The Frugal Prof

Its Not about the Money. Its about taking charge

Experienced Investors are Selling While Novice Investors Rush Into Stocks

by

Value Investing

 

That which isn’t good for the hive, isn’t good for the bee.

Marcus Aurelias, Meditations

 

Experienced Investors are Selling While Novice Investors Rush Into Stocks

 

At some point, even lay people begin to wonder what is happening with the stock market.

We have massive unemployment.  Large parts of the economy aren’t even open for business.  Disneyland isn’t reopening for 7 weeks and when they do, the restrictions will be so onerous, that it will be nearly impossible to make money.

So, how has the stock market has a parabolic run over the past 5 weeks that leaves the Nasdaq and many stocks at or near ALL TIME HIGHS?

Free Money from the Fed:

The US is awash in liquidity from the Treasury and the Federal Reserve.  As the election is now getting closer, there is chatter about more “free money.”  More stimulus checks.  Infrastructure plans.  More PPP.  And President Trump wants negative interest rates.

 

Negative Interest Rate Policy:  The Fed is flirting with Negative Interest Rate policy, a radical failed experiment everywhere it has been tried.

Japan’s stock market is flat for the last 30 years.  Their economy is irrelevant.  Their government owns their economy via ETF purchases.  Most international mutual funds and indexes do not even include Japan.  It is irrelevant.

For now, Powell is pushing back on the idea.  But his track record of bowing to the wishes of the President is pretty weak.

 




 

 

Why Buffett is Selling:

Its possible that Berkshire Hathaway has sustained losses in its catastrophic insurance portfolio.  It’s also possible he sees a serious recession on the horizon.

Either way, he has a mountain of cash ~ $130B and is still raising more.  Even if you don’t believe Buffett is at the top of his game, its worth considering why he is so cautious right now.

 

Warren Buffett:  Buffett has sold stakes in airlines and in Goldman, Sachs.

Warren Buffett announced he had sold his entire airline stake on the premise that he wasn’t sure if air travel would return in two or three years.

That’s the most bearish assessment anyone has heard from Mr. Buffett in quite some time.  But, few investors or Algorithmic programs paid much attention to him these days.

 

Sam Zell is Selling:

Sam Zell mentioned this week that he was quite cautious about the future.

“Too many people are anticipating a kind of V-like recovery,” said in an interview with Bloomberg Television.
“We’re all going to be permanently scarred by having lived through this.”
Just as the depression left behind a generation that couldn’t shake the experience of mass unemployment, hunger and desperation, the burdens this crisis has forced on society may be similarly hard to forget.
Zell, 78, said it won’t be easy for people to live as they did before the “extraordinary shock” of the pandemic.
Investing - Wall Street

Marc Lasry is cautious:

Billionaire investor Marc Lasry says the market isn’t pricing in a recession that will last ‘for a while’

“If you’re going to have all these people unemployed, it’s hard to end up coming out of a recession until that changes.
It’s going to be a difficult couple years,” Lasry said, adding “I just don’t see people that are out of work spending money.” More here

Who the Hell is Buying Stocks?
Novice Investors for one.

 

BARRONS: Day Trading Has Replaced Sports Betting as America’s Pastime.

It Can’t Support the Stock Market Forever.

 




 

CNBC:  Young investors pile into stocks, seeing ‘generational-buying moment’ instead of risk

The major online brokers — Charles Schwab, TD Ameritrade, Etrade and Robinhood — saw new accounts grow as much as 170% in the first quarter, when stocks experienced the fastest bear market and the worst first quarter in history.

 

‘Monumental volumes’

The major online brokers saw a major jump in new users during the coronavirus sell-off, bolstered by zero commissions and fractional trades.

Charles Schwab CEO Walt Bettinger said in an earnings release the broker saw “monumental volumes” of trading from the 609,000 new broker accounts added in the first quarter, with over 280,000 in March alone.

The quarter included 27 of the 30 highest volume days in Schwab’s history.

 

TD Ameritrade — which is set to be acquired by Schwab — said last month that retail clients opened a record 608,000 new funded accounts in the first quarter, with more than two-thirds of those opened in March.

The e-broker’s new accounts proved to “skew younger” over the last quarter,” TD Ameritrade chief market strategist JJ Kinahan told CNBC.

“Perhaps because they’re home or perhaps because of furloughs, they also have time to dedicate to their investments that they didn’t necessarily have before,” Kinahan added.

ETrade, which is set to be acquired by Morgan Stanley, saw a gain of 363,000 accounts in the quarter, a company record.

 

Robinhood users soar

Robinhood — millennial favored stock trading app — saw a mind-blowing 3 million new accounts in the first quarter, despite glitches and crashes on heavy trading volume days.

“The access to trading, there are no barriers to entry anymore, its on your phone, you can buy whatever you want, fractional shares are available so if you can’t pony up $1,400 to buy one shares of Google you can still own the FANG [Facebook, Apple, Netflix, Google] stocks,” Welsh added.

 

Investing - Wall Street

 

It never ends well when the novice investors are running into the Wall Street casino while the experienced investors are looking for the exits.

Be careful my friends.

 

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