Index Funds - Dangerous?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
MissOptimist
Posts: 62
Joined: Sat Sep 05, 2020 11:57 pm

Index Funds - Dangerous?

Post by MissOptimist »

Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?
User avatar
arcticpineapplecorp.
Posts: 6213
Joined: Tue Mar 06, 2012 9:22 pm

Re: Index Funds - Dangerous?

Post by arcticpineapplecorp. »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?
I'm going to bed, so I'll have to enjoy critiquing this wildly tomorrow. only made it 17 seconds in so far and he said, "Why I think index funds are extremely dangerous right now."

so are they dangerous or extremely dangerous? what's the difference? If they're extremely dangerous then why didn't he title his youtube video "extremely dangerous" instead of just merely "dangerous"? Can he be trusted to tell me the unvarnished truth?

The skull and crossbones at the beginning of the video are super scary. I hope I don't have nightmares tonight.

are they just extremely dangerous right now or will they be dangerous tomorrow too?

see you tomorrow with a more thorough critique.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
User avatar
jason2459
Posts: 613
Joined: Wed May 06, 2020 7:59 pm

Re: Index Funds - Dangerous?

Post by jason2459 »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?

Sounds like the index did its job and kept up with the best companies raising in the ranks and dropped the losers down and kept growing over the past 11 years. Doesn't sound scary to me.

And no, I didn't watch the video and I'm not going to watch the video giving it any more views then it deserves.
Last edited by jason2459 on Thu Sep 10, 2020 9:52 pm, edited 1 time in total.
User avatar
Nate79
Posts: 6438
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: Index Funds - Dangerous?

Post by Nate79 »

No interest to watch a youtube video of some crackpot talking about a topic that has been beat to death.
ImUrHuckleberry
Posts: 491
Joined: Sat Apr 15, 2017 7:44 am

Re: Index Funds - Dangerous?

Post by ImUrHuckleberry »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?
You know what's more scary than index funds? Trying to figure out what which individual stocks to buy. It's like hyper dangerous.
venkman
Posts: 1191
Joined: Tue Mar 14, 2017 10:33 pm

Re: Index Funds - Dangerous?

Post by venkman »

This is a good Ben Carlson article about how the top of the S&P is constantly changing, and it's nothing to worry about.

https://awealthofcommonsense.com/2017/0 ... est-stocks
MAI
Posts: 56
Joined: Sun Jul 20, 2014 8:31 am

Re: Index Funds - Dangerous?

Post by MAI »

The video should be retitled "Why Cap-Weighted Index Funds Are Dangerous", because that's the only type discussed, and the cap-weighting is where it says the danger is. (I personally agree with that and prefer equal weighting, but I know most people here don't.)
reln
Posts: 446
Joined: Fri Apr 19, 2019 4:01 pm

Re: Index Funds - Dangerous?

Post by reln »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?
Index funds are not dangerous.
User avatar
whodidntante
Posts: 9137
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Index Funds - Dangerous?

Post by whodidntante »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?
My thoughts are that most of the currently dominant large-cap US stocks will not be dominant when I croak, and some of them won't even be trading any more due to bankruptcies and acquisitions. And that's the whodidntante happy case that assumes that nothing awful happens because I'm a super cheery optimist. Don't get me started on what I think about when I'm at home alone and the power goes out. I also think that since those stocks are a small percentage of my portfolio, my wealth does not depend on their success. So, good riddance. I have my marshmallows ready.
Doctor Rhythm
Posts: 429
Joined: Mon Jan 22, 2018 3:55 am

Re: Index Funds - Dangerous?

Post by Doctor Rhythm »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds...
I suggest you watch cat videos rather than fear-mongering advertisements. With index funds, you will always get market-average returns. If the market tanks; so will the index fund and the vast majority of actively managed funds, but the index fund will never do worse than the market (minus a trivially low expense ratio). If you’re risk averse, then you should own less stock, but any stock you do own should absolutely be in a broad index fund. If you want to take excess risk in the hopes of beating the market, then you can try actively managed funds or pick stocks.
jibantik
Posts: 448
Joined: Fri Nov 24, 2017 1:05 pm

Re: Index Funds - Dangerous?

