Archive for the ‘Stocks’ Category

Stock Market Appreciation – I Am Going To Be Rich!

December 11, 2011 Leave a comment

In my last blog, I discussed the three reasons that people own stocks.  We looked at the first reason which was in order to receive a stream of income in terms of a dividend.  This alone certainly did not make a lot of sense since it was less than half of what you could make with bonds.  Another reason for holding stock was to take over a company and direct it.  I don’t think many of us our in the market for that reason.  That leaves the last one which is we are in the market because we hope to buy and sell our stocks we own for a profit.

In a lot of articles you read about the stock market as an investment they talk about how you need to own stocks because of it’s annualized rate of return.  The number is usually somewhere between 7 – 10% depending on what years they choose to do this for.  Over the last 100 years it has been 9.53%.  The last 50 years it has been not much different at 9.56%.  The last 25 years it was been an outstanding 10.8%.  So, it looks like you better get started investing and getting rich!  Let’s look at the last decade or so to make sure.  The return since 2000 was -30%.

So, what does this mean?  It means that stocks really aren’t something you get a true annualized rate of return like a bond or savings account.  It means sometimes it goes up and sometimes it goes down.  Again, the stock market is an auction and people primarily must buy stocks because they want to sell them for more than they bought them for.  So, in the last 10 years has something fundamentally changed?  Are the companies the stock is for not as valuable as they were 10 years ago?

As you saw in the last blog dividend yields were even lower 10 years ago than they are today, so from the point of view that a stock is only worth the future income it may generate then they shouldn’t be worth any less than they were 10 years ago.  Discounting the dividend growth in terms of a rate of return is only part of the story.  You really need to look at the earnings of a company.  In general, a company makes money (hopefully) and then determines to either reinvest the earnings or pay them out as dividends.  Theoretically, reinvesting earnings will result in more earnings which could be paid out in the fashion of future dividends.  So, how have earnings been doing and how do the correlate with the stock market going up or down?  The equivalent to Dividend Yield (total dividends / stock price) for earnings is the Price to Earnings Ratio.

Since the Price to Earning Ratio was bout 21 that means that the rate of return in terms of earnings is 100/21 or about 5% which puts on par with Bond Yields.  So, the dividend yield as a drive from the last blog could be amended to be the “Earnings Yield” for an investor.  So, why is the market so choppy?  We earlier discussed that dividends did not seem to vary much, but, stock price did.  What about earnings?  Well it turns out that earnings do change over time.  Most companies will try and protect their dividends, but, earnings come and go depending on both the performance of the company, as well as, the state of the overall economy.  As you can see a couple of big peaks set expectations so high that they couldn’t possibly be met and ended in huge adjustments meaning falling markets.

If you look at the economy as a whole, Gross Domestic Product is a measure of how well it is doing.  The higher the GDP the higher the potential is for earnings.  So, in recessions earnings drop.  When earnings drop stock prices normally follow as companies can’t pare down expenses as fast as demand is dropping.  Over the last 10 years GDP has been growing, but, slower than normal (1.75%).   So a classical way of looking at this is that a company is worth the normal earnings it has plus the anticipated growth.  Using GDP as a proxy for growth rate for all stocks then you could say that the average stock is worth the normal earnings (5%) + a forecast for GDP (say 2%).  This would mean maybe somewhere around 7% which is a little lower than it has historically been.  So, the stock market growth should have been 7% minus the dividend yield of 2% or about 5% per year over the last decade.  So, the pure financial reasons for owning stock don’t explain the “lost decade” of growth.

So, if the math doesn’t drive the stock market what does?  I will speculate on that in the next blog.

Categories: Stocks

The Stock Market is Going to Go Up

December 10, 2011 Leave a comment

The Stock Market is definitely going to be going up.  Unfortunately, the Stock Market is also definitely going to be going down.  In the previous blogs, I have been characterizing who owns Stocks and Bonds and how often they get bought and sold.  The next few blogs are going to delve into what makes the prices go up and down.  The most important thing to take away is that they will go up and they will go down.  We will look first at the Stock Market.

