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Asset allocation Rotation

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June 01, 2012 – Comments (6)

Sometimes I hear people saying there is a rotation of buying.  Like if stocks are down and bonds are up, that peopel are 'rotating out of stocks into bonds'.  This does not make sense to me.  For every buyer there is a seller.  So if somebody sold stocks to buy bonds...who did they sell the stock to?  They sold it to somebody who wants to buy stocks.  So if one person sells stocks to buy bonds, doesn't that mean the guy they sold it to sold bonds to buy stocks?  I think all that is happening is a reassesment of values... I don't think it has anything do to with buying vs selling.

Thoughts?

6 Comments – Post Your Own

#1) On June 01, 2012 at 6:12 PM, miteycasey (30.86) wrote:

The juice 'investment' banks make when they make a trade...just an idea.

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#2) On June 01, 2012 at 8:19 PM, Valyooo (99.47) wrote:

What?

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#3) On June 01, 2012 at 9:28 PM, Speculatormaster (< 20) wrote:

Because exists the Market Makers, them have to buy when no body wants buy, and also have to sell when no body wants to sell. Search the funtions of the Market makers, and how them won the money is interesting. (Spreads and that stuff)

Markets makers sometimes go broke :( , but almost never the best investors are the ones that can beat the market makers. I think is very hard beat them.

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#4) On June 05, 2012 at 4:23 PM, Melaschasm (54.71) wrote:

You are right about there being both a buyer and a seller with each transaction.

I think the phrase rotating out of or into a position is a poorly worded reference to supply and demand shifts.    When prices for bonds are going up at the same time as a fall in prices for stocks, that could be considered an upward shift in demand for bonds with a downward shift in demand for stocks.  In this case, an increase in demand for bonds and a decrease in demand for stocks is not a change in the number of people investing, but rather it is a change in the prices people are willing to pay.  Unfortunately people tend to be sloppy in their use of language, and over time standard phrases that are not technically correct become widely used. 

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#5) On June 05, 2012 at 4:49 PM, SextonErna (< 20) wrote:

as Victor replied I can't believe that anyone can make $7880 in one month on the computer. have you seen this web link (Click on menu Home more information)  http://goo.gl/ZwZeV

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#6) On June 15, 2012 at 3:23 PM, TSIF (99.96) wrote:

The number of shares bought and sold, (barring options, shorts, etc), is always equal.  For every share sold there was a share bought.  (The number of buyers is not equal to the number of sellers, but I believe you meant shares).

The amount of shares sold or bought to raise the share price by x% and the number sold or bought to drop the share price by the same x% IS NOT the same. 

When prices are dropping, as Melaschasm indicated, demand has dropped. There are fewer willing buyers at that price.  Why then are the sellers selling at lower prices?  They want the money for some other reason. Either they feel the risk/reward is too high to be in stocks and they may put thier money in a mattress or in bonds.  At any given time, cash is also on the sidelines.  If stock prices are going down, (lower demand) and bond prices are going up, (higher demand), there is rotation. 

Buying and selling "demand"/"volume" drives the share prices, as does cash being deployed from the sidelines.  If share prices are dropping and bonds are rising, there is definitely rotation, even though there was a buyer to help the seller get out of his postion.

 

 

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