TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

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daniel2000
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TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by daniel2000 »

The more I think about it, TSLA has gamed the index investors.
For almost the past decade Tesla has continually issued convertible debt.

If the stock price goes up the the debt is converted and shares outstanding goes up.
After the number of shares go up the index funds buy more shares.
As index funds buy shares the share price goes up.
The cycle continues.

The SP500 inclusion is also worth mentioning.

See:
Recent article on the subject: https://www.theatlantic.com/ideas/archi ... my/618497/
Institutional ownership of TSLA:https://docoh.com/company/1318605/TSLA/ ... ip-history
Shares outstanding history of TSLA:https://www.macrotrends.net/stocks/char ... utstanding

Full disclosure:
I think Tesla has great technology. I am not short TSLA. I am a passive investor. I own exactly one TSLA share.

Any thoughts?
Diversification.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Beensabu »

That's pretty smart. That could be the new cool thing. I wonder what the stats on convertible bond issuance are now vs. 10 and 20 years ago.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by watchnerd »

Hmmm.

If it's just that easy, why hasn't it been done before and / or isn't done by more companies?
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by BogleFan510 »

What does the philosphy of the German political theorist Karl Marx have anything to do with this? Have you actually read any of his work? There is a lot of stuff in Marxist ideas, some insightful, some quite dated.

Also, passive index funds dont buy based on number of shares, they buy based on market capitalization. More shares dilute the share price, they do not make it go up.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by cogito »

I suppose an interesting side effect might be that Tesla is one of the most innovative companies we've seen in our lifetimes...

I still don't understand the haters that still, to this day, think it's a gigantic charade that will fall apart at any minute.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by permport »

The chain of logic in the OP doesn't hold. If the number of shares outstanding goes up then all other things being equal the price will go down.

Also, the index funds won't just automatically buy in the given scenario you've presented. Index funds hold stock in proportion to market cap, not the number of shares outstanding. If the number of shares outstanding increase with a concomitant decrease in price that leads to an equal market cap before and after the issuance, then the index fund will do nothing.

Also, the article about index funds being worse than Marxism because they somehow kill the market's pricing mechanism is just plain silly. Mostly because it's obviously not happening.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Cycle »

A lot of the points in that Atlantic article are moot if you hold a globally diversified portfolio. VTI and vxus represent 10800 companies.

There are tons of active players still, just look at the gme shenanigans. Between hedge funds, day traders, and HFT, there's a lot of non passive activity.

Tsla hasn't found a golden ticket, they are a technology company at best, car company at worst, and like most companies in 100 years they'll likely be gone, either bankrupt or aquired or split up. Even Bezos said Amazon will not exist in 100 years.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by AlohaJoe »

daniel2000 wrote: Tue Apr 06, 2021 11:00 pm If the stock price goes up the the debt is converted and shares outstanding goes up.
After the number of shares go up the index funds buy more shares.
This cycle makes no sense. Dilution results in existing owners to value their holdings less, ceteris parabis. I mean, by definition they are worth less today than they were yesterday. Yet you assume they don't do this, in the face of both theory and empirical evidence of how investors treat dilution?

Convertible bonds are exactly the same as issuing new stock, which companies also do all the time.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Thesaints »

daniel2000 wrote: Tue Apr 06, 2021 11:00 pm After the number of shares go up the index funds buy more shares.
Why ?
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by firebirdparts »

daniel2000 wrote: Tue Apr 06, 2021 11:00 pm If the stock price goes up the the debt is converted and shares outstanding goes up.
After the number of shares go up the index funds buy more shares.
As index funds buy shares the share price goes up.
The cycle continues.
Not really a cycle, no. Index funds don't have to buy shares. It doesn't really work that way.

It's possible for companies to fake earnings to a certain extent, and that's normally going to be required in the long story arc of inappropriate stock prices. TSLA is not at that stage of the game. They are trading at 1000X earnings and everybody just accepts that at this stage.

