Re:Why Index Funds Are Like Subprime CDOs
by pas on Thursday September 05, 2019 @03:57AM
(#20884739)
But the wisdom of the crowd, the price signal, only works if professionals look at the stocks. And it requires only a few [hundred] of them (with big enough leverage, so their position shows up).
For the top 500 stocks there are enough people (and algos) going over every bit released by the corresponding companies.
Re:Why Index Funds Are Like Subprime CDOs
by repolfx on Friday September 06, 2019 @09:51AM
(#20895619)
That's a contradiction. It's not the wisdom of the crowds if only a few hundred people are really looking at things. The whole point of that expression is that you need a crowd, to avoid groupthink, capture etc
Not really, because passive funds just piggy-back on the price finding results of the market.
And the active market is very sensitive. Especially if someone is so confident that they are willing to use drastically leveraged positions.
My analogy would be if we are all buying tickets to the big game and sit in the stands until it's over, there's no one to yell and shout and drive the energy of the crown or possibly no one to even compete on the field therefore why are we even showing up?
It's definitely the extreme - active trading isn't going away any time soon but fears of a only a limited group playing the market and managing or controlling stock prices for their gain isn't 100% unrealistic.