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How is this considered unethical? If you know X will buy loads of shares of an equity and you learned that fact legally through (presumably) public channels, ar
by mangeletti 11y ago
How is this considered unethical? If you know X will buy loads of shares of an equity and you learned that fact legally through (presumably) public channels, are you A) a scoundrel, or B) smart, for buying shares before X buys those shares?
When somebody does something out of the ordinary it's necessarily considered a "game" (read "scam") by the majority establishment.
The reality is that the index is buying the stock because it views it as a good value, meaning that it is currently "under-priced". The index could be then viewed as unethical for "stealing" the shares away from current holders at a lower price than their intrinsic value, unless they were to tell somebody first... like a "frontrunner". In most cases, the largest entity is viewed as corrupt and evil, because it has the means to make the most efficient decisions and capture all the value, but somehow indexes are regarded as altruistic cooperatives.
They're not. S&P is owned by McGraw Hill Financial ($5 billion revenue), CME Group ($3 billion revenue), and News Corp ($33 billion revenue).
- icebraining 11y agoIt's a 1%/99% story. The second paragraph pretty much says so: "hedge funds and Wall Street trading desks are reaping hundreds of millions at the expense of index mutual funds, the investments of choice for a growing number of ordinary Americans." Wall Street vs The Ordinary American™ makes for popular news stories.
- mangeletti 11y agoGood point.
- kspaans 11y agoThe reality is that the index is buying the stock because it views it as a good value That's not how all indexes work. The FTSE100, for example, is simply the 100 largest companies on the LSE by market cap[0]. And many indexes (DFA being an exception that I'm aware of[1]) weight companies by their market cap, so the rebalancing trades made by index funds aren't based on value so much as an algorithm. 0 - https://en.wikipedia.org/wiki/FTSE_100_Index https://en.wikipedia.org/wiki/FTSE_100_Index 1 - http://assetbuilder.com/investing/dfa_vs_vanguard http://assetbuilder.com/investing/dfa_vs_vanguard