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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by TheTimeLord »

Thesaints wrote: Wed Apr 07, 2021 1:34 am
daniel2000 wrote: Tue Apr 06, 2021 11:00 pm After the number of shares go up the index funds buy more shares.
Why ?
Best I can tell he is assuming the share price will be unaffected by the dilution thus the market cap will rise and when the market cap weighted indexes rebalance they will buy a greater amount of Tesla. Of course this also assumes other companies market caps don't increase over that period by the same or a greater percentage.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by killjoy2012 »

cogito wrote: Tue Apr 06, 2021 11:46 pm I suppose an interesting side effect might be that Tesla is one of the most innovative companies we've seen in our lifetimes...

I still don't understand the haters that still, to this day, think it's a gigantic charade that will fall apart at any minute.
Maybe because Tesla isn't very innovative at all, but the magic PR cloud that surrounds Elon just makes it seem like that?

The first electric car was invented in the 1800s, and popularized in late 1800's and early 1900's. Elon/Telsa had nothing to do with it.
Their "autopilot" is anything but.
Their "full self driving" beta is a joke... just go watch all of the videos of such on YT.

What Elon/Tesla did do is take a tested, boring, previously impractical technology and made it cool... at least for the 5% of the worlds population that can, or would want to, afford one. But I wouldn't call that innovative.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Indianrock »

I read the article at the Atlantic and had to wonder if the author was being paid off by the investment firms that want to churn your money.
My view is that the problem with markets isn't index funds, it's individuals and organizations treating it like Las Vegas. The article complains that passive ( index fund) investors aren't doing the research that directs funds to more promising companies. Was that a factor in the near-meltdown caused by GameStop activities?
How about investment companies locating their trading servers in the same building with the stock market's servers so they can make more "microsecond" trades and profits? How is that doing research and taking a long term view of which companies are likely to prosper.
Short-term decision making by corporate management because of the influence of stockholders( stockholders focused on profit in the next month not next 5 years) -- that's what leads to poor corporate management, budgeting and planning.
Was it index funds that caused the 2008 credit default swap fiasco?
This is just sour grapes by those that like to fleece what is called the "retail investor" by enticing them into daily trades and "only I can beat the market" nonsense.
If everyone had to hold each stock purchase for a month, margin trading was virtually eliminated and most shorting activities were removed,more people might be willing to use investment companies like E-trade, Ameritrade, Merrill Edge,
Charles Schwab, Fidelity, etc.
From the article:
"Passive management is merely a giant phenomenon, not an all-encompassing one. Hundreds of actively managed mutual funds are still out there, as are legions of day traders, hedge funds, and private offices buying and selling and buying and selling. Stock prices still move around, sometimes dramatically, on the basis of new data and new ideas."

Plenty of fixes needed in the stock markets, but index funds wouldn't be at the top of my list. What do we think led so many to seek shelter in index funds?
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by David Jay »

permport wrote: Tue Apr 06, 2021 11:53 pmAlso, the index funds won't just automatically buy in the given scenario you've presented. Index funds hold stock in proportion to market cap, not the number of shares outstanding. If the number of shares outstanding increase with a concomitant decrease in price that leads to an equal market cap before and after the issuance, then the index fund will do nothing.
Exactly. This is perhaps the most common of the recurring errors in articles written about index funds. Excluding fund purchases and redemptions, when prices go up index funds do nothing, when prices go down, index funds do nothing.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Coltrane75 »

Indianrock wrote: Wed Apr 07, 2021 8:24 am I read the article at the Atlantic and had to wonder if the author was being paid off by the investment firms that want to churn your money.
My view is that the problem with markets isn't index funds, it's individuals and organizations treating it like Las Vegas. The article complains that passive ( index fund) investors aren't doing the research that directs funds to more promising companies. Was that a factor in the near-meltdown caused by GameStop activities?
...

