Yesterday (Monday), ZeroHedge published this chart:
Which reminded me of this chart, which Cardiff Garcia found in August:
Both of them are telling the same story: that equity volumes, far from showing any kind of post-crisis rebound, are continuing to fall fast.
It turns out that this is not a purely US phenomenon. Indeed, the global picture is pretty much exactly the same as the US picture. Here’s data from the World Federation of Exchanges:
What all of these charts shows is that volumes are were on a secular uptrend until the crisis, they had a crisis-related spike, and then they’ve been on a secular downtrend ever since. The question is why.
The uptrend bit is easy: volumes, at least until 2009, always went up over time, especially when they were helped along by things like decimalization and high-frequency trading. But what explains the downtrend? It’s not the decreasing number of stocks: that might explain a bit of what’s going on in the US, but it wouldn’t explain the rest of the world.
Instead, I think that what we’re seeing is the slow death of the stock-market investor — the kind of person who subscribes to Barron’s, idolizes Warren Buffett, and thinks of stock-market investing as a do-it-yourself enterprise. During the dot-com bubble, lots of people thought they were really smart when it came to stock-market investing, and then after the dot-com bubble burst, the rise of discount brokerages helped encourage new people to step in to the market and try their luck.
Nowadays, however, the message is sinking in: it’s a rigged game, you can’t win, and you’re better off with a passive strategy.
The fact is that volume, in and of itself, is not a particularly useful phenomenon: it’s the shallowest and most useless form of liquidity. If the primary purpose of the stock market is to allocate capital to companies which need it, then you could happily lose 90% of the volume in the market without a noticeable decrease in utility.
I’ve got a post coming up about stock-picking as upper-middle-class hobby, but it does seem to me that it’s a hobby which is declining in popularity. That’s bad news for stock volumes, bad news for stockbrokers, and bad news for much of the financial media. But it’s good news for upper-middle class household finances.