As was discussed in earlier blogs, you have to start by taking a look at just exactly what the Stock Market it is before looking at the movement of prices up and down.  Stocks are ownership in a company and as such have some value.  People buy stocks for one of three reasons:

  • Anticipation of getting income in the form of a future stream of dividends
  • The hope of being able to sell the stock later to someone else for a profit
  • The ability to control a corporation and direct what they do

So, which of these factors drive prices up and down.  The assumption is that all three drive it to some degree.  Can we test how much each of these motivations actually determine the price of a stock and whether it will go up and down?  Probably not, but, we will make an attempt anyway.

The dividends would be a good place to start.  The average dividend yield of the S&P 500 is 2.06%.  In the S&P 500 about 25% of the stocks offer no dividends and 75% do.  The 2.06% is all the dividends divided by all the stocks regardless if they paid dividends or not.  If you just look at the stocks paying dividends then the average dividend yield is 2.60%.  In any case, 2.6% does not look like a great return even in today’s paltry interest rates.  The following chart shows high quality bond yields versus the S&P 500 dividend yield.

As you can see, over the last 40 years or so bond yields are consistently at least twice as high as stock dividends.  Normally, bonds are less risky for a number of reasons including that if a company hits bad times a bond holder will get paid before a shareholder.  The other thing to notice is that both bond yields and stock dividend yields have been in a consistent down trend over the last 30 years.  The first thought is that this must be due to inflation.  Bond rates are not specifically tied to the inflation rate although with the role of the Federal Reserve Bank to control inflation, it is common policy for the Fed to raise the prime lending rate in order to “cool off” an economy and help control inflation.  A bond is tied to this prime lending rate and not directly to inflation.

Also notice the spikes associated with dividend yields.  There were huge spikes in 1929, 1982, 2008, etc.  These spikes were associated with the depression and some pretty big recessions.  So, does this mean that companies start paying out higher and higher dividends in order to lure people back into the stock market.  Unfortunately, that was not the case, it was the fact that the denominator (the total capitalization of the stock market) was lower that caused the dividend yield to spike and not the case of the numerator (dollars paid as dividends) that got higher.

So, the best that can be said for a person to hold stocks for the dividends is that you will earn half of what you could earn with bonds.  That means that people must hold stocks for the other two reasons (stock appreciation or wanting to own a company).  Let’s assume that individual investors don’t often try and own a company (Warren Buffet types not included).  Then the average investor is in the Market because they think that people will pay them more for their stocks than what they bought them for.

My next blog will go into why people would pay more for stocks than the future stream of dividends.  On the surface, it just doesn’t make any sense.  It seems like the worse kind of Ponzi scheme or is it just simple economics at work?

Categories: Stocks

How often are stocks traded?

July 17, 2011 Leave a comment

I know how many times I have been trading stocks.  So, I wonder how much stock gets traded in general and what the average amount of stock being traded is.  This blog entry will attempt to get a handle on how much gets traded in general and then compare it to how much an average person trades and finally compare to how much I have been trading.

The first place I looked for this information was the Census data which proved very interesting.  I came across a Net Equity/Stock Purchases by year.  This shows if money went in (a positive number) or went out of the Stock Market.  The following is 2000 – 2009 net purchases/sales in billions of dollars:

The 5 billion dollar in 2000 means that there was just about as much coming into the stock market as leaving it.  You can see in 2005 through 2007 money was leaving the market.  And in 2008 and 2009 it was coming in.  Compare this to the NYSE Year End Closing Price percent change in these years.

You can’t draw too many conclusions from this except to say in the last downturn people were getting out of the market before the big downturn and got back into it during the recovery.  You didn’t see the same pattern exactly in the bubble burst of 2002, so, it is hard to say for certain that the smart money left before the downturns.

