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I'm going to use this as an opportunity to yet again rail against the idea of indexing. It's a good thing in theory, but like most things, when it's taken to ex

by kolbe 10y ago

I'm going to use this as an opportunity to yet again rail against the idea of indexing. It's a good thing in theory, but like most things, when it's taken to extremes, it's horrible. Passive investments wherein the investor takes zero interest in these investments are and have always been a terrible idea, and nothing in modern history has facilitated this more than index funds. When you give a friend of a friend $10,000 to start a company, do you just hand it over no questions asked and with no follow-up? Or do you try to get engaged with your investment? Make sure the CEO isn't sitting on his ass collecting a paycheck? Scrutinize it for potential frauds? Well, that's what you do in an index fund. Except it's not even a friend of a friend that you're trusting. It's some group of people who likely live thousands of miles away who may or may not have an opiate or alcohol addiction or are complete sociopaths or are just regular humans who know how to legally take advantage of you when you aren't paying attention. You want to know why CEO pay is so high? It's because CEOs have no accountability for raising their pay when investors aren't paying attention to what they're doing. You want to know why CEOs are taking short-term action to boost stock prices at the expense of long-term viability? It's because they care about the short, you care about the long, and you have no voice when you're in an index fund. You want to know why CEOs are issuing debt to do stock buybacks? To empire build by paying too much for their competitors? To play accounting games to boost short-term earnings? Index funds are the tail that's wagging the dog, and they are going to be a disaster. And unlike derivatives, which can mess with stock prices but largely leave the fundamental structure of the company untouched, the dog that's being wagged here is the viability of globally important corporations that we depend on. They were fine when 5% of the market just piggy backed onto the other passive (though attentive) investors. But now passive and inattentive investors are a massive proportion of the market.

edanm 10y ago
I disagree. For one thing, there are still plenty of active investors around. The fact that the less active investors around, the easier it is for them to make returns, will help the market stable and full of "enough" investors. It is absurd to worry right now about not having enough finance professionals, considering just how many people are in the market. In terms of what's best for a single person deciding where to invest money right now, indexing seems to provide the best opportunity. It's clear that most investors will not spend the requisite time tracking companies, nor should they considering the benefit of specialization.
- kolbe 10y ago
  I appreciate your opinion, but when I see that companies like JNJ are 67% owned by Mutual Funds and Institutional Investors[1], most of whom are low-cost and inactive, it tells me we've gone too far. An I am not advocating for more finance professionals. Paying active managers to invest for you can cause the same problems I'm talking about. I'm advocating for personal responsibility and attentiveness. [1] http://finance.yahoo.com/quote/JNJ/holders?p=JNJ http://finance.yahoo.com/quote/JNJ/holders?p=JNJ
  - edanm 10y ago
    Do you really think the average stock owner has the ability or training to asses companies, in their spare time? Honest question. I'd answer no, considering that even trained professionals aren't so amazing at it.
    - AznHisoka 10y ago
      I think we as hackers can use our abilities to analyze certain companies better than the professionals. Example 1: track the Google rankings of companies that rely a lot on search engine traffic. see if any have dropped a lot from a major algorithm change (i.e. Demand Media) Example 2: use the Facebook graph API to do the same for companies that rely a lot on Facebook for traffic. Example 3: at the end of every month create a profile on weightwatchers.com. Note the user id number. Use this to extrapolate the number of users that signed up every month. Example 4: track the number of websites that installed a JS script for vendors like Hubspot. Example 5: every month scrape Ecommerce sites and track the increase % of reviews for major brands.
      - ant6n 10y ago
        These hacks sound like a full time job. How much will I get paid for that?
        AznHisoka 10y ago
        You can always turn it into a business and sell it to hedge funds.
BeetleB 10y ago
>When you give a friend of a friend $10,000 to start a company, do you just hand it over no questions asked and with no follow-up? Or do you try to get engaged with your investment? That would depend on the company and the agreement we make on how I'll get compensated (will I own a %, etc)? That agreement is clear when investing in a fund. Once we have an agreement, my only concern is he/she keeps their end of the deal. >Make sure the CEO isn't sitting on his ass collecting a paycheck? Scrutinize it for potential frauds? Unless you're buying your own stocks, this is a potential problem with every fund, not just index funds.
Applejinx 10y ago
On the contrary, they are a leap forward into an age of abstraction. They address the reality that what people really want is for their capital to increase, period. As such, if you can do an index fund where everything is going to increase because it's part of the index fund and everybody knows index funds beat the market, the consensus opinion is that if you're in the index fund your value is going to increase, and therefore the companies listed can go about their business because their values increase thus justifying them being in the index fund. Complete abstraction. Always has been, this is just the codification of it. The future catastrophe isn't so much the companies becoming more irresponsible than they already are, because they never particularly were. The catastrophe is more 'the concept of capital becoming meaningless', a sort of conceptual Reichsmark inflation where the numbers we talk about steadily become meaningless and absurd.
- tanderson92 10y ago
  > everybody knows index funds beat the market Nobody knows this, and it is false. Index funds seek to match the market return, less fees.
stale2002 10y ago
Then how come index funds get so much return? If index funds are so bad and destroy companies, you would expect them to not get good returns. But that's not the case, they get great returns!
- saryant 10y ago
  They get the same returns as the market, minus fees. Since equities have seen great returns post-08, broad-market equity index funds have also seen great returns.
spectrum1234 10y ago
You are ignoring that with investing you are taking risk. If you ignore risk passive investments would already be priced higher. Risk == return when it comes to passive investing, of course over a very long time frame.

