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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: robnhood who wrote (24555)	8/18/1998 12:08:00 AM
From: James F. Hopkins	Respond to of 94695

Russel; Now with the pick up in volume say in the last three years, and with the coming on line of more and more index funds, all of which to adjust for inflow and out flow, have to buy/sell whats in the index to track it. And of course the larger caps are weighted heavier so more of them are bought which tends to make a momentum market, and take away from the value concept. ( because of the nature of indexing ). ---------------------- What I'm also leading up to is all this volume adds up to a lot of churning has to be going on. I picture some of the more popular stocks churning an amount that exceeds their entire float several times a year. This type of churning has a cost, both commissions and spread, and if we look at each stock as a comodity..that some how represents earnings or projected earnings, the more this stock or it's bothers and sisters trade, the more expense they have to over come to maintain the value. By and large this is a hidden expense against it's earnings, that over time is accumulative, so if the indexers and people like my self who short term trade keep increasing in number where will it take us ? ------------------------ I remember when I had a real estate license several homes in the area that "churned" because of people being transferred in and out of a Chemical Co. Each time these things were bought and sold there were commissions, title ins, and new financing, and "discount points" One day when I started adding up these fees I was astonished to find out that the total fees on the "churned houses" over the years we had handled it now exceeded the value of the house. And this not counting the interest the S&Ls made. --------------------------- Any way down the road where do you think the high and increasing churn rate will lead us ? Won't earnings just have to get better and better per share to offset this, and there has to be a limit on earnings or no one will be able to afford the product..this whole system looks like it has a built in self destruct mode that will someday have to go off. If each stock is a commodity and it cost to trade it, at some point the cost of the trading and retrading will dilute it's value..already I can tell that CPQ trades enoung that the cost involved each year is more than 4 times her dividend. Jim Jim