Who Sells When the Market Falls?

There is this commonly held belief that mom and pop investors panic when the market is going down. Turns out this might not be the case after all.

Jason Zweig did some excellent debunking yesterday on this topic in the Wall Street Journal:

“Institutions sell more than individuals when there is a large stock-market drop,” finance professors Patrick Dennis and Deon Strickland found in a 2002 study. They also showed that the more widely a stock is held by big investors, the greater its trading volume during sharp market drops.

In order to find out how investors behave, he turned to data from the epicenter of retail, Vanguard.

A survey of more than 16,000 individual investors by Vanguard Group, the giant asset manager, shows how drastically their attitudes differ from those of big institutions. Vanguard has been repeating this survey every two months since early 2017. The results suggest that individual investors have become a major force for moderation in the financial markets.

How about them apples!

But we know better than to trust surveys, and luckily, there is some fresh data to back up this claim.

Eric Balchunas tweeted “$VOO took in over $1b, while Vanguard as a whole took in over $3b, during the worst two-day decline in the market since 2008, with 57 of their ETFs have taking in cash in past week. Even by Vanguard standards, that’s some impressive Navy Seals-level discipline.”

It’s unlikely that mom and pop are going to crash the market, if anything, they might be helping to prevent that from happening.


The Pros Have to Sell Stocks Now. You Don’t.