Tagged: ETPs

Mean Reversion

If our stock reverts to the mean, I don’t see that high-frequency trading matters.

I’m paraphrasing what many CEOs and CFOs believe. The market is complicated. There’s volatility. Trading is global. ETFs and derivatives probably affect volume. But I’m trading at a reasonable multiple of forward earnings, so who cares?

I hear that question sometimes. More often, reporters tell me they hear it from CEOs and CFOs. What difference does it make that 60% of my volume is the same shares trading over and over? So we had 7,800 public companies in the Wilshire 5000 in 1997 and now there are 3,600 in it. My stock trades at 16 times earnings. That’s about right.

So long as my house goes up in value, what do I care that people are getting these really ridiculous variable-rate, no-money-down mortgages for 125% of the home’s value, which means they’re financing the furniture over 30 years? What difference does it make to me? My house is still up 15% in value.

According to the ETF Industry Association, at July 2012 there were 1,486 exchange-traded products (ETPs), up from zero about 15 years ago, give or take, and fast approaching one ETP for every two stocks. The industry had net July inflows of $17.1 billion, mostly to equity ETFs. (more…)