Why Index Funds Are Like Subprime CDOs • Hacker News Board

Re: Why Index Funds Are Like Subprime CDOs

#321

Post by bb88 » Sat, Sep 07, 2019, 5:57 AM UTC

lonelappde wrote: post #296

bb88 wrote: post #259

Earlier quoted context omitted.

> After all, when there's a market crash, did millions of machines in factories fall apart... In 2008, the crash happened because suddenly Wyle E. Coyote realized there was gravity when he ran off the cliff. Mortgages were actually defaulting on a very high rate, but people put blindfolds on and didn't want to see. It wasn't just a "psychological overreaction" but real fear and panic as those same investors were tryi…

If you were invested in the broader market, and didn't move your whole portfolio in our out of cash in 1 year,the 2008 worldwide economic collapse was barely a blip in long term performance.

So you're point is exactly what again? It's okay for banks to manipulate the markets because in the end it all averages out?

Re: Why Index Funds Are Like Subprime CDOs

#322

Post by bb88 » Sat, Sep 07, 2019, 5:58 AM UTC

danw1979 wrote: post #313

bb88 wrote: post #259

Earlier quoted context omitted.

> After all, when there's a market crash, did millions of machines in factories fall apart... In 2008, the crash happened because suddenly Wyle E. Coyote realized there was gravity when he ran off the cliff. Mortgages were actually defaulting on a very high rate, but people put blindfolds on and didn't want to see. It wasn't just a "psychological overreaction" but real fear and panic as those same investors were tryi…

> It wasn't just a "psychological overreaction" but real fear and panic as those same investors were trying to squeeze through the same exit door as everyone else. Panic is quite literally a psychological overreaction.

So if only people had acted rationally while they were losing billions of money, things would have been okay?

Re: Why Index Funds Are Like Subprime CDOs

#323

Post by abetancort » Sun, Sep 08, 2019, 6:29 PM UTC

OrangeMango wrote: post #174

ptero wrote: post #140

Earlier quoted context omitted.

I will try to interpret, but obviously it is just my interpretation (and personally I mostly agree with many theses Burry gave). First, he does not really talk about being a "good citizen" or not. His points are for "greedy citizens" who, in his view, should be worried (about his pocketbook) if he is heavily invested in passive index funds. This is due to his "bigger and bigger crowds, same exits" analogy: individual…

> What happens if there is a small, but synchronized outflow for any reason? If customers ask for 1% of index funds to be sold, index funds have to sell 1% of their holdings in the exact ratios defined by the index That's pretty interesting. In 2019, the average daily trading volume of Berkshire Hathaway (class A) was 0.04% of the total shares outstanding. If all people that held this stock were forced to sell 1% of…

If you are buying Berkshire with as a short term investment and you’re not a market maker, you are an idiot.

Re: Why Index Funds Are Like Subprime CDOs

#324

Post by pas » Mon, Sep 09, 2019, 2:21 PM UTC

repolfx wrote: post #311

pas wrote: post #283

Earlier quoted context omitted.

But the wisdom of the crowd, the price signal, only works if professionals look at the stocks. And it requires only a few [hundred] of them (with big enough leverage, so their position shows up). For the top 500 stocks there are enough people (and algos) going over every bit released by the corresponding companies.

That's a contradiction. It's not the wisdom of the crowds if only a few hundred people are really looking at things. The whole point of that expression is that you need a crowd , to avoid groupthink, capture etc

Not really, because passive funds just piggy-back on the price finding results of the market.

And the active market is very sensitive. Especially if someone is so confident that they are willing to use drastically leveraged positions.