3rd in series on how indexing is ruining the market

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larryswedroe
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3rd in series on how indexing is ruining the market

Post by larryswedroe »

http://www.cbsnews.com/8301-505123_162- ... k-market/?
This was actually supposed to be the first in series but they posted them out of order.
If it's not rising correlations it's something else that becomes the excuse like if there wasn't a Japanese earthquake, if there wasn't an oil spill, if only blah, blah, blah

Best wishes
Larry
Grt2bOutdoors
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Re: 3rd in series on how indexing is ruining the market

Post by Grt2bOutdoors »

Didn't read it yet, but Blackrock doesn't think too highly of Vanguard undercutting them on expenses. :o
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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larryswedroe
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Re: 3rd in series on how indexing is ruining the market

Post by larryswedroe »

When you have a commodity, like an index fund, it's all about price
Have to find way to add value or the assets go to the lowest price
Larry
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pennstater2005
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Re: 3rd in series on how indexing is ruining the market

Post by pennstater2005 »

" Active managers will have to come up with another lame excuse for their persistent failure, as this dog won't hunt."

What a great line. Thanks Larry. Good read.
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Ryan_in_Chi
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Re: 3rd in series on how indexing is ruining the market

Post by Ryan_in_Chi »

Thanks for the article. This has been something on my mind recently. Your data does seem pretty convincing. But, I wonder if Bogleheads were to convince everyone to buy index funds, who would then be setting the price of individual stocks?
gordo
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Re: 3rd in series on how indexing is ruining the market

Post by gordo »

Ryan_in_Chi wrote:... if Bogleheads were to convince everyone to buy index funds, who would then be setting the price of individual stocks?
In reality it would never happen. You'd end up with a sort of equilibrium, because as the market became more and more filled with Indexers, at a certain point, market efficiency would start to suffer. This would, in turn, encourage some additional people to go active to capture these inefficiencies (the so-called '$100 dollar bills' floating around) and in so doing, help restore market efficiency.
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ClosetIndexer
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Re: 3rd in series on how indexing is ruining the market

Post by ClosetIndexer »

gordo wrote:
Ryan_in_Chi wrote:... if Bogleheads were to convince everyone to buy index funds, who would then be setting the price of individual stocks?
In reality it would never happen. You'd end up with a sort of equilibrium, because as the market became more and more filled with Indexers, at a certain point, market efficiency would start to suffer. This would, in turn, encourage some additional people to go active to capture these inefficiencies (the so-called '$100 dollar bills' floating around) and in so doing, help restore market efficiency.
Which is why it's funny to hear active investors complain that indexing makes active investing more difficult. What it really does is make it more difficult by comparison.
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LH
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Re: 3rd in series on how indexing is ruining the market

Post by LH »

Ryan_in_Chi wrote:Thanks for the article. This has been something on my mind recently. Your data does seem pretty convincing. But, I wonder if Bogleheads were to convince everyone to buy index funds, who would then be setting the price of individual stocks?
Its like worrying that in Las Vegas gambling will stop, if you convince them its a losing proposition.

1)you will not convince them, they will think in their guts that after all the comps, they break even, or pay very little, and in their heart of hearts, feel they win, or the big win is around the corner.

2)even if you rationally convinced them on some level, they would do it anyway.

Viva las Vegas. Viva active investing.
Ryan_in_Chi
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Re: 3rd in series on how indexing is ruining the market

Post by Ryan_in_Chi »

Yes, I know it would never happen. It is a theoretical question. But I still think it is a valid question. You're answers are interesting, because my second question In that I didn't post was, if MOST people index and the only people left trading are Traders, how are the prices getting set?

Are prices when only traders are left in the market about fundamentals or is it a Las Vegas game of Texas Hold'em where the stocks prices are just a bunch of traders trying to out bluff each other. Though I don't have a long enough perspective, but I often feel like that is where we're at now.
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larryswedroe
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Re: 3rd in series on how indexing is ruining the market

Post by larryswedroe »

Ryan
if you are interested in the question I address it in my book Wise Investing Made Simple--answering the question what if everyone indexed, Tale 21
Larry
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