Why Your Stock Transactions (and mine) Won’t Affect the Market
Sometimes those of us who own individual stocks think that our buying and selling may affect market prices for that stock.
Others have expressed concern that as baby boomers retire and reduce the percentage of equity holdings in their portfolios, stock prices overall will be depressed.
Based on the news coming out of the Conference Board this week, Mr. ToughMoneyLove is here to assure you that, as individual investors, our collective stock transactions really don’t mean much in the grand scheme of things.
According to the yesterday’s Conference Board press release on the its newest Institutional Investment Report:
Data on institutional investor ownership in the largest 1,000 U.S. corporations show that institutions have substantially and consistently increased their holdings from 1987 with an average of 46.6 percent of total stock to an average of 61.4 percent of total stock by 2000 and then rising to an unprecedented 76.4 percent of corporations by year-end 2007. Concentration of ownership also tops all previous data when measured by the numbers of companies which have the largest institutional ownership. For example, in 1985, no company had institutional ownership of 60 percent or above, whereas, by 2007, 17 companies had institutional ownership of 60 percent or above, including six with institutional ownership of 70 percent or above.
With institutional investors (pension funds, investment companies, insurance companies, banks and foundations) now owning 76.4% of the stock in the largest 1,000 U.S. corporations, they essentially control the market for those stocks. It is their transactional activity that will effectively determine stock prices. We can only watch and hope for the best.
Even if every individual investor voted as a block (by buying or selling in the open market), that would represent only 1/3 of the selling or buying power. Talk about swimming upstream without a paddle.
So, don’t be concerned about a baby boomer stock sell-off. On the other hand, keep your eyes on what the pension funds are up to. Indeed, make friends with their investment managers. It may provide some guidance for what you should be doing with your holdings. If they sell, the market will move and move big.
Mr. ToughMoneyLove would like to see less concentration of ownership in U.S. stocks. What about you?