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Stock Market Ownership

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
GeoffF100
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Stock Market Ownership

#134312

Postby GeoffF100 » April 24th, 2018, 8:37 am

An issue that comes up from time to time, is that if private investors lose to the market, who wins? Here is a breakdown of stock market ownership for the UK:

https://www.ons.gov.uk/economy/investme ... hares/2016

About 12% of share holders were individual investors, and about 9% were unit trusts. There are plenty of other players to siphon off dumb money. (N.B. Monkeys throwing darts are neutral on the dumbness scale.)

The breakdown for the US is different:

http://uk.businessinsider.com/stock-mar ... ?r=US&IR=T

Here, households were 33% and mutual funds 21%.

tjh290633
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Re: Stock Market Ownership

#134323

Postby tjh290633 » April 24th, 2018, 9:17 am

And how much of the rest is owned by pension funds and life assurance companies? Most of that is really the property of individuals.

TJH

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Re: Stock Market Ownership

#134324

Postby GoSeigen » April 24th, 2018, 9:20 am

tjh290633 wrote:And how much of the rest is owned by pension funds and life assurance companies? Most of that is really the property of individuals.

TJH


Everything is ultimately owned by individuals. The issue is who makes the trading and asset allocation decisions.

I welcome this sort of data and discussion BTW: it's a far more intelligent way of understanding the market than the usual "investors are selling so the price is going down" nonsense.


GS

GeoffF100
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Re: Stock Market Ownership

#134333

Postby GeoffF100 » April 24th, 2018, 9:40 am

tjh290633 wrote:And how much of the rest is owned by pension funds and life assurance companies? Most of that is really the property of individuals.

Insurance companies hold nearly 6%, according to the table in the first link. Investment Trusts hold nearly 2%.

The issue that is relevant here is who controls the investments, rather than ultimate ownership. Ultimate ownership is an interesting issue, nonetheless. We often see newspapers and politicians spouting about how all share owners are fat cats, but that issue fits better elsewhere.

There does appear to be some good evidence that individual direct investors, and individual Unit/Investment Trust investors, are less successful than monkeys at making good trades. The reason appears to be that they tend to buy investments that have been rising, and sell investments that have been falling. The monkeys do not care. They just throw darts.

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Re: Stock Market Ownership

#134339

Postby tjh290633 » April 24th, 2018, 10:00 am

I've yet to see a monkey throwing darts.

The nature of the market is that some win and some lose. One big groupof winners is those who charge investors for managing their investments and there is ample evidence to show that, in general, they are not very good their jobs.

TJH

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Re: Stock Market Ownership

#134351

Postby GeoffF100 » April 24th, 2018, 10:37 am

My interest in this topic was prompted by the SPIVA scorecard:

https://us.spindices.com/spiva/#/reports

The most interesting stuff is in the full report for Europe. Recently, small cap funds have outperformed in the UK, but that has not been true in the longer term. I expect that the counter-parties were mostly other professionals.

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Re: Stock Market Ownership

#134352

Postby GoSeigen » April 24th, 2018, 10:38 am

tjh290633 wrote:I've yet to see a monkey throwing darts.

The nature of the market is that some win and some lose. One big group of winners is those who charge investors for managing their investments and there is ample evidence to show that, in general, they are not very good their jobs.

TJH

I'm not sure you've understood the point. Everyone accepts that fees are subtracted from managed fund investors and credited to the managers. That's a different discussion though.

The OP is refering to the situation before fees are reallocated (and taxes taken perhaps).

The OP is interested in whether classes of people making investment decisions can be identified and correlations made between those classes and their investment outperformance ("smart money") or underperformance ("dumb money") as the case may be, relative to the aggregate or average market performance.

The first task obviously is to identify those broad measurable, preferably non-overlapping classes of investors about which there is sufficient data to draw the desired conclusions.

GS

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Re: Stock Market Ownership

#134360

Postby Alaric » April 24th, 2018, 10:50 am

GeoffF100 wrote:An issue that comes up from time to time, is that if private investors lose to the market, who wins?


