Why Your Stock Transactions (and mine) Won’t Affect the Market

September 3, 2008 by  
Filed under Insurance, Retirement Planning

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? 

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13 Responses to “Why Your Stock Transactions (and mine) Won’t Affect the Market”
  1. Evan says:

    I do not think you are taking it to the next logical step. Why/When would pension funds need to sell off investments thereby causing a sell off (possibly and if they all did it at once)?

    When the baby boomers demand cash to live off of, because their social security is not enough to support their inflated life styles, or when they just want to use the money they saved to fund their retirement.

  2. As a buy on the dips investor, I’m looking more at the portfolio allocation impacts from Conference Board’s data. If US based companies are being accumulated in large numbers, that just one more indicator that many bargain hunters believe the US Stock Market is oversold.

    Second, it’s widely believed that the US will lead the global markets out of it’s current funk, so why not dollar cost average yourself back into the solid companies like the big boys.

  3. Evan: I’m not suggesting that pension funds are in line for a sell-off, only that a sell-off by boomers isn’t likely to provoke a huge market drop.

    Matt: You are probably right. I’ve been accumlating cash for re-balancing my retirement portfolio in November. We will see which asset categories will need it.

  4. Evan says:


    I think we are defining sell off differently. I agree with the basic premise that YOU selling all YOUR “T” or all your “GM” or even all your shares of “BRK.A” won’t dip the market. However, if you take the cumulative affect of pensions and MFs which need cash to pay YOU (when you when demand it) then I think there might be a sell off and subsequent reduction in prices.

    Obviously, this conversation is all theoretical, but it is an interesting excerise in market theory.

  5. MasterPo says:

    You can’t use pension plans as examples. A pension plan is suppose to use actuarial calculations to determine the needed cash flow to meet it’s payout obligations. Based on that the managers are supposed to buy and sell to meet the obligation. So it shouldn’t be a suprise to the pension plan when a large number of it’s members expect to start getting pay outs. There shouldn’t be a land-slide sell.

  6. Evan says:


    Use Mutual Funds who do not have actuarial worries. If there are millions of baby boomers holding XYZ mutual Funds, and they all want cash in a short period of time, wouldn’t it stand to reason that the underlying assets of XYZ need to be sold?

  7. I agree on the mutual funds but I hope and assume that baby boomers have set up a proper asset allocation and withdrawal plan that will not require massive sell-offs. That’s one of the benefits of target retirement date funds – everything is done on a defined schedule.

  8. MasterPo says:


    That’s still an inaccurate picture.

    First, mutual funds have non-retirement accounts as well as retirement accounts. Shareholders in non-retirement accounts can (and do) sell all the time. The fund has to keep a bit of cash on hand to handle this. But there’s no way for them to forecast how much free cash they will need.

    Second, presuming traditional IRAs, people can’t just sell everything on the first day of retirement. They will draw down slowly over their retirement life time. At least the required MRD amount. Even with a Roth IRA people still won’t liquidate on day-1.

    Third, I know from personal experience an IRA does NOT work like a regular non-retirment account. You can’t just call up and pull out X-dollars anytime you want. Yea, that was BIG surprise to me too!!

    Finally, even though boomers will be selling those that follow like me and you will be buying in via 401ks and IRAs. At a minimum that will cushion the liquidation.

  9. Evan says:

    First and foremost, your readers are great…everytime a discussion comes up there are thought provoking conversations back and forth.
    However, as to your point, I do not think most baby boomers are prepared. I don’t have the #s in front of me, but is the statistic staggering as to how many are really not prepared.

    I actually do not think we are disagreeing, per se, but rather not discussing the same point. As I interpreted it, the issue is whether or not there will be a large dip (due primarily to sell off) when baby boomers retire and need funds.

    “Shareholders in non-retirement accounts can (and do) sell all the time. The fund has to keep a bit of cash on hand to handle this. But there’s no way for them to forecast how much free cash they will need.”
    This is exactly my point. If XYZ mutual fund finds out that within 1 week they need to liquidate 20,000 shareholders, they WILL NOT have the cash to do so…as such, they will likely start selling off large blocks of assets.

    While you may be correct as to people’s liquidation preference, I truly believe there are tons of baby boomers (maybe not readers/followers of TML! lol) out there with zero non-qualified savings and tons of Qualified (i.e. 401(k), IRA, SEPs, 403(b), etc.) Dollars as such, they are unlikely to have a choice as to what to liquidate.

    Just some thoughts,

  10. Evan says:


    Just checked out your website, where on the Island are you from? I am in North Shore Nassau County (TOBAY area)?

  11. Evan – You are right about boomers being unprepared but we can leave those folks out of the equation because they don’t have any assets to sell anyway.

  12. MasterPo says:


    I understand your point. However, I think more likely retirees will take periodic payments or MRD payments from their qualified plans rather than lump sum distributions. It is the latter that would cause a mass sell off.

    ps- I’m on the South shore, Babylon area.

  13. MasterPo – One of my roommates/fraternity brothers at Cornell was from Babylon – Tom Scarpelli. Went to his wedding near there years ago.

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