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Their PE ratios are so high because, like the other person is suggesting, everyone is buying into index funds and robotraders. They are auto buying into these

Their PE ratios are so high because, like the other person is suggesting, everyone is buying into index funds and robotraders. They are auto buying into these companies without considering financials or anything else. When someone buys into those funds, money is automatically allocated into those shares. The next crash is going to be pretty heavy because if a large portion of people those those funds try to pull out their money, it's going to pull the entire market down.

pembrook 9y ago
Everybody is not buying index funds with roboadvisors. Passive is still far less than half of the market. It just seems that way to you because the people on the websites you visit have(smartly) all gone passive. The combined value of all assets held by roboadvisors is still under $50 billion, whereas the combined value of the worlds Capital Markets is around 115 trillion. Also, there was never a time when retail investors were looking at balance sheets and estimating future cash flows. Index funds fix the problems of inefficiency created by retail fools like the guy above who thinks a professional NVIDIA analyst doesn’t know about cryptomining.
- skellera 9y ago
  I think you misunderstood. I said index funds AND robo, just passive in general. ETFs alone are growing past $4 trillion.
  - loeg 9y ago
    $4T is a far shake from even half of $115T.
- deleted 9y ago
  [deleted]
jldugger 9y ago
Index funds are market cap weighted. The bigger the company, the more you buy proportionally. According to your hypothesis, Apple's PE should be the highest, and yet it's clearly the lowest, at 16.
- skellera 9y ago
  I guess I meant passive investing in general. Many funds are buying the companies at different percentages.
  - jldugger 9y ago
    If different funds, each given the same dollar, buy different amounts of a stock, doesn't this mean they implicitly value those stocks differently?
- jnordwick 9y ago
  Not all. There are equally weighted indexes and tracking funds (eg $RSP). i don't think they get much volume though.
mbesto 9y ago
> everyone is buying into index funds So how does a company reach S&P500 status in the first place? Yup, you guessed it, physical people have to place orders based on financial fundamentals. For reference, Facebook's PE ratio when it IPO'd was 85: https://en.wikipedia.org/wiki/Initial_public_offering_of_Facebook https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac... > and robotraders. Betterment is $10B AUM and Weathfront is $8B AUM. Those are considered the two largest robotraders and they are a blip in the $7T AUM of the S&P500 (roughly 0.2% assuming they have all of their assets in the S&P 500). > They are auto buying into these companies without considering financials or anything else. So who set the price when the auto buyers didn't' exist? > it's going to pull the entire market down. Great! Guess what, you can short the market if you'd like and make a ton of money if you're right!
- skellera 9y ago
  > Great! Guess what, you can short the market if you'd like and make a ton of money if you're right! Why is this everyone's go to when trying to discount someone about stocks? It isn't like the market isn't due for a serious correction but I never gave a date. If I knew when, then sure, I would! I have my money where I believe it's best and you probably have the same. I'm just here discussing. Not telling anyone what to do. As I said in the other comments around this, I meant passive as a whole. I guess I shouldn't have said just those two.
  - mbesto 9y ago
    > Why is this everyone's go to when trying to discount someone about stocks? You're reading my comment wrong then. You made a very assertive conclusion with zero precedence or sources to back the claim up. Without that it's simply conjecture. So I'll have to ask again...is your position on this so strong that you're willing to put money down? If not, then, uh, show us evidence, maybe? Otherwise, it's more helpful to a discussion to state it is an opinion, rather than as a truth.

pembrook 9y ago

Everybody is not buying index funds with roboadvisors. Passive is still far less than half of the market. It just seems that way to you because the people on the websites you visit have(smartly) all gone passive. The combined value of all assets held by roboadvisors is still under $50 billion, whereas the combined value of the worlds Capital Markets is around 115 trillion. Also, there was never a time when retail investors were looking at balance sheets and estimating future cash flows. Index funds fix the problems of inefficiency created by retail fools like the guy above who thinks a professional NVIDIA analyst doesn’t know about cryptomining.

skellera 9y ago
I think you misunderstood. I said index funds AND robo, just passive in general. ETFs alone are growing past $4 trillion.
- loeg 9y ago
  $4T is a far shake from even half of $115T.
deleted 9y ago
[deleted]

jldugger 9y ago

Index funds are market cap weighted. The bigger the company, the more you buy proportionally. According to your hypothesis, Apple's PE should be the highest, and yet it's clearly the lowest, at 16.

skellera 9y ago
I guess I meant passive investing in general. Many funds are buying the companies at different percentages.
- jldugger 9y ago
  If different funds, each given the same dollar, buy different amounts of a stock, doesn't this mean they implicitly value those stocks differently?
jnordwick 9y ago
Not all. There are equally weighted indexes and tracking funds (eg $RSP). i don't think they get much volume though.

mbesto 9y ago

> everyone is buying into index funds So how does a company reach S&P500 status in the first place? Yup, you guessed it, physical people have to place orders based on financial fundamentals. For reference, Facebook's PE ratio when it IPO'd was 85: https://en.wikipedia.org/wiki/Initial_public_offering_of_Facebook https://en.wikipedia.org/wiki/Initial_public_offering_of_Fac... > and robotraders. Betterment is $10B AUM and Weathfront is $8B AUM. Those are considered the two largest robotraders and they are a blip in the $7T AUM of the S&P500 (roughly 0.2% assuming they have all of their assets in the S&P 500). > They are auto buying into these companies without considering financials or anything else. So who set the price when the auto buyers didn't' exist? > it's going to pull the entire market down. Great! Guess what, you can short the market if you'd like and make a ton of money if you're right!

skellera 9y ago
> Great! Guess what, you can short the market if you'd like and make a ton of money if you're right! Why is this everyone's go to when trying to discount someone about stocks? It isn't like the market isn't due for a serious correction but I never gave a date. If I knew when, then sure, I would! I have my money where I believe it's best and you probably have the same. I'm just here discussing. Not telling anyone what to do. As I said in the other comments around this, I meant passive as a whole. I guess I shouldn't have said just those two.
- mbesto 9y ago
  > Why is this everyone's go to when trying to discount someone about stocks? You're reading my comment wrong then. You made a very assertive conclusion with zero precedence or sources to back the claim up. Without that it's simply conjecture. So I'll have to ask again...is your position on this so strong that you're willing to put money down? If not, then, uh, show us evidence, maybe? Otherwise, it's more helpful to a discussion to state it is an opinion, rather than as a truth.