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Nasdaq's Shame

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Re: Nasdaq's Shame

#141

Post by throwaway2037 »

hhh wrote: post #109
Galanwe wrote: post #105

Earlier quoted context omitted.

Index funds and ETFs also have strict replication rules limiting the amount of non-physical replication in their legally binding prospectus... The more physical a tracker is, the lower the tracking error, but also the more fees you have to pay. "Good" ETFs/IFs are often 98% physical. This makes for higher fees, but more safety for subscribers in case of large swings. So it's not like they are _free_ to replicate howe…

What does physical mean in this context?

ETF and index arb traders use the term physical to describe securities that require full margin. Example: Sell stocks, buy index futures (and reverse) is the classic EFP equity trade. To be clear, futures are highly leveraged, thus do not require full margin.

Re: Nasdaq's Shame

#142

Post by throwaway2037 »

maest wrote: post #93
bagacrap wrote: post #56

Earlier quoted context omitted.

Bingo. No sane investor holds QQQ because there is no academic theory behind why it should exist. Why is a stock better if it's listed on NASDAQ instead of NYSE? Can any investor answer this question? Doubt it. If you are into factor investing and you like large cap growth, you buy something like VUG. Most people should just stick with SP500 or total market. However, QQQ had a really good last 15 years and lots of in…

> No sane investor holds QQQ There's more than $1T tracking Nasdaq 100, so that's an ignorant statement.

Yeah, I had a milk-up-the-nose moment when I read that Brandolini's Law atomic bomb. I swear when anything finance appears as a topic on HN, the amount of bullshit/misinformation far exceeds the good stuff.

Re: Nasdaq's Shame

#143

Post by Retric »

bagacrap wrote: post #134
Retric wrote: post #87

Earlier quoted context omitted.

> especially the ones being taken advantage of here. This is a great argument why buying an index is a poor choice for a long term investor. You can avoid a great deal of shenanigans by randomly purchasing stocks and holding them for 50 years. Even a 0.02% annual fee costs you 1% of your long term returns over that timescale. But there’s tradeoffs to everything.

Index investing is a great choice for a long term investor who cares about simplicity, which should be the vast majority of them. Actually the best thing about holding individual stocks is probably the increased opportunities for TLH, but the nightmare of holding and managing hundreds of securities in your account is very seldom worth what you save on fees or deferred taxes.

You still owe the taxes on dividends generated by an index fund that automatically reinvests dividends. There’s ways around this like a 401k, but you can also own individual stocks inside a 401k or rollover to an account that lets you do so.

Re: Nasdaq's Shame

#144

Post by KellyCriterion »

throwaway2037 wrote: post #140
riffraff wrote: post #96

Earlier quoted context omitted.

Index funds have a variety of ways to replicate the index beyond physical replication, including options, buying "similar things", sampling etc.. So yeah, they don't really need to stick to 100% of the presented issue.

Such a bold claim. Since we are talking about stock indices here... Can you provide a well known (liquid) non-leveraged example that does not directly trade the underlying stocks? It would probably make the create/redeem process more complex for market makers.

Invesco S&P 500 UCITS ETF

100% synth replication

edit: ISIN: IE00B3YCGJ38

Re: Nasdaq's Shame

#145

Post by markisus »

nighthawk454 wrote: post #103
markisus wrote: post #100

Earlier quoted context omitted.

QQQ is problematic because it’s influenced by strange back room dealings with Space X, if the article is to be believed. VTI is different. It literally tracks all public stocks, weighted by market cap so no such manipulation is possible. If a bunch of people will be forced to buy Space X (QQQ holders), active investors will short the stock in anticipation of market correction and money will flow from those who were f…

QQQ is not in isolation. It’s just a bundle of stocks. Rebalancing that will affect the prices of its constituent stocks, which include some of the highest market cap stocks. Those same stocks are also in many of those other popular market-cap weighted indexes (VTI, VOO, SPY, etc). Price action originating from Nasdaq 100 rebalancing would affect everywhere else those stocks are held. Which is a lot of places. Except…

Can you explain what asymmetric means?

Are you saying that this forced rebalancing will be large enough to cause a large price drop on other stocks?

Let’s just think about any stock in particular, eg stock ABC. If I am an active investor, I have an opinion on ABC and its net present value. When ABC dips below that value, I buy. Wouldn’t I prepare some cash in anticipation of this large ABC sell off at discounted prices? And thus the ABC price would not move from its fair price.

Re: Nasdaq's Shame

#146

Post by lotsofpulp »

bagacrap wrote: post #132
lotsofpulp wrote: post #128

Earlier quoted context omitted.

