Flushing the Chumps
Charles Biderman of Trimtabs is telling anybody who'll listen that a lot of individual investors, now rushing toward the exits of the US stock market, may be making a big mistake:
Charles Biderman, chief executive of TrimTabs Investment Research, argues that the real answers lie in mutual-fund flows and in whether companies are spending money to buy their own stock or that of other companies as part of a merger.
He noted that at the market peak in early 2000, individual investors piled into equity funds but that companies were net sellers of stock.
By contrast, at the bottom of the last bear market from June 2002 to February 2003, individuals pulled $100 billion out, while companies were net buyers by $30 billion.
"Typically, individual investors are always wrong," Biderman said, "and ever since the mid-1990s, for every year when companies were net buyers of their own shares, the market has gone up."
Right now, Biderman notes, companies are again net buyers. He calculated that 135 companies announced last month a total of $63 billion in stock buybacks and $40 billion more in stock purchases as part of takeovers.