Post by jibantik »

A day trader is saying index funds are extremely dangerous? Hahahaha thanks, I needed a good laugh today
MathIsMyWayr
Posts: 2286
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: Index Funds - Dangerous?

Post by MathIsMyWayr »

Without numbers or equations, it is all talk, empty.
whereskyle
Posts: 1265
Joined: Wed Jan 29, 2020 10:29 am

Re: Index Funds - Dangerous?

Post by whereskyle »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?
The reason why index funds are not dangerous is because you hold whichever stocks replace those at the top. If people divest from Apple and put all their money in, say, Tesla, you didn't lose anything. Your money went from Apple to Tesla. Who cares? It's the same amount of money and you hold both stocks.

Also, when markets crash, it doesn't matter which stocks you hold. They all typically go down together. The only way to make sure you have the stocks that go back up after that crash is to hold a total-market index fund.

Any questions?
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
User avatar
galawdawg
Posts: 1275
Joined: Thu Dec 14, 2017 12:59 pm
Location: Georgia

Re: Index Funds - Dangerous?

Post by galawdawg »

Noise. That's all it is. Noise. Tune it out.
Jack FFR1846
Posts: 12674
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Index Funds - Dangerous?

Post by Jack FFR1846 »

I bought some shares of VTI this week, then cut my hand. Beware.
Bogle: Smart Beta is stupid
heyyou
Posts: 3797
Joined: Tue Feb 20, 2007 4:58 pm

Re: Index Funds - Dangerous?

Post by heyyou »

Living in an imperfect world is so bothersome.
lostdog
Posts: 3179
Joined: Thu Feb 04, 2016 2:15 pm

Re: Index Funds - Dangerous?

Post by lostdog »

What's he selling?
User avatar
arcticpineapplecorp.
Posts: 6213
Joined: Tue Mar 06, 2012 9:22 pm

Re: Index Funds - Dangerous?

Post by arcticpineapplecorp. »

lostdog wrote: Fri Sep 11, 2020 7:52 am What's he selling?
learn to build wealth through options trading (our students are getting AMAZING results):
https://navigationtrading.com/home-page

Image

enough said.

a fool and his/her money is soon parted.

I'm off to now watch the next youtube video in the queue:
"The index fund bubble-potential stock market crash by mamafurfur"

mamafurfur. now that's a source for all your information on investing.

to the OP, what do YOU think??

should you stop getting your investment information/advice from youtube?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
lostdog
Posts: 3179
Joined: Thu Feb 04, 2016 2:15 pm

Re: Index Funds - Dangerous?

Post by lostdog »

arcticpineapplecorp. wrote: Fri Sep 11, 2020 8:16 am
lostdog wrote: Fri Sep 11, 2020 7:52 am What's he selling?
learn to build wealth through options trading (our students are getting AMAZING results):
https://navigationtrading.com/home-page

Image

enough said.

a fool and his/her money is soon parted.

to the OP, what do YOU think??
Selling courses is hot on youtube.

I get a laugh with the latest youtube trends. The youtube menu is filled with people opening their mouth wide open and pointing at something like they're extremely excited and have something to tell/sell you.

I also notice they cut the video after every sentence. It's super annoying. They also vehimitely remind you multiple times to click the like button and follow them

I think the older I get, the sales pitches get more annoying.
Last edited by lostdog on Fri Sep 11, 2020 8:23 am, edited 1 time in total.
Dude2
Posts: 1087
Joined: Fri Jun 08, 2007 3:40 pm
Location: Florida, USA

Re: Index Funds - Dangerous?

Post by Dude2 »

Doctor Rhythm wrote: Thu Sep 10, 2020 10:52 pm I suggest you watch cat videos rather than fear-mongering advertisements.
That was awesome!
Henceforth I’ll bear Affliction till it do cry out itself, “Enough, enough,” and die.
hnd
Posts: 215
Joined: Mon Jun 22, 2020 11:43 am

Re: Index Funds - Dangerous?

Post by hnd »

I watched the video.

he says a few times that its dangerous but then goes on to basically explain why its not dangerous. He complains that its mainly tech stocks currently and the top is carrying the rest.

Basically its easy to beat the market with options trading. :| He says elsewhere in comments that he HATES active managed funds. basically you should never use a fund and just buy individual stocks and options trade.

