Stock Market Quirks

Back in 1987 crash there was a new phenomenon. Everyone that tried to call their discount broker couldn’t get through, the lines were busy. A lot of the new ownership of stock was held in Street Name, not in the buyer’s name. The difference here was that back in time, people took delivery of the stock certificate. The inconvenience of taking delivery meant that you might have to wait up to 4 weeks for receipt of the certificate. In today’s fast market that could be a drawback.

There was no problem walking into a full service broker that October day and handing them a certificate and telling them to sell it. If you were with a discount broker, you couldn’t get in the door, there was a line.

Let’s troll on to the present. A majority of people with a brokerage account today are online through the internet. Ask yourself one question. What would happen today if the market went south and everybody tried to logon and put in a sell order at the same time? I think we all get that question right. The difficult question would be; “What is the real trading price of your stock if everyone that wanted to sell could get on line and sell.” This is what happened in 1929, the market ticker was 6 hours behind actual trades. People were trading blind. The internet lockup might be a good thing, because in 1929 the market came back. So no action makes a lot of sense.

Enter the mutual fund manager with his computer program for trading the market. Let’s figure that between 1,000 and 8,000 mutual funds/Ira/etc decide to play. If you decide to not play, your fund gets valued by the other’s trading. It will be similar to your automatic sprinklers’ kicking on while you’re having an outdoor dinner party. Both events are planned, what happens isn’t.

In theory, 100 shares of IBM sold at market during a panic could have a real bid of 5 cents a share. That would net the seller 5 dollars. Don’t forget the 8 dollar discount brokerage fee. That sure beats the full service commission from a regular broker, doesn’t it!