4 ms·

stock market is an exchange, so for every dollar flowing "into" stocks, there is a dollar flowing out. For every buyer, there is a seller. In which case, what

by rsj_hn 5y ago

stock market is an exchange, so for every dollar flowing "into" stocks, there is a dollar flowing out. For every buyer, there is a seller. In which case, what possible usefullness can one obtain from counting buyers but ignoring sellers?

nkmnz 5y ago
Some sellers create the supply according to the demand, most notably via IPOs, but also when emitting new stock.
- rsj_hn 5y ago
  This is true, but that is not what this article is about, because in terms of net issuance, the stock market has been negative for some time, with buybacks outpacing new issues.
Ekaros 5y ago
What happens to that money flowing out? Is it spend or does it again flow to some other stock?
- Ariarule 5y ago
  Right, every _share_ purchased is also a share sold (in principle), but that price will not usually be the same price that the current seller originally purchased the share at themselves. As a result, you can have inflow/outflows in dollar amounts. For individuals stocks, with increasing/decreasing market caps, but of course there can be more money in the market overall.
  - tedsanders 5y ago
    You misunderstand. Money doesn't flow into or out of markets on net. Every time a share is sold for $X, a share is bought for $X - they are two sides of the same transaction.
    - Ariarule 5y ago
      This misses that the share is an asset _with a monetary value_ even though it's not money itself. It's true but not relevant that various measures of the money supply, M0, M1, etc. are unchanged. The chart in the original article is of Annual Equity Fund flows, which are net values _considering both sides since it includes negative values_ -- a measurement of this supposedly nonexistant flow. While money remains constant from a trade, the stock of equity (in both senses of the term "stock") changes.
ssivark 5y ago
That ignores the case of feedback loops where the person who got money out of the market then turns around and re-invests at the increased price (iterating several times). Your double-entry accounting is technically correct, but that metric easily misses any “mania” where people’s expectations are highly asymmetric, and they make repeated speculative bets on that basis.
- rsj_hn 5y ago
  Nobody gets money "out of the market". They sell to someone else, and use the proceeds of the sale to buy another asset. But the original buyer could also have used the proceeds too buy another asset in the first place. No money is created or destroyed in this transaction. In fact these transactions have little to do with the real economy at all, they are merely pricing assets. You can buy and sell something 100 times or 10,000 times and none of that will have any bearing on the real economy or even on things like inflation.
errantmind 5y ago
Because if you buy a stock for $1 and sell it for $100 then $99 has 'flowed' into the market while your $99 profit is sitting in a brokerage account
- tedsanders 5y ago
  That is incorrect. For every buyer, there is a seller. If you bought for $1, then other market participants sold for $1. If you sold for $100, then other market participants bought for $100. If money in your account went up, then money in other market participants accounts went down. The money went through the market - it didn't come "from" the market. *obviously the story gets more complicated with dividends, shorting, share issuance, buybacks, etc. but the principle remains the same Very often you cannot reason about the aggregate the same way you reason about an individual. The aggregate can never have more or less market exposure than average, even though individuals like you or me can.
  - errantmind 5y ago
    I don't agree. The market is not the origin of money and it is not a closed system. I can invest my $100 anywhere, if I put it into the stock market that money 'flows' in, in a sense of psychological valuation. Yes, someone else receives the money in exchange for a share but that doesn't mean they are putting it back into the market. The key idea is how people think about buying or selling. If I buy a stock for $100 I obviously think it is worth that or more. If the value of the stock crashes, at that moment in time I am out the difference should I sell at the new value. Also, the market shouldn't be anthropomorphized nor averaged. Ultimately it is a bunch of individuals buying and selling and their exposure has practical consequences, especially when it is concentrated along different dimensions, like retail vs. non-retail. A 'rich' individual buying $1 billion worth of a stock is not the same as 1,000,000 'poor' individuals buying $1000 of a stock.
    - tedsanders 5y ago
      When the market crashes 20% just as much money flows in as flows out. When the market climbs 20% just as much money flows out as flows in. If you disagree, we must be using the same words to mean different concepts.

by rsj_hn 5y ago

nkmnz 5y ago

Some sellers create the supply according to the demand, most notably via IPOs, but also when emitting new stock.

rsj_hn 5y ago
This is true, but that is not what this article is about, because in terms of net issuance, the stock market has been negative for some time, with buybacks outpacing new issues.

