Wednesday, August 25, 2010

The "Drive By" Market

From this Bespoke Investment Group article on what it calls a "drive by" market:

"...from 1990 through 2006 the number of days where a net of 400 (80%) stocks in the S&P 500 moved in the same direction never exceeded 20 and averaged five per year."

According to Bespoke, the number has grown an awful lot since 2006 is on pace for at least 50 this year. 

There's a good chart in the Bespoke article worth checking out that pretty much says it all. Later in the post they point to leveraged ETFs as one possible culprit in the exaggerated moves. I'm guessing it's somewhat more complicated than that but probably at least one good example among many of what's behind it.

To me, this kind of stuff is usually just background noise but there's no doubt all this financial "innovation" and the short term orientation that's evolved in the past couple decades sure has made a mess out of things. Lots of new participants owning stocks for weeks, days, or even seconds with no perspective beyond the end of their nose.

If buying stocks for the long-term best to ignore these daily gyrations other than using them to grab more shares whenever the market goes into a "drive by" funk.

Adam

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