Plenty of fixes needed in the stock markets, but index funds wouldn't be at the top of my list. What do we think led so many to seek shelter in index funds?
+1

Red-baiting passive investing is a new one. A sign of desperation from the segment of the industry that is losing out to indexing; trying to throw everything but the kitchen sink to see what sticks to drive/scare people away.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by SmokeyAbe »

BogleFan510 wrote: Tue Apr 06, 2021 11:41 pm What does the philosphy of the German political theorist Karl Marx have anything to do with this? Have you actually read any of his work? There is a lot of stuff in Marxist ideas, some insightful, some quite dated.
That's a direct quote from the linked Atlantic article.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by BogleFan510 »

SmokeyAbe wrote: Wed Apr 07, 2021 9:00 am
BogleFan510 wrote: Tue Apr 06, 2021 11:41 pm What does the philosphy of the German political theorist Karl Marx have anything to do with this? Have you actually read any of his work? There is a lot of stuff in Marxist ideas, some insightful, some quite dated.
That's a direct quote from the linked Atlantic article.
Well its a silly clickbait quote. Many Americans think Marx was a Russian Communist and throw Marxism around with no clue about who coined the phases, context, etc.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by mdchemist »

permport wrote: Tue Apr 06, 2021 11:53 pm Also, the index funds won't just automatically buy in the given scenario you've presented. Index funds hold stock in proportion to market cap, not the number of shares outstanding. If the number of shares outstanding increase with a concomitant decrease in price that leads to an equal market cap before and after the issuance, then the index fund will do nothing.
While I agree that the logic of the OP isn't consistent, I'm confused by the above quote. If more shares are issued to a third party (not the index fund), diluting the value of all shares outstanding but maintaining market cap, wouldn't the index fund now hold a lower percentage of the total market cap and therefore need to buy more shares to get back to its target market cap?

I must be missing something but I'm not sure what...?
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by arcticpineapplecorp. »

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
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Indianrock »

From the atlantic article:
"Analysts at Bernstein have called passive investing “worse than Marxism.” The investor Michael Burry, of The Big Short fame, has called it a “bubble,” and a co-head of Goldman Sachs’s investment-management division has warned about froth too. Shortly before his death in 2019, Bogle himself warned that index funds’ dominance might not “serve the national interest.”

One primary concern comes from the analysts at Bernstein: “A supposedly capitalist economy where the only investment is passive is worse than either a centrally planned economy or an economy with active, market-led capital management.” ...........
Active managers direct investment dollars to companies on the basis of those companies’ research-and-development prospects, human capital, regulatory outlook, and so on. They take new information and price it into a company’s stock when buying and selling shares. If Company A’s stock price tanks when it announces a major scandal, that’s because active investors are selling. If Company B’s shares soar when it announces it’s entering a new market, that’s because active investors are buying.

Passive investors, by contrast, ignore annual reports and market rumors. They do nothing with trading-floor gossip. They make no attempt to research what to invest in and what to skip. Whether holding international or domestic assets, holding stocks or bonds, or using a mutual-fund structure or an ETF structure, they just mirror the market. Big U.S.-stock index funds buy big U.S. stocks just because they’re big U.S. stocks.

That commitment to inertia worries the Bernstein analysts, who point out that in a world with exclusively passive investors, capital will get allocated only to the big companies and not necessarily to good, promising, or efficient companies. A gravitational, big-getting-bigger effect would dominate stock-price movements. At least in a Soviet-type centrally planned economy, apparatchiks would be making some attempt to allocate resources efficiently."

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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Thesaints »

mdchemist wrote: Wed Apr 07, 2021 9:15 am
permport wrote: Tue Apr 06, 2021 11:53 pm Also, the index funds won't just automatically buy in the given scenario you've presented. Index funds hold stock in proportion to market cap, not the number of shares outstanding. If the number of shares outstanding increase with a concomitant decrease in price that leads to an equal market cap before and after the issuance, then the index fund will do nothing.
While I agree that the logic of the OP isn't consistent, I'm confused by the above quote. If more shares are issued to a third party (not the index fund), diluting the value of all shares outstanding but maintaining market cap, wouldn't the index fund now hold a lower percentage of the total market cap and therefore need to buy more shares to get back to its target market cap?

