Earlier quoted context omitted.
There are value index funds. Vanguards is VTV
The article suggests that “value investing” is not just about price ratios (which is mostly all such indexes can offer).
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I'm Too Risk-Averse for Index Investing
41–50 of 286 posts
Re: I'm Too Risk-Averse for Index Investing
#42Michael Burry has two main points against index funds: 1) large-scale passive investing has deteriorated the price discovery mechanism for index funds and 2) there's a liquidity risk because trillions of dollars are linked to stocks in index funds that only have hundreds of millions of trade volume. So if there's a cascading failure, as smarter money realizes the price is wrong and begins to exit, there will be no bu…
Does he have advice for what passive investors should do instead?
Re: I'm Too Risk-Averse for Index Investing
#43There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.
I can understand that feeling but what offers average Americans a better option for growing and securing wealth than investing (most) savings in the stock market?
Unlike American corporations, it'd probably have to be decentralized, highly liquid, and ideally trustless, but I can't think of anything like that. However, another strategy could be a basket of currencies in developing countries. They won't be immune to the cascading effects of an imploding US dollar, but theoretically would rebound better.
Re: I'm Too Risk-Averse for Index Investing
#44There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.
I would say it adds real legitimacy to that idea. The more people who have their 401ks in the stock market, the more it is true that when the stock market rises, people are doing well.
Also, what alternative do you propose? You need an investment vehicle that can handle enormous sums of money from people who will potentially have no understanding of how it works. That doesn't leave many options.
Re: I'm Too Risk-Averse for Index Investing
#45Earlier quoted context omitted.
100%. European markets are known to pay out more dividends whereas the US market is known to prioritize stock price growth. Return-wise that makes no theoretical difference.
Don't know why you're being downvoted; everything you've stated is true. I would just add that one should probably account for taxes. When taxes are involved: buybacks >> dividends.
If you hold your stocks in a tax exempt account then you don’t really care about this though.
Pension funds, ISAs in the UK, etc etc; most countries have something similar. The vast majority of individual savers will not exceed the limits placed on these accounts.
Re: I'm Too Risk-Averse for Index Investing
#46There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.
I can understand that feeling but what offers average Americans a better option for growing and securing wealth than investing (most) savings in the stock market?
Why should that be how it works though?
We should be taxing people more, and guaranteeing much higher social security so we don't have to gamble our savings in a giant ponzi scheme. It shouldn't be on the individual to be lucky that a massive recession doesn't hit when they want to retire.. or depend on the market making a few percent a year just to survive.
Re: I'm Too Risk-Averse for Index Investing
#47Averse. It's risk averse.
I spent half the article trying to figure out if it was some kind of clever pun. But no, they are just using the wrong word.
Re: I'm Too Risk-Averse for Index Investing
#48Michael Burry has two main points against index funds: 1) large-scale passive investing has deteriorated the price discovery mechanism for index funds and 2) there's a liquidity risk because trillions of dollars are linked to stocks in index funds that only have hundreds of millions of trade volume. So if there's a cascading failure, as smarter money realizes the price is wrong and begins to exit, there will be no bu…
A more interesting argument was made by the "inventor" of index funds - Bogle (paraphrased) [1]:
Companies are no longer "owned" by people who feel ownership in the company (with some few exceptions) - they are "owned" by funds and therefore by "managers" who do not care about anything but keeping their manager job going.
When Ford is majority owned by the Ford family, the company can act the way the family wants it to act - but when it's majority owned by small investors and random funds there's no "main owner" who can make decisions against the common grain.
[1] http://johncbogle.com/wordpress/wp-content/uploads/2019/08/n...
Re: I'm Too Risk-Averse for Index Investing
#49There's something really insidious about tying 401ks and other retirement accounts to the stock market. People including myself end up with a large portion of our assets essentially gambled on the future success of US corporations. It gives some false legitimacy to this idea that our media is constantly pushing, that if the stock market is going well then regular Americans are doing well.
This is 1000000% true. The entire system is completely broken. It is literally designed to make the markets keep going up, which as usual benefits the wealthy far more than the average person. And people who are even middle class barely really benefit from it. While the lower class and poor don't benefit at all. I choose not to participate in "investing" because it's not investing. It's literally gambling. You can't…
But how do you fund higher guaranteed social security? You need more money, which means either higher taxes or more people earning taxable money. The speed of population growth is declining, which is a big problem for the latter, and the former clearly has its limits.
You're saying stocks are a Ponzi scheme, but as a solution you're proposing something that constantly needs more people paying in money or it will collapse... sounds like a Ponzi scheme.
Re: I'm Too Risk-Averse for Index Investing
#50Reading the Intelligent Investor, it is striking to see how many stocks there were with a P/E ratio under 15 and with sound financials and that paid good dividends, I.e. a value stock, in the 1950s, when the book was written. If you try to apply the value investing principles today, you will end up spending an inordinate amount of time looking for a stock like this. The risk of an index fund is less than the amount o…
> is striking to see how many stocks there were with a P/E ratio under 15
P/E of 15 is an earnings yield of 6 2/3 percent. Look at contemporaneous interest rates and that yield makes sense.