by kolbe 10y ago

edanm 10y ago

I disagree. For one thing, there are still plenty of active investors around. The fact that the less active investors around, the easier it is for them to make returns, will help the market stable and full of "enough" investors. It is absurd to worry right now about not having enough finance professionals, considering just how many people are in the market. In terms of what's best for a single person deciding where to invest money right now, indexing seems to provide the best opportunity. It's clear that most investors will not spend the requisite time tracking companies, nor should they considering the benefit of specialization.

kolbe 10y ago
I appreciate your opinion, but when I see that companies like JNJ are 67% owned by Mutual Funds and Institutional Investors[1], most of whom are low-cost and inactive, it tells me we've gone too far. An I am not advocating for more finance professionals. Paying active managers to invest for you can cause the same problems I'm talking about. I'm advocating for personal responsibility and attentiveness. [1] http://finance.yahoo.com/quote/JNJ/holders?p=JNJ http://finance.yahoo.com/quote/JNJ/holders?p=JNJ
- edanm 10y ago
  Do you really think the average stock owner has the ability or training to asses companies, in their spare time? Honest question. I'd answer no, considering that even trained professionals aren't so amazing at it.
  - AznHisoka 10y ago
    I think we as hackers can use our abilities to analyze certain companies better than the professionals. Example 1: track the Google rankings of companies that rely a lot on search engine traffic. see if any have dropped a lot from a major algorithm change (i.e. Demand Media) Example 2: use the Facebook graph API to do the same for companies that rely a lot on Facebook for traffic. Example 3: at the end of every month create a profile on weightwatchers.com. Note the user id number. Use this to extrapolate the number of users that signed up every month. Example 4: track the number of websites that installed a JS script for vendors like Hubspot. Example 5: every month scrape Ecommerce sites and track the increase % of reviews for major brands.
    - ant6n 10y ago
      These hacks sound like a full time job. How much will I get paid for that?
      - AznHisoka 10y ago
        You can always turn it into a business and sell it to hedge funds.

BeetleB 10y ago

>When you give a friend of a friend $10,000 to start a company, do you just hand it over no questions asked and with no follow-up? Or do you try to get engaged with your investment? That would depend on the company and the agreement we make on how I'll get compensated (will I own a %, etc)? That agreement is clear when investing in a fund. Once we have an agreement, my only concern is he/she keeps their end of the deal. >Make sure the CEO isn't sitting on his ass collecting a paycheck? Scrutinize it for potential frauds? Unless you're buying your own stocks, this is a potential problem with every fund, not just index funds.

Applejinx 10y ago

On the contrary, they are a leap forward into an age of abstraction. They address the reality that what people really want is for their capital to increase, period. As such, if you can do an index fund where everything is going to increase because it's part of the index fund and everybody knows index funds beat the market, the consensus opinion is that if you're in the index fund your value is going to increase, and therefore the companies listed can go about their business because their values increase thus justifying them being in the index fund. Complete abstraction. Always has been, this is just the codification of it. The future catastrophe isn't so much the companies becoming more irresponsible than they already are, because they never particularly were. The catastrophe is more 'the concept of capital becoming meaningless', a sort of conceptual Reichsmark inflation where the numbers we talk about steadily become meaningless and absurd.

tanderson92 10y ago
> everybody knows index funds beat the market Nobody knows this, and it is false. Index funds seek to match the market return, less fees.

stale2002 10y ago

Then how come index funds get so much return? If index funds are so bad and destroy companies, you would expect them to not get good returns. But that's not the case, they get great returns!

saryant 10y ago
They get the same returns as the market, minus fees. Since equities have seen great returns post-08, broad-market equity index funds have also seen great returns.

spectrum1234 10y ago

You are ignoring that with investing you are taking risk. If you ignore risk passive investments would already be priced higher. Risk == return when it comes to passive investing, of course over a very long time frame.