I must be missing something but I'm not sure what...?
Yes, but share price drops due dilution, while market cap stays the same. Not the other way around.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Thesaints »

BogleFan510 wrote: Wed Apr 07, 2021 9:08 am Well its a silly clickbait quote. Many Americans think Marx was a Russian Communist and throw Marxism around with no clue about who coined the phases, context, etc.
It is a (philosophically) interesting argument: Assuming the entire market, or most of it, is owned by index funds, then all corporations share the same owners and competition as conceived in a capitalistic system has no reason to exist.
It is probably described as "worse than marxism" because under communism all those corporations are owned by the State, while in the 100% index fund scenario, all corporation are owned by the same relatively few wealthy people.
Last edited by Thesaints on Wed Apr 07, 2021 11:06 am, edited 1 time in total.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by JBTX »

It is just a way to dilute existing shareholder interests and bury it in a rising market. Kind of like stock options.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by eukonomos »

Thesaints wrote: Wed Apr 07, 2021 10:58 am
mdchemist wrote: Wed Apr 07, 2021 9:15 am
permport wrote: Tue Apr 06, 2021 11:53 pm Also, the index funds won't just automatically buy in the given scenario you've presented. Index funds hold stock in proportion to market cap, not the number of shares outstanding. If the number of shares outstanding increase with a concomitant decrease in price that leads to an equal market cap before and after the issuance, then the index fund will do nothing.
While I agree that the logic of the OP isn't consistent, I'm confused by the above quote. If more shares are issued to a third party (not the index fund), diluting the value of all shares outstanding but maintaining market cap, wouldn't the index fund now hold a lower percentage of the total market cap and therefore need to buy more shares to get back to its target market cap?

I must be missing something but I'm not sure what...?
Yes, but share price drops due dilution, while market cap stays the same. Not the other way around.
Imagine the total market is worth $100. Tesla is 5% with a market value of $5.
I am an index fund with $10 assets. I own 10% of the market, including 10% of Tesla shares, worth $0.50.
If Tesla issues more shares, diluting their share price, they are still worth $5.
But now I don't own 10% of Tesla shares or $0.50 worth.
Don't I need to buy some of these diluted shares?
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by manuvns »

the index investing is based on what TSLA has done .
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by hnd »

Indianrock wrote: Wed Apr 07, 2021 8:24 am I read the article at the Atlantic and had to wonder if the author was being paid off by the investment firms that want to churn your money.
My view is that the problem with markets isn't index funds, it's individuals and organizations treating it like Las Vegas. The article complains that passive ( index fund) investors aren't doing the research that directs funds to more promising companies. Was that a factor in the near-meltdown caused by GameStop activities?
How about investment companies locating their trading servers in the same building with the stock market's servers so they can make more "microsecond" trades and profits? How is that doing research and taking a long term view of which companies are likely to prosper.
Short-term decision making by corporate management because of the influence of stockholders( stockholders focused on profit in the next month not next 5 years) -- that's what leads to poor corporate management, budgeting and planning.
Was it index funds that caused the 2008 credit default swap fiasco?
This is just sour grapes by those that like to fleece what is called the "retail investor" by enticing them into daily trades and "only I can beat the market" nonsense.
If everyone had to hold each stock purchase for a month, margin trading was virtually eliminated and most shorting activities were removed,more people might be willing to use investment companies like E-trade, Ameritrade, Merrill Edge,
Charles Schwab, Fidelity, etc.
From the article:
"Passive management is merely a giant phenomenon, not an all-encompassing one. Hundreds of actively managed mutual funds are still out there, as are legions of day traders, hedge funds, and private offices buying and selling and buying and selling. Stock prices still move around, sometimes dramatically, on the basis of new data and new ideas."

Plenty of fixes needed in the stock markets, but index funds wouldn't be at the top of my list. What do we think led so many to seek shelter in index funds?
i took a quick peek at their other articles and quickly realized they offered nothing of value to a discussion on index investing.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by rockstar »

Makes sense to me. And Marx is cool. The struggle is real.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by dsasdg »

killjoy2012 wrote: Wed Apr 07, 2021 8:24 am
cogito wrote: Tue Apr 06, 2021 11:46 pm I suppose an interesting side effect might be that Tesla is one of the most innovative companies we've seen in our lifetimes...

I still don't understand the haters that still, to this day, think it's a gigantic charade that will fall apart at any minute.
Maybe because Tesla isn't very innovative at all, but the magic PR cloud that surrounds Elon just makes it seem like that?

The first electric car was invented in the 1800s, and popularized in late 1800's and early 1900's. Elon/Telsa had nothing to do with it.
Their "autopilot" is anything but.
Their "full self driving" beta is a joke... just go watch all of the videos of such on YT.

