Are we in an index fund bubble? Bill Ackman thinks we are.

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panchilly
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Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 9:04 am

I came across this letter from 2014 written by Bill Ackman a famous hedge fund manager.
http://assets.pershingsquareholdings.co ... 6-2016.pdf

He puts forth an interesting theory about a potential index fund bubble involving the major indices like the S&P500.

His theory is this:

An increasing percentage of every new dollar invested in the market is going into index funds. That number is currently 20% and trending higher.

There is a secondary issue of "closet indexing." Money managers are scared to lose their job and their performance is measured against the S&P500. If they under perform they might be out of a job. Their solution is to heavily mirror the index with small tweaks of under and over weighting certain assets and sectors, but the large bulk of their money is weighted similar to the S&P. This "closet indexing" further inflates the amount being indexed. He noted similar herd mentality by money managers in the late 1990s - they were afraid of under performing tech funds so many of them heavily skewed toward tech - if they under performed the high flying tech bubble stocks they'd be out of a job.

Given so much money (perhaps as much as 40% when factoring in the closet indexing effect?) is being forced into the S&P500 via indexing that is artificially elevating the companies in the index relative to their value.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Call_Me_Op » Fri Feb 02, 2018 9:08 am

Believe me, if stock index funds crash so will every other stock fund.
Last edited by Call_Me_Op on Fri Feb 02, 2018 9:09 am, edited 1 time in total.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by miamivice » Fri Feb 02, 2018 9:09 am

My small cap index fund investments don't influence the price of the s&p 500.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by smithy » Fri Feb 02, 2018 9:10 am

He also thought Herbalife was in a bubble - Herbalife is up 139% in the last 5 years.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by rustymutt » Fri Feb 02, 2018 9:11 am

So one could loosen the amount of S&P 500 index fund they own, and do what with it? I don't know, you tell me?
Am setting it out to the bitter end with my written investment plan. I do own foreign indexes also. :moneybag
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Da5id » Fri Feb 02, 2018 9:12 am

If the S&P 500 were the only index, maybe he'd have a point. Less clear how it applies to all the other indices, particularly total stock market. Sounds like a hedge fund guy sowing FUD as he sees his cash cow drying up.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Pajamas » Fri Feb 02, 2018 9:24 am

Listening to what Bill Ackman says is a good way to go broke.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by RRAAYY3 » Fri Feb 02, 2018 9:30 am

Hedge fund manager hates on index funds ... duh?

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by ThriftyPhD » Fri Feb 02, 2018 9:38 am

So after a year in which his actively managed fund lost 20.5% while the S&P 500 gained 1.4%, he's complaining about indexes. Gee, I just can't figure out why.

Given the bubble, perhaps he will short the S&P 500. NASDAQ:SDS is available to anyone who feels the same way.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by bottlecap » Fri Feb 02, 2018 9:53 am

Fund managers have been saying this for years (hence the 2014 article). Where have you been?

If index funds are in a bubble, then the stock market is in a bubble. The market is the index.

I keep looking for a question, but your last sentence is not a complete sentence.

Perhaps the “answer”, if you are looking for one, is that even if 80+% of the investing world indexed, the remaining players would still make the market efficient. This idea has also been discussed on the forum thoroughly. It usually comes up once a week.

JT

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Rashen » Fri Feb 02, 2018 10:13 am

https://www.zerohedge.com/news/2018-01- ... -investing

"After three straight years of losses at Pershing Square in the aftermath of the Valeant fiasco and Herbalife short squeeze which cost the hedge fund a -20.5% loss in 2015, -13.5% in 2016 and a -4% drop in 2017 (it is however up 0.2% YTD in 2018), it is time for drastic changes, and as Reuters reports, Bill Ackman - one of the worst performing managers in the past three years - is firing almost 18% of Pershing Square staff and "looking to lower his public profile" as he seeks to turn around his foundering hedge fund which appears to have finally been hit with redemption requests."

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 10:20 am

bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 10:22 am

Da5id wrote:
Fri Feb 02, 2018 9:12 am
If the S&P 500 were the only index, maybe he'd have a point. Less clear how it applies to all the other indices, particularly total stock market. Sounds like a hedge fund guy sowing FUD as he sees his cash cow drying up.
S&P500 is by far the most popular index though. Maybe the bubble is less noticeable in other indexes but is more pronounced in large cap US stocks?

