All these sophisticated comments and no one has mentioned that the stock market has turned into a giant scam since companies stopped paying dividends either completely or reduced them to a meaningless amount. Stocks have zero intrinsic value without dividends.
“Buy and Hold” No More: The Resurgence of Active Trading
291–300 of 327 posts
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#292I 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…
Why would a company ever default if it’s stock price can’t go down. Couldn’t it just sell more stock to cover it’s debts?
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#293Earlier quoted context omitted.
NNDM is an example. Hasn't seen any growth despite having a marketable product over their entire 8 year timeframe. Worth ~2B right now despite only making ~3.4M in revenue per year and losing ~50M per year. All thanks, to becoming apart of ARKK.
NNMD is a weak example. Out of the top 10 mutual fund holders only FNCMX is a passive index fund. https://finance.yahoo.com/quote/NNDM/ And FNCMX is relatively small with only $11B in assets. So if you want us to take your argument seriously you'll have to provide a better example.
>Out of the top 10 mutual fund holders only FNCMX is a passive index fund
Uh... KOMP is the 3rd largest holder of NNDM and a passive fund. But regardless, whether these are passive/active is besides the point. Which is that most investment activity nowadays happen through vehicles that act as a basket of equities, and because of this, some of this money ends up flowing into bad equities given the vast majority of them don't trade on any sound fundamentals. I mean ARK surely doesn't, despite being actively managed.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#294Earlier quoted context omitted.
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).
An equilibrium exists but expected returns of active and passive are unknown. Would it reach equilibrium or could there be a crisis due to passive allocating funds poorly.
I mean, I don't know, I'm a random guy on the internet saying stuff, not an analyst.
But I think a key point is that active investing already exists and dominates the market -- it's still like 85% active. People choosing to invest in passively managed funds are doing so because they see a higher return. Maybe the choice is sticky and people won't switch back if the returns begin to fall, but people still have to switch in.
So building up a surplus of passive investors requires people to continue to switch to a passive strategy after the returns between passive and active level out and reverse. And not just a little -- profits from investing are returned to investors, and reinvested. So if the equilibrium between active and passive investing is X% of the market passive, and we get up to passive investors at X+10% of the market, then the X+10% of passive investors will see a lower rate of return than the 90-X% of active investors. Which means -- unless those active investors take their surplus profits and dump them into then-less-profitable passive funds, before long the active investors will have 91-X% of the market and the passive investors will have 9+X%. Absent continued switching, the feedback of profit re-investment will push the balance back to equilibrium.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#295Earlier quoted context omitted.
except it isn't: if enough gamblers stick to one ticker, they can break the market. options aren't roulette and stocks aren't blackjack. casinos don't have this failure mode. gamestop was the example of what happens in the limit - only the DTCC prevented a global financial crisis as a circuit breaker of last resort.
If enough retailers work in concert they start to resemble HF's. >> if enough gamblers stick to one ticker, they can break the market HF's, I assume, has had this power all along and they probably tried more than once to break the market. So, what's the difference then, between internet hive minds and HFs and why should one take more blame than the other when it comes to "breaking things"?
More call options expiring in the money than shares available for example.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#296Earlier quoted context omitted.
except it isn't: if enough gamblers stick to one ticker, they can break the market. options aren't roulette and stocks aren't blackjack. casinos don't have this failure mode. gamestop was the example of what happens in the limit - only the DTCC prevented a global financial crisis as a circuit breaker of last resort.
People broke the market on GME, but then they got rinsed for it. Hardly a win...
They almost did. Market owners decided they won’t have it that way, as they should or there would be many more losers.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#297Earlier quoted context omitted.
except it isn't: if enough gamblers stick to one ticker, they can break the market. options aren't roulette and stocks aren't blackjack. casinos don't have this failure mode. gamestop was the example of what happens in the limit - only the DTCC prevented a global financial crisis as a circuit breaker of last resort.
> gamestop was the example of what happens in the limit - only the DTCC prevented a global financial crisis as a circuit breaker of last resort. Nonsense, a few private funds losing a lot of money is not a financial crisis, it's just another Tuesday.
A few hedge funds losing 50% is not what I had in mind. Brokers going broke is that.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#298Earlier quoted context omitted.
>Institutional ownership does convey relevant information in regards to valuation, because it tells you who bought and didn't later sell, and therefore who contributed net buy flow over the last year. Institutional ownership merely means (shares held by institutions)/(total shares available). It does not signify anything more, and valuation cannot be inferred from such information. Changes in institutional ownership…
> Changes in institutional ownership may signify what you are arguing. Agreed, but we don't have access to this, so we need to use what's available. The level of institutional ownership (10%) is useful because it provides approximate/rough bounds on its changes over the last 12 months. Take the limit to see why it's useful: If IO% is currently 0% (100%), we can conclude with some confidence that a protracted move fro…
>Agreed, but we don't have access to this
We do have access to some info on this. https://www.nasdaq.com/market-activity/stocks/nndm/instituti...
Institutional ownership increased by 21.7M shares in 2020, a roughly 8.27% increase in total shares held. Meaning the current institutional ownership almost all came from last year, and ARK lead that by a wide margin.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#299> Conventional wisdom holds that passive trading is the rational investing strategy. That isn't conventional wisdom. It's not someone's opinion. It's statistically proven reality. Whether you're an individual trader or a billionaire hedge fund manager, active strategies lose out to passive ones in the long run. > has catalyzed a lean-in mindset around investing, particularly among Gen Z. And it will burn them, just l…
> The reality is Gen Z'ers are desperate at this point and they're turning to gambling in the hopes of making up lost economic ground.
There is a certain rationality to this, when you're coming from so far behind.
If you need a million dollars and you start with $200K, you set a timeline and a prudent plan.
If you need a million dollars and you start with $2K, you're so far behind[0] you may as well gamble.
I do not necessarily advocate the latter. I'm just articulating the thinking/emotion.
[0] 2000 at 7% p.a. takes 92 years to top a million if my arithmetic is correct.
Re: “Buy and Hold” No More: The Resurgence of Active Trading
#300Earlier quoted context omitted.
except it isn't: if enough gamblers stick to one ticker, they can break the market. options aren't roulette and stocks aren't blackjack. casinos don't have this failure mode. gamestop was the example of what happens in the limit - only the DTCC prevented a global financial crisis as a circuit breaker of last resort.
Casinos absolutely have that failure mode (which is why there are table limits) Casinos need to ensure that they have enough liquidity to withstand a large bet hitting. The law of large numbers only works if you can survive the short term swings.
Fair point. In case of GameStop it was more like a casino running out of chips and being obliged to get them at any price. A real casino would simply stop letting people in... and that’s what happened with the help of DTCC.