3 ms·

When Tesla got hyped right into the S&P 500, index funds were forced to buy. The old advice of "just buy an index fund" may not be an eternal verity.

by dash2 6y ago

lotsofpulp 6y ago
Assuming you think the public equity markets have the backing of the US federal government, why would you ever bet against an index fund? I consider a broad market equity index fund to be a risk free asset on a 5+ year timeframe. State and local government defined benefit pension obligations are invested in them, individuals' 401k and IRA accounts are invested in them, and the most influential members of society are invested in them. There is no political will to let the price of stocks fall (or even stagnate), and so either the US government keeps stock prices chugging along, or the USD has lost its buying power, in which case you have a bigger problem than your stock market holdings (if you're American).
- dash2 6y ago
  The S&P 500 about halved following the dot com bubble, and did the same thing again in 2007-8. That doesn’t seem to fit your thesis.
  - lotsofpulp 6y ago
    I wrote that you have to be able to wait 5 years.
    - dash2 6y ago
      That doesn’t work either. The S&P 500 was only just back to its 2000 level in 2008... and then crashed again.
      - lotsofpulp 6y ago
        True about times before 2008, I only entered the game that year. I guess my feelings are more based on the fact that I have only seen the Fed have a trigger finger anytime markets go down or stagnate, and so I assume their strategy is to prop them up. I also see the pension mess wreaking having on state and local governments, plus increasing baby boomer population retiring with 401k/IRAs, so there's lots of political will to keep markets going higher.
        dash2 6y ago
        Yup, this is true. But that is not unlimited. I doubt if most central bankers would accept taking the health of major indices as a target. If some indices start to look very overvalued, or if pumping the markets starts to cause inflation more generally, then there will be a pressure to take the punch bowl away. Interesting times.
    - dash2 6y ago
      Nb also this, which just came out: https://www.nber.org/papers/w28253 https://www.nber.org/papers/w28253

When Tesla got hyped right into the S&P 500, index funds were forced to buy. The old advice of "just buy an index fund" may not be an eternal verity.

by dash2 6y ago

When Tesla got hyped right into the S&P 500, index funds were forced to buy. The old advice of "just buy an index fund" may not be an eternal verity.

lotsofpulp 6y ago

Assuming you think the public equity markets have the backing of the US federal government, why would you ever bet against an index fund? I consider a broad market equity index fund to be a risk free asset on a 5+ year timeframe. State and local government defined benefit pension obligations are invested in them, individuals' 401k and IRA accounts are invested in them, and the most influential members of society are invested in them. There is no political will to let the price of stocks fall (or even stagnate), and so either the US government keeps stock prices chugging along, or the USD has lost its buying power, in which case you have a bigger problem than your stock market holdings (if you're American).

dash2 6y ago
The S&P 500 about halved following the dot com bubble, and did the same thing again in 2007-8. That doesn’t seem to fit your thesis.
- lotsofpulp 6y ago
  I wrote that you have to be able to wait 5 years.
  - dash2 6y ago
    That doesn’t work either. The S&P 500 was only just back to its 2000 level in 2008... and then crashed again.
    - lotsofpulp 6y ago
      True about times before 2008, I only entered the game that year. I guess my feelings are more based on the fact that I have only seen the Fed have a trigger finger anytime markets go down or stagnate, and so I assume their strategy is to prop them up. I also see the pension mess wreaking having on state and local governments, plus increasing baby boomer population retiring with 401k/IRAs, so there's lots of political will to keep markets going higher.
      - dash2 6y ago
        Yup, this is true. But that is not unlimited. I doubt if most central bankers would accept taking the health of major indices as a target. If some indices start to look very overvalued, or if pumping the markets starts to cause inflation more generally, then there will be a pressure to take the punch bowl away. Interesting times.
  - dash2 6y ago
    Nb also this, which just came out: https://www.nber.org/papers/w28253 https://www.nber.org/papers/w28253