What Elon/Tesla did do is take a tested, boring, previously impractical technology and made it cool... at least for the 5% of the worlds population that can, or would want to, afford one. But I wouldn't call that innovative.
Global innovation is slowing down, not speeding up, while pretending that technology is advancing at an accelerated pace. Tesla is just a worse example of this phenomenon.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by dsasdg »

Thesaints wrote: Wed Apr 07, 2021 11:02 am
BogleFan510 wrote: Wed Apr 07, 2021 9:08 am Well its a silly clickbait quote. Many Americans think Marx was a Russian Communist and throw Marxism around with no clue about who coined the phases, context, etc.
all corporation are owned by the same relatively few wealthy people.
Congratulations on discovering what it means to be a capitalist society.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by dsasdg »

rockstar wrote: Wed Apr 07, 2021 11:48 am Makes sense to me. And Marx is cool. The struggle is real.
The meaning of this statement can be interpreted as: Marxism is even better than index funds.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by LearnMarket »

I would recommend two great videos from Ben felix.
Some key take away points,
1. Trading sets the price of a stock not AUM. On trading, passive investing only accounts for 5% trading. It means, price is still dictated by the active traders. https://www.youtube.com/watch?v=Wv0pJh8mFk0
2. On other reasons to avoid indexing, Ben Felix presents data against them. https://www.youtube.com/watch?v=fvGLnthJDsg
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by NoRegret »

daniel2000 wrote: Tue Apr 06, 2021 11:00 pm The more I think about it, TSLA has gamed the index investors.
For almost the past decade Tesla has continually issued convertible debt.

If the stock price goes up the the debt is converted and shares outstanding goes up.
After the number of shares go up the index funds buy more shares.
As index funds buy shares the share price goes up.
The cycle continues.

The SP500 inclusion is also worth mentioning.

See:
Recent article on the subject: https://www.theatlantic.com/ideas/archi ... my/618497/
Institutional ownership of TSLA:https://docoh.com/company/1318605/TSLA/ ... ip-history
Shares outstanding history of TSLA:https://www.macrotrends.net/stocks/char ... utstanding

Full disclosure:
I think Tesla has great technology. I am not short TSLA. I am a passive investor. I own exactly one TSLA share.

Any thoughts?
Nowadays indexes are float adjusted. Index funds own a fixed percentage of the free float, so if there are more shares they will buy more. Many comments in this thread indicate people don’t know what they own (as well as they think they do).

Now the price of the stock may still decline in accordance with its dilution, but it depends on having enough fundamentally driven market participants to set the price. It also doesn’t have to happen immediately.

The “arithmetic of active management” assumes a static equilibrium with no interaction between active and passive investors. Things are not as neat when you consider flow.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by nisiprius »

See my posting, How much did forced purchase of Tesla on 12/21/2020 hurt passive investors? I'll update the data when I get around to it. But the summary is: it was, of course, literally a non-event for me and everyone holding a total stock market index fund, the most commonly recommended index fund in this forum, because we have all been holding Tesla since 2010.

As my simulation shows, it was also close to a non-event for S&P 500 index fund investors.

And as the absence of headlines shows, expectations that it would be a financial megaevent that might bring down the whole stock market due to an "infinity squeeze" or whatever, were not fulfilled.

It's conspiracy thinking on my part, but like Indianrock I do suspect that there is an ongoing propaganda campaign on the part of the active investment industry to get index funds prohibited or regulated or taxed on the grounds that they are somehow hurting the market.

Presently, about 10% of all stocks in the United States are held by index funds, leaving 90% available for active investors to use to compete against each other for price discovery. If index funds are actually making the market inefficient, that creates an increased opportunity for active fund managers to beat the index by exploiting supposed inefficiencies such as anything Tesla might be doing. The fact is that over the past 15 years, 89% of all actively managed mutual funds have underperformed the index. If they can't compete with index funds, then either they do not really have skill, or they are charging too much in expenses.
Last edited by nisiprius on Wed Apr 07, 2021 2:35 pm, edited 1 time in total.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by NoRegret »