There's a theory which says that you only out-perform the market averages by increasing risk. One obvious way of doing this is to have a more concentrated portfolio. The question then comes as to whether a "winning" concentrated portfolio is down to luck, skill or just insider knowledge whether legal or otherwise.

Did anyone notice in the statistics that over 50% of the UK capitalisation is claimed to be foreign owned? That isn't broken down as to what type of investor these were. That does seem a high percentage. How for example are Dublin based ETFs classified?

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Re: Stock Market Ownership

#134385

Postby tjh290633 » April 24th, 2018, 11:46 am

GoSeigen wrote:I'm not sure you've understood the point. Everyone accepts that fees are subtracted from managed fund investors and credited to the managers. That's a different discussion though.

I understood the point perfectly, thank you.

My point was that entrusting your money to fund managers (I could have said monkeys ;-)) was no better than DIY investing.

TJH

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Re: Stock Market Ownership

#134391

Postby GeoffF100 » April 24th, 2018, 12:00 pm

Alaric wrote:There's a theory which says that you only out-perform the market averages by increasing risk. One obvious way of doing this is to have a more concentrated portfolio. The question then comes as to whether a "winning" concentrated portfolio is down to luck, skill or just insider knowledge whether legal or otherwise.

You can, of course, also outperform the market by chance. You can do your best to measure risk adjusted performance. Alpha is the simplest measure of risk adjusted performance. Alpha takes account of the increased volatility of a concentrated portfolio, but volatility can be low for risky concentrated portfolios. Fundsmith is an example:

https://pensioncraft.com/review-of-fund ... uity-fund/

People on another thread are buying the same shares as Fundsmith. They may be lucky. It is more likely that they are buying a class of shares that has had a big rise at an inflated price. The same goes for the fund buyers, but they are paying an extra 1% p.a.

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Re: Stock Market Ownership

#134396

Postby GeoffF100 » April 24th, 2018, 12:10 pm

There are some who favour chimps over monkeys as random stock selectors. Here is a good site:

http://www.moneychimp.com/

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Re: Stock Market Ownership

#134399

Postby Alaric » April 24th, 2018, 12:13 pm

GeoffF100 wrote:Alpha takes account of the increased volatility of a concentrated portfolio, but volatility can be low for risky concentrated portfolios.


Equating risk to volatility, I have long thought of as a measure too simple minded to be useful, even if beloved by regulators. The point about researching companies carefully is that you should be able to screen for the duds. Bankrupt nonsense like Carillion can be kept alive by creative accounting, but should fail a reasonable scrutiny of its accounts. Whilst a tracker will suffer when an individual company implodes, that's just minor compared with having it in a concentrated portfolio.

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Re: Stock Market Ownership

#134400

Postby GoSeigen » April 24th, 2018, 12:14 pm

tjh290633 wrote:
GoSeigen wrote:I'm not sure you've understood the point. Everyone accepts that fees are subtracted from managed fund investors and credited to the managers. That's a different discussion though.

I understood the point perfectly, thank you.

My point was that entrusting your money to fund managers (I could have said monkeys ;-)) was no better than DIY investing.

TJH


I agree your point about professional investors often not being very good at it was both correct and on-topic. Sorry, I focussed too much on the part of your message about fees.


So you have identified two classes in the market who you think as a class are bad at the investment process: PIs and managed-fund managers. Who do you believe the smart/winning classes are?


GS

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Re: Stock Market Ownership

#134410

Postby Alaric » April 24th, 2018, 12:31 pm

GoSeigen wrote:PIs and managed-fund managers. Who do you believe the smart/winning classes are?


Surely managed-fund managers can be divided into two classes. Those who manage by reference to a benchmark and follow it closely in terms of stock selection are likely to get tracker returns reduced by the size of their fees. Those managers who either by virtue of their fund's mandate, or by applying their own judgement have radically different portfolios aren't going to get market returns. Therefore some will out perform and presumably others won't.


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