Live data from Hacker News

Nevada’s public employee pension fund invests passively and beats peers (2016)

wsj.com

231–240 of 496 posts

Re: Nevada’s public employee pension fund invests passively and beats peers (2016)

#231
post #138

Earlier quoted context omitted.

Given the statistics and number of investors involved, it seems like an absolute certainty that a few people would beat the index for the entirety of their lives simply by chance.

Yes some people might do it by chance. Some other people, they do it by knowledge.

Find me the one who knows they got there by chance alone...

It's very easy to create a narrative around random movements. I expect that anyone who is ahead of the market creates such a narrative, and declare themselves a genius. And then half of the geniuses underperform each year, same as every year...

Re: Nevada’s public employee pension fund invests passively and beats peers (2016)

#233

To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…

Something I don’t see talked about enough is the extent to which the rise of passive investing increases the extent to which passive investing is the best strategy. Passive investing is predicated entirely on either freeloading off of the decisions of actively managed portfolios, who will adjust the market prices of securities efficiently, therefore resulting in passively managed funds automatically owning the “best” stocks because the bad ones will fall out of the indices; or it is predicated on what is effectively a Ponzi scheme wherein if everyone passively invests the same, then that form of passive investing will yield the best returns.

For analogy, consider school students trying to get all the questions right on the test. The first scenario is equivalent to one student studying hard to find the right answers. The rest of the class copies his answers and benefits from his efforts. The other scenario is no student trying hard, them all failing, but succeeding because the teacher curves the grades.

Note that both of these scenarios, especially the second scenario, results in stock prices which become increasingly detached from the economic reality of companies in proportion to the extent to which passive investing becomes prevalent.

For instance, assume stock XYZ is a bad investment but is in the S&P 500. If 90% of funds are actively managed, maybe they can sell a sufficiently large amount of it to push it out of the S&P 500 and save the passive investors from owning it. But if 90% of funds are passively managed, even if XYZ is hot garbage, the 10% of passively managed funds cannot possibly sell enough to make up for the fact that 90% of the market participants are indiscriminately buying a terrible stock.

Passive investing breaks the market to some extent. The free market system is predicated on having rational participants, not zombie participants.

Re: Nevada’s public employee pension fund invests passively and beats peers (2016)

#234
post #233

To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…

Something I don’t see talked about enough is the extent to which the rise of passive investing increases the extent to which passive investing is the best strategy. Passive investing is predicated entirely on either freeloading off of the decisions of actively managed portfolios, who will adjust the market prices of securities efficiently, therefore resulting in passively managed funds automatically owning the “best”…

What you describe can be measured with return dispersion, as more people invest with passive index more opportunities arise for active investors. So they balance each other

Re: Nevada’s public employee pension fund invests passively and beats peers (2016)

#235

The title was correct yesterday. Why is the title editorialized today? "What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing" This is the actual title of the article, the page, and the printed version. There was no reason to have edited this except for optics. If true, that's absurd, dang.

[deleted]

Re: Nevada’s public employee pension fund invests passively and beats peers (2016)

#236

To any fund manager out there that truly believes you can beat the market, here is how you can sell me your fund: We agree on an index and a time frame. You guarantee me the same return as the index within that time frame. If you beat the index, you keep 90% of returns ABOVE the index (and I get 10%). We both win, and you win big. If you don't beat the index (within the time frame), you make up the difference (so I g…

[deleted]

Re: Nevada’s public employee pension fund invests passively and beats peers (2016)

#238

Whenever the topic of index funds come up, people should remember: 1. The benchmark for hedge funds is not the sp500, it’s the bond market 2. Because the sp500 is inherently a bet , that America’s top few companies will perform well. This is not a purely risk free, hands off bet. If you bought the Japanese Index fund, the Nikkei, even today it hasn’t returned to its 1980 peak You might say “I’ll just get a global ind…

[deleted]

Re: Nevada’s public employee pension fund invests passively and beats peers (2016)

#239

All this is true, and there are many good comments in the thread here. But this "hey dude, stock picking is for idiots and all non idiots but index funds" should be treated with caution. Index funds are an extremely clever idea but were never meant to be used on such a scale. To give you some ideas: https://www.forbes.com/sites/chriscarosa/2024/04/02/index-fu...

[deleted]
Post reply on HN