According to an article in MSN.com January 3, 2011 the average stock ownership lasts 22 seconds due to computerized trading. That’s right: 22 seconds, not 22 days or 22 weeks!
My opinion is that this supports my theory that a huge amount of stock investing is done by hedge funds that have access to margin loans with a nearly zero percent cost of capital so they can afford to buy with enormous leverage, thus pushing up or supporting stock prices that are too high. Hedge funds leverage is between 4 to 10 times their net worth. If this support from hedge funds were to be withdrawn due to their inability to get financing, or to buy Put options, etc. then they would need to sell their stocks. And that would create a massive wave of selling where they would face margin calls and then they would be able to sell poor quality stocks and would be forced to sell good quality stocks at fire sale prices. If margin requirements or the price of Put options or interest rates were to increase then this house of cards would tumble down very fast and stay down.
I have wondered for years why the stock market has been so high compared to 100 year trend lines for things like P.E. ratios, etc. I think the answer is that in the last 20 years there has been an enormous amount of hedge fund investing using a very cheap cost of borrowed money and it has gotten progressively cheaper to borrow over the past 20 years, also Put option costs have gone down recently, with the VIX at record lows. Further the bailout of Long Term Capital management in 1998 and Bear Stearns has encouraged hedge funds to take on excessive risk.
One way to protect oneself from this is to use independent investment advice, instead of getting advice from giant Wall Street oligopolies.