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Michael Burry in the news again

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  • Avatar enelson 
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    Debunking wasn’t convincing. I think there’s been a discussion previously about what % of funds in the stock market need to be actively managed to actually have a market. Ben Carlson seems to be underestimating the % of funds currently is index funds, but he’s probably smarter than I am and I don’t know the number.

    #244271 Reply
    CordMcNally CordMcNally 
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    I saw that today. I’m a big Ben Carlson fan.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #244272 Reply
    Liked by Vagabond MD
    Avatar ajm184 
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    Debunking wasn’t convincing.

    Click to expand…

    Well, you are certainly entitled to your opinion and the ability to trade on this ‘advice’.  I though Ben’s point was fairly clear, 15% is attributable to index funds, and the point by Charlie Ellis that 5% of trading is Index, the other 95% is active trading.  Most of that ‘active’ trading is likely HFT, but someone programmed it, and there is real money backing those trades.

    I’ll continue to be an index free-rider.

    #244280 Reply
    Avatar Dont_know_mind 
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    The consensus is that 100% passive would be terrible.
    Jack Bogle’s view was that if the market is 50%+ passive indexed that would be bad news (*)

    Some folks argue that the number is even more extreme, that passive indexing generally increases efficiency, and that as long as there are even a handful of active investors (e.g 1%), the market will still be efficient.

    (*) some, like Bury argue that it already is getting to a significant proportion, like 50%. In comparing active to passive you have to exclude HFT and compare proportions of % active LT vs passive LT funds under management.

    I tend to think indexing is more popular than indexers think. It has many psychological aspects of a bubble forming. It might turn out to be the holy grail. I doubt it though. If I was an indexer, I would carefully research the conditions under which their strategy is likely to work and when it may not.

    #244294 Reply
    The White Coat Investor The White Coat Investor 
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    The consensus is that 100% passive would be terrible.
    Jack Bogle’s view was that if the market is 50%+ passive indexed that would be bad news (*)

    Some folks argue that the number is even more extreme, that passive indexing generally increases efficiency, and that as long as there are even a handful of active investors (e.g 1%), the market will still be efficient.

    (*) some, like Bury argue that it already is getting to a significant proportion, like 50%. In comparing active to passive you have to exclude HFT and compare proportions of % active LT vs passive LT funds under management.

    I tend to think indexing is more popular than indexers think. It has many psychological aspects of a bubble forming. It might turn out to be the holy grail. I doubt it though. If I was an indexer, I would carefully research the conditions under which their strategy is likely to work and when it may not.

    Click to expand…

    I disagree. It isn’t about who HOLDS the shares, it’s who is trading the shares. If indexing becomes 90% of shares traded, we probably have a problem. But what are we at now there, 5-10%? Maybe? Still plenty of price discovery happening.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #244458 Reply
    Zaphod Zaphod 
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    Debunking wasn’t convincing. I think there’s been a discussion previously about what % of funds in the stock market need to be actively managed to actually have a market. Ben Carlson seems to be underestimating the % of funds currently is index funds, but he’s probably smarter than I am and I don’t know the number.

    Click to expand…

    I havent read either but dont need to. I was under the impression from Animal Spirits podcast he didnt really say “indexing” was a bubble, rather some underlying issue with something else about it was, bad marketing (or good depending on the point).

    As to the above point, it makes no sense. Most funds are in some kind of fund, that is indexing in one way or another, they have simply moved from high to low fee. Also, there is no true thing as “passive” investing, its just as active as any other kind of investing. Theyre indexes because they follow a published open formula, its still active, just known methods and much cheaper.

    In a downturn people sell, it doesnt matter whether its indexed, passive, active, etc…they sell. Honestly I’d expect people that are heavy indexing/low costs to sell less as theyre likelier to be 401ks and not paying attention or people like us that can know better.

    If anything indexing should create opportunity for other investors, which is what I think the point burry was actually making was. A market cap weighted index is simply the cumulative viewpoint of all the other “active” investors anyway, its not as if they are static. Theyre active as well, just your role in them isnt. Not a material difference structurally or logically.

    Most people whining and complaining or otherwise bemoaning this phenomenon are those who have been closet indexing and charging 2%+ for it for decades. Its not active to passive remember, its high to low fee.

    #244470 Reply
    Avatar Dont_know_mind 
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    The consensus is that 100% passive would be terrible.
    Jack Bogle’s view was that if the market is 50%+ passive indexed that would be bad news (*)

    Some folks argue that the number is even more extreme, that passive indexing generally increases efficiency, and that as long as there are even a handful of active investors (e.g 1%), the market will still be efficient.

    (*) some, like Bury argue that it already is getting to a significant proportion, like 50%. In comparing active to passive you have to exclude HFT and compare proportions of % active LT vs passive LT funds under management.

