“Buy and Hold” No More: The Resurgence of Active Trading • Hacker News Board

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#151

Post by spywaregorilla » Sat, Apr 10, 2021, 11:17 PM UTC

pedrocr wrote: post #143

xyzelement wrote: post #96

Earlier quoted context omitted.

Flip it on all axis, I guess :) But, sure. Let's say I know that you (index fun) are obligated to buy stock X tomorrow and over all foreseeable future. I am gonna hoard those shares at no risk and sell them to you at a VERY VERY painful price, since you have no room to say "that's too expensive, no thanks"

How are you going to hoard "at no risk"? You're trying to corner the market for a given stock in an index pushing it's price way up and thus exposing yourself to the price crashing down and wiping you out. Meanwhile the passives are routinely buying and selling index funds depending on their need to save or raise cash so the net inflows into that stock are positive or negative depending on that. And that stock is onl…

That's the point. An asset can't crash in a 100% passive market because the funds buying the assets are obligated to do so without any discretion. The point is that such a situation is unrealistic.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#152

Post by cortesoft » Sat, Apr 10, 2021, 11:18 PM UTC

CynicusRex wrote: post #118

gruez wrote: post #108

Earlier quoted context omitted.

>Thinking out loud, but to me, any economic system is flawed if it rewards bankers, hedge funds, venture capitalists, and speculation more than carpenters, plumbers, or any other profession that requires actual real world skills "real world skills" is a nebulous concept. What counts as a "real world skill" and what doesn't? >My gut tells me that finance should be automated by computers without a profit motive because…

>"real world skills" is a nebulous concept. What counts as a "real world skill" and what doesn't? Got a sprain? Call a doctor. Leaking pipe? Call a plumber. Doesn't seem nebulous at all. Conversely, speculation and greed ruining the world? Call on the populace to bail them out. Speculation doesn't build or fix physical stuff. >You mean some sort of planned economy? Those have not worked well historically. Because his…

Allocating capital towards the most useful projects is a valuable real world skill. Bankers are essential for an advanced economy, as is capital investment.

Now, we can certainly argue the specifics of the best way to do that, and whether our current system is working as it should, but it isn’t as simple as to say everyone working in finance is useless.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#153

Post by pedrocr » Sat, Apr 10, 2021, 11:21 PM UTC

xyzelement wrote: post #150

pedrocr wrote: post #146

Earlier quoted context omitted.

You can't sell stock short specifically to passive investors. You have to sell it into the market. And since you're trying to sell only that stock and passive investors are buying the whole market your actual net counterparty is a set of some other active traders that hold the mirror position to yours, not the passive traders. The passives will always get the average of the market in that scenario and your above aver…

I just wrote to you the same thing the parent of your post did. You are missing the part of the scenario where "everyone" except the one player is passive. Both I and the poster broke down the mechanics step by step for you...

You didn't break down anything step by step. If you actually start with an 100% passive market and try having a single active investor in it nothing works. Funds can no longer buy and sell the basket of stocks they need. At that point they'd just trade among themselves and simply not trade with you. To actually be able to trade in the way you describe you'd need a 99.9% passive market where there are still some active traders you are trading with and together you are creating tracking error for the passives siphoning off their gains, which is what I described.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#154

Post by orojackson » Sat, Apr 10, 2021, 11:23 PM UTC

dasil003 wrote: post #133

chronic2021 wrote: post #100

Earlier quoted context omitted.

If you cherry pick the US S&P (over international, and over small cap), I’m allowed to cherry pick hedge funds. Many funds consistently outperform the S&P by 2-3X over 30-40 years. Minimum investment, $5-10M, of course. Buy and hold is the best option for those under USD $10 million net worth, but you must acknowledge there are semi-closed funds/prop trading firms that consistently beat the market.

Yes, just like there are individual stocks that beat the market. How do you pick them?

Stop being poor so you can go into those badass hedge funds that always beat the S&P 500 /s

But seriously, I'd rather just put money into VTI and VXUS and go back to playing video games, planning a D&D one-shot, programming a bit, or hanging out with friends in my spare time. Let the active traders waste their time poring over 10-Ks and/or charts. I'll be here having fun and taking what the market gives.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#155

Post by spywaregorilla » Sat, Apr 10, 2021, 11:23 PM UTC

xyzelement wrote: post #60

I am a hedge fund guy who invests his own $$$$ passively so make of this what you will. There will always be a mix of active and passive. Fundamentally - passive only works when it follows smart active. Actives do expensive research and trade against each other to arrive at the consensus price. Passives trade at that price for "free." Since both get the same price on average but passives incur no cost, they win on av…

> Imagine 100% is passive. That means any stock in an index will be bought tomorrow and forever regardless of price. I could exploit that in a ton of ways. For example, do a "squeeze" (think of the recent GME short squeeze but in reverse.)

