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Stock Ideas Investors Daily Edge Who’s Jerking the Market Around Now?
Stock Ideas Investors Daily Edge Who’s Jerking the Market Around Now? 
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By Chris Johnson Dear Reader, Last week, I took a look at the unsavory side of trading earnings in recounting our Amazon.com trade experience. To sum it up, we bought puts ahead of earnings and the stock went up 27 percent in one day. Ouch. |
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| Who’s Jerking the Market Around Now? |
| Thursday, 16 October 2008 | ||||||||
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You know it's volatile out there, but who is doing all that trading? The pros continually claim that we amateurs panic too easily and don't have “strong hands.” Well, that's bull… and I sure don't mean bull market. An enormous amount of the money leaving the market now is caused by hedge funds. The New York Times reports that the three biggest hedge funds are selling stocks and piling up cash, and it is likely that the bulk of smaller funds are behaving the same. Hedge funds just posted their worst month ever, for the third time in a row. Hedge funds are thought to have pulled about $14 billion out of stocks and put it into cash in the past week. But regular investors are doing their share of churning as well. According to Trim Tabs, investors have shifted about $52 billion from mutual funds into cash and fixed income investments. This is not as big as it seems, though. The mutual fund industry comes to over $11 trillion. Most of the money is staying in the market, but going to bonds or fixed income funds. The media have noted that people's retirement funds have taken a terrible blow lately. That's certainly true. But most people are staying, even if scaling back. I have heard this over and over from people who know what I do and wanted to talk about the market. One thing that too many people forget is that leaving a 401(k) is costly. You have an immediate tax bill, plus a penalty for early withdrawal. Meanwhile, the “fund manager” who never looks over his shoulder, Berkshire Hathaway's Warren Buffett is not piling cash. He already had a pile and he's investing it now. Don't blame this volatility on him.
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