4 ms·

>> think of the recent GME short squeeze but in reverse Reverse how? There are so many axis I don't know which to use as the basis of my flip. If you care to,

>> think of the recent GME short squeeze but in reverse Reverse how? There are so many axis I don't know which to use as the basis of my flip. If you care to, please explain a bit more in detail.

xyzelement 6y ago
Flip it on all axis, I guess :) But, sure. Let's say I know that you (index fun) are obligated to buy stock X tomorrow and over all foreseeable future. I am gonna hoard those shares at no risk and sell them to you at a VERY VERY painful price, since you have no room to say "that's too expensive, no thanks"
- pedrocr 6y ago
  How are you going to hoard "at no risk"? You're trying to corner the market for a given stock in an index pushing it's price way up and thus exposing yourself to the price crashing down and wiping you out. Meanwhile the passives are routinely buying and selling index funds depending on their need to save or raise cash so the net inflows into that stock are positive or negative depending on that. And that stock is only a small part of the total portfolio. Depending on how their specific timing works out your scheme is a net positive or negative but it never wipes them out. Your risk is way worse, particularly if you need to leverage to buy the whole position. Even if your play was to corner the market completely and own almost the full company the end result would be it being removed from the index for there not being enough float around. Then all the index funds dump what they had of it, and you lose your shirt.
  - spywaregorilla 6y ago
    That's the point. An asset can't crash in a 100% passive market because the funds buying the assets are obligated to do so without any discretion. The point is that such a situation is unrealistic.
    - pedrocr 6y ago
      It can crash even more violently by being removed from the index, which would happen if someone actually cornered the market for that stock as I described. My point is that the situation is unrealistic but in a completely different way than what is being described.
- zie 6y ago
  I agree with you mostly, that there are spaces where active can make great bets. But this particular example isn't quite true. Passive Index funds are not automated 100% and have discretion on when/how closely they track the index. They DO have to try and track the index, but that doesn't mean they have to own every stock IN the index, nor does it mean they have to buy X stock tomorrow, regardless of price. source: Any prospectus/annual report of a large index fund, such as VTI.

>> think of the recent GME short squeeze but in reverse Reverse how? There are so many axis I don't know which to use as the basis of my flip. If you care to, please explain a bit more in detail.

xyzelement 6y ago

Flip it on all axis, I guess :) But, sure. Let's say I know that you (index fun) are obligated to buy stock X tomorrow and over all foreseeable future. I am gonna hoard those shares at no risk and sell them to you at a VERY VERY painful price, since you have no room to say "that's too expensive, no thanks"

pedrocr 6y ago
How are you going to hoard "at no risk"? You're trying to corner the market for a given stock in an index pushing it's price way up and thus exposing yourself to the price crashing down and wiping you out. Meanwhile the passives are routinely buying and selling index funds depending on their need to save or raise cash so the net inflows into that stock are positive or negative depending on that. And that stock is only a small part of the total portfolio. Depending on how their specific timing works out your scheme is a net positive or negative but it never wipes them out. Your risk is way worse, particularly if you need to leverage to buy the whole position. Even if your play was to corner the market completely and own almost the full company the end result would be it being removed from the index for there not being enough float around. Then all the index funds dump what they had of it, and you lose your shirt.
- spywaregorilla 6y ago
  That's the point. An asset can't crash in a 100% passive market because the funds buying the assets are obligated to do so without any discretion. The point is that such a situation is unrealistic.
  - pedrocr 6y ago
    It can crash even more violently by being removed from the index, which would happen if someone actually cornered the market for that stock as I described. My point is that the situation is unrealistic but in a completely different way than what is being described.
zie 6y ago
I agree with you mostly, that there are spaces where active can make great bets. But this particular example isn't quite true. Passive Index funds are not automated 100% and have discretion on when/how closely they track the index. They DO have to try and track the index, but that doesn't mean they have to own every stock IN the index, nor does it mean they have to buy X stock tomorrow, regardless of price. source: Any prospectus/annual report of a large index fund, such as VTI.