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One of the few times Bettridge's Law of Headlines doesn't apply. "Survive" is an extreme word here, but I do see a big issue w/ index funds. Perhaps an unpopula

• Retric 8y ago
  Index funds don't necessarily need to react to price changes. If you have 2 companies A, B worth both worth X billion each and you own 1 billion$ of each. Then if A's value doubles you now own 2 billion$ of A and 1 billion$ of B which is also the correct ratio.
• the_gastropod 8y ago
  > You know what made Bezos so rich in spite of a company that doesn't make much accounting sense? When everyone is betting on his success by blindly investing in index funds. Let's see... AMZN: up 62.93% YTD S&P500: up 6.81% YTD I don't think index fund investors are the cause of Amazon's growth.
  • hndamien 8y ago
    My theory it is QE and maybe Roboinvesting.
    • the_gastropod 8y ago
      We've been (slowly) raising interest rates for the past few years. And even if it were QE, why would it (and robo investing) affect Amazon 10x more than the broader market?
      • hndamien 8y ago
        Well, not all of it. I also think Amazon is a good stock for many reasons. 10x seems like a stretch though, many other tech stocks have seen similar yields.
  • aphextron 8y ago
    >I don't think index fund investors are the cause of Amazon's growth. Sure they are. Index funds are not equally weighted. Practically every tech ETF you can buy has Amazon weighted in the top 10, sometimes over 10% of total assets [0] whereas the average for other securities is below 1% at the most. [0] https://money.usnews.com/funds/etfs/large-growth/invesco-qqq-trust/qqq https://money.usnews.com/funds/etfs/large-growth/invesco-qqq...
    • votepaunchy 8y ago
      The OP cites "S&P 500 or some total market fund", which are market-cap weighted.
      • aphextron 8y ago
        Irrelevant. The market cap is still affected by large scale automated passive investing.
    • jonknee 8y ago
      What do you consider equal weighting? Amazon is the second most highly valued public company in the world, should it be counted the same in the index as Fossil Group (one of the smallest S&P 500 companies with a market cap of $1.15b)? To me that would make no sense and would make you hugely underweight AMZN and hugely overweight FOSL.
• jorblumesea 8y ago
  If you bought an actively managed fund 30 years ago, it was literally an index fund with more fees attached. Active managers actually just index, but try hard to obfuscate this fact to justify their high fees. If you dive into their books, they are basically buying the market. I think it begs the question, how active was/is active? The math is clear, you are statistically unlikely to beat the market.
  • mikert5671 8y ago
    Some of them do beat the market. They are also producing returns that are more robust to a downturn. So even if they dont match the S&P performance, in a downturn they dont lose as much as the S&P does. It's difficult to compare index funds to hedge funds, they have different purposes. When the market is always going up, it looks like a scam.
    • jorblumesea 8y ago
      Hedge funds are also statistically unlikely to beat the market and finding one that does requires a huge capital buy in that few workers can make. You're talking 250-500k minimum buy in. Hedge funds have chronically underperformed for the last 10-15 years. Now that so much information is available, much of the market performance is priced in now. Once again, the best bet for the average person is an index fund. On a 30 year timeline all of these blips are smoothed out. If you can afford top level financial firms you're probably way wealthier than the average person.
    • nradov 8y ago
      Did they beat the market because they are actually better investors, or did they just get lucky? There are so many hedge funds now that statistically a few of them are guaranteed to have long lucky streaks.
      • Xcelerate 8y ago
        If you could decide this accurately, then you would have a strategy for your own hedge fund.
• camjohnson26 8y ago
  Looks like investor Bill Ackman, famous for shorting the housing market before the bubble burst, had the same theory back in 2016. It's an interesting perspective. https://www.marketwatch.com/story/bill-ackman-actually-had-a-point-with-his-index-fund-bubble-theory-2016-01-30 https://www.marketwatch.com/story/bill-ackman-actually-had-a...
  • airstrike 8y ago
    > famous for shorting the housing market before the bubble burst Also famous for losing more than $3 billion (or $7.7 million per day) on Valeant http://fortune.com/2017/03/15/valeant-stock-bill-ackman/ http://fortune.com/2017/03/15/valeant-stock-bill-ackman/
    • camjohnson26 8y ago
      Famous for taking big risks that sometimes pay out and sometimes fail dramatically.
      • asdfasgasdgasdg 8y ago
        Taking big risks is only laudable if you win. https://assets.pershingsquareholdings.com/media/2014/09/17123349/Pershing-Square-1Q18-Investor-Letter-PSH.pdf https://assets.pershingsquareholdings.com/media/2014/09/1712... Oof. Up 1% over a time period where the S&P is up 118%. Brutal.
