131–140 of 200 posts
Now my main concern with index funds I hold (broad market/large cap) is that I definitely have exposure to businesses (e.g. fossil fuels) that I don't actually want to be invested in. Anyone have suggestions on the best sustainable ETFs out there?
I don't know what other ETFs have in their prospectuses, but this wiggle room seems like it could mitigate some of the concerns about crashes due to low liquidity in thinly traded stocks.
[1] http://hosted.rightprospectus.com/ETF/Fund.aspx?dt=P&cu=8085...
I think this article really misses the point that Burry was making, which is that if the indexs see a sell off they won't find the liquidity in the market to cash out their positions and will drive the market down. This article seems to focus on all of the upsides of indexing, which are all true. However, those upsides don't negate the risk that is being pointed to.
I wonder what the breakdown is within the index ETFs on what money is in 401ks, Roth, institutional investor, etc. If a big portiton of it is retirement accounts those aren't moving much anyways.
Like my parents did in 2008/9, and I didn't think to caution them not to. Ugggg...
I think this article really misses the point that Burry was making, which is that if the indexs see a sell off they won't find the liquidity in the market to cash out their positions and will drive the market down. This article seems to focus on all of the upsides of indexing, which are all true. However, those upsides don't negate the risk that is being pointed to.
I'm still driving the price down, causing other holdouts to sell off, driving the price further down. It's the definition of a market crash.
Earlier quoted context omitted.
> if the indexs see a sell off they won't find the liquidity in the market to cash out their positions and will drive the market down When investors sell that amount, it doesn't matter whether they hold the underlying assets directly, or via index funds or ETFs, or via actively managed funds. The market will go down. So, which part of the problem is uniquely due to index funds? Burry hasn't made that point very clear…
Requirement to sell across the board seems to be the unique issue.
If those fund-holders were owning the stocks directly, instead of ETFs... Those same fund-holders would be... Selling their stocks. Causing the exact same downward price pressures.
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I hate this kind of smart-ass top-level "ITT" comment that paints an entire discussion happening besides it with broad strokes. If only one person does this I can call him names and downvote him. If there are two camps and both camps do this, people tribalize and everything goes meta. Then no further actual discussion can take place.
If you think it is "smart-ass", you don't understand what I am saying (or, more probably, what Burry is saying). There are no "camps" here. The OP is trying to create a tribe (passive investors are cultish, so this is a very odd comment...I will assume an honest mistake) but that makes no sense on this topic (unless you are selling something, which he is). The meta of my point is: people try this discussion over and…
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Exactly. The article, starting with the title, is pompous and overconfident. Burry made the unanswered point that in a sell-off large index funds will have to dump their smaller holdings at large discounts. We have never had a market crash with passive holdings this large (and consolidated in a small handful of funds)-- we're in unprecedented times. Burry's point is entirely plausible. And although that it wouldn't i…
There are also a lot more liquidity providers than there were in the past, no? I know there are concerns that the high-frequency traders will turn off the computers in a crash, but if the index funds have to sell their small holdings at a deep discount, that’s an opportunity for someone to step in and buy them on the cheap. I guess there are more legitimate concerns for funds that hold bonds or real estate or other l…
Other forms of algorithmic trading might still step in though.
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What if my index fund is actually just buying and holding the underlying stock as opposed to just a price tracking entity? In that case not taker for my fund = no taker for the underlying stock right? Will this not have the liquidity risk that Bury mentions?
The index fund is holding the underlying stock, largely. The challenge is that if say 5% of their fund holders sell their shares in the fund, the fund has to sell the underlying stock to generate the cash to pay out. Most funds have a rule in their documents that if you are a large fundholder (holding 1% or more of the fund) and you sell, they can hand you stocks directly rather than selling them and giving you cash,…
What is special about an ETF, that makes this situation any worse?
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Burry's point wasn't that the ETFs would lose liquidity, but rather than the lightly-traded names in the index would. If the index instruments have a lot more liquidity than the underlying names, then that means they won't be able to gracefully absorb the liquidity shocks from an unwind in the index. Here's some back of the envelope calculations. Between SPY, IVV, and VOO alone, there's $500 billion in S&P 500 index…
Doesn't the "circuit breaker" process on the stock exchange exist for this scenario? To give people time to line up buyers when there is a sudden unexpected repricing?
"i'm supposed to sell 500m of this small stock but i only got to sell 300m before it was frozen out...now my basket of holdings is slightly off from the actual index...hopefully i can rectify it tomorrow..."
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Requirement to sell across the board seems to be the unique issue.
They aren't required to sell, unless fund-holders are selling their ETFs. If those fund-holders were owning the stocks directly, instead of ETFs... Those same fund-holders would be... Selling their stocks. Causing the exact same downward price pressures.
Suppose stock X gets 1% in that basket. The issue is if stock X happens to be very illiquid, the APs selling stock X could drive down the price.
In a non ETF, managers could decide to relatively slow down the sale of X, to prevent crashing the price. However, in an index fund the mechanism dictates all stocks are sold in the same proportion.