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Road show going that well? WeWork highlights why I am still skeptical of pure index investing. This company seems rotten, and I would not deliberately buy thei

by trimbo 7y ago

Road show going that well? WeWork highlights why I am still skeptical of pure index investing. This company seems rotten, and I would not deliberately buy their stock. But there's a big pool of index fund money that will be thrown at this company's stock no matter how poor their governance is or how much self-dealing they do... just because it's public.

JohnJamesRambo 7y ago
https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos https://www.bloomberg.com/news/articles/2019-09-04/michael-b... You probably saw that yesterday but yes I am beginning to feel the same.
- trimbo 7y ago
  I did. It was also brought to my attention a few months ago with this article[1] Question is, where to put money? Factor funds? [1] - https://www.wsj.com/articles/wave-of-index-money-is-about-to-hit-recent-ipos-like-uber-11560513600 https://www.wsj.com/articles/wave-of-index-money-is-about-to...
  - JohnJamesRambo 7y ago
    I’ll probably get lots of downvotes because HN seems to hate it but I’ve been putting a lot in Bitcoin. It seems like a nice investment totally outside of the normal financial system that I’m losing faith in.
    - 0xffff2 7y ago
      You'll certainly get downvotes if you ask for them. That aside, what makes Bitcoin an investment? It's certainly outside the normal financial system, but what's the reason to expect it to retain or gain value?
    - prewett 7y ago
      Why are you losing faith in the normal financial system?
- nytesky 7y ago
  Hah, so I was a total housing bubble head in 2005 (though I was to naive to understand the debt instruments that would amplify it). And I've been telling my economist spouse for over a year that passive investing boom is going to distort things (and they roll my eyes at me, b/c they hate it when I dabble in armchair economics). That said, I believe much of tech is crazy over valued, but I think we are in a new paradigm since SO MUCH capital has flowed in private markets (NY Times article about "More Money Than We Ever Imagined" really shows this well). But I am far far from being proven right on that.
css 7y ago
What major index will it be in? Not the DOW or S&P 500. Not VFINX, not NASDAQ 100. Almost all non-Asian indexes disallow dual-class share structures.
- tryptophan 7y ago
  CRSP's total market indexes, which many of the large total market funds follow. Its interesting to note that his index has historically outperformed the sp500 by like .2% a year too...
  - deleted 7y ago
    [deleted]
- kgwgk 7y ago
  The comment you reply to didn't say WeWork is in an index. It's not public yet. What the comment says: "But there's a big pool of index fund money that will be thrown at this company's stock no matter how poor their governance is or how much self-dealing they do... just because it's public."
tfha 7y ago
Some indexes have filters that prevent really awful companies from being included. For example, I don't think Snapchat was allowed into the S&P 500 because the stock was so crappy.
- trimbo 7y ago
  Vanguard's total stock market fund is Snapchat's #1 mutual fund holder https://finance.yahoo.com/quote/SNAP/holders/ https://finance.yahoo.com/quote/SNAP/holders/ AFAIK, most "target date" retirement funds use total market passive investing. Maybe instead of "index investing", I should have said "passive investing".
  - brown9-2 7y ago
    Worth pointing out that the number in that table (which doesn't break things out by fund) for "Vanguard Group, The"'s holdings in SNAP seems to only be about 1% of the total of VTSMX https://investor.vanguard.com/mutual-funds/profile/VTSMX https://investor.vanguard.com/mutual-funds/profile/VTSMX
    - trimbo 7y ago
      The table below the fold breaks it out by fund
  - conanbatt 7y ago
    Good lord. Vanguard has 5% of Snap! Vanguard must own a significant share in so many companies right now. I'm starting to believe the narrative that the next crisis is passive investing.
    - jonknee 7y ago
      Well they also have a significant share of invested funds ($5.3 trillion under management!), it would be really weird if they didn't have a significant share of many companies.
Nokinside 7y ago
WeWork is not in many indexes. Index funds pick every success story. Every one without fail.
progers7 7y ago
An important aspect of the big index funds is that they are weighted by market cap. If my lemonade stand IPOs, the market will not value it highly and very little index fund money will flow into it.
- kevstev 7y ago
  Indeed. I work in finance, and it does appear that we may already be in a place where an unhealthy amount of capital is in index funds and ETFs. How this will all play out is not really clear to me, but its somewhat concerning. I have been favoring funds over ETFs the last few years because they have a bit more leeway in what they choose to hold and the friction in getting in/out of them should lead to less chance of pricing dislocation that could cause a lot of unnecessary drama and price volatility. In the end though, I tend to believe that passive investing may continue to grow until it gets to the point that there is so much "dumb" money out there chasing the same companies that active investing can show real returns above passive.
  - jackcosgrove 7y ago
    Is the money dumb as long as it's pursuing greater returns now?
    - thanatropism 7y ago
      The money is dumb because it does not speak. It's mute.
    - acchow 7y ago
      Outpeforming the market during a bubble doesn't make your money "not dumb". It just means there's a bubble.
bwilliams18 7y ago
WeWork will not be in either the S&P 500 or the Russell 2000/3000 because last year they adjusted their qualifying criteria to exclude companies with multi-class share structures.[0] They didn't kick out any existing companies (why google, facebook et al are still in these indices) but no new companies will be added with multi-class share structures. [0] https://fortune.com/2019/08/20/wework-ipo-s-and-p-500/ https://fortune.com/2019/08/20/wework-ipo-s-and-p-500/
deleted 7y ago
[deleted]
rolltiide 7y ago
is that an honest concern? What index would touch the rat infested WeWork IPO?

