191–200 of 324 posts
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They have different asset classes, different minimums, different historical returns. Etc
Thanks. Another stupid question: how can two index funds have different returns? Are they following different indexes?
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Imagine there was a cookie market made up of two types of cookies, tasty and meh. An active investor in cookies would spend time determining which cookies are likely tasty and which are meh. They would pay more for the tastier cookies so they can savor the flavor and less for the meh ones they can binge eat in the shower when no one is home.... A passive investor comes along and says, I don't want to do all this rese…
What i understood was all investors are buying basket of tasty cookies and no one is buying meh cookies' basket or cookies. So tasty cookies are overvalued and meh cookies are under valued.
In both cases the actual buyer is an intermediary, who is managing many people's money. Those people don't even know or care what is being invested in. If for some reason many of them decide to disinvest around the same time (say a recession) they may be hurting themselves due to the asymmetrical nature of the action.
At that point, an active investor can say that any losses by holding the stock an additional month would be eclipsed by selling immediately. A passive investment does not have that ability.
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I will try to interpret, but obviously it is just my interpretation (and personally I mostly agree with many theses Burry gave). First, he does not really talk about being a "good citizen" or not. His points are for "greedy citizens" who, in his view, should be worried (about his pocketbook) if he is heavily invested in passive index funds. This is due to his "bigger and bigger crowds, same exits" analogy: individual…
That doesn't answer markbnj's question. You elaborate why the passive market is in peril (because in the event of a sell-off, the ETFs will be forced to sell a bunch of low-volume stocks, crashing them), but that's just explaining in detail that the market is in peril because not enough money is flowing to people who do a poor job of managing it. But, granting that Burry is right and you're interpreting him correctly…
No strategy/advice last forever
There is no such thing as passive investing per se.
So instead of recommending fund, it's better to recommend them to learn of the fundamentals of investing instead.
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A hedge from this theory would be to buy stocks just outside the SP 500? Something like TSLA. That would be a crazy situation, where the SP 500 is crashing and the rest of the market it taking off
A simpler option is to buy options on the index. You can butterfly the index with calls and puts around your minimum return / maximum loss tolerance.
Not knowledgeable on these matters, so my money is in index funds. Obviously a lot of other people are in the same category as myself. The article seems to be saying we'd all be better financial citizens if we put our money into actively managed funds, or did our own investing. The latter is out of reach for most people, and with respect to the former it's somewhat puzzling that managed funds can't consistently outpe…
I will try to interpret, but obviously it is just my interpretation (and personally I mostly agree with many theses Burry gave). First, he does not really talk about being a "good citizen" or not. His points are for "greedy citizens" who, in his view, should be worried (about his pocketbook) if he is heavily invested in passive index funds. This is due to his "bigger and bigger crowds, same exits" analogy: individual…
Day 1: (before crash) price : 200$ S&P 500 weight : 2%
Day 2 :next day market crashes. Acme is very low volume so price crashes to 1$ .
what happens next ? do all the EFT that follow S&P have to sell all ACME for 1$ because it is not in the S&P 500 anymore.
Day 5 : ACME jump back to 200 $ and is back in the S&P 500.
So my question is what would have happen to a passive investor. if he bought 1000$ worth of ETF right before the crash. Will he still have a 1000$ dollars at the end of it .
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It could be more serious than the flash crash (again, just an interpretation). Flash crash gets resolved quickly and is transparent to non-participants because there is a lot of money willing to buy on dips. But fast trading money only buys and sells what they perceive to be highly liquid assets -- there are few things that scare them more than being stuck with an open trade. The scenario Burry describes is akin to C…
The fundamental reason this happens is that Index Funds aren't "real" stocks. You cannot really sell SPY. There is a bucket of shares owned by SPY. Those contain shares of the index' companies. There's an "owned by clients" bucket and there's a "share liquidity reserve" bucket (with shares of companies in the fund). There's also a (small) liquidity "bucket of cash". And of course, that company can, subject only to it…
Can someone who understands investing well explain what he’s saying in terms that someone who isn’t knowledgeable about this could understand? I kind of think he’s saying that everyone is just shoveling their money into index funds without thinking about it and this leads to incorrectly valued stock that will correct in the form of a crash at some point. Is that sort of the gist of it?
Other replies were good. But I'll add my two cents. Index investors are basically free riders off the information and research generated by active investors. Indexing basically works pretty well because the market's efficient. An index investor just comes in and just pays whatever the current market price is and allocates in proportion to whatever current market valuations are. He doesn't even need to know anything a…
Well, what also works fine is picking (enough) random stocks and buying them for an equal amount of money.
That index funds base the allocation on market share is (in my understanding) not a method to increase performance, but to greatly simplify any rebalancing of the stock allocation. If the price of a stock changes, an index fund does have to do anything. The allocation will always automagically reflect the market cap of the stock - more or less by definition.
Every other allocation (e.g. equal weight) would need to rebalance every now and then to return to the initial allocation. This can be complicated and/or costly. However, it might still perform better than the market cap index: https://www.realizeyourretirement.com/comparison-sp-500-inde... (of course it might perform worse in the future).
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Index funds have become successful since they've performed well compared to active investment funds. Why would the active investors suddenly get better at guessing the future?
Index funds work because weve been in a 20 year long bull market. If the market goes sideways for a decade, or down for a decade then active investing is alot more profitable.
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That doesn't answer markbnj's question. You elaborate why the passive market is in peril (because in the event of a sell-off, the ETFs will be forced to sell a bunch of low-volume stocks, crashing them), but that's just explaining in detail that the market is in peril because not enough money is flowing to people who do a poor job of managing it. But, granting that Burry is right and you're interpreting him correctly…
I think the only thing one should always do is actively update one knowledge and be ready to adjust strategy accordingly. No strategy/advice last forever There is no such thing as passive investing per se. So instead of recommending fund, it's better to recommend them to learn of the fundamentals of investing instead.
Every study has shown that people do not get rewarded appropriately for the risk they take on when they move away from diversification.