Author Topic: Index investing is ending  (Read 6570 times)

boarder42

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Index investing is ending
« on: November 11, 2015, 07:53:59 AM »
Just like market timing... this guy has the market down and knows whats gonna happen

the comments are great

http://www.cnbc.com/2015/11/10/watch-out-the-index-bubble-is-bursting-trader.html


scottish

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Re: Index investing is ending
« Reply #1 on: November 11, 2015, 09:16:27 AM »
Yep, it's the end of index investing.   Just as my conversion from individual stocks was going well.   Doom on me.

MgoSam

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Re: Index investing is ending
« Reply #2 on: November 11, 2015, 09:21:28 AM »
“The storms come and go, the waves crash overhead, the big fish eat the little fish, and I keep on paddling."
-Varys (A Clash of Kings)

runningthroughFIRE

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Re: Index investing is ending
« Reply #3 on: November 11, 2015, 12:01:37 PM »
Am I missing something here, or does his arguement not even make sense? Stocks are becoming more uncorrelated, which makes diversifying easier.....kind of like how index funds already do.  I'll buy that the Dow has been flat for a while, but who the hell actually uses the Dow for anything other than general state of the market?  It's an awful metric.

PathtoFIRE

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Re: Index investing is ending
« Reply #4 on: November 11, 2015, 12:57:55 PM »
Yeah, if you believe that you can pick the winners, then the lack of correlation means if you pick all winners you do much better relative to everyone else (and if you happen to pick all losers, the opposite). I don't see the connection to indexing. If the SP500 moves up 8% a year over the next decade, then your SP500 index fund isn't going to care whether (1) all 500 (or 502) stocks all moved 8% each year in unison, or instead (2) you had a wide range in individual components, from -100% to + whatever%, that netted the index 8%. Maybe in the latter your fees would be slightly higher as the index fund managers had to deal with widely changing market caps, but the ride is essentially the same. The only way you would feel left out in the second scenario above is if you kept reading or being inundated with people reporting their great results after picking the winners. But history tells us that information is heavily biased (survivorship, sensationalism, etc.). And that's what the articles above seem to suggest, that indexing will fall out of favor not because of lower returns, but because of the perception that people are missing out. We know they're not, and one of the reasons I keep visiting here, Bogleheads, etc., is to keep reminding myself that, inoculate myself against the temptation.

MgoSam

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Re: Index investing is ending
« Reply #5 on: November 11, 2015, 01:05:13 PM »
one of the reasons I keep visiting here, Bogleheads, etc., is to keep reminding myself that, inoculate myself against the temptation.

Yup, for me it's this, the advice I get, and this Antimustachian section.

gReed Smith

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Re: Index investing is ending
« Reply #6 on: November 11, 2015, 01:36:02 PM »
The article seems to have a fundamental mistake underpinning its entire argument.  There is no such thing as an "index bubble" or "pickers ruling the day."  Pickers can only beat other Pickers, and indexers will always receive the average gain of the two.  If anything, lower transaction costs may put indexers ahead the average gain of the pickers, but that really has nothing to do with what the article is about.

StockBeard

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Re: Index investing is ending
« Reply #7 on: November 11, 2015, 02:59:45 PM »
Wow. The thousands of other analysts before this guy did not convince me, but this one is going to be totally right! Time to change my plans and sell everything!

/sarcasm

Jack

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Re: Index investing is ending
« Reply #8 on: November 11, 2015, 03:35:05 PM »
In theory it would be possible for so many people to be indexing that the efficient-market hypothesis fails and stock price becomes wholly uncorrelated with value (which is the only way an "index bubble" could happen, as far as I can figure). However, we're nowhere near that now, and due to Barnum's Law (i.e., that "there's a sucker born every minute") we never will be.

franklin w. dixon

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Re: Index investing is ending
« Reply #9 on: November 11, 2015, 08:31:59 PM »
It is very true that when the market is flat for a couple years (or ten) people will give up on indexing and try something else, although they won't be successful in aggregate. I don't ever hear anything about big investment opportunities in a Nikkei ETF.