Now i know a guy who does this for a living and he does make more than the index. I'm assuming he uses some system but he says the flameout rate in that game is basically 99%.
Explorer
Posts: 481
Joined: Thu Oct 13, 2016 7:54 pm

Re: Index Funds - Dangerous?

Post by Explorer »

I think the super-popularity of the index funds and rapid growth of assets in the index funds DOES cause the top few stocks to more rapidly appreciate in price. But that reason alone does not spell gloom and doom on index funds.

I think the investment committees behind the indexes (like S&P 500) have done a decent job of identifying future stars and replacing "duds" from the indexes on a periodic basis - most recent example DJIA kicking out Exxon and others and replacing with new companies.

So, the youtuber's arguments are not really correct.

I personally use a blend of index funds and low ER vanguard actively managed funds as well.

good luck
User avatar
arcticpineapplecorp.
Posts: 6213
Joined: Tue Mar 06, 2012 9:22 pm

Re: Index Funds - Dangerous?

Post by arcticpineapplecorp. »

at 2:50 he says that apple, amazon, microsoft and netflix are responsible for 84% of the S&P's upside in 2018. then he says if you look at the bottom right corner...
you see that these 4 companies contributed 122% of the returns of the S&P500
Image

head scratching.

huh?

can anyone explain how any number of companies (from 1 to 500 or more) can contribute 122% of the return of the S&P500? The most any companies can contribute is 100%, not more.

Should I trust this guy with anything mathematically based??

he next says because of the heavy weighting of the index in tech:
I'd be careful because if things turn around in technology, the entire market could go down significantly
Again, not sure he understands the math. If money flows from tech it has to go somewhere else, right? So those that went up go down, and those that are down go up. The pie gets bigger over time, regardless of where the market is concentrated at any particular point in time.

He next makes the point that the 5 stocks that dominate the market today aren't the same from a decade ago (see below). So what? Did the market go down because the top 5 changed from Exxon Mobil, Proctor and Gamble, J&J and AT&T to 4 other companies? No, the market went up.

Image

He doesn't understand that the companies that make up the market will change, yet the market will create value regardless:

https://americanbusinesshistory.org/lar ... 1994-2018/
At navigation trading we are all about probabilities and statistics to be strategic with our trading. We're not just blindly following any guru. We're not just blindly following any index fund. You have to be strategic with your money.
the pitch always comes at the end, doesn't it?

the only part I agree with is you do have to be strategic with your money...so to that end, definitely don't give it to that guy.
Last edited by arcticpineapplecorp. on Fri Sep 11, 2020 9:38 am, edited 1 time in total.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
hnd
Posts: 215
Joined: Mon Jun 22, 2020 11:43 am

Re: Index Funds - Dangerous?

Post by hnd »

lostdog wrote: Fri Sep 11, 2020 8:20 am
Selling courses is hot on youtube.

I get a laugh with the latest youtube trends. The youtube menu is filled with people opening their mouth wide open and pointing at something like they're extremely excited and have something to tell/sell you.

I also notice they cut the video after every sentence. It's super annoying. They also vehimitely remind you multiple times to click the like button and follow them

I think the older I get, the sales pitches get more annoying.
The other day my kid was in her room and I heard her talking. I thought she was like zooming with a friend or something but then I heard her say "subscribers" so i got a little closer and she was like "smash that subscribe button!" and i started chuckling. later on i went back in when the "on air" light wasn't on and was like hey whats up. She had started a how to draw minecraft characters set of videos and wanted to put them on youtube. OH BOY. she was going to ask me for help in setting it up. we got to the point where we were about to publish them and she decided that she really didn't want to so we didn't.
User avatar
knpstr
Posts: 2890
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: Index Funds - Dangerous?

Post by knpstr »

MissOptimist wrote: Thu Sep 10, 2020 9:43 pm Hi guys, I ran across this video of a YouTuber talking about the dangers of index funds: https://youtu.be/W8ZfdKYpKbM

He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined. I thought that was a bit scary 😮

What are your thoughts on the video?
Disclaimer: I didn't watch the video. But to respond to the "scary" thought. If the top 4 declined, and the index is higher today than 2009, that means the old top 4/5 were replaced with a "better" top 4/5. That's good news, not scary.

