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I'm Too Risk-Averse for Index Investing

paranoidvalueinvestor.substack.com

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Re: I'm Too Risk-Averse for Index Investing

#91

Post by xorfish »

programmarchy wrote: post #27

Michael 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…

1) is only true if the average active investor that switches to index funds is better informed than the average active investor. If a less informed investor switches from active to passive, then price discovery is improved.

2) is only an issue if the underlying assets don't have any value or you need to sell at the worst possible moment. ETFs generally improve the liquidity of in a liquidity crisis.

Re: I'm Too Risk-Averse for Index Investing

#92

Post by scarface74 »

eatsyourtacos wrote: post #46
sbelskie wrote: post #32

Earlier quoted context omitted.

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.

Because surely nothing could go wrong with depending on government for your financial security. The government doesn’t need more income. Have you seen how the federal government’s budget is allocated?

Re: I'm Too Risk-Averse for Index Investing

#93

Post by lordnacho »

If you're a coding nerd this way of thinking will naturally lead you to some sort of statistical arbitrage. Break out you favorite ML framework, get some data from somewhere, and try to test the hypotheses about whether one or another trading strategy works.

I went down this rabbithole a long time ago and I'm still in the cave.

Re: I'm Too Risk-Averse for Index Investing

#94

Post by Traster »

So there's two things I don't really understand this article. Firstly, what is the difference between you "value investing" your own money, and sticking your money in a hedge fund which does "value investing" for you? Other than the fact that you're doing this in your spare time whilst the hedge fund manager is doing it full time. Surely what this article is basically saying is "89% of hedge funds underperform the index, but I think I've got a way to beat the index" when in reality, he's just taking the bad side of the bet.

The second thing is, that the author points to 89% of funds underperforming the S&P500. But in that same paper, there is another shocking statistic - 97% of large cap value investing funds lagged the S&P500 Value Index. So surely, if you what you believe in is value investing, that doesn't prevent you from using a passive index, it just means you should choose the value indexes[1], not that you should suddenly put on your boldest pin stripe suit and start picking stocks.

[1]: https://www.ishares.com/us/products/239728/ishares-sp-500-va...

Re: I'm Too Risk-Averse for Index Investing

#95

Post by zzbzq »

assbuttbuttass wrote: post #15

There'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.

There's always been paranoia around what you say, but now I believe it's probably propaganda by the pension fund industry. With pensions it was still tied to the stock market (but sometimes including non-public investments) but was more open to outright corruption, as a fund could just choose to invest in some bunk asset as a way of giving away all the money.

Re: I'm Too Risk-Averse for Index Investing

#96

Post by evandijk70 »

gargarplex wrote: post #20
cissou wrote: post #16

Earlier 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.

Makes a huge difference when considering the tax implications.

That depends on which country you live in. In my country (The Netherlands) you pay a fixed percentage of the value of your portfolio. Dividends are not taxed.

Re: I'm Too Risk-Averse for Index Investing

#97

Post by anonu »

meany wrote: post #17

The author uses Buffets essay to justify value investing over index funds, but Buffet is a strong proponent of index funds for non professional investors. Instead of stock picking, Buffett suggested investing in a low-cost index fund. “I recommend the S&P 500 index fund,” Buffett said, which holds 500 of the largest companies in the U.S., “and have for a long, long time to people.” He’s even putting 90% of his own es…

Interesting. Investing in Berkshire is like investing in a diversified index fund.

Re: I'm Too Risk-Averse for Index Investing

#100

Post by shawnz »

Value stocks give better returns because they are riskier, not because of the quality of OP's analysis into what companies are worth. And why do they ignore the fact that indexes can be diversified across countries? These counterarguments seem to only be applicable to single country indexes.
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