jbolden1517 wrote:More importantly these are the early signs of how the market is responding to indexing. As index and passive become dominant forces and not just another market participants other market participants have to react to it.
jbolden1517 wrote:My thesis is that there is a problem in SP500 high P/E stocks, not the market in general. So I'm specifically excluding most of the SP500 and the other 30% of TSM which is not SP500. Since you are agreeing share dilution and share buybacks occur reread Simplegift's original post (which again is not really his thesis this is standard CAPM). It is based on not considering these sorts of activities. Which is not unusual, up until recently those sorts of activities were things that in the aggregate and over the long term had no impact on passive minority shareholders.
Your point about market participants with “other motives” (essentially manipulating the float of their stock) in response to the rise of indexing would be much stronger if you are able to provide hard numbers about the magnitude
of this influence on the total market as a whole. So far, you’ve just given anecdotal evidence about a few high P/E stocks in the S&P 500.
OK let's just randomly grab the stocks selling shares since my post on this thread (that's fair unless you think I'm psychic). (Most of these aren't SP500 but I want to keep the random element alive):
CYMABAY THERAPEUTICS, INC. CBAY P/E infinite, P/B 10.2
MYND ANALYTICS, INC. MYND P/E infinite, P/B 26.6
XPO LOGISTICS, INC. XPO P/E on normal earnings 82.6, had a great 2017 and stock shot up. P/B 3
OPGEN INC OPGN P/E never made money, P/B 9.2
ARENA PHARMACEUTICALS INC ARNA P/E losing money for years, P/B 8.7
ID SYSTEMS INC IDSY P/E losing money since 2014, P/B 4.7 (highest for its industry)
and since I started typing this 2 more came in for the next 2 days:
RING ENERGY, INC. REI NYSE MKT losing money since 2015 P/B 2.2 (a normal equity sell for a company that likely can't get bonds, this is what you should be seeing)
COMMUNITY HEALTHCARE TRUST INC CHCT P/E of 90, P/B at a mere 1.5 because of regular secondary offerings improving cash. Very high dividend to boost stock price. This idea is kinda cool, use index fund investors to fund your dividend and then give them 70% of the money back that year.
Do I have data, no. The article is only a few weeks ago. But now that BofA has gone public I assume there will be data soon. That being said the activity sure seems consistent with their being a pattern. It is passing the smell test.