Klargman thoughts on Trump and to a lesser extent, mutual funds and ETFs

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fantasytensai
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Klargman thoughts on Trump and to a lesser extent, mutual funds and ETFs

Post by fantasytensai » Tue Feb 07, 2017 10:42 am

Saw this article today. Thought it was an interesting share since Klargman rarely discuss these things. Thoughts?

http://www.msn.com/en-us/money/markets/ ... li=BBnbfcN

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steve roy
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Re: Klargman thoughts on Trump and to a lesser extent, mutual funds and ETFs

Post by steve roy » Tue Feb 07, 2017 10:51 am

It's a fool's errand to predict political outcomes of tax and spending policies. We'll know more by late summer when tax law comes into focus. We know less now. That still won't tell us where the markets end up.

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Kevin K
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Re: Klargman thoughts on Trump and to a lesser extent, mutual funds and ETFs

Post by Kevin K » Tue Feb 07, 2017 11:03 am

It's Klarman, not Klargman and there's a more detailed article in yesterday's New York Times:

https://www.nytimes.com/2017/02/06/busi ... -well&_r=0

Let's skip the political component in compliance with board rules and instead perhaps look at his comment about passive vs. value investing, which seems to be a pretty direct attack on the approach we Bogleheads follow:

"Perhaps the most distinctive point he makes — at least that finance geeks will appreciate — is what he says is the irony that investors now “have gotten excited about market-hugging index funds and exchange traded funds (E.T.F.s) that mimic various market or sector indices.”

He says he sees big trouble ahead in this area — or at least the potential for investors in individual stocks to profit.

“One of the perverse effects of increased indexing and E.T.F. activity is that it will tend to ‘lock in’ today’s relative valuations between securities,” Mr. Klarman wrote.

“When money flows into an index fund or index-related E.T.F., the manager generally buys into the securities in an index in proportion to their current market capitalization (often to the capitalization of only their public float, which interestingly adds a layer of distortion, disfavoring companies with large insider, strategic, or state ownership),” he wrote. “Thus today’s high-multiple companies are likely to also be tomorrow’s, regardless of merit, with less capital in the hands of active managers to potentially correct any mispricings.”

To Mr. Klarman, “stocks outside the indices may be cast adrift, no longer attached to the valuation grid but increasingly off of it.”

“This should give long-term value investors a distinct advantage,” he wrote. “The inherent irony of the efficient market theory is that the more people believe in it and correspondingly shun active management, the more inefficient the market is likely to become.”

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triceratop
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Re: Klargman thoughts on Trump and to a lesser extent, mutual funds and ETFs

Post by triceratop » Tue Feb 07, 2017 11:03 am

^ Bingo, steve! Locked (Politics).
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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