Common stock shares and their holding time / by kevin murray

As reported by, "In the 1950s the average holding period for an equity traded on the New York Stock Exchange was about seven years. Now it’s six months."  Additionally, "… high-frequency traders whose holding periods can sometimes be measured in milliseconds now account for as much as 70% of daily volume on the NYSE."  The fact that the individual shareholder has been pretty much reduced to irrelevancy and the fact that much of the trading of the stock exchange is done through the usage of sophisticated algorithms, quantitative analysts, and robotic trading, has fundamentally changed the complexion of the stock market, and may, in this change, changed its stability or lack therefore.


From a consumer perspective of common stocks, it is important to note that commissions for brokerage trades on stocks was deregulated back in 1975, ultimately leading to an incredible amount of monetary saving as well as convenience for consumers so as to make their own trades at a cost that nowadays is often less than $10 for a transaction amount of up to thousands of shares as well as thousands of dollars.  This obviously means that the cost of trading stocks, for most individuals as well as institutions, is low enough, that it is fundamentally lost in the noise.  Which, in its own way, is a meaningful contribution to why the holding period has dropped so precipitously, for if the cost to get in and out, is very, very cheap and as easy as a click on a computer mouse, which it is, people and institutions are apt to make snap decisions, good or bad, right or wrong, easily.


So too, the taxation of capital gains for stocks makes a meaningful difference as to how long of holding period a stock buyer will consider, and when long term capital gain rates are not only taxed at a very reasonable tax rate, in fact for most big stockholders, less than the tax rate of their wage income, then having to hold onto a particular equity for only a period of twelve months is not a very high hurdle to overcome.  So then, if long term capital gains were re-defined to actually more approximate, the words "long term", so that to qualify would necessitate a period of two years or three years or five years, than those so investing would have a stronger tendency to select stocks that they believe in for the long term, rather than being overwhelmed or overly concerned about quarterly or projected quarterly earnings.


Unfortunately, the common stockholder and their influence upon the stock market, has been reduced considerably, so that when mutual funds, hedge funds, and brokerage company investment funds makes it their point to trade in and out of stocks, without consideration of tax consequences, and without consideration of a long term view of any particular equity, such trading back and forth, provides the impression that "investing" in equities, really isn't about fundamentally placing one's dollars into a company that has solid earnings, or solid growth, or a solid story, but more of a game, of trying to squeeze a nickel of trading profit here and there in volume trades in order to make money; essentially changing stock investment, into the biggest casino in the world.


The fact that stocks are being held for lesser and lesser periods of time, contradicts what corporations represent, which is perpetual existence; so that, all things being equal, investments in equities, should actually reflect that the institution or individual so investing, is doing so for the long haul, in order to receive in return, stock appreciation and, if applicable, stock dividends.  Instead, in today's lightning fast paced trading world, it seems to be all about getting a little edge over someone else that isn't quite as millisecond quick or algorithm smart.  That mindset, in which, none are in it for the long term, is the very vehicle that will inevitably lead to the markets' scary instability and its frightening crash.