    I tend to think indexing is more popular than indexers think. It has many psychological aspects of a bubble forming. It might turn out to be the holy grail. I doubt it though. If I was an indexer, I would carefully research the conditions under which their strategy is likely to work and when it may not.

    Click to expand…

    I disagree. It isn’t about who HOLDS the shares, it’s who is trading the shares. If indexing becomes 90% of shares traded, we probably have a problem. But what are we at now there, 5-10%? Maybe? Still plenty of price discovery happening.

    Click to expand…

    I flip between 2 extremes with my stance on indexing.

    I think you are right that the traders determine the short term price activity, but I disagree on the long term.

    I think it is the long term holders who will determine the price trajectory over the long term.

    In particular, I think it does matter who holds the shares and their mental state as a group and solvency.

    As an example, with real estate, the short term can be affected by flippers and exhubrance or lack of it, but long term, the price depends on the income of people in that area and their solvency.

    In that sense, maybe what Bury is saying about a bubble doesn’t make sense.

    Maybe he is pointing to indexing becoming what he perceives as over-popular, which may degrade the performance Vs active, despite the opposite in the past.

    I can only use myself as a behavioral error yardstick. I feel the same way about indexing as I did with internet stocks in 1999 and resource stocks in 2007. The arguments are so stacked for it and yet, it seems overdone. In the past, I’ve resisted and then bought into it and within 2 years of adopting the strategy, it peaks and ends up being dissappointing. I am not sure if my track record will occur here too. I find the idea of indexing very attractive but I also think any strategy when overdone will have problems. It is interesting to think about how far away that point may be.

    I tend to think the long term holders are a better yardstick of when a strategy is getting too popular. The ST trading/HFT can be 10 or 100 times order of magnitude of LT holders.

    #244737 Reply
    Avatar Dont_know_mind 
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    Debunking wasn’t convincing. I think there’s been a discussion previously about what % of funds in the stock market need to be actively managed to actually have a market. Ben Carlson seems to be underestimating the % of funds currently is index funds, but he’s probably smarter than I am and I don’t know the number.

    Click to expand…

    I havent read either but dont need to. I was under the impression from Animal Spirits podcast he didnt really say “indexing” was a bubble, rather some underlying issue with something else about it was, bad marketing (or good depending on the point).

    As to the above point, it makes no sense. Most funds are in some kind of fund, that is indexing in one way or another, they have simply moved from high to low fee. Also, there is no true thing as “passive” investing, its just as active as any other kind of investing. Theyre indexes because they follow a published open formula, its still active, just known methods and much cheaper.

    In a downturn people sell, it doesnt matter whether its indexed, passive, active, etc…they sell. Honestly I’d expect people that are heavy indexing/low costs to sell less as theyre likelier to be 401ks and not paying attention or people like us that can know better.

    If anything indexing should create opportunity for other investors, which is what I think the point burry was actually making was. A market cap weighted index is simply the cumulative viewpoint of all the other “active” investors anyway, its not as if they are static. Theyre active as well, just your role in them isnt. Not a material difference structurally or logically.

    Most people whining and complaining or otherwise bemoaning this phenomenon are those who have been closet indexing and charging 2%+ for it for decades. Its not active to passive remember, its high to low fee.

    Click to expand…

    When you aggregate the high cost closet indexing, medium cost indexing and low cost indexing, I think indexing becomes a large majority of the current strategy.

    Perhaps ? 80%

    I am not sure what the effect of this is on the market dynamics.

    It should make opportunities for non-index investing, but strangely, liquid markets seem more efficient than ever, and non-indexing investing continues to underperforms indexing. It will be interesting to watch whether this changes.

    #244743 Reply
    Zaphod Zaphod 
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    Debunking wasn’t convincing. I think there’s been a discussion previously about what % of funds in the stock market need to be actively managed to actually have a market. Ben Carlson seems to be underestimating the % of funds currently is index funds, but he’s probably smarter than I am and I don’t know the number.

    Click to expand…

    I havent read either but dont need to. I was under the impression from Animal Spirits podcast he didnt really say “indexing” was a bubble, rather some underlying issue with something else about it was, bad marketing (or good depending on the point).

    As to the above point, it makes no sense. Most funds are in some kind of fund, that is indexing in one way or another, they have simply moved from high to low fee. Also, there is no true thing as “passive” investing, its just as active as any other kind of investing. Theyre indexes because they follow a published open formula, its still active, just known methods and much cheaper.

    In a downturn people sell, it doesnt matter whether its indexed, passive, active, etc…they sell. Honestly I’d expect people that are heavy indexing/low costs to sell less as theyre likelier to be 401ks and not paying attention or people like us that can know better.

