The Market’s $2 Billion per week Habit
In a recent WSJ interview, Mark Hulbert, an expert at watching sentiment trends in the investing arena, was quoted on this new passive investing movement:
There it is, that thing we don't talk about at cocktail parties. The unknown. The reaction. The human emotion.
$2 Billion a Week
That's quite a flow of money, and all just into Vanguard.
Make no mistake, the momentum trade of the year is not AMZN, AAPL, GOOG or FB…
It is ETF's!
It's the new thing that will fix all ills…because it's cheap and easy.
Renters, Not Owners
If you feel that “cheap” fixes human nature then let this be your warning.
All those billions are not arriving at Vanguard with some statement of "I am now a long-term, logical investor ready to live with all that comes my way."
They are only renting the spot.
And when the lease is up?
That’s when it gets uncomfortable.
The human emotional cycle has not been fixed because an ETF charges less, folks. The ETF today is like the "portfolio insurance" story of the 1980s, the hedging story of the 1990s, and the quant/algo story of just a year ago (take note of how many of those shops have closed up in the last year).
Those of us who have been around long enough are the one's trying very hard to help the client understand that this is just another marketing vehicle.
There’s no easy route.
Once we as investors get that part into our planning, we tend to do better because we react better.
And the dirty little secret in all this is that it's ok if the markets sometimes stink. This has been going on since the beginning of time.
So, how then will you know when that lease is up?
Well, the news will only find "reasons" afterward, as we’ve covered many times before.
But people will tend to react to the discomfort of a normal (required) market corrective wave just as they have in the past.
As Mark Hulbert said:
The end result is the same - no matter if the fees are lower.
Mark knows his stuff and has been following sentiment for an awfully long time, and he concludes the point that everything we know from history tells us the same thing.
Today’s newly converted ETF passive investing diehards won’t last long when the direction of the market shifts downward....and it will, even during a long secular bull market.