Who’s doing all the selling of stocks?

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Question asked 25/06/2022

Who’s doing all the selling of stocks?

Hi I note your recent comments that suggested that the market has reached a point where fear is starting to take over and this is feeding into the broad-based selling we've seen this last week or so So my question is - who is actually doing all the selling? Is it people who've received a margin call from their lender or is it retail investors who are trying to retreat to cash at any price, or is it fund managers who are doing the same? If the fund managers are fleeing to cash, then is it because they are hoping to pick up bargains later on or do they have investment mandates that they're obliged to stick to? I would have thought that if anyone was experienced enough to just hang on and ride out these sorts of corrections then it would be the pro's. I'm curious if you have any insights. Cheers, Carl

Answer

Hi Carl,

The answer is a combination of all 3 i.e. fund managers, margin calls and retail, firstly we should simply focus on the statistics at this point in time:

There have been 12 recession induced corrections in the US since WW2 with the average pullback from top to bottom being 30%.
So far we have seen the S&P500 drop 25% but amongst the 12 there have been 3 pullbacks of between 40 & 50% and we cannot rule out another one considering the amount of “free money” being withdrawn from the financial system i.e. QT.

The latest Bank of America Survey tells us fund managers are the most underweight stocks since March 2020 (Covid time) while margin calls are probably behind us and retail investors are very nervous but largely hanging on for now i.e. the back drop for some buying opportunities but probably not an end to the correction.

We are firmly in your court Carl. Not panic selling into declines like this is key to strong longer term performance.

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