    If anything indexing should create opportunity for other investors, which is what I think the point burry was actually making was. A market cap weighted index is simply the cumulative viewpoint of all the other “active” investors anyway, its not as if they are static. Theyre active as well, just your role in them isnt. Not a material difference structurally or logically.

    Most people whining and complaining or otherwise bemoaning this phenomenon are those who have been closet indexing and charging 2%+ for it for decades. Its not active to passive remember, its high to low fee.

    Click to expand…

    When you aggregate the high cost closet indexing, medium cost indexing and low cost indexing, I think indexing becomes a large majority of the current strategy.

    Perhaps ? 80%

    I am not sure what the effect of this is on the market dynamics.

    It should make opportunities for non-index investing, but strangely, liquid markets seem more efficient than ever, and non-indexing investing continues to underperforms indexing. It will be interesting to watch whether this changes.

    Click to expand…

    I think the point is much of the market has been indexed forever, just in high cost and medium cost formats and what they are bemoaning is simply just the move to low cost versions. So really, nothing is actually changing but the cost.

    #244747 Reply
    Avatar Panscan 
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    I think it’s likely more than 5-10 of market that is indexed.

    #244783 Reply
    Avatar rdo 
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    it is bigger than what people suggest.  It is not really much of %, it is more of flow of money.  if you honestly think you only need 5% to be active/fundamental investing for price discovery, just carry on.

    https://www.cnbc.com/2019/06/28/80percent-of-the-stock-market-is-now-on-autopilot.html

    key points:

    • Passive investments control about 60% of the equity assets, while quantitative funds — those relying on trend-following models instead of fundamental research — now account for 20% of the market share, according to estimates from J.P. Morgan.
    • Passive funds have attracted $39 billion of inflows so far this year, whereas active funds lost a whopping $90 billion in 2019, the bank said.

     

    #244873 Reply
    Avatar saildawg 
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    This is all well beyond my intellectual ability, but I keep coming back to a point that Jack Bogle made in his common sense investing book.  The return you get from investing is actually the growth of business (Dividend yield + earnings growth), speculation will affect short term in both the positive and negative directions, but long term return is going to be business growth.  So it seems no one is predicting decline in GDP etc, but passive investing is going to create such speculation that it will lead to a huge crash that we can’t recover from?  For sure the real estate bubble was speculation etc, but we have recovered, I find it hard to believe that passive investing is anything similar.

    #244901 Reply
    Liked by beagler
    Zaphod Zaphod 
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    it is bigger than what people suggest.  It is not really much of %, it is more of flow of money.  if you honestly think you only need 5% to be active/fundamental investing for price discovery, just carry on.

    https://www.cnbc.com/2019/06/28/80percent-of-the-stock-market-is-now-on-autopilot.html

    key points:

    • Passive investments control about 60% of the equity assets, while quantitative funds — those relying on trend-following models instead of fundamental research — now account for 20% of the market share, according to estimates from J.P. Morgan.
    • Passive funds have attracted $39 billion of inflows so far this year, whereas active funds lost a whopping $90 billion in 2019, the bank said.

     

    Click to expand…

    But again it doesnt really matter, all the same underlying components are still owned largely in the exact same percentages and amounts, so nothing has really changed but the wrapper. That 90B didnt evaporate, it has to hold something. Even if people are moving to cash or bonds, thats an active market decision as well, makes price. All the stuff is owned in aggregate the same way, nothing changes.

    Its not like you even need a single trade for price discovery either, if news comes out after hours and not shares are trading, the price of an asset will move even before a single transaction occurs. You dont even need trading to have price discovery at all. Of course, once markets open they find themselves, but the above is true.

     

    #244982 Reply
    Vagabond MD Vagabond MD 
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    If Burry had said something like, “The money flowing into the tech heavy S&P 500 index has propped up the relative valuation between it and other slices of the market (especially small value and international), and we are approaching conditions where one should expect some reversion to the mean valuation for equity categories…”

    I would have a hard time disagreeing, especially having lived and invested in similar (albeit less dramatic) conditions with such a reversal in the late 1990’s and into the early 00’s.

     

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #245007 Reply
    Avatar Dont_know_mind 
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    It’s does feel similar to the late 90’s.
    Tech got taken to the woodshed and indexers had a hard time 2000-2002 as such a large proportion of indexes were tech.
    I don’t understand what Bury means by buying small cap. It should get taken down worse by the liquidity dynamics he mentions early in a bear market. Maybe he’s just expressing unhappiness he hasn’t been leveraged 3X nasdaq the last 10 years, his NW might by 3B or something.

    Ok if I had to pick a sector that has potential in the next 10 years, one option would be in the area of cheap non-index investing ETF’s. Cheap active. If someone could research that and post some ideas.

    #245018 Reply

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