Karl Martin im Brahm

Private investors buying against the trend

The behaviour of private investors on the stock exchange is something there is no lack of theories about. However, there are no genuine large-scale guaranteed data for Germany on it. This gap has been filled by dwpbank, with an analysis of a total of over 3.5 million transactions carried out at a decisive stage of the financial and economic crisis. Between August 2008 and April 2010 purchases and sales of shares on the DAX, MDAX, TecDAX and SDAX were evaluated. This means the study covers a universe of some 70% of the total market capitalization of German shares.

This finding is likely to surprise quite a few capital-market experts. In the clear correction phase on the exchange between August 2008 and spring 2009, private investors appeared significantly as net purchasers of shares. The value of purchases in various months – with a total volume well above average on the whole – ranged from 130 to 160% above that of sales. The picture changed considerably in the ensuing upswing on the market. As from May 2009 private investors shifted slowly to the selling side – with particularly high intensity when in December 2009 and in March 2010 the DAX reached the 6,000 point mark.

Correspondingly, it should be noted that German private investors have shown contrarian behaviour in relation to developments on the markets in the financial crisis, with notable consistency. For when there were brief corrections within the upward movement, the private investors gave up their selling activities and moved back to the buying side again for a few weeks. From this it can also be deduced that private investors actively follow short-term developments on the exchange and include this information in decisions about their assets.

This means that German private investors do not act in accordance with the motto “The trend is your friend”. It also shows, though, that the trend on the market is not determined by them; for instance, their massive purchases in the upswing on the exchange ought, for instance, to have supported prices, an effect that was not to be observed. The direction on the stock market is instead – but here the findings of the analysis are instead not surprising – determined by the counterparts of private investors, namely institutional investors. Dwpbank’s object in the analysis was to contribute, as the leading German transaction bank, to a more realistic picture of the behaviour of various groups of investors on the basis of highly aggregated data. This is a project we continue to feel committed to in the future.

Karl Martin im Brahm, sales director of dwpbank