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Da5id » Fri Feb 02, 2018 10:23 am

panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
TSM is a close second to S&P 500. If that is in a bubble, the market is in a bubble...

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by doon » Fri Feb 02, 2018 10:26 am

Rashen wrote:
Fri Feb 02, 2018 10:13 am
https://www.zerohedge.com/news/2018-01- ... -investing

"After three straight years of losses at Pershing Square in the aftermath of the Valeant fiasco and Herbalife short squeeze which cost the hedge fund a -20.5% loss in 2015, -13.5% in 2016 and a -4% drop in 2017 (it is however up 0.2% YTD in 2018), it is time for drastic changes, and as Reuters reports, Bill Ackman - one of the worst performing managers in the past three years - is firing almost 18% of Pershing Square staff and "looking to lower his public profile" as he seeks to turn around his foundering hedge fund which appears to have finally been hit with redemption requests."
Highly recommend new documentary on Netflix (Dirty money) about Valeant and how Bill Ackman lost $4B when he heavily invested in that company. Its a 6 part series with one of them on drug cost.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 10:26 am

Da5id wrote:
Fri Feb 02, 2018 10:23 am
panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
TSM is a close second to S&P 500. If that is in a bubble, the market is in a bubble...
TSM is US only... US stock market certainly does seem a bit overvalued right now, does it not?

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Da5id » Fri Feb 02, 2018 10:30 am

panchilly wrote:
Fri Feb 02, 2018 10:26 am
Da5id wrote:
Fri Feb 02, 2018 10:23 am
panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
TSM is a close second to S&P 500. If that is in a bubble, the market is in a bubble...
TSM is US only too... US stock market certainly does seem a bit overvalued right now, does it not?
That is changing the topic of the thread. The thread is about "S&P 500 index fund bubble", as contrasted to the broader market or "smart" investments by hedge fund managers. US market, by CAPE10 valuations, is historically high for what those valuations are worth.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 10:35 am

Da5id wrote:
Fri Feb 02, 2018 10:30 am
panchilly wrote:
Fri Feb 02, 2018 10:26 am
Da5id wrote:
Fri Feb 02, 2018 10:23 am
panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
TSM is a close second to S&P 500. If that is in a bubble, the market is in a bubble...
TSM is US only too... US stock market certainly does seem a bit overvalued right now, does it not?
That is changing the topic of the thread. The thread is about "S&P 500 index fund bubble", as contrasted to the broader market or "smart" investments by hedge fund managers. US market, by CAPE10 valuations, is historically high for what those valuations are worth.
Actually, the topic is about index fund bubbles. S&P500 was used as an example as it is the most popular.

The title of the post is "Are we in an index fund bubble? Bill Ackman thinks we are."

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by SquawkIdent » Fri Feb 02, 2018 10:35 am

That's nice. Next slide...

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by selters » Fri Feb 02, 2018 10:41 am

Is the Boglehead consensus that no amount of inflows into total stock market index funds can move the total stock market? Or that no amount of inflows into S&P 500 index funds can move the S&P 500 index?

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Da5id » Fri Feb 02, 2018 10:42 am

panchilly wrote:
Fri Feb 02, 2018 10:35 am
Actually, the topic is about index fund bubbles. S&P500 was used as an example as it is the most popular.

The title of the post is "Are we in an index fund bubble? Bill Ackman thinks we are."
I understood it to be saying that the index funds are in a bubble, not the broader market. To quote the article,
As the most popular index funds’ constituent companies become overvalued, these funds long-term rates of returns will likely decline, reducing investor appeal and increasing capital outflows.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Da5id » Fri Feb 02, 2018 10:44 am

selters wrote:
Fri Feb 02, 2018 10:41 am
Is the Boglehead consensus that no amount of inflows into total stock market index funds can move the total stock market? Or that no amount of inflows into S&P 500 index funds can move the S&P 500 index?
Is the Boglehead consensus that increased demand for something won't increase the price? I kind of doubt it.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by ThriftyPhD » Fri Feb 02, 2018 10:46 am

panchilly wrote:
Fri Feb 02, 2018 10:26 am
Da5id wrote:
Fri Feb 02, 2018 10:23 am
panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
TSM is a close second to S&P 500. If that is in a bubble, the market is in a bubble...
TSM is US only... US stock market certainly does seem a bit overvalued right now, does it not?
NASDAQ:SDS

