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

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

#171

Post by saalweachter »

ItsMonkk wrote: post #149
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…

So I've been trying to work this out. Previously I understood the idea "The passives are simply the average of the actives". So even if you had 99% passive, so long as the actives were doing their homework the system would work, but as you said you need to watch for exploits. But then I had the question: When the world has gone passive, who is left as an active investor? 1. Wallstreetbets users who do poorly on avera…

Think of it this way: if there are too many "free riders" in the form of passive investors, then ... it will become easier for active investors to make money, and beat the market, and more people will actively invest their money (or invest in actively managed funds).

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

#172

Post by jchanimal »

jackcosgrove wrote: post #162

The only issue I take with this article is their seemingly blase take on the risky investing behavior of Gen Z. Sure, if that's the lay of the land then use it to your advantage. But it seems a bit predatory. Risky activities tend to hurt more investors than they help, and lead to a small number of big winners and many losers. You can't just increase risk and increase reward for everyone. Regarding the predicament Ge…

So where to put cash?

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

#173

Post by PascLeRasc »

ItsMonkk wrote: post #149
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…

So I've been trying to work this out. Previously I understood the idea "The passives are simply the average of the actives". So even if you had 99% passive, so long as the actives were doing their homework the system would work, but as you said you need to watch for exploits. But then I had the question: When the world has gone passive, who is left as an active investor? 1. Wallstreetbets users who do poorly on avera…

You'd probably be interested in listening to this talk by Michael Green: https://www.youtube.com/watch?v=x-rJciYZmi0

He goes into a lot of data around the idea that the market is "too passive", and he believes that we were already at that point last year before the pandemic.

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

#174

Post by paulgb »

omgwtfbyobbq wrote: post #52
genericone wrote: post #30

Earlier quoted context omitted.

But passive investing is just that, passive, theres no market information, no price information that influences the shares and prices. How is passive investing sustainable? Doesn't this destroy finance in the long run? Prices being completely detached from a listed company's financial viability and business profitability... thats bad isnt it?

Why do you think prices are completely detached from a company's financial viability and business profitability? If I invested in a fund that's indexed to the S&P 500, and a company doesn't do well and drops out of the index, then the fund will sell that company and buy whatever replaces them. Ideally, sure, the fund could have known ahead of time and sold before the company dropped out of the S&P 500, but that's try…

> If I invested in a fund that's indexed to the S&P 500, and a company doesn't do well and drops out of the index, then the fund will sell that company and buy whatever replaces them.

The company drops out of the index on poor performance because its market cap goes below some threshold, because active investors short it or sell it when its poor performance makes it overpriced. If every investor is passive, there is no mechanism for the price to reflect the company's underlying finances.

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

#175

Post by xyzelement »

ItsMonkk wrote: post #149
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…

So I've been trying to work this out. Previously I understood the idea "The passives are simply the average of the actives". So even if you had 99% passive, so long as the actives were doing their homework the system would work, but as you said you need to watch for exploits. But then I had the question: When the world has gone passive, who is left as an active investor? 1. Wallstreetbets users who do poorly on avera…

You got some good replies to your question (which is a very good one!) but I'll take a stab at it like this:

A market is "too passive" when it becomes exploitable due to perfect predictability. But - that is the very thing that will keep it from ever reaching that level of passivity. Exploiting it is an active step, then someone else bets against the exploiter, etc.

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

#176

Post by im3w1l »

pedrocr wrote: post #163
ericjang wrote: post #15

Earlier quoted context omitted.

"statistically proven reality" is an oxymoron - past outperformance of passive funds (statistics) are no guarantee of future returns (reality). Some of the math surrounding the derivation of the weakest forms of EMT also relies on the assumption that everyone has access to the same information, which is patently false in the world we live in. Even retail traders sometimes have an information edge (e.g. working at a b…

The derivation that in total the passives outperform the actives is not a statistical result from historical data and doesn't require efficient market assumptions at all. It's just basic arithmetic that holds over any time period that the passives as a group will have the same returns as the actives as a group but spend less on fees. Sharpe's webpage on that gives a simple rundown of the calculations: https://web.sta…

The mistake you make is to think of two groups, when there are actually three. Active, passive and "outiders", who got their stock outside of the stock market. Maybe they are early investors or maybe they get stock as part of their compensation package.

If passive investors make worse trades with outsiders than the active investors do, they will underperfom.

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

#177

Post by segmondy »

pedrocr wrote: post #138
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…

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'm 95% passive, but I think a place where active strategy was observed was with TSLA. actives knew it was on it's way to the index and piled on into it, once it got into index, it got bid up some more and then actives cashed out. passives didn't enjoy the ride up, but suffered the cost of the ride down.

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

#178

Post by orojackson »

saalweachter wrote: post #171
ItsMonkk wrote: post #149

Earlier quoted context omitted.

So I've been trying to work this out. Previously I understood the idea "The passives are simply the average of the actives". So even if you had 99% passive, so long as the actives were doing their homework the system would work, but as you said you need to watch for exploits. But then I had the question: When the world has gone passive, who is left as an active investor? 1. Wallstreetbets users who do poorly on avera…

Think of it this way: if there are too many "free riders" in the form of passive investors, then ... it will become easier for active investors to make money, and beat the market, and more people will actively invest their money (or invest in actively managed funds).

Yep, there will usually be opportunities for arbitrage for active traders if there are too many passive investors. I suspect there will be some sort of equilibrium between active and passive at some point.

The thing is that I'd rather be doing other things with my time, so I'm a passive investing kind of guy. Imagine getting the market return for doing nearly nothing for dirt cheap. That's a high growth rate to level of effort ratio!

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

#179

Post by [deleted] »

hogFeast wrote: post #164
ec109685 wrote: post #158

Earlier quoted context omitted.

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

Correct. What they are selling you is an asset allocation, this turns on it's head all the innovation since the early 90s...and the performance you likely get will be indistinguishable from what most people could achieve on their own. One of the big advantages that savers have today are open platforms (there was a time when fund managers ran their own platforms), low dealing costs, low spreads, and ETFs. All that inv…

[deleted]

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

#180

Post by prirun »

SimonPStevens wrote: post #169
jackcosgrove wrote: post #162

The only issue I take with this article is their seemingly blase take on the risky investing behavior of Gen Z. Sure, if that's the lay of the land then use it to your advantage. But it seems a bit predatory. Risky activities tend to hurt more investors than they help, and lead to a small number of big winners and many losers. You can't just increase risk and increase reward for everyone. Regarding the predicament Ge…

> demographics is working against asset values in the next twenty years or so. As someone who is about half way towards retirement, how is it best to work with this? My future retirement income seems to be mostly dependant on having the right selection of investments for my pension account to grow in time for when I stop working. It's currently split between a few low cost, broad indexes. But if we expect asset value…

It sounds like you want an annuity. Your returns will likely be lower, with the issuer taking the risk (and getting the higher rewards), but you return is guaranteed and the issuer's is not.
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