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Montier is an economist and global strategist who uses behavioral finance to make sense of the financial markets. He started his career at Dresdner Kleinwort, moved to SocGen and just recently moved to the hedge fund world. Montier has written several books, among them, Behavioural Investing: A Practitioners Guide to Applying Behavioural Finance.
I’m not sure where exactly Montier got the raw data for this graph but considering the caliber of research he does, I’m assuming it is an accurate reflection of the underlying change in the structure of the market over time. The chart is remarkable in setting out what we all intuitively know to be true. Driven mostly by high frequency trading, we’ve seen an explosion in advance decline volatility.
It seems I was wrong, when I said this isn’t your grandfather’s stock market. This is exactly your grandfather’s stock market. Indeed, your grandparents would readily recognize the sort of stock market we’ve had recently. What I should have said is this is not your father’s stock market (1950’s - 1960’s) where people actually invested by holding stocks for years at a time. In comparison, what we do now is push buttons with the attention span of a housefly:
Source: James Montier formerly of Société Générale
It is absolutely remarkable to notice that the turnover in 1929 - a time where trading was done over telegraphed message or scribbled notes and hand gestures - is equivalent to recent times when trading is done by blazing fast computers interconnected directly via FIX to the exchange.
If you enjoyed this, don’t miss Montier’s brutal take down of EMH (via John Mauldin’s Investor Insights). Also, in a world where we are all traders, the least we can do is be better traders:
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