Back in the good old days, stock markets actually used to make sense. Those were the times that people bought shares of companies they knew and patronized. My first stock purchases were of Sears, Roebuck and Company Department Store and Union Oil of California, because we shopped in those places.
When I first became a stockbroker on the New York Stock Exchange (NYSE), I built my business investing client funds in Anheuser-Busch Co. because everyone drank Budweiser beer. My client calls were, “You drink Bud, right? Then why don’t you own the company that makes your beer?”
Total transactions on the New York stock market were dominated by retail investors. In 1950 retail investors owned over 90 percent of the stock of US corporations. When times were financially good for ordinary people, stock prices went up. There was no such thing as “irrational exuberance,” because most people then never go “full irrational” with their hard-earned money.
The period from 1962 to 1983 saw the market fall almost continuously as the Vietnam War economic policies were a total mess. The quintupling of oil prices badly hurt the average worker, who was also the average stock-market investor.
But in the late-1980s the mix of US stock-market investors started changing, and from 60-percent retail during my time, trading shifted to the financial institutions and “experts”. Today retail investors own less than 30 percent, and trades by individual investors represent, on average, less than 2 percent of NYSE trading volume.
So what do share-price movements on the NYSE represent in the bigger picture of the ordinary person’s finances and the US economy today? The answer is nothing.
Look at the Philippine Stock Exchange (PSE) in the last 10 years. The market reflected investors’ positive outlook from 2009 to 2013, even when the economy had some ups and downs. Even as the economy was going a little lower—which is supposed to push stock prices down —the market went higher from late- 2013 to 2015. Then as the economy went up more strongly, stock prices went down.
The PSE did not follow the economy. The PSE followed ordinary retail-investor sentiment, and that is what it is doing today.
On a short-term basis, some—not all—investors can act wisely. Look at the recent PSE reaction to the “Brexit”. The “experts” and their followers panicked; the rest stepped back from buying, but took a wait-and-see attitude with their selling. Guess which group turned out to be right. The PSE index has regained all it lost on Brexit day.
The PSE fell in the year leading up to the 2016 election, even as the economy was stronger. Draw your own conclusion if, overall, investors wanted political continuity or change.
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E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.