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by pkcrafter » Fri Feb 02, 2018 10:47 am

panchilly wrote:
Fri Feb 02, 2018 9:04 am
I came across this letter from 2014 written by Bill Ackman a famous hedge fund manager.
http://assets.pershingsquareholdings.co ... 6-2016.pdf

He puts forth an interesting theory about a potential index fund bubble involving the major indices like the S&P500.

His theory is this:

An increasing percentage of every new dollar invested in the market is going into index funds. That number is currently 20% and trending higher.

There is a secondary issue of "closet indexing." Money managers are scared to lose their job and their performance is measured against the S&P500. If they under perform they might be out of a job. Their solution is to heavily mirror the index with small tweaks of under and over weighting certain assets and sectors, but the large bulk of their money is weighted similar to the S&P. This "closet indexing" further inflates the amount being indexed. He noted similar herd mentality by money managers in the late 1990s - they were afraid of under performing tech funds so many of them heavily skewed toward tech - if they under performed the high flying tech bubble stocks they'd be out of a job.

Given so much money (perhaps as much as 40% when factoring in the closet indexing effect?) is being forced into the S&P500 via indexing that is artificially elevating the companies in the index relative to their value.
The S&P 500 does not rise on it's own. How about investors? The S&P500 is merely tracking what they do.


Paul
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by ThriftyPhD » Fri Feb 02, 2018 10:50 am

selters wrote:
Fri Feb 02, 2018 10:41 am
Is the Boglehead consensus that no amount of inflows into total stock market index funds can move the total stock market? Or that no amount of inflows into S&P 500 index funds can move the S&P 500 index?
Money into the market raises the market, money out lowers it. But the relative valuation of individual companies is set by active, non index investors. People buying S&P500 aren't the ones putting FAANG stocks on top, but they do raise the total valuation across the board.

Which gets back to the point made. If index funds like the S&P500 and total US market are in a bubble, then the market is in a bubble since these indexes represent the market.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 10:50 am

pkcrafter wrote:
Fri Feb 02, 2018 10:47 am
panchilly wrote:
Fri Feb 02, 2018 9:04 am
I came across this letter from 2014 written by Bill Ackman a famous hedge fund manager.
http://assets.pershingsquareholdings.co ... 6-2016.pdf

He puts forth an interesting theory about a potential index fund bubble involving the major indices like the S&P500.

His theory is this:

An increasing percentage of every new dollar invested in the market is going into index funds. That number is currently 20% and trending higher.

There is a secondary issue of "closet indexing." Money managers are scared to lose their job and their performance is measured against the S&P500. If they under perform they might be out of a job. Their solution is to heavily mirror the index with small tweaks of under and over weighting certain assets and sectors, but the large bulk of their money is weighted similar to the S&P. This "closet indexing" further inflates the amount being indexed. He noted similar herd mentality by money managers in the late 1990s - they were afraid of under performing tech funds so many of them heavily skewed toward tech - if they under performed the high flying tech bubble stocks they'd be out of a job.

Given so much money (perhaps as much as 40% when factoring in the closet indexing effect?) is being forced into the S&P500 via indexing that is artificially elevating the companies in the index relative to their value.
The S&P 500 does not rise on it's own. How about investors? The S&P500 is merely tracking what they do.


Paul
The S&P 500 does in fact rise partially on its own based on fund flows. The greater the percentage of money is going into the S&P500 the more of elevation you will see. More money in then prices will go up. Money comes out, prices will go down.

