% of ST and LT investors in the market?

[Tyler Durden]

Just curious, in your opinion, what percentage of the market is made up of short term investors and what percentage consists long term investors (ie. +5 years)?

Having seen the recent slides, I am just wondering if shares are being sold by traders, or if LT investors are changing their minds.

 

[skc]

Just curious, in your opinion, what percentage of the market is made up of short term investors and what percentage consists long term investors (ie. +5 years)?

Having seen the recent slides, I am just wondering if shares are being sold by traders, or if LT investors are changing their minds.

I would say there's a much larger majority of long term holders than traders, particularly in the larger end of the market. The size of mutual funds and super funds are so large compared to institutional traders. Retail traders hardly register on the large companies.

But you need to understand that, share prices are determined by the "marginal buyer/seller". That is, the person who most wanted to buy / sell. Look at the volume and you will find that they are typically small relative to the total shares on issue. I might choose to sell my 500 CBA shares for $30, but that doesn't mean the holders of the remaining 1B shares have the same idea. So even though traders might only represent a samll percent of total holders, they can still move the price substantially.

This understanding, however, shouldn't be an excuse for a mindless-hold strategy. Sometimes those traders are right and it takes the long term holders a long time to catch up...

 

[Tyler Durden]

But you need to understand that, share prices are determined by the "marginal buyer/seller". That is, the person who most wanted to buy / sell. Look at the volume and you will find that they are typically small relative to the total shares on issue. I might choose to sell my 500 CBA shares for $30, but that doesn't mean the holders of the remaining 1B shares have the same idea. So even though traders might only represent a samll percent of total holders, they can still move the price substantially.

This understanding, however, shouldn't be an excuse for a mindless-hold strategy. Sometimes those traders are right and it takes the long term holders a long time to catch up...

Hmm that's very interesting, and a very valid point I had never thought of before. Just so I get this right - if a SP is currently $30, it just means that whichever parties did the last trade valued the buy/sell price at $30, as opposed to the whole market valuing it at $30?

I guess the newspapers kinda trick people a bit by saying stuff like "it's currently priced at..." but don't say by who.

 

[pixel]

Just curious, in your opinion, what percentage of the market is made up of short term investors and what percentage consists long term investors (ie. +5 years)?

Having seen the recent slides, I am just wondering if shares are being sold by traders, or if LT investors are changing their minds.

wrt "recent slides", I doubt that the increasing volatility is caused by an investor/trader paradigm. I much rather suspect it's influenced by high-frequency trading, which according to some sources makes up as much as 70% of global turnover.

That seems to be the main reason why the commentators struggle every day when they're asked to explain market moves of the previous 24 hours. Usually, they come up with excuses such as "... beat market expectations" or "... concerns about debt" and "... came as a surprise." IMHO, the latter offers the most accurate explanation, in the sense of "We have no idea why..." The most likely cause is the secrecy kept around those algorithms that guide the hidden 'bots; They can snip fractions of percentage points within minutes, regardless whether they're set to drive markets down or up. All that matters to their masters is volatility and confusion - which is their short-term goal; yet they're equally interested in long-term profits - just no longer from "buying Low, selling High", but from addition of minute gains from Millions of micro-trades.

Speculation about the composition of the remaining 30% in terms of ST/LT would then become a moot point.

 

[skyQuake]

wrt "recent slides", I doubt that the increasing volatility is caused by an investor/trader paradigm. I much rather suspect it's influenced by high-frequency trading, which according to some sources makes up as much as 70% of global turnover.

That seems to be the main reason why the commentators struggle every day when they're asked to explain market moves of the previous 24 hours. Usually, they come up with excuses such as "... beat market expectations" or "... concerns about debt" and "... came as a surprise." IMHO, the latter offers the most accurate explanation, in the sense of "We have no idea why..." The most likely cause is the secrecy kept around those algorithms that guide the hidden 'bots; They can snip fractions of percentage points within minutes, regardless whether they're set to drive markets down or up. All that matters to their masters is volatility and confusion - which is their short-term goal; yet they're equally interested in long-term profits - just no longer from "buying Low, selling High", but from addition of minute gains from Millions of micro-trades.

Speculation about the composition of the remaining 30% in terms of ST/LT would then become a moot point.

I doubt most some or even if any of them are directional. Most of it is or stat arb or some other kind of arb.
The 70% figure is a bit misleading, I saw it too a while ago but I'm pretty sure it was its definitely won't be 70% directional volume - 0 deltas net. Whereas say a pension fund liquidating a portfolio may do only 5% of a days volume but it will be 100% SELL vol - and thus making a real move.

 

[skc]

Hmm that's very interesting, and a very valid point I had never thought of before. Just so I get this right - if a SP is currently $30, it just means that whichever parties did the last trade valued the buy/sell price at $30, as opposed to the whole market valuing it at $30?

I guess the newspapers kinda trick people a bit by saying stuff like "it's currently priced at..." but don't say by who.

Take a small, illiquid company with 20m shares on issue. The last price might be say $1, but the highest bid is only 85c. I needed some cash today so I have no choice but to sell my 2,000 shares to the highest bidder at 85c. The value of the transaction that went through is only $1,700. But the whole company's valuation is down 15%, or $3m, because of this single trade. This illustrates how the marginal seller (i.e. me) in this case sets the price, while no other shareholders have expressed their opinion one way or another.

Trade can occur in many other ways. The opening/closing auctions are example of different processes. A lot of business transactions off-market are done differently again.

How does this knowledge help with regards to your original question? It probably doesn't directly. But knowing the % of short term vs long term holders will hardly make any difference in your assessment of the market because of the above.