PathtoFIRE

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Re: Index investing is ending
« Reply #10 on: November 12, 2015, 09:32:54 AM »
Technically it's not the indexing itself necessarily, but the automatic contributions that if large enough in size could distort the pricing mechanisms of the market, right? Those of us who have our weekly/monthly/whatever scheduled investments for 401ks, IRAs, aftertax accounts, etc., are the real ones who are price agnostic. But plenty of people buy index funds with an eye on price, so they would still be price setters, at least somewhat indirectly.

nobodyspecial

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Re: Index investing is ending
« Reply #11 on: November 12, 2015, 04:57:56 PM »
Technically it's not the indexing itself necessarily, but the automatic contributions that if large enough in size could distort the pricing mechanisms of the market, right? Those of us who have our weekly/monthly/whatever scheduled investments for 401ks, IRAs, aftertax accounts, etc., are the real ones who are price agnostic. But plenty of people buy index funds with an eye on price, so they would still be price setters, at least somewhat indirectly.
Isn't it the scheduled ones that distort the market?
If you know that a $Bn of 401k/IRA/etc are going to buy the same set of shares/bonds on a certain day each month don't people front run these?



Digital Dogma

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Re: Index investing is ending
« Reply #12 on: November 12, 2015, 08:34:16 PM »
Technically it's not the indexing itself necessarily, but the automatic contributions that if large enough in size could distort the pricing mechanisms of the market, right? Those of us who have our weekly/monthly/whatever scheduled investments for 401ks, IRAs, aftertax accounts, etc., are the real ones who are price agnostic. But plenty of people buy index funds with an eye on price, so they would still be price setters, at least somewhat indirectly.
Quote
For instance, Schlossberg looks back to the long period from 1966 to 1980, when the Dow Jones industrial average was flat, making it "a stock pickers' market all the way through."
Good point PathtoFIRE, and I'd expand on that by suggesting that diverse index funds that specialize in certain sectors of the economy (such as Vanguards Health Care Fund) allow you to pick specific hot sectors during a period of time when other sectors are under performing in much the same way this guy is suggesting with far less hassle (and lower fees!!!).

Technology is what drives the stock market, and to compare the period from the 1960s to today is a poor choice to extrapolate future market conditions. When the first DOW 30 companies were used to measure market trends and fluctuations it was due to ease of handling large amounts of financial information on a daily basis when people had to do calculations by hand. Now we've got computers passively managing information from tens/hundreds of thousands of stocks in microseconds at the direction of individuals managing the funds which both reduces customer fees and human error while saving time and enhancing risk management. What this guy is suggesting, by going back to hand picking individual stocks, is like having your car battery die and replacing it with a hand crank magneto instead of getting a different battery that works. We've got things way better than individual stocks to pick from now.

BlueMR2

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Re: Index investing is ending
« Reply #13 on: November 13, 2015, 04:15:22 PM »
In theory it would be possible for so many people to be indexing that the efficient-market hypothesis fails and stock price becomes wholly uncorrelated with value (which is the only way an "index bubble" could happen, as far as I can figure). However, we're nowhere near that now, and due to Barnum's Law (i.e., that "there's a sucker born every minute") we never will be.

Yep, if you're ever in doubt, just walk out your door and talk to a few people.  Or watch some TV.  The level of greed you see will restore your faith in humanity (regarding it throwing away money and supporting your index funds)!

TomTX

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Re: Index investing is ending
« Reply #14 on: November 15, 2015, 07:03:15 AM »
Quote
For instance, Schlossberg looks back to the long period from 1966 to 1980, when the Dow Jones industrial average was flat, making it "a stock pickers' market all the way through."

The price was flat, but the dividend payout was high, climbing to almost 7%

Hell, the dividend on DJI today is about 3.5%
« Last Edit: November 15, 2015, 07:05:52 AM by TomTX »

arebelspy

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Re: Index investing is ending
« Reply #15 on: November 15, 2015, 11:09:31 AM »
From the article:
Quote
For instance, Schlossberg looks back to the long period from 1966 to 1980, when the Dow Jones industrial average was flat, making it "a stock pickers' market all the way through."

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