuate. They fluctuate for many reasons. The sad truth is that there isn't much you can do about it. Buy good stuff and hang on. Have an appropriate asset allocation for someone your age. Market timing doesn't work. The exception would be taking advantage of extreme mood swings in the markets. There are once in a decade or once in a lifetime buying opportunities. The most important thing is not to sell your stocks when things look bad.

News media is relentlessly negative. The world actually is a bit better than what is portrayed. And yes, some terrible and awful things happen. I have found that optimism will serve an investor a lot better than pessimism. If you are pessimistic, you will miss opportunities that might be right under your nose!
A fool and his money are good for business.
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