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Stock market sayings, in more thought

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May 22, 2012 – Comments (7)

I tried posting this earlier but it got eaten by a glitch.

here are two sayings I hear often in the stock world which always made sense to me until I thought about them in more depth recently and realized maybe it is not as intuitive as it sounds:

1) A short seller is a future buyer.

This is not necessarily true.  If this were true, why don't more people say  "a longer buyer is a future seller"?  Somebody can hold their equities until death, but people can also short companies until bankruptcy.  If one is true,  the other is too.  Yes, short squeezes happen because a margin call is more likely on the short side than the long side, but that is seperate.

2) When everybody has sold, there will be nothing left but buyers

When everybody has sold...to who exactly?  There CANNOT be a sale, without both a buyer and a seller.  You can't sell to thin air, and you are not selling  your stock back to the company.  The only people that really HAVE to buy are specialists.  But specialists don't have enough cash to buy the outstanding shares of the company they represent.  So, how can everybody have sold, if not everybought has also bought?

Please somebodu disprove my second point. I know contrarian investments work, and I know it kinda makes sense at first glance, I just dont see how there can possibly fear without greed on the street....how can everybody sell without everybody buying?

As always, feedback  much appreciated

7 Comments – Post Your Own

#1) On May 22, 2012 at 2:36 PM, Frankydontfailme (27.31) wrote:

2) should instead be everyone has sold that WILL sell or plans to sell at these prices. Conversely when a market is too frothy like apple in 600's everyone had bought that WILL buy at those prices (at that time).

The important thing is WHO owns the shares. The panicky public or the stout institutions (generally, of course there are exception like when institutions fail and funds liquidate etc.) These are the proverbial "strong hands".

Of course even this is a simplification. There is almost always buying and selling in any liquid market. Think of it like osmosis - water molecules are always bouncing and forth into the cell and out. When one side gets heavily concentrated with salt, water rushes to the other direction. Even with water rushing out of the cell, some water is still randomly bouncing into the cell. So the important thing is NET change. Or net buying and selling. That's how I think of it at least.

 

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#2) On May 22, 2012 at 5:00 PM, rhallbick (99.64) wrote:

When everybody has sold...to who exactly?

I think Franky nailed in his first sentence.  The new owners, perhaps value investors, have no intention of selling in the immediate future.  So you reach a point where there are few sellers and the price stops dropping.  At least, that is what the saying means.  Although I think you know what the saying "means", I feel that I had to state that anyway.

What I think you are doing is taking the sayings too literally.  If you pick them apart enough, you're right, they might not make any sense.  Both of them sound like a standardized reply for brokers to use with panicky clients and I think you will not likely find any deep understanding of the market with either of them.  I don't say that to be snarky, just to be clear.

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#3) On May 22, 2012 at 5:35 PM, portefeuille (99.59) wrote:

My "favourite nonsense expression" is that a stock has to rise 100% to make up for a 50% loss (i.e. 2 * 1/2 = 1).

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#4) On May 22, 2012 at 5:45 PM, portefeuille (99.59) wrote:

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#5) On May 22, 2012 at 9:37 PM, EquityResearch (< 20) wrote:

In every stock there are always "weak" holders, hoping to make a quick buck that run away as soon as the chart gets ugly and "strong" holders that are invested in the actual business and will not sell as long as the business perspectives change drastically (and this doesn't happen overnight). Moreover, there are some other holders that won't sell even in that case (family owners and so on), but that's besides the point.

 The ideas is that when all the chart readers have sold, the price will stabilize at levels that value investors are comfortable with, and will likely move up from there.

 Equity Research 

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#6) On May 22, 2012 at 9:44 PM, Valyooo (99.45) wrote:

Well I understand some people not selling like family owners etc, doesnt mean they necessarily buy more, or can buy the whole float

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#7) On May 23, 2012 at 8:02 PM, TMFAleph1 (96.43) wrote:

My "favourite nonsense expression" is that a stock has to rise 100% to make up for a 50% loss (i.e. 2 * 1/2 = 1).

Since it is mathematically true, how is it nonsense?

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