5 ms·

> What exactly is "not fully understood" about Blackrock's role in the "outlandish valuations" of Apple and Microsoft? Blackrock is the #2 shareholder in each,

by whatok 6y ago

> What exactly is "not fully understood" about Blackrock's role in the "outlandish valuations" of Apple and Microsoft? Blackrock is the #2 shareholder in each, after Vanguard, and owns 6.3% and 6.8% respectively. Much of that is in index funds like the iShares S&P 500 ETF or the Russell 1000 Growth ETF. I don't know what the original post's argument was on this but you could make an argument that the growth of passive investing largely caused by Blackrock and Vanguard has led to stretched valuations in a lot things. The mere fact that these companies make it easier and cheaper to invest means there's more money floating around chasing fewer and fewer shares given less public companies since Sarbanes-Oxley and the rapid growth of PE/M&A.

JauntTrooper 6y ago
The article was insinuating something ridiculous about Blackrock secretly conspiring with global central banks to inflate asset prices. Your argument is a more reasonable one to consider. I hear it sometimes (especially from underperforming active managers), but I haven't seen much evidence of it. It's a seductive line of reasoning -- that passive funds are dumb money that buy at any price and therefore let stocks run up to unreasonable levels. You could also take the other side of it though -- that active managers get caught up in manic buying that causes bubbles, but passive index funds are price insensitive and hold stocks forever, so they let companies focus on long-term growth. I think there is probably a point where too much passive investing might make markets less efficient, but we're not close to that yet. There are still a lot of active funds out there. It was only last year that passive reached 50% of US equities. It's also probably self-correcting -- if markets become less efficient at price discovery, it gives active managers more opportunities to find undervalued stocks and generate more wealth, which will encourage more active management. In practice I think they're just another type of investor. It's not like that source of demand disappears without passive funds. If retail investors weren't putting their money in passive funds they'd be putting them in old school active funds like they used to do. The decline in the number of public companies in the 21st century is a whole other can of worms. Smaller companies just don't go public as much anymore. I don't think you can attribute it to passive investing though. I think most of it has to do with two factors: (1) it is more expensive to be a public company today due to increased disclosure and compliance costs, as you stated, but more importantly (2) the market for private funding has matured with the growth in VC, PE, and private lending so companies can stay private longer.
arkis22 6y ago
stretched valuations are dominant in sectors where liquidity is small. There's a reason WeWork got 50 billion before crashing to basically 0.

by whatok 6y ago

JauntTrooper 6y ago

The article was insinuating something ridiculous about Blackrock secretly conspiring with global central banks to inflate asset prices. Your argument is a more reasonable one to consider. I hear it sometimes (especially from underperforming active managers), but I haven't seen much evidence of it. It's a seductive line of reasoning -- that passive funds are dumb money that buy at any price and therefore let stocks run up to unreasonable levels. You could also take the other side of it though -- that active managers get caught up in manic buying that causes bubbles, but passive index funds are price insensitive and hold stocks forever, so they let companies focus on long-term growth. I think there is probably a point where too much passive investing might make markets less efficient, but we're not close to that yet. There are still a lot of active funds out there. It was only last year that passive reached 50% of US equities. It's also probably self-correcting -- if markets become less efficient at price discovery, it gives active managers more opportunities to find undervalued stocks and generate more wealth, which will encourage more active management. In practice I think they're just another type of investor. It's not like that source of demand disappears without passive funds. If retail investors weren't putting their money in passive funds they'd be putting them in old school active funds like they used to do. The decline in the number of public companies in the 21st century is a whole other can of worms. Smaller companies just don't go public as much anymore. I don't think you can attribute it to passive investing though. I think most of it has to do with two factors: (1) it is more expensive to be a public company today due to increased disclosure and compliance costs, as you stated, but more importantly (2) the market for private funding has matured with the growth in VC, PE, and private lending so companies can stay private longer.

arkis22 6y ago

stretched valuations are dominant in sectors where liquidity is small. There's a reason WeWork got 50 billion before crashing to basically 0.