Grumblers about passive investing may have a point
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Re: Grumblers about passive investing may have a point
#2Shorter active fund managers: "Passive funds are making us look bad because they outperform us!"
Invoking the EMH in this context is bizarre, though: if it was fully true, an active fund manager would be as useful as an active roulette manager.
Re: Grumblers about passive investing may have a point
#3Shorter active fund managers: "Passive funds are making us look bad because they outperform us!" Invoking the EMH in this context is bizarre, though: if it was fully true, an active fund manager would be as useful as an active roulette manager.
According to the EMH markets are efficient because of people making intelligent decisions about what to buy and sell. The market price is where the marginal buyer meets the marginal seller. Passive funds (which aren’t actually passive) by contrast buy stocks irrespective of price. The logic of passive funds is that because other market participants (like fund managers) do the work of making the market efficient everybody else can buy any random basket of stocks and get average performance, without having to pay management fees.
Without fund managers doing the work of price discovery cheap index funds would cease to work. Fund managers are right to be miffed about that.
Re: Grumblers about passive investing may have a point
#4I think that the issue is less "passive investing" than "massive participation in defined contribution retirement plans," combined with the ultra-rare (ish) constituent change of the S&P 500.
Once a company gets in, it won't leave for a very long time, and during that time period there is going to be $X buying your stock every month regardless of price. In fact, you could argue that this is reinforcing the EMH! The market knows that somebody is going to stop by next week with a big pile of cash and say "I'll take however many shares you'll give me for this money". So why would the market let currency fluctuations influence the price any more than it has to?
If you aren't in the S&P 500, on the other hand, you have no guarantee of a big buyer just around the corner. You have to make sure that your asking prices are as closely aligned with bidding prices as possible, or trading volume collapses.
Re: Grumblers about passive investing may have a point
#5Shorter active fund managers: "Passive funds are making us look bad because they outperform us!" Invoking the EMH in this context is bizarre, though: if it was fully true, an active fund manager would be as useful as an active roulette manager.
According to the EMH markets are efficient because of people making intelligent decisions about what to buy and sell. The market price is where the marginal buyer meets the marginal seller. Passive funds (which aren’t actually passive) by contrast buy stocks irrespective of price. The logic of passive funds is that because other market participants (like fund managers) do the work of making the market efficient every…
Good active managers are paid for their work of correcting mispricing to the extent that they are correct.
Re: Grumblers about passive investing may have a point
#6Shorter active fund managers: "Passive funds are making us look bad because they outperform us!" Invoking the EMH in this context is bizarre, though: if it was fully true, an active fund manager would be as useful as an active roulette manager.
According to the EMH markets are efficient because of people making intelligent decisions about what to buy and sell. The market price is where the marginal buyer meets the marginal seller. Passive funds (which aren’t actually passive) by contrast buy stocks irrespective of price. The logic of passive funds is that because other market participants (like fund managers) do the work of making the market efficient every…
If they are as competent at their jobs as they think they are all the dumb, blind investment going on around them should just help them out.