6 ms·
The title is misleading that humans dominate investing. Cats selecting stocks with its whiskers and monkey throwing darts on a newspaper on average beats most
by acd 9y ago
The title is misleading that humans dominate investing.
Cats selecting stocks with its whiskers and monkey throwing darts on a newspaper on average beats most human professional investors. Most amateur investors are better of with low priced index funds tracking stock index than buying more expensive managed products as those have higher fees.
Book A random down walk wall street.
https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
- narag 9y agoIf machines are better than human investing, is there people that use machines to select investments? I don't mean high frequency, but long-term.
- zone411 9y agoSince it's a trade secret, it's hard to know exactly what they do and how much human input there is - but a couple well-known quant hedge funds are Renaissance Technologies and Two Sigma. They were both started by mathematicians/computer scientists and they manage 10s of billions.
- nradov 9y agoMost of the trading done by index funds is now fully automated.
- walshemj 9y agoMassive concentration into index funds has its own problems which will lead to tears at some point. One problem is it poor's money into all stocks in an index which is great in a long bull market - but it does cause problems with being over concentrated in stocks which will cause more losses when the down turn happens. check out https://seekingalpha.com/article/4081504-invest-high-flying-fang-faamg-stocks https://seekingalpha.com/article/4081504-invest-high-flying-... which is basically saying. "The top five holdings of the S&P 500 and the NASDAQ 100 indices have generated the bulk of the market's returns in 2017. Increasing fund flows from actively managed to passive index funds has contributed to the market outperformance of these issues and has resulted in concentration risk for index investors as well as investors in the individual stocks. The next bear market or market correction could result in disproportionately large outflows from these stocks."
- tanderson92 9y agoThis is false. The weights of the largest constituents of the index are set by active traders, not passive investors.
- walshemj 9y agoDid you not read the line with "increasing fund flows from actively managed to passive index funds" Buying the index forces you to by all stocks in the index good and bad over and undervalued. Some of my active funds in the UK got out of banks before the crash a FSTE 100 tracker could not - so some one investing the same amount in a tracker is almost never going to catch up to that active fund.
- tanderson92 9y agoI did read it. This statement is false: "but it does cause problems with being over concentrated in stocks which will cause more losses when the down turn happens." Total market index funds do not overweight or overconcentrate stocks. As I correctly stated, the weight of the stock in the index and in the passive fund are set by the consensus of all active traders.
- walshemj 9y agoSomeone who is blindly putting all there investments into an index is not an active trader - its when those investors panic and pull investments that the problem will occur - bit of a problem for those with FANG options as well.
- tanderson92 9y agoSo you agree that total market index funds do not overconcentrate stocks relative the market consensus? You stated the opposite in your initial post.
- 9y ago