With more and more assets going into passive funds, when might we actually see them owning such large fractions of companies that a play like this is possible? Google suggests that 10-15% of the SP500 is owned by mutual funds. Presumably there's going to be an inflection point where this becomes problematic.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#156

Post by pedrocr » Sat, Apr 10, 2021, 11:24 PM UTC

xyzelement wrote: post #148

pedrocr wrote: post #138

Earlier quoted context omitted.

Your active strategies are not against passive traders, they're against other active traders. You can't create one of those differential bets trading only with index funds as they won't take the other side of the unbalanced position you want as they're obliged to follow the index. In your scenarios you'd be winning against some other active investor taking the other side of the bet. Active as a whole can only beat pa…

I think your use of theory and terms is right but you aren't visualizing how it would work in the world where nearly everyone is passive. Simplest example I cited already: it becomes obvious that company X will default in short order, but it's a member of an index and the market will "buy" it anyway: I can short it (by borrowing from the passives and selling it to them next time they buy the index) and never have to…

In your hypothetical 99.9% passive scenario that doesn't work either because passive funds have long ago disallowed borrowing their stocks to short. If you start with a ~100% passive premise the reality is so different to what a normal market looks like you can't just propose a normal strategy and expect any of it to work.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#157

Post by pedrocr » Sat, Apr 10, 2021, 11:28 PM UTC

spywaregorilla wrote: post #151

pedrocr wrote: post #143

Earlier quoted context omitted.

How are you going to hoard "at no risk"? You're trying to corner the market for a given stock in an index pushing it's price way up and thus exposing yourself to the price crashing down and wiping you out. Meanwhile the passives are routinely buying and selling index funds depending on their need to save or raise cash so the net inflows into that stock are positive or negative depending on that. And that stock is onl…

That's the point. An asset can't crash in a 100% passive market because the funds buying the assets are obligated to do so without any discretion. The point is that such a situation is unrealistic.

It can crash even more violently by being removed from the index, which would happen if someone actually cornered the market for that stock as I described. My point is that the situation is unrealistic but in a completely different way than what is being described.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#158

Post by ec109685 » Sat, Apr 10, 2021, 11:30 PM UTC

hogFeast wrote: post #137

freetime2 wrote: post #31

Earlier quoted context omitted.

Roaring Kitty’s posts that kicked off the GME craze had some very thoughtful analysis. And recently I watched some videos about dividend investing on YouTube that I would consider reasonable investment advice. I agree that there is a lot of gambling and excessive risk taking going on. And I myself stick to a 3 ETF portfolio because I like the simplicity. But to call it almost entirely just gambling I think is missing…

Without being totally dismissive of every person who has contributed to the platforms you mention...99.99% of the stuff on YouTube is terrible, and most of the stuff written about GME was total nonsense. It is difficult to convey this because, in the end, you have no idea either so you don't know whether there is useful stuff on YouTube or if I am just talking nonsense too...but it is so bad, and it gives the mislead…

Why is Wealthfront so bad? Their fees don’t make them cheap, is that it?

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#159

Post by dasil003 » Sat, Apr 10, 2021, 11:33 PM UTC

baobabKoodaa wrote: post #111

dasil003 wrote: post #61

Earlier quoted context omitted.

Passive or active is not binary. Berkshire Hathaway’s strategy is passive by the WSB generations standards.

Please stop trying to re-define words which already have an established definition. "Passive" and "active" investing are well defined concepts, and Berkshire Hathaway falls squarely in the "active" category.

Fair criticism of my phrasing, but at the same time you can't put day traders, HFT, or most hedge fund strategies in the same bucket as Berkshire Hathaway. There is a distinct difference in time horizons behind the strategies.

Re: “Buy and Hold” No More: The Resurgence of Active Trading

#160

Post by lupire » Sat, Apr 10, 2021, 11:34 PM UTC

emerongi wrote: post #132

nly wrote: post #114

Earlier quoted context omitted.

It's not a 'strategy' really. Most regular Joe investors earn a salary every month, and keep spare money invested in the market. DCA isn't a choice in this case, it's the natural result.

It is a strategy. If you sell your house and invest the proceeds into the stock market, DCA says you shouldn't just do one huge buy order, but you should spread your orders out over a longer timeline. It's two different strategies.

That's an extremely rare case.