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Elon Musk and Cathie Wood knock passive index investing: say it’s gone too far

6 points by hhs 4y ago

jstx1 4y ago
> Ark Invest’s Wood joined the conversation Wednesday, saying investors in index funds like the S&P 500 ETF missed out on Tesla’s 400-fold appreciation before it was added to the equity benchmark Cool, let's check how Cathie's active approach did in comparison. Surely they must have capitalized on that 400-fold TSLA appreciation that the index fund dummies missed out on. Nope - https://www.cnbc.com/quotes/ARKK https://www.cnbc.com/quotes/ARKK - same levels as it was in 2018. And much less than the S&P500 returns. Turns out that it's very easy to spot the 400x opportunities when you're looking back in time.
- vba616 4y ago
  Just because someone ends up underperforming the market doesn't mean they didn't have any insights. It might just mean that after doing something right, they did something wrong that more than cancelled it out. This is why it's hard to learn from experience. For instance, right now, a lot of people may not understand the implications of inflation and sharply rising interest rates. Because people who were adults in the 70s are old and irrelevant, or deceased.
chiefalchemist 4y ago
People passive invest in index funds because active funds consistently underperform the market. Musk and Wood have a point but for the majority of people, what are the alternatives? Playing the slot machines? As a side note, I recently picked up "Local Dollars, Local Sense" by Michael Shuman. One of the takeaways so far is that regulations make it extremely difficult for people to invest in small to mid companies that are local to them. The laws all but force us into the jaws of Wall Street. Perhaps this would be an alternative if the regs were loosened up? https://openlibrary.org/books/OL25087017M/Local_dollars_local_sense https://openlibrary.org/books/OL25087017M/Local_dollars_loca...
I_DRINK_KOOLAID 4y ago
Textbook case of "Everybody who is not me is evil" fallacy Yesterday absolute evil was represented by short sellers and Big Oil, nowadays it's BlackRock and Vanguard. Saudis were great friends when prince M(Bonesaw)S expressed the intention of maybe taking Tesla private, then they were evil when they backpedaled, ironically they became good friends again when they decided to roll over their stake in Twitter. People capitalizing on the goldfish memory of the avg. financial analyst and retail investor. But it will end at some point. Problem is when these 2 fraudolent clowns go down, 4 new ones will emerge to take their place. It's the gilded age of fraud out there.
nabla9 4y ago
Over it's lifetime (From Nov 2014 to NOW) ARKK has lost to QQQ (popular index fund that tracks NASDAQ-100 Index).
jleyank 4y ago
As I recall, there’s an index of the market, or significant fractions of it (Wilshire 5000). One can invest in that and get whatever happens. Also qqq is basically 3-5 tech stocks as I recall - the rest are not really contributing to growth. I don’t have time or interest to watch things like a hawk. I suspect pretty much everything on the market is correlated which makes most switches less effective. And this sure sounds like “wah, people are not paying me to manage their money”. And if they’re paid by commission it’s doubly bogus.
jfengel 4y ago
There must be some limit to index funds. If everybody puts all of their investment money into the market blindly, it will eventually raise the price of every stock to the point where some other investment is better. The S&P P/E is down to around 20, which corresponds roughly to a 3.5% return. That's reasonable for a low-risk investment, but about the limit. A few months ago it was more like 40, and it just stopped being a sensible value investment. (The P/E ratio has flaws as a metric, but it's hard to come up with one that's obviously better for a broad index.) Somebody has to take higher-risk higher-reward investments in new companies to go IPO and absorb all that spare cash. And hopefully, somebody smart enough to avoid scams getting into the index funds -- that's presumably the SEC's job.

6 points by hhs 4y ago

> Ark Invest’s Wood joined the conversation Wednesday, saying investors in index funds like the S&P 500 ETF missed out on Tesla’s 400-fold appreciation before it was added to the equity benchmark Cool, let's check how Cathie's active approach did in comparison. Surely they must have capitalized on that 400-fold TSLA appreciation that the index fund dummies missed out on. Nope - https://www.cnbc.com/quotes/ARKK https://www.cnbc.com/quotes/ARKK - same levels as it was in 2018. And much less than the S&P500 returns. Turns out that it's very easy to spot the 400x opportunities when you're looking back in time.

vba616 4y ago
Just because someone ends up underperforming the market doesn't mean they didn't have any insights. It might just mean that after doing something right, they did something wrong that more than cancelled it out. This is why it's hard to learn from experience. For instance, right now, a lot of people may not understand the implications of inflation and sharply rising interest rates. Because people who were adults in the 70s are old and irrelevant, or deceased.

chiefalchemist 4y ago

People passive invest in index funds because active funds consistently underperform the market. Musk and Wood have a point but for the majority of people, what are the alternatives? Playing the slot machines? As a side note, I recently picked up "Local Dollars, Local Sense" by Michael Shuman. One of the takeaways so far is that regulations make it extremely difficult for people to invest in small to mid companies that are local to them. The laws all but force us into the jaws of Wall Street. Perhaps this would be an alternative if the regs were loosened up? https://openlibrary.org/books/OL25087017M/Local_dollars_local_sense https://openlibrary.org/books/OL25087017M/Local_dollars_loca...

I_DRINK_KOOLAID 4y ago

Textbook case of "Everybody who is not me is evil" fallacy Yesterday absolute evil was represented by short sellers and Big Oil, nowadays it's BlackRock and Vanguard. Saudis were great friends when prince M(Bonesaw)S expressed the intention of maybe taking Tesla private, then they were evil when they backpedaled, ironically they became good friends again when they decided to roll over their stake in Twitter. People capitalizing on the goldfish memory of the avg. financial analyst and retail investor. But it will end at some point. Problem is when these 2 fraudolent clowns go down, 4 new ones will emerge to take their place. It's the gilded age of fraud out there.

nabla9 4y ago

Over it's lifetime (From Nov 2014 to NOW) ARKK has lost to QQQ (popular index fund that tracks NASDAQ-100 Index).

jleyank 4y ago

As I recall, there’s an index of the market, or significant fractions of it (Wilshire 5000). One can invest in that and get whatever happens. Also qqq is basically 3-5 tech stocks as I recall - the rest are not really contributing to growth. I don’t have time or interest to watch things like a hawk. I suspect pretty much everything on the market is correlated which makes most switches less effective. And this sure sounds like “wah, people are not paying me to manage their money”. And if they’re paid by commission it’s doubly bogus.

jfengel 4y ago

There must be some limit to index funds. If everybody puts all of their investment money into the market blindly, it will eventually raise the price of every stock to the point where some other investment is better. The S&P P/E is down to around 20, which corresponds roughly to a 3.5% return. That's reasonable for a low-risk investment, but about the limit. A few months ago it was more like 40, and it just stopped being a sensible value investment. (The P/E ratio has flaws as a metric, but it's hard to come up with one that's obviously better for a broad index.) Somebody has to take higher-risk higher-reward investments in new companies to go IPO and absorb all that spare cash. And hopefully, somebody smart enough to avoid scams getting into the index funds -- that's presumably the SEC's job.