LearnMarket wrote: Wed Apr 07, 2021 1:38 pm I would recommend two great videos from Ben felix.
Some key take away points,
1. Trading sets the price of a stock not AUM. On trading, passive investing only accounts for 5% trading. It means, price is still dictated by the active traders. https://www.youtube.com/watch?v=Wv0pJh8mFk0
2. On other reasons to avoid indexing, Ben Felix presents data against them. https://www.youtube.com/watch?v=fvGLnthJDsg
Only a small fraction of active trading is based on a fundamental view. There are much more in HFT, momentum, and, make no mistake, trading designed to take advantage of passive flows. Passive is definitely changing the market structure.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by nisiprius »

NoRegret wrote: Wed Apr 07, 2021 2:34 pm
LearnMarket wrote: Wed Apr 07, 2021 1:38 pm I would recommend two great videos from Ben felix.
Some key take away points,
1. Trading sets the price of a stock not AUM. On trading, passive investing only accounts for 5% trading. It means, price is still dictated by the active traders. https://www.youtube.com/watch?v=Wv0pJh8mFk0
2. On other reasons to avoid indexing, Ben Felix presents data against them. https://www.youtube.com/watch?v=fvGLnthJDsg
Only a small fraction of active trading is based on a fundamental view. There are much more in HFT, momentum, and, make no mistake, trading designed to take advantage of passive flows. Passive is definitely changing the market structure.
Name the actively-managed funds that are successfully exploiting this effect, to obtain robust market-beating results which you confidently expect to persist. Then we can look at your picks five years from now and see how they are doing.
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.
nigel_ht
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by nigel_ht »

dsasdg wrote: Wed Apr 07, 2021 12:22 pm
killjoy2012 wrote: Wed Apr 07, 2021 8:24 am
cogito wrote: Tue Apr 06, 2021 11:46 pm I suppose an interesting side effect might be that Tesla is one of the most innovative companies we've seen in our lifetimes...

I still don't understand the haters that still, to this day, think it's a gigantic charade that will fall apart at any minute.
Maybe because Tesla isn't very innovative at all, but the magic PR cloud that surrounds Elon just makes it seem like that?

The first electric car was invented in the 1800s, and popularized in late 1800's and early 1900's. Elon/Telsa had nothing to do with it.
Their "autopilot" is anything but.
Their "full self driving" beta is a joke... just go watch all of the videos of such on YT.

What Elon/Tesla did do is take a tested, boring, previously impractical technology and made it cool... at least for the 5% of the worlds population that can, or would want to, afford one. But I wouldn't call that innovative.
Global innovation is slowing down, not speeding up, while pretending that technology is advancing at an accelerated pace. Tesla is just a worse example of this phenomenon.
Citation needed.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by NoRegret »

nisiprius wrote: Wed Apr 07, 2021 2:37 pm
NoRegret wrote: Wed Apr 07, 2021 2:34 pm
LearnMarket wrote: Wed Apr 07, 2021 1:38 pm I would recommend two great videos from Ben felix.
Some key take away points,
1. Trading sets the price of a stock not AUM. On trading, passive investing only accounts for 5% trading. It means, price is still dictated by the active traders. https://www.youtube.com/watch?v=Wv0pJh8mFk0
2. On other reasons to avoid indexing, Ben Felix presents data against them. https://www.youtube.com/watch?v=fvGLnthJDsg
Only a small fraction of active trading is based on a fundamental view. There are much more in HFT, momentum, and, make no mistake, trading designed to take advantage of passive flows. Passive is definitely changing the market structure.
Name the actively-managed funds that are successfully exploiting this effect, to obtain robust market-beating results which you confidently expect to persist. Then we can look at your picks five years from now and see how they are doing.
Logica Capital as one example.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Thesaints
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Thesaints »

eukonomos wrote: Wed Apr 07, 2021 11:31 am Imagine the total market is worth $100. Tesla is 5% with a market value of $5.
I am an index fund with $10 assets. I own 10% of the market, including 10% of Tesla shares, worth $0.50.
If Tesla issues more shares, diluting their share price, they are still worth $5.
But now I don't own 10% of Tesla shares or $0.50 worth.
Don't I need to buy some of these diluted shares?
Tesla is still worth $5, but an individual share price goes down.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by eukonomos »