Indexing has gotten so big that it is moving the market itself.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by nisiprius » Fri Feb 02, 2018 11:08 am

Da5id wrote:
Fri Feb 02, 2018 10:44 am
selters wrote:
Fri Feb 02, 2018 10:41 am
Is the Boglehead consensus that no amount of inflows into total stock market index funds can move the total stock market? Or that no amount of inflows into S&P 500 index funds can move the S&P 500 index?
Is the Boglehead consensus that increased demand for something won't increase the price? I kind of doubt it.
No. The Boglehead consensus is that since index funds increase the demand for all stocks proportionately, they
  • don't have any selective effect on the market as a whole,
  • don't interfere with the efficiency of the market,
  • don't interfere with price discovery,
  • don't change correlations between stocks or sectors,
  • don't prevent active managers from generating alpha if they actually have the ability to do it, and
  • are not the cause of active managers failing to generate alpha if they can't.
An effect they do have, is that of taking patsies out of the system, so that they can't play three-card monte with dealers who have information and other advantages over them. Thus they do potentially reducing the income of three-card monte dealers.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 11:19 am

nisiprius wrote:
Fri Feb 02, 2018 11:08 am
Da5id wrote:
Fri Feb 02, 2018 10:44 am
selters wrote:
Fri Feb 02, 2018 10:41 am
Is the Boglehead consensus that no amount of inflows into total stock market index funds can move the total stock market? Or that no amount of inflows into S&P 500 index funds can move the S&P 500 index?
Is the Boglehead consensus that increased demand for something won't increase the price? I kind of doubt it.
No. The Boglehead consensus is that since index funds increase the demand for all stocks proportionately, they
  • don't have any selective effect on the market as a whole,
  • don't interfere with the efficiency of the market,
  • don't interfere with price discovery,
  • don't change correlations between stocks or sectors,
  • don't prevent active managers from generating alpha if they actually have the ability to do it, and
  • are not the cause of active managers failing to generate alpha if they can't.
An effect they do have, is that of taking patsies out of the system, so that they can't play three-card monte with dealers who have information and other advantages over them. Thus they do potentially reducing the income of three-card monte dealers.

What if 100% of people indexed? That surely would interfere with the efficiency of the market & price discovery which would contradict your second and third bullet.

If we agree that 100% indexing would result in an inefficient market, then at what % does the market become inefficient? Is it a step function where after a certain point it suddenly becomes inefficient? What would that point be, 100? 99%?? I would argue it would start a lot sooner than that. Additionally, what makes us sure its a step function? Maybe there is a continuous level of distortion being added to the market as the indexing % increases.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Da5id » Fri Feb 02, 2018 11:24 am

panchilly wrote:
Fri Feb 02, 2018 11:19 am
What if 100% of people indexed? That surely would interfere with the efficiency of the market which would contradict your second bullet.

If we agree that 100% indexing would result in an inefficient market, then at what % does the market become inefficient? Is it a step function where after a certain point it suddenly becomes inefficient? What would that point be, 100? 99%?? I would argue it would start a lot sooner than that. Additionally, what makes us sure its a step function? Maybe there is a continuous level of distortion being added to the market as the indexing % increases.
Seems like scary hypotheticals on the destructive nature of index funds are in vogue the past year. Those I've seen are mostly echos of articles quote scared people who earn their money in a way that is destroyed by cheap index funds.

Is your concern real? Because we'll never get to 100% indexing. If there is a point at which indexing distorts the market in a way that misvalues stocks in an exploitable way, people will exploit it. Wake me up when the SPIVA scorecard has a trend that shows that is happening.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by nisiprius » Fri Feb 02, 2018 11:24 am

If index funds are in a bubble, the only thing that could mean is that index funds are inappropriately elevated in value over actively managed funds in the same category and style box.

I challenge you to find me a diversified stock mutual fund X in the Morningstar "large blend" category, with, say, more than $1 billion in assets, in which the relationship between the Vanguard Total Stock Market Index Fund, VTSMX, and X shows a "bubble-like" characteristic.

Here's what I mean. Here is an example of a fund, QQQ, that had bubble-like characteristics relative to VTSMX circa 2000. QQQ (blue) was quadrupling in value when VTSMX (orange) was "only" rising by 20%. I say that QQQ was "in a bubble," measured using VTSMX as a comparison.

Source

Image

Now, find me some active fund or funds to represent a standard or baseline, against which to measure "index funds," and show me a chart of the last few years in which it is VTSMX that is in the obvious bubble, compared to the compared to the active fund or funds. Find me a picture where VTSMX is absurdly outpacing actively managed funds.

