[HN Gopher] Grumblers about passive investing may have a point
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       Grumblers about passive investing may have a point
        
       Author : sleepyshift
       Score  : 10 points
       Date   : 2024-01-23 20:39 UTC (2 hours ago)
        
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 (TXT) w3m dump (www.ft.com)
        
       | al2o3cr wrote:
       | Shorter active fund managers: "Passive funds are making us look
       | bad because they outperform us!"
       | 
       | Invoking the EMH in this context is bizarre, though: if it was
       | fully true, an active fund manager would be as useful as an
       | active roulette manager.
        
         | gizmo wrote:
         | According to the EMH markets are efficient because of people
         | making intelligent decisions about what to buy and sell. The
         | market price is where the marginal buyer meets the marginal
         | seller. Passive funds (which aren't actually passive) by
         | contrast buy stocks irrespective of price. The logic of passive
         | funds is that because other market participants (like fund
         | managers) do the work of making the market efficient everybody
         | else can buy any random basket of stocks and get average
         | performance, without having to pay management fees.
         | 
         | Without fund managers doing the work of price discovery cheap
         | index funds would cease to work. Fund managers are right to be
         | miffed about that.
        
           | andreareina wrote:
           | Good active managers are paid for their work of correcting
           | mispricing to the extent that they are correct.
        
           | kmlevitt wrote:
           | If they are as competent at their jobs as they think they are
           | all the dumb, blind investment going on around them should
           | just help them out.
        
       | Kon-Peki wrote:
       | I think that the issue is less "passive investing" than "massive
       | participation in defined contribution retirement plans," combined
       | with the ultra-rare (ish) constituent change of the S&P 500.
       | 
       | Once a company gets in, it won't leave for a very long time, and
       | during that time period there is going to be $X buying your stock
       | every month regardless of price. In fact, you could argue that
       | this is reinforcing the EMH! The market knows that somebody is
       | going to stop by next week with a big pile of cash and say "I'll
       | take however many shares you'll give me for this money". So why
       | would the market let currency fluctuations influence the price
       | any more than it has to?
       | 
       | If you aren't in the S&P 500, on the other hand, you have no
       | guarantee of a big buyer just around the corner. You have to make
       | sure that your asking prices are as closely aligned with bidding
       | prices as possible, or trading volume collapses.
        
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       (page generated 2024-01-23 23:01 UTC)