Good reads from around the Web.
Here’s an interesting graph via Business Insider showing who owns [1] the US stock market, and how that’s changed in the post-war period.
A few interesting things to notice – the still small impact of ETFs, the plateauing of hedge fund’s presence in the market, and the big retreat of pension funds.
But most revealing is the demise of ‘household’ ownership of equities:
[2](Click to enlarge)
It seems the individual investors who used to dominate ownership of the US market have largely thrown in the towel on buying shares themselves (although much of their allocation toward equities will now be in mutual funds).
When Warren Buffett was getting started in the 1960s, he was up against amateurs. Today any self-directed stock picker is playing against professionals.
For most people that’s a good reason to invest passively, but for one or two active diehards who think career risk dominates fund manager’s decision making, it might just be an opportunity. (The key word being ‘might’!)
DIY is RIP
Felix Salmon doesn’t see those private investors coming back. Writing for Reuters [3], the blogger notes that real money share trading volumes are still falling, as shown in this graph:
[4](Click to enlarge)
‘Real money’ is mainly what we think the stock market is about – someone making a decision to invest their money in a specific company – as opposed to passive flows from ETFs or the frantic shuffling of high-frequency traders.
And such volumes are way down.
Perhaps this is because everyone has become a long-term buy-and-hold investor, savvy about the perils of over-trading?
Hardly. Salmon is surely right when he ventures:
I think that what we’re seeing is the slow death of the stock-market investor — the kind of person who subscribes to Barron’s, idolizes Warren Buffett, and thinks of stock-market investing as a do-it-yourself enterprise.
During the dot-com bubble, lots of people thought they were really smart when it came to stock-market investing, and then after the dot-com bubble burst, the rise of discount brokerages helped encourage new people to step in to the market and try their luck.
But:
Nowadays the message is sinking in: it’s a rigged game, you can’t win, and you’re better off with a passive strategy.
I’d agree with that, except for his use of the word ‘rigged’.
And except for the fact that I do personally invest a lot of my money actively – even though I think passive investing [5] is best for nearly everyone, very likely including me!
Some of us can’t stop day-dreaming about Warren Buffett [6].
From the blogs
Making good use of the things that we find…
Passive investing
- Earn 2% more in 3 easy steps – Rick Ferri [7]
Active investing
- How I learned to stop worrying and love Buffett – Get Rich Slowly [8]
- Luck, skill, and past performance – Abnormal Returns [9]
- Free RNS collating service from a UK investor – Free Share Data [10]
- Examining HP’s deal from hell – Musing on Markets [11]
- Friday reading: On mean reversion – Expecting Value [12]
Other articles
- If you want to be well-off in life – Aleph blog [13]
- Predicting the information markets – The Psy-Fi blog [14]
- Why I refuse to get upset by deceptive advertising – Len Penzo [15]
- How tiny fractions make big money gains – Objective Wealth [16]
- UK average weekly earnings – Retirement Investing Today [17]
Product of the week: Those once-in-a-lifetime fixed rate mortgages just got even cheaper, thanks to a 1.98% two year fix from HSBC [18]. The Telegraph predicts a new rate war [19].
Mainstream media money
Note: Some links are to Google search results – these enable you to click through to read the piece without you being a paid subscriber.
Passive investing
- Give me the simple life – Vanguard blog [20]
- Swedroe: Focus on investment strategy, not outcome – CBS [21]
- Top ETF launches of the year [mainly US, alas] – Index Universe [22]
Active investing
- Projections show smaller future stock market returns – CBS [23]
- Peston: How big is the ‘material hole’ in UK banks? – BBC [24]
- Does momentum spell the end of growth investing? – Stockopedia [25]
- Hedgie: “I leave stock picking to the experts” [Google] – FT [26]
- GMO has all but abandoned fixed income – FT [27]
Other stuff worth reading
- A great way to stretch your retirement savings – CBS [28]
- The autism advantage in the workplace – NY Times [29]
- Article on enfeebled [30] modern consumers [fortnight old] – The Guardian [31]
- The case for ongoing global growth – Advisor Perspectives [32]
- Montier: Capital preservation in the age of repression [PDF] – GMO [33]
- Measuring performance post-RDR [PDF] – Morningstar [34]
Book of the week: Nassim ‘The Black Swan [35]
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