More Sellers than Buyers?Submitted by Larry Frank Sr. on Tue, 11/27/2012 - 3:00pmSometimes, when financial markets are spooked by uncertainty over thefiscal cliff, regulations or Europe, you hear people say that there are moresellers than buyers. This is an expression with little basis in fact. Let’s bustthis myth. Think about it. Each sale requires both a seller and a buyer. You cannot sell financial assets to air or space. There is someone on each end of deal all the time that sets the going price. It is important to understand this very simple principle, but since nowadays, you can’t see the other party, and it is easy to forget that they are there. Even the stock traders and brokers who used to be on the floor of the exchanges are going away, replaced by computers and high-frequencyThe floor, circa 1955 trading algorithms. Today’s deals are done electronically and impersonally rather than over a handshake or face to face like the old days. Look at these pictures of the New York Stock Exchange trading floor. The biggest change over the past half-century is that the number of people trading keeps decreasing. . It is easy to forget the human element these days. So it’s easy to forget that every time you buy or sell a stock,circa 1986 someone is on the other end of the deal. We tend to forget the duality of transactions when not only our business dealings. But even our social interactions go through electronics.
When the markets are selling off, it doesn’t mean that there are more sellers than buyers, but that there are more sellers willing to sell at a lower price than buyers willing to buy at a higher price. This means the buyer will not accept a higher price that the seller wishes they could get. The seller has to keep lowering his or her price until someone buys. We don’t see this because we2005 don’t see the bid price and the ask price, both of which are still part of selling and buying through exchanges. What is actually happening is easy to forget when you sit in front of a computer entering numbers without realizing what goes on behind the scenes between those two parties. Financial transactions really are a zero sum game. Naturally, the seller always wants a high price and the buyer always wants a low price. So2011 expectations about the future are what moves prices up or down.Whenever you buy a security, you hope that its price rises, and the sellerthinks the price is going down. Both are hoping that the other party iswrong.We call this the greater fool theory. Whether you are buying or selling,you hope that there is a greater fool out there who will lose out while youprofit.Follow AdviceIQ on Twitter at @adviceiq.Larry R Frank Sr., CFP, is a Registered Investment Adviser (California)in Roseville, Calif. He is the author of the book, Wealth Odyssey. He hasan MBA with a finance concentration and B.S. cum laude in physics withwhich he views the world of money dynamically. He has peer-reviewedresearch published in the Journal of FinancialPlanning. www.blog.BetterFinancialEducation.com.AdviceIQ delivers quality personal finance articles by both financialadvisors and AdviceIQ editors. It ranks advisors in your area byspecialty. For instance, the rankings this week measure the number ofclients whose income is between $250,000 and $500,000 with thatadvisor. AdviceIQ also vets ranked advisors so only those with pristineregulatory histories can participate. AdviceIQ was launched Jan. 9, 2012,by veteran Wall Street executives, editors and technologists. Right now,investors may see many advisor rankings, although in some areas only afew are ranked. Check back often as thousands of advisors areundergoing AdviceIQ screening. New advisors appear in rankings daily.