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The way I understand it current price of the stock is set by active investors. Passive investors have no influence on the price. If I tell my 401 (k) to put i
by anotherman554 4y ago
The way I understand it current price of the stock is set by active investors. Passive investors have no influence on the price. If I tell my 401 (k) to put in 5% of my salary to the S&P 500 every paycheck, I have not shown a preference as to whether the S& p 500 should be set at 3,719 (as it is today) or 3,000, or zero.
But if you object to the term "emotion" when describing active investors then let's just say that the stock price is often set by changes in the price to earnings multiple, which usually has nothing to do with the actual value of a company and is inexplicable outside hand wavy appeals to social psychology.
- MuffinFlavored 4y agoWhat's the ratio of active investors vs passive investors? How many "total investors" are there making trades in the average month?
- thunky 4y ago> Passive investors have no influence on the price. Even passive investors can panic sell when they see their 401k balance shrinking fast.
- anotherman554 4y agoThey really aren't being passive at that point, are they? They've become an active investor due to panic.
- thunky 4y agoMaybe not if we're using a strict definition, so I'll add some words to what I said before: Even passive investors can turn into active intestors and panic sell when they see their 401k balance shrinking fast. Here's an example of someone trying hard to stay passive during the 2008 downturn: https://www.bogleheads.org/forum/viewtopic.php?t=25126 https://www.bogleheads.org/forum/viewtopic.php?t=25126
- anotherman554 4y agoInteresting link. I see the poster is still active (and likely relatively wealthy) today at age 88. Good for him.