Jun

17

Who is this ubiquitous "public" of which we all speak?

You must know who I mean. The one that Bacon thinks the form always shifts against at the race track. The one that allegedly always loses in physical stock markets. The famed 'Mrs. Watanabe' in the JPY Carry Trade. The 'Belgian Dentist' (what the ???) in Fixed income Securities. Well, I think, in the modern world, the concept of a "Public", as commonly classified, is absolutely redundant.

1. Holdings of Physical Stocks by the 'Public' is now circa. ~ 20% (Excluding Mutual Fund Holdings)

2. Therefore, the public to which we refer (in stock markets) is actually an MBA from a Big Ten business school in the United States or Oxbridge/Insead in UK/Europe. These guys are the ones buying and selling.

Now I am not saying that these are better or worse investors than the "public" we all allegedly copper. It's just that their behaviour is different — more institutional.

The ecology of the market has changed substantially, even in the past 25 years since I have been involved. I read somewhere recently that BlackRock owned or controlled ~ 20% or 1 in 5 stocks… Now figuring out how they move volume and why might be better than focusing on the public.

I find it hard to even dignify the 'Mrs. Watanabe' classification. The allegation that investors and speculators in Japan are in some way more trend following in nature or more likely to "buy the high" than any other classification of investors/speculators is laughable.

In all fairness, there are one off anecdotes about large purchases at the highs of trophy items by Japanese investors but that has more to do with who has the money and when. The last five years have seen the G.C.C. countries & China buy everything way through the highs for trophy assets…They too shall sell the low in times to come…

Ed Stewart writes: 

I disagree.

You are only considering it from the viewpoint of time-weighted returns. The problem is that time weighted returns are make-believe from a actual IRR perspective. Money weighted returns are where the public's poor outcomes become most apparent. Investors underperform their own mutual funds by something like 2% a year or more, if I recall correctly. Significant under-performance even occurs in index funds. People also time their 401k contributions, etc. I would love to see data on how much contributions dipped or were canceled in late 2008 early 2009, only to be turned on 2 or 3 years later after the tremendous rally re-instilled confidence. There were undoubtedly a tremendous, outrageous losses during this period relative to the time weighted returns, which seem to suggest that "everyone has been made whole" which is far from accurate.


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