In any case, while this has given some insight into how much in dollars goes into and out of the market from a net perspective, it doesn’t answer how much stock is traded.    An obvious candidate is just the sheer volume numbers.  Looking at the NYSE & NASDAQ, they have a volume of about 1.7 Trillion Shares a year that are traded.  These shares are traded with 5.4 Billion Transactions (i.e. number of actual trades).  Again, like in previous blog postings, I have a hard time wrapping my head around the concept of a trillion.  So, looking at some other numbers to get a perspective it means.  I will put it in terms of stocks traded per family.  There are 95.6 million families in the US (305 Million People / 3.19 People per Family).  So, for each US Family they trade as follows:

Stocks Traded per Family = 1.7 Trillion Stocks / 95.6 Million Families = 18,052 Stocks Traded per Family

Trades Made per Family = 5.4 Billion / 95.6 Million Families = 58 Trades a Year

So, much for buy and hold strategy.  In a previous blog entry I determined that about half the stock was owned by individual people.  That means to me that about half this 18,000 Stocks and 58 trades per year for a given family are being traded by Exchange Funds, Mutual Funds, Pension Funds and the like for them.  That would mean that an average Individual Investor trading for his family should trade about 9,000 shares per year in 29 trades on their own as an individual investor.  This means that the average trade size would be about 300 shares.  The trade size seems right, but, the 29 trades seems a little high to me.

To double check these numbers, I will look at my own trading.  I consider myself a fairly active trader that has traded quite a bit based on technical indicators.  So, looking at my portfolio strategy, for the first half of the year, I was shocked that I traded (bought or sold) about 90,000 shares of stock and made 57 trades.  So, that would mean for a year, I would expect to have traded around 180,000 shares and 114 trades which would be quite a bit above the average I came up with.  I know that a lot of the professionals are day trading, adjusting positions daily, etc.  So, maybe these numbers are legit.  They certainly seem reasonable given a mix of active traders and buy and hold types.

Another interesting fact is that the Market Capitalization for NYSE & NASDAQ was around 17 Trillion Dollars in 2010 and the Value of all the Shares Traded was 30 Trillion.  That means that an average portfolio “turns over” about 1.8 times a year (30/17).  Taking this a step further it would mean that an average investor holds on to a stock for less than 7 months (12 months / 1.8 Turnover).  If the average investor has around the $107,000 I calculated in previous blog that means he trades about $190,000 of stock per year.    So, to summarize, my mythical average family investor does the following:

  • Has a portfolio of around $107,000
  • Makes 29 Trades a Year
  • Assuming that they use discount brokers spends about $300 a year to trade stock
  • Trades 9,000 Shares a Year
  • Makes an average size trade of 300 shares per trade
  • Turns over his portfolio 1.8 times a year

But, we all know that there is no average family investor.  When I look at friends and family who own stock, I know that most people are either not trading stock at all or probably not doing it very actively.   So all our mythical average family investors are in there with the professionals trading stock, the question to be asked is are the  professionals the high volume traders or is it our average family investor.

Categories: Stock Volume, Stocks

Who really owns Stock in the United States – Part 4?

July 17, 2011 Leave a comment

So, half the families in the US own stock either directly or indirectly through mutual funds or IRAs.  If you make more money, have a college degree or are older, you are more likely to own stock.  So, as stock owners out there we have an average or mean of about $160,000 in our portfolio.  Again, this number doesn’t feel right because we have a gut feeling that it is concentrated more in a few wealthy individuals, rather than across all income and net worth brackets.  Again digging into the Survey of Consumer Finance (SCF) you can get some more insights into our mythical average family investor.

We saw in previous blog that around 50% of families owned stocks in some fashion, although it varies greatly by how much money you make and your age.  Also, in a previous blog we determined that wealth is concentrated, well, with the wealthy.  We also saw that there are significant differences between average (mean) and median wealth holdings.  If we had a median value for a stock holder it would probably be a better indication of this mythical “average” family investor.