Betcha can't.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Atgard » Fri Feb 02, 2018 11:42 am

+1 for Total Stock Market index vs. S&P 500 index.

Doesn't tell me indexing is in a bubble. It MAY mean that the largest 500 companies' prices have been bid up higher. But, if they didn't index, would index investors generally be pumping much of that money into micro-cap penny stocks instead? Or just into the same stocks anyway? And didn't people pump more money into "blue chip" Dow stocks way back when? How is this different?

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Sandtrap » Fri Feb 02, 2018 11:47 am

What would be the investment strategy if we are indeed, in an "index fund bubble"?
How long would it last?
When would it recover?

Is this a "don't just do something. . . sit there".. . .scenario?

Interesting article.
Thanks for posting.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by ThriftyPhD » Fri Feb 02, 2018 11:51 am

panchilly wrote:
Fri Feb 02, 2018 9:04 am
There is a secondary issue of "closet indexing." Money managers are scared to lose their job and their performance is measured against the S&P500. If they under perform they might be out of a job. Their solution is to heavily mirror the index with small tweaks of under and over weighting certain assets and sectors, but the large bulk of their money is weighted similar to the S&P.
I want to touch on this part. In essence, this tells you everything you need to know. The money managers don't know how to beat the S&P500. If they actually brought value to the system, they wouldn't need to mirror the index, they would use their expertise to beat it. They can't, and they know they can't. But they need to justify their high fees.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by pkcrafter » Fri Feb 02, 2018 11:54 am

panchilly wrote:
Fri Feb 02, 2018 10:50 am
pkcrafter wrote:
Fri Feb 02, 2018 10:47 am
panchilly wrote:
Fri Feb 02, 2018 9:04 am
I came across this letter from 2014 written by Bill Ackman a famous hedge fund manager.
http://assets.pershingsquareholdings.co ... 6-2016.pdf

He puts forth an interesting theory about a potential index fund bubble involving the major indices like the S&P500.

His theory is this:

An increasing percentage of every new dollar invested in the market is going into index funds. That number is currently 20% and trending higher.

There is a secondary issue of "closet indexing." Money managers are scared to lose their job and their performance is measured against the S&P500. If they under perform they might be out of a job. Their solution is to heavily mirror the index with small tweaks of under and over weighting certain assets and sectors, but the large bulk of their money is weighted similar to the S&P. This "closet indexing" further inflates the amount being indexed. He noted similar herd mentality by money managers in the late 1990s - they were afraid of under performing tech funds so many of them heavily skewed toward tech - if they under performed the high flying tech bubble stocks they'd be out of a job.

Given so much money (perhaps as much as 40% when factoring in the closet indexing effect?) is being forced into the S&P500 via indexing that is artificially elevating the companies in the index relative to their value.
The S&P 500 does not rise on it's own. How about investors? The S&P500 is merely tracking what they do.


Paul
The S&P 500 does in fact rise partially on its own based on fund flows. The greater the percentage of money is going into the S&P500 the more of elevation you will see. More money in then prices will go up. Money comes out, prices will go down.

Indexing has gotten so big that it is moving the market itself.
I agree the first part of your reply, but I don't think we can blame a fund for a rising market.
You mean investors are buying the market or buying all kinds of funds and stocks? The S&P 500 will adjust the % of a single stock depending on how investors are buying. Nothing goes up if there is no investors buying. Investors can't avoid buying stocks that are in the S%P500 even if they aren't buying that fund. Sure, the S&P 500 will rise with more investor buying whether they actually buy an S%P 500 fund or other funds that don't track the S&P 500. It's money coming into the stock market that raises the S&P 500 and total market, etc. The DOW and NASDAQ are going up as well.

What if there weren't an S&P500? There would still be a market profile and it would remain pretty constant as prices rose.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by nisiprius » Fri Feb 02, 2018 12:04 pm

Oh, the tactic of "equate 'indexing' with the S&P 500 and then rank on the the S&P 500 by blowing up small nitpicking technicalities" has been used as a talking point for a long time.

