Last week’s post about how Someone Has To Be Buying For The Stock Market To Go Down was pretty popular so I thought I would follow up on that theme.
Bill Cosby hosted a show called Kids Say The Darndest Things which was partly a resurrected version of Art Linkletter’s House Party from 20 years earlier. Part of the attraction was that most of the things the kids said were funny because they were trying to communicate with imprecise language. The financial media can be guilty of similar imprecision (as can I).
Here are two good examples of things you might hear or see on the radio or television:
“Wall Street was in a selling mood as stocks moved down today.”
Since there must be someone willing to buy the stocks that get sold, this doesn’t make much sense. What mood were the buyers in? Really all you can say is that the transactions that took place between the buyers and sellers priced stocks lower than the previous trading day.
In fact, since they are normally referring to the performance of market-cap weighted indexes (like the S&P 500 and the TSX) it’s possible that the market as a whole actually moved higher as the main indexes are only representative of a sub-section of the overall markets. For example, the S&P 500 covers only about 500 stocks (it varies a bit) in the US market, but there are well over 10 times as many stocks in the US.
“Stock XYZ is quickly going up today.”
Misleading. You can only say where a stock HAS gone. If a reporter indicates a stock IS moving one way or the other, they shouldn’t be wasting their time telling you about it and should be busy placing their order. But since they aren’t placing their orders, perhaps you should think twice about doing the same based on their comments.
Yeah, that “selling” think used to confuse me before I really understood the stock market. I thought maybe people really could be selling stocks without buyers somehow. Now I just think of it as a kind of financial reporting shorthand.
One note: You say “market-cap weighted indexes (like the Dow Jones”, but the DJIA is actually a price weighted index:
http://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average
@Jordan – thanks for the reminder. It’s a good thing I lumped myself in as being imprecise from time to time. I actually wrote about the Dow’s price-weighted nature here if you want to take a look.
Its interesting that you note that someone has to buy for you to sell. There is always someone buying — and this someone is the market maker in that security, who has an obligation to quote a buy and sell price.
I was wondering about this when one of the equity instrument I owned went bankrupt, and I was still able to sell it on its steep decline before trading stopped end of the day.
The market became mad or not ?