Since we looked at wealth and income let’s look at the ownership of individual stocks, pooled mutual funds and IRAs in terms of the dollar amount owned by the age brackets we utilized in the previous blog.

It is obvious from the above chart that the people in the top 10% of wealth are getting a bigger and bigger proportion of the stock market, as well as getting wealthier at a much accelerated pace than everyone else.   The average combined stock ownership (individual stocks, mutual funds and IRAs) is over $1,000,000 for the wealthiest 10% of families.  As we saw, their total wealth was about $3.7 Million which means 27% their wealth is tied up in the Stock Market and over 73% in bonds, real estate and other assets.  The top 10% wealthiest people owned about 68% of the stock market in 2007 up from 60% in 1989.  While this is a high percentage, it was lower than I was suspecting.  If someone had asked me I would have said the top 10% of families owned 90%+ or the stock market.  Makes me want to go look at some of those “shock headlines” I thought I had seen before and do some investigating.

So, the portfolio value by wealth band in 2007 was:

It seems that regardless of your income bracket that the average (mean) size is 2 ½ to 3 ½ times bigger than the median portfolio size.  This means there is great variability in the portfolio values in all the wealth brackets.  It is not spread evenly within the band, it must be “lumpy”.  You can draw the assumption from this that the portfolios of the 50% of people above the median are significantly greater than the ones in the lower half because the mean is so much higher than the median.  In other words, regardless of the wealth of a person, some people invest more in the stock market than others in their wealth bracket.

What about age?  It seems like the people getting ready for retirement should have the biggest footprint as they are investing for that retirement on unlike older people they are willing to take more risks to accumulate wealth via the stock market.

Well somewhat of a surprise, the biggest group was the newly retired (ages 65 – 74) with an average stock portfolio of $302,000.  The next biggest group is the 55 – 64 group with an average of $299,000.  It goes down there by age group.  So, it appears that the older you get the bigger your portfolio is because you have invested for more years and the stock market has appreciated in general.  The only exception is the over 75 group, who have only $139,000 average portfolio sizes.   This makes some sense because they would be living off of this and moving to other more conservative investments like bonds and CDs.

So, now how does our average family investor look like with his $160,000 portfolio?  The $160,000 threshold in terms of age is around the 45–54 Age Group because their average portfolio is $177,000.  The 34–45 Age Group has an average portfolio of $78,000.  So we would say that if the average is $177K for the 45-54 Group this means that our $160K would probably be in their late 40s.  Let’s say 47.  They would definitely be towards the high end.  Since the 80% – 90% Bracket only has a $132,000 average portfolio, our mythical investor would have to be closer to the 90% wealth bracket.  Let’s peg it for talking purposes at 88% wealth bracket meaning only 12% have more money.

The approach up to this point has used averages or the mean in order to identify our average family investor.  But, looking at all the data it becomes more evident that the average person’s actual portfolio value is closer to the median than the mean.  We saw that the differences were quite a bit higher when looking at the mean versus the median.  There is a smaller group of people with very big portfolios and a whole lot of people with portfolios less than the average.

We showed earlier the median portfolio for all families.  Since, we are looking for to understand what the average portfolio a family investor is managing, we don’t want to include all the people that aren’t in the stock market.  So, we need to go back and find the Median Size Portfolio for people that are actually actively in the stock market.  This is also available in the SCF survey and is the Median Size Portfolio for Active Investors in the table below.

So, according to this analysis the new portfolio value for our average family investor is $107,000 instead of the $160,000 we have been using.  This is more representative of what kind of money the average family investor is playing with.  This investor is in their late 40s.  As they get older, they will start managing more money.

Categories: Stocks

Who really owns Stock in the United States – Part 3?