Beyond that: The idea of "indexing" is that originally the DJIA index, now more so the S&P 500 index, was/is considered as the "standard" for "market returns". The majority of active traders/funds have been found to do worse than this "standard" over long periods of time. So some people had a new idea, why not just "own the standard". The birth of index fund investing, more or less. An ultra low cost way to give oneself the ability to invest and accept "standard market returns" whatever those turn out to be.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
User avatar
Rob5TCP
Posts: 3510
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: Index Funds - Dangerous?

Post by Rob5TCP »

Could there be a hidden agenda for this video.
A reply to someone who says index fund beat actively managed funds:

NavigationTrading
1 year ago
Definitely not trying to steer people to actively managed funds...that's even worse. Our goal is to help people actively manage their own accounts and take control of their finances. It's not difficult to beat the performance of the market on your own if you know how.

Second Comment
NavigationTrading
11 months ago
@M. Morin Investor There are hundreds of different indices...this video is just using one example. Sure you can get more "diversified" by using other index funds...but you are still only going to match what the index does (minus fees). We actively manage our accounts to beat the pants off the market. I'm not interested in settling for mediocrity "emphasis mine"

Makes the video seem quite self serving. Of course it's not difficult to beat the performance of the market and they will show you how to do it (for a fee). Index fund are a threat to their profitability.
Last edited by Rob5TCP on Fri Sep 11, 2020 9:52 am, edited 2 times in total.
User avatar
Rob5TCP
Posts: 3510
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: Index Funds - Dangerous?

Post by Rob5TCP »

.....
Last edited by Rob5TCP on Fri Sep 11, 2020 9:50 am, edited 2 times in total.
User avatar
nisiprius
Advisory Board
Posts: 42005
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Index Funds - Dangerous?

Post by nisiprius »

1) Stocks are "dangerous," compared with (say) bonds. And bonds are "dangerous" compared with bank accounts. The return of the stock market is a reward for taking risk.

2) The Vanguard Total Stock Market Index Fund track the whole stock market. They have the same "danger" and the same reward as the stock market as a whole. The same thing is true of "total" stock index funds from other companies, such as the Fidelity Total Market Index Fund, the Schwab Total Stock Market Index Fund, and the iShares Core S&P Total U.S. Stock Market ETF.

3) The S&P 500 turns out to be almost the same as the whole stock market. The S&P 500 companies contain about 80% of the value of the stock market. The S&P 500 goes up and down fairly closely with the stock market. There has never been a big difference, either in risk or in return, between the S&P 500 index and the total market.

4) The S&P 500 is S&P's list of what it considers to be "leading companies in leading industries." It's not exactly the same as mechanically picking the largest companies. Nevertheless, the overall results have been virtually identical to the results of indexes that mechanically pick the largest companies.

5) Index funds are risky because the stock market is risky. Index funds are less risky than any portfolio produced by choosing a limited number of stocks. People who prefer to pick their own portfolio of individual stocks are hoping to get higher return from the market, but they are doing so by taking more risk. There is no way to invest in stocks that is much safer than a total market index fund, or an S&P 500 index fund.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
oldcomputerguy
Moderator
Posts: 9227
Joined: Sun Nov 22, 2015 6:50 am
Location: In the middle of five acres of woods in East Tennessee

Re: Index Funds - Dangerous?

Post by oldcomputerguy »

The video is published by Navigation Trading, a company that makes money by giving courses on how to day trade and churn your portfolio. Index funds and those who hold them cut into their revenue stream. They have a serious built-in conflict of interest. Ignore the video.
"I’ve come around to this: If you’re dumb, surround yourself with smart people; and if you’re smart, surround yourself with smart people who disagree with you." (Aaron Sorkin)
Explorer
Posts: 481
Joined: Thu Oct 13, 2016 7:54 pm

Re: Index Funds - Dangerous?

Post by Explorer »

"The problem with index funds is,all the darn money goes to the investors" Jack Bogle RIP

This short video https://www.youtube.com/watch?v=HJyczA3PqG8 is worth watching
Dottie57
Posts: 9203
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Index Funds - Dangerous?

