101–110 of 221 posts
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There are companies which will fairly obviously perform well in the future. However, because of active investing, this projected performance gets priced in, so they aren't a bargain. If the whole world except one active investor invested in indexes, then the active investor would have a very easy time, since that projected performance wouldn't be priced in and the stock would be a bargain.
Who would that investor trade with?
I recommend Weathfront and Betterment to all my less mathematically inclined friends. However, if you spend only a few hours getting acquainted with asset allocation and rebalancing principles, you can do pretty everything that these services do without their fees.
I recommend Weathfront and Betterment to all my less mathematically inclined friends. However, if you spend only a few hours getting acquainted with asset allocation and rebalancing principles, you can do pretty everything that these services do without their fees.
Do they offer anything over zero fee robos like Schwab? What about vanguard's robo offering?
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Who would that investor trade with?
I'm not an expert, but index funds still purchase the stocks, so when the active investor bought a stock at an increased price, it would increase the market cap and so the index fund would buy some more of it from them.
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With enough money invested I find Betterments fees very reasonable. Especially when you consider features such as tax loss harvesting. Is that something that requires little to no time if you actively manage your index funds? Maybe there are tools which aid you with that?
Really the only thing you have to do is rebalance. I do it every half year, but some people even do it every two years. And it takes all of, maybe, 20 minutes. Of course, you need to grasp the principles, which takes reading a book or two, so that's, say, 10 more hours. With compounding over the next forty of fifty years, saving those 25 basis points or whatever it is that betterment charges over Vanguard's fees is n…
There's an aspect of self-fulfilling prophecy to this. Higher demand leads to higher prices, and as more money flows into indexes the stocks in those indexes are going to rise relative to the rest of the market. Thus their earnings become harder to beat.
Wouldn't that knowledge be accounted for in the individual stock prices?
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In any auction, there has to be the first person declaring what the item is worth. If 100% of the investing is passive, there is no first bidder, so how is a stock's value determined? In the current situation, 34% of the money passively follows the active investors. That gives the active investors a 34% amplifier in their action. I'd say the possible bad news is that the larger the passive pool, the less capital it t…
This is exactly how it will balance out. If this passes a threshold such that funds that take advantage of the phenomena will produce a meaningfully higher return than index funds then money will start flowing into such funds balancing out the effect.
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The saying is "a broken clock is right twice a day." Correctly reading and responding to market conditions is not sufficient. You have to do it continually.
which a lot of my Investment trusts have done for several decades
I'm a big believer in index funds and have been putting my money into them for a long time. But... you have to wonder where this is all ending up as more and more people move to passive index funds. The power of the market is based on millions of individual opinions on the price of a company's stock. On average, over time, these collective opinions will be correct. But say in the extreme case, it got to the point whe…