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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: David Bogdanoff who wrote (59810)	8/13/2006 9:57:16 AM
From: bits	Read Replies (1) \| Respond to of 306849

David, no doubt big money in general can control stock prices, the real question is how do they profit from that? Buying and selling at a profit was not the only reason for supporting a market, especially in the past. Mutual funds earn huge fees for investing money, they really only care about individuals keeping their money invested in the fund. So I suspect that in the past they were more of an influence in supporting markets. But now with hedge funds and ETFs, they have lost some of their influence and market / stocks can fall faster. Hedge funds typically are more concerned with short-term profits. But if big money buys they must have someone to sell to in the future, or have some other agenda concerning how they will make money by this support. So they can't afford to support a market that is destined to go down without an exit plan. And everyone wants to buy good merchandise cheaper while unloading overvalued goods. Retail traders might control individual stock issues, it depends on the ownership of the stock and the amount of money needed to control the trading. I suspect that individuals were a large part of the driving force that drove stock prices in 1999 – 2000. If individuals for any reason start to behave as a group they are more powerful in the aggregate than the institutions, and the institutions get much of their money from individuals. IE: Via ownership in mutual and hedge funds. But the bottom line is always how to profit from control, and the need to make a good return on large amounts of money also means having a large position (long or short) that cannot be liquidated at a profit if the situation turns against them. Astute individuals have several advantages over institutions, chief of which is they can buy and sell with impunity having no concern about affecting the general or stock specific market. While institutions with substantial investments cannot move in and out without dramatically affecting prices. For instance, I am sure ERTS is being supported at artificially high prices if one looks at current valuation. However, ERTS has over $2 billion in cash and during a new game cycle starting with PS3, the company will remain a leader and eventually earn even more money. Confidence is crucial to investing; letting market prices fall by trying to liquidate large positions is both futile and leads to a greater downward spiral in prices. So why liquidate ERTS, to whom would they sell to, and during the next cycle the company will remain the leader. I suspect that to control trading, most institutions have both a long and short position which they can slow down moves in either direction, added by options and futures. The larger the market cap of the stock, the more the company is a leader in a sector, the more the institutions will care about (defend) what happens to that stock. The problem with discussing the market is that they are more complex than the climate. As the market cycles both evolve and repeat, what was true 5 years ago, or 5 weeks ago, may not be true today, but may well become a new truth in the future. In the very long term stock prices keep increasing, but long term may mean 10 to 20 years and more. One’s view on time spans is another crucial element to how one views change in price in any type of market.