Thesaints wrote: Wed Apr 07, 2021 4:07 pm
eukonomos wrote: Wed Apr 07, 2021 11:31 am Imagine the total market is worth $100. Tesla is 5% with a market value of $5.
I am an index fund with $10 assets. I own 10% of the market, including 10% of Tesla shares, worth $0.50.
If Tesla issues more shares, diluting their share price, they are still worth $5.
But now I don't own 10% of Tesla shares or $0.50 worth.
Don't I need to buy some of these diluted shares?
Tesla is still worth $5, but an individual share price goes down.
My point is I agree with @mdchemist that I believe the index fund will need to purchase more shares, unlike what others have said. At least that is how I see it.
Thesaints wrote: Wed Apr 07, 2021 10:58 am
mdchemist wrote: Wed Apr 07, 2021 9:15 am
permport wrote: Tue Apr 06, 2021 11:53 pm Also, the index funds won't just automatically buy in the given scenario you've presented. Index funds hold stock in proportion to market cap, not the number of shares outstanding. If the number of shares outstanding increase with a concomitant decrease in price that leads to an equal market cap before and after the issuance, then the index fund will do nothing.
While I agree that the logic of the OP isn't consistent, I'm confused by the above quote. If more shares are issued to a third party (not the index fund), diluting the value of all shares outstanding but maintaining market cap, wouldn't the index fund now hold a lower percentage of the total market cap and therefore need to buy more shares to get back to its target market cap?

I must be missing something but I'm not sure what...?
Yes, but share price drops due dilution, while market cap stays the same. Not the other way around.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by nisiprius »

NoRegret wrote: Wed Apr 07, 2021 3:27 pm
nisiprius wrote: Wed Apr 07, 2021 2:37 pm
NoRegret wrote: Wed Apr 07, 2021 2:34 pm
LearnMarket wrote: Wed Apr 07, 2021 1:38 pm I would recommend two great videos from Ben felix.
Some key take away points,
1. Trading sets the price of a stock not AUM. On trading, passive investing only accounts for 5% trading. It means, price is still dictated by the active traders. https://www.youtube.com/watch?v=Wv0pJh8mFk0
2. On other reasons to avoid indexing, Ben Felix presents data against them. https://www.youtube.com/watch?v=fvGLnthJDsg
Only a small fraction of active trading is based on a fundamental view. There are much more in HFT, momentum, and, make no mistake, trading designed to take advantage of passive flows. Passive is definitely changing the market structure.
Name the actively-managed funds that are successfully exploiting this effect, to obtain robust market-beating results which you confidently expect to persist. Then we can look at your picks five years from now and see how they are doing.
Logica Capital as one example.
Fund ticker symbol, please. I looked and couldn't find anything.
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.
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Random Musings
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Random Musings »

Clickbait title, IMHO.

Marxism is clearly worse.

Don't confuse theory with real world outcomes.

Index funds, OTOH, have worked very well. Very well in the long-run, as a matter of fact; and there is data to support it.

I guess if only super high E.R. index funds were only available to the public, it could be worse. However, markets have pushed E.R.'s to extremely low levels.

RM
I figure the odds be fifty-fifty I just might have something to say. FZ
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Thesaints »

eukonomos wrote: Wed Apr 07, 2021 4:47 pm My point is I agree with @mdchemist that I believe the index fund will need to purchase more shares, unlike what others have said. At least that is how I see it.
Yes, but share price doesn't go up (from the undiluted price). It goes down.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by MotoTrojan »

cogito wrote: Tue Apr 06, 2021 11:46 pm I suppose an interesting side effect might be that Tesla is one of the most innovative companies we've seen in our lifetimes...