Post by Dottie57 »

Nate79 wrote: Thu Sep 10, 2020 9:51 pm No interest to watch a youtube video of some crackpot talking about a topic that has been beat to death.
+1
Helo80
Posts: 1767
Joined: Sat Apr 29, 2017 8:47 pm

Re: Index Funds - Dangerous?

Post by Helo80 »

Looks like NavigationTrading is a firm that helps clients with options trading. There is nothing inherently wrong with options trading, but I'd imagine the voiceover wants to get a cut of the action.

If they underwrite a guarantee that they'll beat an S&P500 index fund every year, I'm interested. Heck, we can split the difference.... VFIAX does 5% and they do 10%, they can take 2.5% and I'll take 2.5%. If the market is a loss, we can make the loss equal... VFIAX loses 5%, I lose 5% with their vehicle.
User avatar
Kenkat
Posts: 6672
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Index Funds - Dangerous?

Post by Kenkat »

A couple of points:

1) The S&P 500 does not equal index funds; a total stock market fund does not have the issue of “out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there“ because a total stock index fund rode every one of the new top 5 up from a lower point.

2) When you look at actual results, it seems like “out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there“ should matter, but it turns out that it really doesn’t. An S&P 500 index fund and a total stock market index funds track very closely over the long run.
User avatar
arcticpineapplecorp.
Posts: 6213
Joined: Tue Mar 06, 2012 9:22 pm

Re: Index Funds - Dangerous?

Post by arcticpineapplecorp. »

Helo80 wrote: Fri Sep 11, 2020 11:52 am Looks like NavigationTrading is a firm that helps clients with options trading. There is nothing inherently wrong with options trading, but I'd imagine the voiceover wants to get a cut of the action.

If they underwrite a guarantee that they'll beat an S&P500 index fund every year, I'm interested. Heck, we can split the difference.... VFIAX does 5% and they do 10%, they can take 2.5% and I'll take 2.5%. If the market is a loss, we can make the loss equal... VFIAX loses 5%, I lose 5% with their vehicle.
if they could beat VFIAX by 5% themseelves, why would they give half of that away to someone else? Don't you see where they get their money? From selling subscriptions!!

Image
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Semantics
Posts: 147
Joined: Tue Mar 10, 2020 1:42 pm

Re: Index Funds - Dangerous?

Post by Semantics »

Imagine how much money you would have made if you had bought companies like Amazon, Tesla, Nvidia, Salesforce, and Facebook before most of the public had even heard of them. My secret technique did just that, and is assured of doing so in the future, with zero research and no active maintenance required! You just need to remember 3 letters. For the low low price of $9.99/month, I will share how it works... :greedy
User avatar
SD2SR
Posts: 36
Joined: Thu May 23, 2019 6:25 pm

Re: Index Funds - Dangerous?

Post by SD2SR »

arcticpineapplecorp. wrote: Fri Sep 11, 2020 8:44 am at 2:50 he says that apple, amazon, microsoft and netflix are responsible for 84% of the S&P's upside in 2018. then he says if you look at the bottom right corner...
you see that these 4 companies contributed 122% of the returns of the S&P500
Image

head scratching.

huh?

can anyone explain how any number of companies (from 1 to 500 or more) can contribute 122% of the return of the S&P500? The most any companies can contribute is 100%, not more.

Should I trust this guy with anything mathematically based??

he next says because of the heavy weighting of the index in tech:
I'd be careful because if things turn around in technology, the entire market could go down significantly
Again, not sure he understands the math. If money flows from tech it has to go somewhere else, right? So those that went up go down, and those that are down go up. The pie gets bigger over time, regardless of where the market is concentrated at any particular point in time.

He next makes the point that the 5 stocks that dominate the market today aren't the same from a decade ago (see below). So what? Did the market go down because the top 5 changed from Exxon Mobil, Proctor and Gamble, J&J and AT&T to 4 other companies? No, the market went up.

Image

He doesn't understand that the companies that make up the market will change, yet the market will create value regardless:

https://americanbusinesshistory.org/lar ... 1994-2018/
At navigation trading we are all about probabilities and statistics to be strategic with our trading. We're not just blindly following any guru. We're not just blindly following any index fund. You have to be strategic with your money.
the pitch always comes at the end, doesn't it?

the only part I agree with is you do have to be strategic with your money...so to that end, definitely don't give it to that guy.
I look forward to the next video in the series where William F. Sharpe submissively relinquishes his Nobel Prize to the vastly intellectually superior YouTuber.
an_asker
Posts: 2729
Joined: Thu Jun 27, 2013 2:15 pm

Re: Index Funds - Dangerous?