>Unless you think that I can make up whatever arbitrary list of stocks I feel like, and call it an index, and create an ETF that tracks it, and still call that an index fund. Yes, you can. Whether or not the index makes sense for whatever one's investing goals may be is irrelevant.

Then what does "index" even mean? Is Cathy Woods an index?

In this context, I would take any list of rules that dictates buying securities to be an index.

For example, a fund buys an equal number of shares of every publicly listed company.

Or a fund buys securities that trade with a ticker symbol starting with the letter C.

Based on that definition, one could refer to a Cathie Wood index fund to be composed of whatever she decides to buy and a bagacrap index fund to be composed of whatever bagacrap chooses to buy.

Re: Nasdaq's Shame

#147

Post by exmadscientist »

paganel wrote: post #113
nighthawk454 wrote: post #97

Earlier quoted context omitted.

What?! This absolutely affects more than Nasdaq 100 / QQQ. The index is just a function of the stocks. It only moves if the underlying stocks move. Rebalancing Nasdaq will cause selling in the 100 companies that aren’t SpaceX. And those stocks are held elsewhere too… The Nasdaq 100 shares 79/100 stocks with the S&P. So if those stocks move (probably down because they’re being sold so SpaceX can get bought) pretty sur…

What you're saying is 100% correct, I fail to see how people are not aware of it. We're talking about a $1.75 trillion (as per the article) company that is about to enter (a part) of the most important capital market in the world at a distorted price, of course that the market as a whole is going to become distorted, money and capital (and the accompanying money and capital signals) are one of the most "liquid" thing…

Sorry, a lot of the comments around this have been really badly written and it's been hard to tell what they're actually arguing.

I countered a different argument (which does appear elsewhere in this thread). You are absolutely right that there will be general price distortion from this mess. I disagree that it will be extremely bad, but I do agree that it's a problem and needs attention. It's just been difficult to tell that this is what some comments have meant to discuss, instead of the more basic issues others have been talking about.

Re: Nasdaq's Shame

#148

Post by rmast »

bryanlarsen wrote: post #131
infinitewars wrote: post #88

Earlier quoted context omitted.

SpaceX has always been a about convincing private industry to fund the militarization of space. See https://en.wikipedia.org/wiki/Golden_Dome_(missile_defense_s... Mars is a thin cover story to get the engineers to feed the War machine. "National security" / nuclear threat is a great excuse to get politicians to sell out the country. How about we focus on global security?

I thought it was obvious that "God Emporeror of Mars" was a satirical answer. There are a whole bunch of new markets that cheap access to space open up. Like Bezos' dream of in-space manufacturing. Or Musk's dream of data centres in space. Or power gen in space. Or the "cis-lunar economy". Or space tourism. Or He3 on the moon. People will buy SpaceX stock for the potential, even if that potential is pretty much worth…

I wouldn’t really mind seeing the SpaceX IPO flop initially. The God Emperor of Mars has quite the ego.

However, I’m pretty sure the opposite will happen and the stock valuation will go past the moon to mars and beyond.

Re: Nasdaq's Shame

#149

Post by KellyCriterion »

vasco wrote: post #106
Veserv wrote: post #41

To explain the mechanism simply. Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$. You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company. You then rotate out a company for a new one also worth 1 G$. The index is still 100 G$, but to match the index you are contractually required to sell your 20% own…

> To get the remaining 15%, which they are contractually obligated to acquire, they must purchase from the founder. As they are in violation of their contract if they fail to acquire the remaining 15%, the founder now has complete control to dictate any price they want. This is not correct and I'm surprised this comment is upvoted to the top. The float is the float, nobody goes to buy shares that aren't available in…

Thanks ++1

Re: Nasdaq's Shame

#150

Post by rayiner »

rmast wrote: post #148
bryanlarsen wrote: post #131

Earlier quoted context omitted.

I thought it was obvious that "God Emporeror of Mars" was a satirical answer. There are a whole bunch of new markets that cheap access to space open up. Like Bezos' dream of in-space manufacturing. Or Musk's dream of data centres in space. Or power gen in space. Or the "cis-lunar economy". Or space tourism. Or He3 on the moon. People will buy SpaceX stock for the potential, even if that potential is pretty much worth…

I wouldn’t really mind seeing the SpaceX IPO flop initially. The God Emperor of Mars has quite the ego. However, I’m pretty sure the opposite will happen and the stock valuation will go past the moon to mars and beyond.

That seems like cutting off your nose to spite your face. SpaceX is more important than whatever issue you disagree with Musk about. After graduating with a degree in aerospace engineering in the aughts, I switched to software because the practical alternatives were building missiles for Raytheon or going to GE and trying to figure out how to make gas turbines 1% more efficient. SpaceX jump-started a commercial aerospace industry that was utterly moribund as recently as when Hacker News started up.
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