4 ms·

Why would random user be smarter than the active traders? now consider that historically, the overwhelming majority of active managers perform worse than SP500

Why would random user be smarter than the active traders? now consider that historically, the overwhelming majority of active managers perform worse than SP500 ... so there, it is always easy to be smart retroactively, if you cashed out last year you would have wanted TSLA in your portfolio

cj 4y ago
If you look at it through a different lens. Imagine an investor who owns $100,000 of SPY. Therefore, they own roughly $12,000 of Apple and Microsoft (together, they account for 12% of SPY) If that same investor thinks Microsoft and Apple are at their long-term peak, the investor is forced to hedge against their own positions in those stocks because they can't exclude them from their SPY holdings. I held a lot of PUT options and was shorting TSLA stock in 2021/2022... meanwhile I also owned a lot of TSLA through my index fund holdings (I would have much preferred an ETF that excluded TSLA, rather than owning TSLA via SPY and actively shorting the TSLA position simultaneously). This is something I did in the past, and my gains would have been higher had I had a way to remove TSLA from my index fund holdings without spending money on PUTs or shorting.
- glofish 4y ago
  The whole point of index funds is that individual decisions - no matter how well reasoned they appear - don't seem to work out long term. The decision protocol that looks good today and may have worked once, twice of five times in the past will eventually lead to a ruinous decision later on that wipes out all the prior gains. If the logic you describe works for one company why wouldn't it work for two, or five or ten out of SP500? Heck if you can indeed pick any winner even by just a 2-3% gain than the passive index, why wouldn't you better off by building a fully custom curated SP500 that contains companies that are more likely to succeed? That 3% adds up to massively more money long term. The whole point of active trading is exactly that, a thinking logical human being, adding all their intellect ought to be more successful than passively doing nothing. Yet history says otherwise. Even when faced with decades long evidences active traders still believe they can do better than passives.
  - cj 4y ago
    Past results are not an indicator of future performance. I think the same trope applies to the classic thinking of “passive investing is always better than active investing” Historically, yes. But in the future? Who knows! (This is also exactly what the article we’re commenting on is speculating, that the characteristics of ETFs in the market has changed substantially over the past 10-20 years, which is indeed an argument that past performance isn’t proof of future performance.
    - glofish 4y ago
      That is a valid point - no one knows what the future holds But we have to take into account that the active traders have been repeatedly making the same claim. How many times is one allowed to make the a similar claim before losing credibility... Recall Warren Buffett' bet vs Hedge Funds https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe... Notably the period included an interval of a stock-market collapse and massive volatility - where smart decisions ought to have mattered more. So the credibility of the above statement that this time will might be different feels severely weakened.
whitej125 4y ago
Everyone's reasons are their own. For me personally there are some reasons that are more utilitarian in nature... and some reasons that are value driven. I removed Tesla because it entered the S&P 500 after a huge run up. I own the car (and love it)... def the future. But I think the stock has been overhyped. There are more diverse ways to invest in EVs being the future vs "just buy Tesla". On the other side... I removed FB because honestly I just didn't like the company (so a values reason). This was well before the whistleblower, etc. Was not looking at that one through a performance lens. Just wanted nothing to do with the company. Most of my edits are removing companies that I already have too much direct exposure to.

cj 4y ago

If you look at it through a different lens. Imagine an investor who owns $100,000 of SPY. Therefore, they own roughly $12,000 of Apple and Microsoft (together, they account for 12% of SPY) If that same investor thinks Microsoft and Apple are at their long-term peak, the investor is forced to hedge against their own positions in those stocks because they can't exclude them from their SPY holdings. I held a lot of PUT options and was shorting TSLA stock in 2021/2022... meanwhile I also owned a lot of TSLA through my index fund holdings (I would have much preferred an ETF that excluded TSLA, rather than owning TSLA via SPY and actively shorting the TSLA position simultaneously). This is something I did in the past, and my gains would have been higher had I had a way to remove TSLA from my index fund holdings without spending money on PUTs or shorting.

glofish 4y ago
The whole point of index funds is that individual decisions - no matter how well reasoned they appear - don't seem to work out long term. The decision protocol that looks good today and may have worked once, twice of five times in the past will eventually lead to a ruinous decision later on that wipes out all the prior gains. If the logic you describe works for one company why wouldn't it work for two, or five or ten out of SP500? Heck if you can indeed pick any winner even by just a 2-3% gain than the passive index, why wouldn't you better off by building a fully custom curated SP500 that contains companies that are more likely to succeed? That 3% adds up to massively more money long term. The whole point of active trading is exactly that, a thinking logical human being, adding all their intellect ought to be more successful than passively doing nothing. Yet history says otherwise. Even when faced with decades long evidences active traders still believe they can do better than passives.
- cj 4y ago
  Past results are not an indicator of future performance. I think the same trope applies to the classic thinking of “passive investing is always better than active investing” Historically, yes. But in the future? Who knows! (This is also exactly what the article we’re commenting on is speculating, that the characteristics of ETFs in the market has changed substantially over the past 10-20 years, which is indeed an argument that past performance isn’t proof of future performance.
  - glofish 4y ago
    That is a valid point - no one knows what the future holds But we have to take into account that the active traders have been repeatedly making the same claim. How many times is one allowed to make the a similar claim before losing credibility... Recall Warren Buffett' bet vs Hedge Funds https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp https://www.investopedia.com/articles/investing/030916/buffe... Notably the period included an interval of a stock-market collapse and massive volatility - where smart decisions ought to have mattered more. So the credibility of the above statement that this time will might be different feels severely weakened.

whitej125 4y ago

Everyone's reasons are their own. For me personally there are some reasons that are more utilitarian in nature... and some reasons that are value driven. I removed Tesla because it entered the S&P 500 after a huge run up. I own the car (and love it)... def the future. But I think the stock has been overhyped. There are more diverse ways to invest in EVs being the future vs "just buy Tesla". On the other side... I removed FB because honestly I just didn't like the company (so a values reason). This was well before the whistleblower, etc. Was not looking at that one through a performance lens. Just wanted nothing to do with the company. Most of my edits are removing companies that I already have too much direct exposure to.