I still don't understand the haters that still, to this day, think it's a gigantic charade that will fall apart at any minute.
You can be innovative and still wildly overvalued, but frankly I don't think they are at the cutting-edge in any of their areas of focus (there are niche companies doing more innovative things).
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by bryanm »

Thesaints wrote: Wed Apr 07, 2021 6:20 pm
eukonomos wrote: Wed Apr 07, 2021 4:47 pm My point is I agree with @mdchemist that I believe the index fund will need to purchase more shares, unlike what others have said. At least that is how I see it.
Yes, but share price doesn't go up (from the undiluted price). It goes down.
Yes, but isn't that the point? That some of the downside of share dilution (lowered stock price) is countered by action of index investors, whose additional purchases drive the price up? Does that price drive-up enable further dilution?
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by BogleFan510 »

bryanm wrote: Wed Apr 07, 2021 6:38 pm
Thesaints wrote: Wed Apr 07, 2021 6:20 pm
eukonomos wrote: Wed Apr 07, 2021 4:47 pm My point is I agree with @mdchemist that I believe the index fund will need to purchase more shares, unlike what others have said. At least that is how I see it.
Yes, but share price doesn't go up (from the undiluted price). It goes down.
Yes, but isn't that the point? That some of the downside of share dilution (lowered stock price) is countered by action of index investors, whose additional purchases drive the price up? Does that price drive-up enable further dilution?
No. They buy at the diluted price because, in theory, the 90% active investors are watching and immediately triggered sells on each dilution event, as they try to beat the price down timing by nanoseconds, so they can later buy back as the market overcorrects on the way down to lower prices.

Why would it overcorrect up and not overcorrect down too? The indexes have to sell when dilution lowers the price, so these are offsetting factors in both directions. A lower price means sell, more shares means buy. The equations cancel.
Last edited by BogleFan510 on Wed Apr 07, 2021 7:24 pm, edited 2 times in total.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Trader Joe »

"TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?"

No.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by eukonomos »

Thesaints wrote: Wed Apr 07, 2021 6:20 pm
eukonomos wrote: Wed Apr 07, 2021 4:47 pm My point is I agree with @mdchemist that I believe the index fund will need to purchase more shares, unlike what others have said. At least that is how I see it.
Yes, but share price doesn't go up (from the undiluted price). It goes down.
You keep saying the same thing @mdchemist and I have said.

I am missing your point.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by daniel2000 »

watchnerd wrote: Tue Apr 06, 2021 11:37 pm Hmmm.

If it's just that easy, why hasn't it been done before and / or isn't done by more companies?
I think other companies are catching on:
https://www.ft.com/content/47cafafd-299 ... fc64d65010
Image
Also
https://www.wsj.com/articles/investors- ... 1604324846
Diversification.
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by Sgal8713 »

daniel2000 wrote: Wed Apr 07, 2021 9:45 pm
watchnerd wrote: Tue Apr 06, 2021 11:37 pm Hmmm.

If it's just that easy, why hasn't it been done before and / or isn't done by more companies?
I think other companies are catching on:
https://www.ft.com/content/47cafafd-299 ... fc64d65010
Image
Also
https://www.wsj.com/articles/investors- ... 1604324846
I am not sure, but I think something pretty major happened around 2001 and 2008 (the other 2 peaks). I am calling a market top :D
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Re: TSLA gamed the system - Could Index Funds Be ‘Worse Than Marxism’?

Post by David Jay »

nisiprius wrote: Wed Apr 07, 2021 4:49 pm
NoRegret wrote: Wed Apr 07, 2021 3:27 pm
nisiprius wrote: Wed Apr 07, 2021 2:37 pm
NoRegret wrote: Wed Apr 07, 2021 2:34 pm
LearnMarket wrote: Wed Apr 07, 2021 1:38 pm I would recommend two great videos from Ben felix.
Some key take away points,
1. Trading sets the price of a stock not AUM. On trading, passive investing only accounts for 5% trading. It means, price is still dictated by the active traders. https://www.youtube.com/watch?v=Wv0pJh8mFk0
2. On other reasons to avoid indexing, Ben Felix presents data against them. https://www.youtube.com/watch?v=fvGLnthJDsg
Only a small fraction of active trading is based on a fundamental view. There are much more in HFT, momentum, and, make no mistake, trading designed to take advantage of passive flows. Passive is definitely changing the market structure.
Name the actively-managed funds that are successfully exploiting this effect, to obtain robust market-beating results which you confidently expect to persist. Then we can look at your picks five years from now and see how they are doing.
Logica Capital as one example.
Fund ticker symbol, please. I looked and couldn't find anything.
Logica Capital Advisors LLC is an RIA. There is no fund, rather they have "strategies".
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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