Among Cliff Asness’ top peeves are commonly held and oft-repeated beliefs that are wrong or misleading and can potentially hurt investors. The asset manager politely requests people stop saying – “There is a lot of cash on the sidelines.” Everyone should pay attention…
Via Cliff Asness,
Every time someone says, “There is a lot of cash on the sidelines,” a tiny part of my soul dies. There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines.
If you want to save those who say this, I can think of two ways.
First, they really just mean that sentiment is negative but people are waiting to buy. If sentiment turns, it won’t move any cash off the sidelines because, again, that just can’t happen, but it can mean prices will rise because more people will be trying to get off the nonexistent sidelines than on.
Second, over the long term, there really are sidelines in the sense that new shares can be created or destroyed (net issuance), and that may well be a function of investor sentiment.
But even though I’ve thrown people who use this phrase a lifeline, I believe that they really do think there are sidelines.
There aren’t. Like any equilibrium concept (a powerful way of thinking that is amazingly underused), there can be a sideline for any subset of investors, but someone else has to be doing the opposite.
Add us all up and there are no sidelines.
Now where’s Maria Bartiromo?
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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xIYsFJbiHpk/story01.htm Tyler Durden