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> ... put all their money into ETFs: you'd have no price discovery ... I disagree. ETFs just track an index. If you buy the ETF, someone else is buying the ind

• JumpCrisscross 11y ago
  You're technically correct. I'm using the term "price discovery" crudely in light of the audience. "Valuation" would be a more accurate, if more ambiguous, term. If everyone buys indexed ETFs, the market stops discerning between the index's components. If everyone buys "China," the difference between "shitty thing over there" and "half-decent asset if not levered through the roof" vanishes. When the market starts falling "finger in the pie" syndrome sets in. Nobody has any idea what one thing is worth over another. Even if they do, they probably can't trust their data, and even if they can, they know nobody else can. So everyone dumps "China," punishing all assets alike.
  • jacquesm 11y ago
    > So everyone dumps "China," punishing all assets alike. This is already happening due to the circuit breaker actions. What happens is that the trust in the market mechanism gets eroded to the point where even those companies that were not the ones losing big time will get drawn into the next wave of sell-offs. It's basically a stay of execution at that point (if we haven't already passed it).