Post by an_asker »

arcticpineapplecorp. wrote: Fri Sep 11, 2020 8:44 am at 2:50 he says that apple, amazon, microsoft and netflix are responsible for 84% of the S&P's upside in 2018. then he says if you look at the bottom right corner...
you see that these 4 companies contributed 122% of the returns of the S&P500
Image

head scratching.

huh?

can anyone explain how any number of companies (from 1 to 500 or more) can contribute 122% of the return of the S&P500? The most any companies can contribute is 100%, not more.

Should I trust this guy with anything mathematically based??
FWIW ... that is not too difficult to explain. As an example, let's say the index went up 10%! So, the index went from 100 to 110.

Let's say the top ten companies made up 50% of the index, and they collectively went up 24%, i.e., from 50 to 62!

The remaining companies that made 50% of the index, collectively went down by 4%, i.e., from 50 to 48.

You can make a valid claim that the top ten companies contributed 120% of the return of the index (index return = 10; top ten companies' return = 12)!
Escapevelocity
Posts: 189
Joined: Mon Feb 18, 2019 8:32 am

Re: Index Funds - Dangerous?

Post by Escapevelocity »

venkman wrote: Thu Sep 10, 2020 10:34 pm This is a good Ben Carlson article about how the top of the S&P is constantly changing, and it's nothing to worry about.

https://awealthofcommonsense.com/2017/0 ... est-stocks
This is an excellent article and should be referenced in the index funds Wiki.
User avatar
arcticpineapplecorp.
Posts: 6213
Joined: Tue Mar 06, 2012 9:22 pm

Re: Index Funds - Dangerous?

Post by arcticpineapplecorp. »

an_asker wrote: Fri Sep 11, 2020 12:22 pm
arcticpineapplecorp. wrote: Fri Sep 11, 2020 8:44 am at 2:50 he says that apple, amazon, microsoft and netflix are responsible for 84% of the S&P's upside in 2018. then he says if you look at the bottom right corner...
you see that these 4 companies contributed 122% of the returns of the S&P500
Image

head scratching.

huh?

can anyone explain how any number of companies (from 1 to 500 or more) can contribute 122% of the return of the S&P500? The most any companies can contribute is 100%, not more.

Should I trust this guy with anything mathematically based??
FWIW ... that is not too difficult to explain. As an example, let's say the index went up 10%! So, the index went from 100 to 110.

Let's say the top ten companies made up 50% of the index, and they collectively went up 24%, i.e., from 50 to 62!

The remaining companies that made 50% of the index, collectively went down by 4%, i.e., from 50 to 48.

You can make a valid claim that the top ten companies contributed 120% of the return of the index (index return = 10; top ten companies' return = 12)!
thank you for that explanation. makes sense now.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
KyleAAA
Posts: 8592
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Index Funds - Dangerous?

Post by KyleAAA »

Diversify across asset classes and you don't need to worry. Only 15% of my portfolio is in total stock market. That has hurt my returns over the last 10 years, but hopefully it will help over the next 10.
garlandwhizzer
Posts: 2994
Joined: Fri Aug 06, 2010 3:42 pm

Re: Index Funds - Dangerous?

Post by garlandwhizzer »

There is nothing wrong with and a lot right with investing heavily in TSM. Most who depart from it substantially will decrease their long term risk adjusted returns. It is IMO the default position for investors. TSM or S&P 500 indexes do sometimes get overly optimistic about LCG darlings, but as we can see in recent days these situations tend to be self correcting at extreme points. The current situation is not IMO a rerun of 2000-3, although I do believe the tech darlings are likely to loose some of their luster going forward. Market leadership always changes over time, but unlike 1999, when it was all hype, LCG tech now (excepting TSLA) has huge real earnings and cash flow, billions of cash on hand, and great transformative business models with wide moats around them. They are not the pipe dreams of 1999. Governmental regulation with respect to customer privacy and trade policy is the major risk to their business models IMO. That could happen at any time and deflate their valuations.

