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> At some point, no one is left to figure out which cookies are tasty vs meh Except that there’s a lot of money to be made by figuring out which cookies are wi

> At some point, no one is left to figure out which cookies are tasty vs meh Except that there’s a lot of money to be made by figuring out which cookies are winners, and buying them cheaply to sell to the passive investors.

ISL 7y ago
A merit of the passive approach is that the act of buying tasty cookies will increase the tasty-cookie price. The passive investors' existing tasty-cookie holdings will increase in value, too. All the passive investors want is for their cookies (and new-cookie acquisitions) to be properly priced. No matter what, they have an average distribution of cookie-quality in their holdings. The passive investors are not buying cookies at any price other than the market price. Whatever the clever-cookie-buyer is paying for cookies, they're paying the same. If a clever-cookie-buyer buys low, takes out an ad in Cookie Magazine, and sells high to a bunch of tasty-cookie aficionados, the passive investors win, too. If a too-clever-cookie buyer buys low and discovers that the apparently-tasty cookies have spoiled, the passive investors lose a little, too. It is hard to bilk a passive investor. The first people to really figure out how will accumulate a lot of money (and ire).
- peteretep 7y ago
  This is confused > All the passive investors want is for their cookies (and new-cookie acquisitions) to be properly priced. No, they want the cookies they purchase to be under-priced, and consumed once their price has gone up. The cookie analogy fails here, but passive investors are exclusively seeking return, not an efficient market. > No matter what, they have an average distribution of cookie-quality in their holdings. That's not how passive investing works. The classic model is investment in an index -- say the FTSE 100 -- which attempts instead to maximize the quality of holdings, not the most accurately priced. > It is hard to bilk a passive investor Yes, but that doesn't mean it's hard to make money off one.
riazrizvi 7y ago
In theory. In practice the people who can control market pricing can force out even passive investors because passive investors still get valuation reports albeit on a less timely basis. Burry almost lost his shirt shorting sub-prime credit, as Morganchase and Goldmans mispriced his derivatives more and more egregiously as the market moved in Burry’s favor in a bid to get his investors to force him out of his/their positions using ignorant fear. Passive investors are generally not market savvy, that’s why they are passive.

ISL 7y ago

A merit of the passive approach is that the act of buying tasty cookies will increase the tasty-cookie price. The passive investors' existing tasty-cookie holdings will increase in value, too. All the passive investors want is for their cookies (and new-cookie acquisitions) to be properly priced. No matter what, they have an average distribution of cookie-quality in their holdings. The passive investors are not buying cookies at any price other than the market price. Whatever the clever-cookie-buyer is paying for cookies, they're paying the same. If a clever-cookie-buyer buys low, takes out an ad in Cookie Magazine, and sells high to a bunch of tasty-cookie aficionados, the passive investors win, too. If a too-clever-cookie buyer buys low and discovers that the apparently-tasty cookies have spoiled, the passive investors lose a little, too. It is hard to bilk a passive investor. The first people to really figure out how will accumulate a lot of money (and ire).

peteretep 7y ago
This is confused > All the passive investors want is for their cookies (and new-cookie acquisitions) to be properly priced. No, they want the cookies they purchase to be under-priced, and consumed once their price has gone up. The cookie analogy fails here, but passive investors are exclusively seeking return, not an efficient market. > No matter what, they have an average distribution of cookie-quality in their holdings. That's not how passive investing works. The classic model is investment in an index -- say the FTSE 100 -- which attempts instead to maximize the quality of holdings, not the most accurately priced. > It is hard to bilk a passive investor Yes, but that doesn't mean it's hard to make money off one.

riazrizvi 7y ago

In theory. In practice the people who can control market pricing can force out even passive investors because passive investors still get valuation reports albeit on a less timely basis. Burry almost lost his shirt shorting sub-prime credit, as Morganchase and Goldmans mispriced his derivatives more and more egregiously as the market moved in Burry’s favor in a bid to get his investors to force him out of his/their positions using ignorant fear. Passive investors are generally not market savvy, that’s why they are passive.