July 17, 2011 Leave a comment

Now to investigate how many families really own stock and how it is distributed based on demographics like age of head of household, richest to poorest, etc.  There is not as much raw information on this as there were some of the other things I have been looking into.  But, again the Federal Reserve Board does have some statistics.  The main statistics that breaks down ownership of assets that I could find is the Survey of Consumer Finances (SCF) which is done every three years or so.  The latest full survey I could find was in 2007.  There was one done in 2010 which would be of much more relevance, but, it is not scheduled to be published until early 2012.  So, I will need to be satisfied with the pre-recession data and only get to speculate on what the effect of the recession has been.

According to the SCF in 2007, over 50% of US families owned stock.  The majority of this was owned via mutual funds or IRAs instead of owning individual stocks (Only 17% of families own individual shares of stock).  This 50% of families with either direct or indirect stock ownership is way up from the 30% in 1989.  My guess is this is due to a number of factors with the leading factor being the growth of Individual Retirement Accounts.  In fact, the IRA chart looks roughly the same as the stock holdings chart.  Also another factor is that the internet and discount brokers democratized stock market trading by making it both easier and cheaper for an investor.

Another interesting fact about these ownership charts is the downturn in 2001.  This coincides with the stock market downturn due to the dot com bubble crash in that time frame.  People got out of the market during this period.  With this in mind, I am sure people must have left the market after the recent recession and in some cases gotten back in as it has recovered over the last two years.  So, to hazard a guess, based on these factors, I would say that about 50% of Families actual own stock either directly or indirectly.

In the previous blogs, I had determined that the average family owned $160,000 worth of stock in the United States.  According the Survey of Consumer Finances, the average stock portfolio of households holding stock in 2007 was around $151,831.  Again, close enough to our working number.

So, if you are a stock owner do you own $160,000 worth of stock?  Again, I think what you own in stock is tied to what your income is, how old you are, etc.  That of course turns out to be true.  The SCF chart below shows the percent of income as bands.  For the families with incomes in the lowest 20% band only 15% of these families own stock.  For the families in the top 10% of income (90% – 100% band) over 90% of these families own stock.

So if you have more income, you are more likely to have extra money and therefore more likely to invest in the stock market.  Another perspective is looking at it by how old you are.  The next chart shows how many families own stock by the Age of the Head of Household which also correlates somewhat with income as you gain experience in the job market you usually make more money.

There are some minor surprises with this graph.  While the trend has been upwards over the last 20 years for families of all ages, they certainly don’t trend the same way.  As you would expect the two top groups are the ones with the most money and currently seriously saving for retirement.  For the Families with Head of Household between 45 and 64, about 60% of them own stocks.  The next group at over 50% is the 35 to 44 age group, which again makes some sense, as they are starting to earn more money and are having at least some vision of retirement.

The real surprise comes in the next groups.  People under 35 were saving much along the same trend line as everyone else until the dot com bust of 2001-2002 and then they got out and didn’t come back.  You can also see that the 35 – 44 year old group didn’t come back.  With all the press about saving for retirement and how Social Security is going broke, I feel that these age groups know they should be saving for retirement.  But, it appears that they aren’t at least in the stock market.   This is puzzling and a little concerning.  We can only assume this means that they didn’t have the money to get back in.  The question is will they get back in the stock market in the next few years and if they don’t how are they going to afford retirement.

Also, somewhat bewildering is the 65 – 75 age group and those over 75.  Both groups are buying stock.  In fact, they appear to be the fastest growing group in terms of families investing in the market.  It would be interesting to understand what percent of their investment is in stocks versus other things like bonds, CDs, etc.  Conventional wisdom is that you should be putting less in the stock market when you get older and while these statistics don’t identify how much they are putting in the stock market a larger proportion of the families appear to be investing at least some of their retirement money that they have to live on in the market.  This distribution in terms of actual dollars invested will be looked at in part 4 of this blog series on stock ownership.