        • camjohnson26 8y ago
          Active funds generally underperform during periods of economic growth and we're in the longest running bull market of all time right now. Ackman makes mistakes but he is still very insightful and backs his opinions with dollars. No one who deals with risk is going to have a perfect track record, and even though his Valeant and Herbalife bets didn't pay off the opportunities/flaws he saw were real, other factors just happened to be more important such as Icahn propping up the price of Herbalife and Valeant's accounting problems.
• darawk 8y ago
  This is a real misunderstanding of how markets work. An index fund invests in everything, market-cap weighted (usually). This means that your investment merely reinforces the prices already determined by the other participants in the market. There are still huge numbers of active managers, not to mention quants and others. They, collectively, determine the prices of assets. When you invest in an index fund, you're just saying "I'll have what they're having", basically. It doesn't cause amazon to rise in price. Lots of companies are in the S&P 500, they don't have returns like Amazon does. Amazon has those returns because people allocate capital specifically to them, i.e. non-index investors. > And by we, we mean the fat cats who are taking in that investment money you're giving us. You'll make a meager return, but we'll make oh so much more. Index funds are the least fat-cat-remunerating route you have available to you. They have lower expense ratios than you'd be able to achieve on your own, unless you're using a free service like Robinhood (and if you do that, you're probably paying in other ways, like poorer execution prices).
  • toss1 8y ago
    > basically. It doesn't cause amazon to rise in price. Actually, it does. Whenever a company is added to one of the major indexes, it almost always increases in price, and conversely, when one is removed, it generally declines. This is specifically because of all of the index funds that suddenly must put money into/remove it from the stock when it is added/removed from the index. Supply, Demand, price curves, you know the rest ...
    • crazygringo 8y ago
      But are those short-term artifacts or do they persist? As long as stock prices are set fundamentally by deep-pocketed institutional investors buying and selling, a stock's price should only be based on expected discounted future cash flows, no? I can understand a short-term effect if demand suddenly skyrockets, but that can only last a few days, no? I'm struggling to reconcile traditional supply/demand with the efficient-market hypothesis here.
    • darawk 8y ago
      Yes, but it impacts everyone in the index equally. Index funds are not responsible for amazon in particular's performance.
• vinylkey 8y ago
  I think I'll listen to Warren Buffet's advice on index funds.
• nabla9 8y ago
  For the discussion in relatively high quality formus like HN to survive there needs to be new rule adopted: Nobody is allowed to criticize or discuss the title of the article. Only the content in the body of the article. These titles are usually written by editors who think in clicks and they are not the original titles from the writers. This was good and interesting article but unless we discuss the content (and read it) there is nothing to say.
  • wallacoloo 8y ago
    Many readers at HN find posts with interesting titles, skim the comments, and then read the article. Discussion of the title is useful for them, because if a commenter reveals that the title is misleading, the reader might choose to read something else, or approach the article with a different frame of mind. Point being: there is some value in discussing the title. Certainly different readers value that discussion more/less than discussion of the content.
    • nabla9 8y ago
      > because if a commenter reveals that the title is misleading This is rarely the case. Usually (as is the case here). The commenter uses the title title as a statement and criticizes it directly, not it's relation to the article. It seems to me that people read the title, and come here to comment the title before reading the article.
      • mrep 8y ago
        I've got 27 points on the first comment of this article [0] talking somewhat about the title and 8 points on my follow up about how the title is misleading so some people including myself definitely think the title is important. [0]: https://news.ycombinator.com/item?id=17941804 https://news.ycombinator.com/item?id=17941804
• twiceaday 8y ago
  I see a lot of issues here You are conflating the general notion of index funds with the common investing advice of buying and holding index funds. I would argue that holding here is the vast majority of the advice. Plenty of people day trade index funds. You should be explicit that your objection is to the un-informed buying and holding of index funds. Also, you should be explicit in how you think a crash would come about, instead of simply mentioning a popular investment category. Index funds do not discriminate. I don't understand how you drew the connection between them and an individual company like Amazon. You make the assumption that people who now buy index funds would otherwise be intelligent investors that would correctly set stock prices. I doubt it. The trading patterns of most people have to be near random, more noise than signal, and likely very emotional. In fact, in this way index funds reduce the chances of a crash by removing this kind of nervous money from the stock market. You make the assumption that index funds would swallow up all investments when in reality the edge that active investors have increases as the number of active vs passive investors decreases. There is a self-balancing force at play. You simply have a wrong outlook on index funds. Buying a total index fund is investing in the entire stock market; betting that it is healthy and will grow with time. That's all. It is as much "too good to be true" as a healthy economy. Yes, buying an index fund means not participating in the process of correctly allocating resources to the best companies. But the important thing is that you are not in any way harming the actual participants because you obey their prices. This means you are essentially investing as the average active investor. And lastly, it is naive to think that "fat cats" take more money from passive investors than they do from active ones.
• deleted 8y ago
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