by trimbo 7y ago

JohnJamesRambo 7y ago

https://www.bloomberg.com/news/articles/2019-09-04/michael-burry-explains-why-index-funds-are-like-subprime-cdos https://www.bloomberg.com/news/articles/2019-09-04/michael-b... You probably saw that yesterday but yes I am beginning to feel the same.

trimbo 7y ago
I did. It was also brought to my attention a few months ago with this article[1] Question is, where to put money? Factor funds? [1] - https://www.wsj.com/articles/wave-of-index-money-is-about-to-hit-recent-ipos-like-uber-11560513600 https://www.wsj.com/articles/wave-of-index-money-is-about-to...
- JohnJamesRambo 7y ago
  I’ll probably get lots of downvotes because HN seems to hate it but I’ve been putting a lot in Bitcoin. It seems like a nice investment totally outside of the normal financial system that I’m losing faith in.
  - 0xffff2 7y ago
    You'll certainly get downvotes if you ask for them. That aside, what makes Bitcoin an investment? It's certainly outside the normal financial system, but what's the reason to expect it to retain or gain value?
  - prewett 7y ago
    Why are you losing faith in the normal financial system?
nytesky 7y ago
Hah, so I was a total housing bubble head in 2005 (though I was to naive to understand the debt instruments that would amplify it). And I've been telling my economist spouse for over a year that passive investing boom is going to distort things (and they roll my eyes at me, b/c they hate it when I dabble in armchair economics). That said, I believe much of tech is crazy over valued, but I think we are in a new paradigm since SO MUCH capital has flowed in private markets (NY Times article about "More Money Than We Ever Imagined" really shows this well). But I am far far from being proven right on that.

css 7y ago

What major index will it be in? Not the DOW or S&P 500. Not VFINX, not NASDAQ 100. Almost all non-Asian indexes disallow dual-class share structures.

tryptophan 7y ago
CRSP's total market indexes, which many of the large total market funds follow. Its interesting to note that his index has historically outperformed the sp500 by like .2% a year too...
- deleted 7y ago
  [deleted]
kgwgk 7y ago
The comment you reply to didn't say WeWork is in an index. It's not public yet. What the comment says: "But there's a big pool of index fund money that will be thrown at this company's stock no matter how poor their governance is or how much self-dealing they do... just because it's public."

tfha 7y ago

Some indexes have filters that prevent really awful companies from being included. For example, I don't think Snapchat was allowed into the S&P 500 because the stock was so crappy.

trimbo 7y ago
Vanguard's total stock market fund is Snapchat's #1 mutual fund holder https://finance.yahoo.com/quote/SNAP/holders/ https://finance.yahoo.com/quote/SNAP/holders/ AFAIK, most "target date" retirement funds use total market passive investing. Maybe instead of "index investing", I should have said "passive investing".
- brown9-2 7y ago
  Worth pointing out that the number in that table (which doesn't break things out by fund) for "Vanguard Group, The"'s holdings in SNAP seems to only be about 1% of the total of VTSMX https://investor.vanguard.com/mutual-funds/profile/VTSMX https://investor.vanguard.com/mutual-funds/profile/VTSMX
  - trimbo 7y ago
    The table below the fold breaks it out by fund
- conanbatt 7y ago
  Good lord. Vanguard has 5% of Snap! Vanguard must own a significant share in so many companies right now. I'm starting to believe the narrative that the next crisis is passive investing.
  - jonknee 7y ago
    Well they also have a significant share of invested funds ($5.3 trillion under management!), it would be really weird if they didn't have a significant share of many companies.

Nokinside 7y ago

WeWork is not in many indexes. Index funds pick every success story. Every one without fail.

progers7 7y ago

An important aspect of the big index funds is that they are weighted by market cap. If my lemonade stand IPOs, the market will not value it highly and very little index fund money will flow into it.

kevstev 7y ago
Indeed. I work in finance, and it does appear that we may already be in a place where an unhealthy amount of capital is in index funds and ETFs. How this will all play out is not really clear to me, but its somewhat concerning. I have been favoring funds over ETFs the last few years because they have a bit more leeway in what they choose to hold and the friction in getting in/out of them should lead to less chance of pricing dislocation that could cause a lot of unnecessary drama and price volatility. In the end though, I tend to believe that passive investing may continue to grow until it gets to the point that there is so much "dumb" money out there chasing the same companies that active investing can show real returns above passive.
- jackcosgrove 7y ago
  Is the money dumb as long as it's pursuing greater returns now?
  - thanatropism 7y ago
    The money is dumb because it does not speak. It's mute.
  - acchow 7y ago
    Outpeforming the market during a bubble doesn't make your money "not dumb". It just means there's a bubble.

bwilliams18 7y ago

WeWork will not be in either the S&P 500 or the Russell 2000/3000 because last year they adjusted their qualifying criteria to exclude companies with multi-class share structures.[0] They didn't kick out any existing companies (why google, facebook et al are still in these indices) but no new companies will be added with multi-class share structures. [0] https://fortune.com/2019/08/20/wework-ipo-s-and-p-500/ https://fortune.com/2019/08/20/wework-ipo-s-and-p-500/

deleted 7y ago

[deleted]

rolltiide 7y ago

is that an honest concern? What index would touch the rat infested WeWork IPO?