08/17/09 Gaithersburg, Maryland
Investors might forget we’re in a bear market because investing this year has looked easy. Those who have missed out on the rally must be tearing their hair out. Their money burns a hole in their pockets.
In fact, the evidence is that most investors have the attention span and patience of a field mouse. Here’s the average holding period for a stock on the New York Stock Exchange:
What jumps out at you right away is that the average holding period is less than a year. That means that, on average, an “investor” typically holds an NYSE stock for a matter of months. This is not investing, which is why I put the term in quotes. I don’t know what it is. Mindless gambling comes to mind.
It’s no surprise that the last time we were down here was in the Roaring Twenties. We all know what that was the opening act for.
This chart also speaks to a larger problem in the markets today — there are too few owners and too many renters. Just as in real estate, owners generally take better care of a property than renters. Why should it be different with companies?
Chris Mayer
Chris Mayer is managing editor of the Capital and Crisis and Mayer’s Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012 Chris will release his newest book World Right Side Up: Investing Across Six Continents.
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Well that’s nice, but where did the data for the chart come from? Did they really keep such data in the 1920′s ?
Also you need to compare volatility. When stocks go up and down 50+% in a year is it any wonder that stock holding periods have fallen so much?
this is a good point – stock purchases are often dominated not by investments but rather trading or speculation.
the primary reasons for the shift into speculating are that technical analysis has taken over in many quarters and financial incentives are such that traders are playing the decapitalization which has been rampant since the 1960s…
america is not the place to invest but rather speculate – a gift of central banking.
also the prominence of program trading should not be overlooked….
thus we have a mixture of pathology and technology aiding the decline…
If you want to understand why so many people are trading rather than investing in stocks, you don’t need to look any further than the average dividend yield. When so few stocks pay dividends, let alone good dividends, it’s no wonder that most people are playing them for short-term capital gains.
Long-term gains are nice if you have the patience to wait for them, but people also need an annual income in order to make ends meet.