Ekaros 5y ago

What happens to that money flowing out? Is it spend or does it again flow to some other stock?

Ariarule 5y ago
Right, every _share_ purchased is also a share sold (in principle), but that price will not usually be the same price that the current seller originally purchased the share at themselves. As a result, you can have inflow/outflows in dollar amounts. For individuals stocks, with increasing/decreasing market caps, but of course there can be more money in the market overall.
- tedsanders 5y ago
  You misunderstand. Money doesn't flow into or out of markets on net. Every time a share is sold for $X, a share is bought for $X - they are two sides of the same transaction.
  - Ariarule 5y ago
    This misses that the share is an asset _with a monetary value_ even though it's not money itself. It's true but not relevant that various measures of the money supply, M0, M1, etc. are unchanged. The chart in the original article is of Annual Equity Fund flows, which are net values _considering both sides since it includes negative values_ -- a measurement of this supposedly nonexistant flow. While money remains constant from a trade, the stock of equity (in both senses of the term "stock") changes.

ssivark 5y ago

That ignores the case of feedback loops where the person who got money out of the market then turns around and re-invests at the increased price (iterating several times). Your double-entry accounting is technically correct, but that metric easily misses any “mania” where people’s expectations are highly asymmetric, and they make repeated speculative bets on that basis.

rsj_hn 5y ago
Nobody gets money "out of the market". They sell to someone else, and use the proceeds of the sale to buy another asset. But the original buyer could also have used the proceeds too buy another asset in the first place. No money is created or destroyed in this transaction. In fact these transactions have little to do with the real economy at all, they are merely pricing assets. You can buy and sell something 100 times or 10,000 times and none of that will have any bearing on the real economy or even on things like inflation.

errantmind 5y ago

Because if you buy a stock for $1 and sell it for $100 then $99 has 'flowed' into the market while your $99 profit is sitting in a brokerage account

tedsanders 5y ago
That is incorrect. For every buyer, there is a seller. If you bought for $1, then other market participants sold for $1. If you sold for $100, then other market participants bought for $100. If money in your account went up, then money in other market participants accounts went down. The money went through the market - it didn't come "from" the market. *obviously the story gets more complicated with dividends, shorting, share issuance, buybacks, etc. but the principle remains the same Very often you cannot reason about the aggregate the same way you reason about an individual. The aggregate can never have more or less market exposure than average, even though individuals like you or me can.
- errantmind 5y ago
  I don't agree. The market is not the origin of money and it is not a closed system. I can invest my $100 anywhere, if I put it into the stock market that money 'flows' in, in a sense of psychological valuation. Yes, someone else receives the money in exchange for a share but that doesn't mean they are putting it back into the market. The key idea is how people think about buying or selling. If I buy a stock for $100 I obviously think it is worth that or more. If the value of the stock crashes, at that moment in time I am out the difference should I sell at the new value. Also, the market shouldn't be anthropomorphized nor averaged. Ultimately it is a bunch of individuals buying and selling and their exposure has practical consequences, especially when it is concentrated along different dimensions, like retail vs. non-retail. A 'rich' individual buying $1 billion worth of a stock is not the same as 1,000,000 'poor' individuals buying $1000 of a stock.
  - tedsanders 5y ago
    When the market crashes 20% just as much money flows in as flows out. When the market climbs 20% just as much money flows out as flows in. If you disagree, we must be using the same words to mean different concepts.