Most of my friends who actively invest in public equities have been arguing that the current rally in the stock market is unsustainable. So have many professionals. Which makes me wonder who is doing all the buying as the indexes keep on shooting up. I am curious how the current trading volumes compare to historic volumes (something that is easy to research) and would love to know whether there is an identifiable group (hedge funds? overseas buyers? individual investors?) that is a net buyer (not sure if that data exists). Whatever the case may be, the rally marks a stunning reversal in sentiment, which suggests that at least some folks believe the worst is over despite the fact that many indicators are still pointing down. This was best summed up by the events yesterday in which a reported improvement in consumer confidence sparked a 2.4% jump in the Dow on the same day as data showing further declines in housing prices was published and on the heels of larger than expected Q1 GDP contractions in most countries. All of this makes me happy that in venture capital we mostly deal with companies when they are private. It is a lot easier to focus on building value when you don’t have to contend with wild stock price gyrations driven by sentiment at least as much if not more than by fundamentals.