Good news is that TSM puts at least 70% of its holdings outside these likely overvalued tech darlings. TSM is no more dangerous in my opinion at this time than other equity approaches. Having said that, I have slightly increased my dividend/value/REIT exposure recently, sectors that have long underperformed. to marginally increase equity diversification. The money to do this came for bonds which have zero long term expected returns not from TSM which I haven't sold for many years.

Just my 2 cents worth, others see it very differently. The key is to attune your portfolio to your specific risk tolerance and financial goals, and this one works for me.

Garland Whizzer
DesertDiva
Posts: 922
Joined: Thu Mar 01, 2018 12:49 pm
Location: In the desert

Re: Index Funds - Dangerous?

Post by DesertDiva »

lostdog wrote: Fri Sep 11, 2020 7:52 am What's he selling?
+1 Precisely! You hit the proverbial nail on the head.
:sharebeer
User avatar
David Jay
Posts: 9411
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Index Funds - Dangerous?

Post by David Jay »

Semantics wrote: Fri Sep 11, 2020 12:18 pm Imagine how much money you would have made if you had bought companies like Amazon, Tesla, Nvidia, Salesforce, and Facebook before most of the public had even heard of them. My secret technique did just that, and is assured of doing so in the future, with zero research and no active maintenance required! You just need to remember 3 letters. For the low low price of $9.99/month, I will share how it works... :greedy
V - T - I

I offer the same subscription, but you only have to pay $4.95/month. :happy
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
gonefishing01
Posts: 52
Joined: Wed Aug 19, 2015 9:09 pm

Re: Index Funds - Dangerous?

Post by gonefishing01 »

On top of the "learning courses" and subscription pitches these YouTube guys make a killing in advertising revenue attracting eyeballs to watch their videos. It's why they all follow the same dramatic and overly drawn out format. Putting much stock into what random YouTube hustlers are saying is likely far more dangerous than an index fund.
Helo80
Posts: 1767
Joined: Sat Apr 29, 2017 8:47 pm

Re: Index Funds - Dangerous?

Post by Helo80 »

gonefishing01 wrote: Fri Sep 11, 2020 2:46 pm On top of the "learning courses" and subscription pitches these YouTube guys make a killing in advertising revenue attracting eyeballs to watch their videos.

https://www.youtube.com/c/Navigationtrading/about

They have 400,000 total views (roughly). That's nothing. They'd earn more doing uber/lyft and door dash for a week. They are mostly definitely not making a killing.
palanzo
Posts: 1408
Joined: Thu Oct 10, 2019 4:28 pm

Re: Index Funds - Dangerous?

Post by palanzo »

arcticpineapplecorp. wrote: Fri Sep 11, 2020 12:48 pm
an_asker wrote: Fri Sep 11, 2020 12:22 pm
arcticpineapplecorp. wrote: Fri Sep 11, 2020 8:44 am at 2:50 he says that apple, amazon, microsoft and netflix are responsible for 84% of the S&P's upside in 2018. then he says if you look at the bottom right corner...
you see that these 4 companies contributed 122% of the returns of the S&P500
Image

head scratching.

huh?

can anyone explain how any number of companies (from 1 to 500 or more) can contribute 122% of the return of the S&P500? The most any companies can contribute is 100%, not more.

Should I trust this guy with anything mathematically based??
FWIW ... that is not too difficult to explain. As an example, let's say the index went up 10%! So, the index went from 100 to 110.

Let's say the top ten companies made up 50% of the index, and they collectively went up 24%, i.e., from 50 to 62!

The remaining companies that made 50% of the index, collectively went down by 4%, i.e., from 50 to 48.

You can make a valid claim that the top ten companies contributed 120% of the return of the index (index return = 10; top ten companies' return = 12)!
thank you for that explanation. makes sense now.
I think you can trust the guy with simple arithmetic. Not sure about anything else though.
Kaktus
Posts: 93
Joined: Sun Apr 10, 2016 1:57 pm

Re: Index Funds - Dangerous?

Post by Kaktus »

"He also mentioned that out of the top 5 companies in the sp 500 in 2009, only Microsoft right now is still there, the rest have declined."

And that is the best argument for sticking to indexfunds since they have a way of handling that.
Post Reply