In summary:

  • Since only half the families in the US own stock, our mythical Family investor has a portfolio worth $160,000 based on calculations done in my other blogs and validated in SCF Survey
  • Families that are getting close to retirement and are in their later middle age have more money and tend to be more into the market than other groups
  • Young people are not getting into the market as much as they were
  • Retired people are getting into the market faster than anyone else
Categories: Stocks

Who really owns Stock in the United States – Part 2?

July 17, 2011 Leave a comment

Well, obviously ultimately people own stock.  Looking at data from the census for this last decade, you can get a feel for just how people and institutions own this stock at least in the United States.  According, to the census there was over 20 trillion dollars associated with US Companies that had equity ownership (i.e. publicly owned) in 2010.  In 2008 , there was under 16 trillion dollars invested in the Market (i.e. Market Cap).  Does this mean that companies went public that were valued at 4 trillion dollars in 2009 & 2010.  I don’t think so.  So, what does this value really represent?

My understanding of the stock market is fairly simple.  The value of a company is determined by what people are willing to pay for stock on the chance that it will provide a return for them.  In the simplest form you buy a stock because you are expecting them to pay you out a portion of their earnings in the form of dividends.  Also in terms of valuation, you can also probably add to some extent that a firm does have some assets, as well, that also have value and in theory could be liquidated for income too.  So, you could make the case that a stock is worth the dividends it pays along with its’ residual liquidation value.

But, unfortunately it isn’t that simple.  There are many so called “growth” companies that don’t pay dividends.  I will address how many companies pay dividends (about 75%) and why others don’t and what the value of a stock should really be in another blog.  Suffice to say that a stock’s worth is what people will pay for a stock times the number of stocks outstanding (future Market Capitalization).  It really has nothing to do with what you paid for it or only what its’ dividends or liquidation value is.  It is what people are willing to pay you for it.  Again, that will be great subject for another blog as well.  So, this means for all US companies that people were willing to pay 16 trillion dollars in 2008 and in 2010 they were willing to pay 20 trillion dollars.  But, back to the subject of this blog, who in the heck owns all this stuff?

The following is a breakdown, of the ownership of stock in the first quarter of 2011:

So, about half (49.9%) is owned by individual investors (US and Foreign) actually making choices on individual stocks on what to buy or sell.  About a quarter is owned by mutual funds, exchange traded funds and Closed End Funds (24.8%).  In essence these are directly owned by individual investors who are more passive in nature and letting these types of companies buy stock for them.  They want to be involved in the market, but, don’t want to make decisions beyond rather broad decisions (i.e. a type of fund to invest in).  Pensions are the next big hitter with 17.0% of the stock market.  Of course, these belong to individuals too, but, you either have one or not and an individual in that past has made no decision as to what to invest in or not with their pension fund.  The pension funds have to think more long term and would be somewhat risk adverse in the market I would think.  They don’t need to look for big wins and need to be more oriented to overall, steady returns.  The rest (under 9%) is banks, brokers, insurance companies and other institutions trying to generate income from the market.

Knowing this breakdown now, will help me get a better feel for what kind of market moves are being made and what might be the motivation.  I was kind of surprised to see that half the market was people investing in individual stocks.  I had thought that most of the market was probably mutual funds (passive investors) and institutional investors.  The mutual funds and now exchange traded funds are still big players.  Of special interest here, is the impact of Exchange Traded Funds as they are completely passive investment vehicles.  I will blog later on ETFs and try to judge their impact.

I was also really surprised by the footprint of pension funds and insurance companies.  The percentage owned by pension funds is of special interest as we know that most people no longer have pensions and therefore these pension funds will be more and more focused on generating income to pay out the pensions instead of bringing in new money and investing it.  What will the impact of this be in the future of the stock market?  This will be another great topic for a future investigation.

Categories: Stocks

How much Stock is owned by Americans – Part 1?