If these people went on a rant about the foolishness of investing in an S&P 500 index fund instead of a total market index fund or instead of a scientifically and objectively chosen portfolio of the 500 largest-cap stocks I'd have a little respect for them. But they don't.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Nate79 » Fri Feb 02, 2018 12:12 pm

LOL. Bill Ackman. Hopefully anyone with half a brain will see thru this ignorance.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by bottlecap » Fri Feb 02, 2018 12:40 pm

panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
So, under this theory of yours, which index funds have not performed proportionally and are not in a bubble? You can’t compare the international index, but that is at highs, too.

You’ve not thought this through, but you seem convinced no matter what anyone says.

JT

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by panchilly » Fri Feb 02, 2018 1:01 pm

bottlecap wrote:
Fri Feb 02, 2018 12:40 pm
panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
So, under this theory of yours, which index funds have not performed proportionally and are not in a bubble? You can’t compare the international index, but that is at highs, too.

You’ve not thought this through, but you seem convinced no matter what anyone says.

JT
I think there are subtle differences here that you aren't understanding. You have an overly simplistic view of this.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by IlliniDave » Fri Feb 02, 2018 5:08 pm

Presumably people who are buying an index fund, if there were no index funds, would buy active funds or individual stocks in the same market. So nothing would really be any different except, as mentioned above, the wallets of professional stock pickers would be fatter.

People seem really gullible when it comes to believing arguments that imply index funds are somehow materially different than other mutual funds (or custom-made) portfolios in the same market. They are just baskets of stocks or bonds (albeit cheap ones to own). As a function of AUM, they are probably less disruptive to a market/sector than active funds in terms of bubbles and such.

It would be interesting if the entire stock market was held in index funds. It would be interesting if aliens visited the earth too.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Alexa9 » Fri Feb 02, 2018 5:25 pm

That's why some people tilt further to international, international small cap, emerging markets, and also hold bonds.
I don't see a problem with index funds driving up the price of large caps and artificially inflating them.
He may be correct that stock picking may become more lucrative if everyone is in index funds however.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by heyyou » Fri Feb 02, 2018 9:01 pm

Bubble or not, I suppose that I will just have to muddle through whatever does occur in the future. Speculating about what could occur, is not dissimilar to science fiction, with emphasis on the fiction of it.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by Stormbringer » Fri Feb 02, 2018 9:52 pm

panchilly wrote:
Fri Feb 02, 2018 9:04 am
Bill Ackman
Oh, that guy. He somehow managed to lose his investors 4% last year. His hedge fund is hemorrhaging investors.
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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by JBTX » Fri Feb 02, 2018 9:55 pm

To say index fund investing is causing all indices to be in a bubble is non sensical. The index is the market. The price relationships between the companies relative to each other is determined by non indexers.

It is theoretically that one index could get inflated if everybody piles into it. I tend to feel like the S&P 500 is a bit bloated. But based upon prospective PE ratios the small cap index is slightly higher.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by bottlecap » Fri Feb 02, 2018 10:01 pm

panchilly wrote:
Fri Feb 02, 2018 1:01 pm
bottlecap wrote:
Fri Feb 02, 2018 12:40 pm
panchilly wrote:
Fri Feb 02, 2018 10:20 am
bottlecap wrote:
Fri Feb 02, 2018 9:53 am
If index funds are in a bubble, then the stock market is in a bubble. The market is the index.
The theory isn't that ALL index funds are in a bubble, it is that the most popular ones such as the S&P500 are in a bubble.
So, under this theory of yours, which index funds have not performed proportionally and are not in a bubble? You can’t compare the international index, but that is at highs, too.

You’ve not thought this through, but you seem convinced no matter what anyone says.

JT
I think there are subtle differences here that you aren't understanding. You have an overly simplistic view of this.
Yeah, I’m just a simpleton. But I can explain my views.

JT

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by alwayshedge » Fri Feb 02, 2018 10:26 pm

I watched the Herbalife documentary on Netflix with Bill Ackman. For having so many bad calls, this man is extremely arrogant. He also lost his investors a fortune in Valeant Pharma.

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Re: Are we in an index fund bubble? Bill Ackman thinks we are.

Post by LadyGeek » Sat Feb 03, 2018 11:12 am

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