July 17, 2011 Leave a comment

It was nice to know that the average person in the world had owned about $8,600 worth of stock.  We all know that there is no average person in the world.  The world’s wealth is spread very unevenly across the globe.  The average income in the wealthiest country (Luxemberg) is $37,500 versus the poorest country (Ethiopia) is $91.  The average for the whole world is $5,700.   The US is fifth on the list of countries with an average per capita income of a little over $33,000 a year.  Again, another surprise as I always assumed we had the highest per capita income.  So a quick rule of thumb could be that an average American owns (33,000 US average income/ 5700 World average income) X $8,600 World Average Stock Ownership = $49,800 of stock owned per US person by assuming that since our income is higher our stock ownership should be too.   Let’s say $50,000 per person in the US.

Let’s look for other measures.  One approach, though again rather crude, is to assume that only Americans own the stock in the NASDAQ and New York Stock Exchange (NYSE).  We know this isn’t true because obviously Foreign Investors own stock on these exchanges.  But, also keep in mind that Americans own stock in Foreign Markets, as well, so let’s say that Americans own as much stock in Foreign Markets as Foreign Investors own stock in our Domestic Markets (NASDAQ/NYSE).  The Market Cap for the NYSE & NASDAQ is about $17.7 trillion dollars.  There are 346 million US citizens.  Therefore, the average ownership would be 17.7 Trillion / 346 Million = $51,156 per person.  That is pretty close to the $50,000 we calculated previously.

With two rough rules of thumb in hand can we dig deeper into it?  While it would be nice to think that only Americans owned all the shares of the NYSE and NADAQ it obviously isn’t the case.  Also, Americans own shares in other stock exchanges around the world (i.e. the other 65%+ in the pie chart).  So, I went to the census statistics to see if I could find how much stock Americans owned.  I found this buried in their statistical database in table L.213.  This table showed what the American Ownership in Capital Equities (stocks) is.  This data helped sort out what the foreign investment in US stock markets was and what we owned in foreign markets.  It showed that US citizens owned $4.6 Trillion dollars of Foreign Equities and Foreign Investors owned $3.3 Trillion dollars in the US Domestic Markets (NYSE/NASDAQ).  So, this means that around 20% of the US Markets are owned by Foreign Investors, but, we own more of their stock than they own of ours.  So, it kind of put’s a different perspective on the alarmists you hear shouting about all these Foreign Investors buying America.  In any case now we could take the $17.7 Market Cap value and add the $1.3 Trillion difference (4.6 – 3.3) to get $19 Trillion and divide this by the 346 Million people to get $54,913 per person.

Now we have about $55,000 per US person.  But, in reality this is a little bit high because other entities own stock too in the US and this should be taken out of the equation too.  Companies like Insurance Companies, Commercial Banks, Savings Institutions, etc, invest to make money.  While these are often publicly traded companies and therefore owned by US people, we still should probably take out their value as they aren’t investing to make their shareholders money, but, instead to make money and spread risk.  The total of all these type of companies according to the detailed census data was about $1.4 Trillion dollars.  So, if we take this out of the mix, we are back to $17.6 Trillion dollars.  So, the $50,000 a year per person seems like a good number that has been somewhat validated by three independent ways of getting to a number.  Now that I have a good number in $50,000 per person, I will try to calculate this based on the average US family.  Usually only person in the family is actually trading stock for the family.

The average family size in the US is 3.19 people. There are 346 million people in the US.  That means there are 95.6 Million Families (346 / 3.19).  The average US Family would then have 50,000 X 3.19 = $159,500 worth of stock.  Let’s call it $160K per family.

The Median Family Income in the US is $65,000.  This means that the average family in the US should have 2 ½ times their salary invested in the stock market.  So, do most families have the families in the US have more than $160K in the stock market and have do not have at least $160K invested?  I doubt it.  We all know that money and wealth is not distributed evenly.  Even so, this does give me a little better feel for how much ownership of public companies there is in general in the US.  

The Average US Family has about $160K invested in the stock market.  In terms of who really owns this stock will be an investigation subject for my next blog.

Categories: Stocks