Reddit's Stock Threads Become a Must-Read on Wall Street

Re:Reddit's Stock Threads Become a Must-Read on Wall Street by SpicyLemonZest on Sunday October 11, 2020 @09:58AM (#24745806)

The concern isn't that it's bad on the individual level, but that it might represent a long-term structural problem when everyone's doing it. If we end up in a scenario where the prices of S&P 500 stocks are determined primarily by the number of indexed investors rather than the performance of the underlying companies... well, that's a Ponzi structure, where the performance of index funds depends critically on people continuing to invest in them.

Although it appears (https://www.economist.com/business/2020/08/06/joining-the-s-...) that we aren't actually heading towards that scenario right now, I think it's a possibility worth some concern.

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Re:Reddit's Stock Threads Become a Must-Read on Wall Street by throw0101a on Sunday October 11, 2020 @05:36PM (#24749301)

> If we end up in a scenario where the prices of S&P 500 stocks are determined primarily by the number of indexed investors rather than the performance of the underlying companies...

The prices of individual equities is determined by buyers and sellers coming to an agreement, not buy-and-holders. As long as there are two people who think they can take advantage of each other, there will be price discovery:

* https://en.wikipedia.org/wiki/Grossman-Stiglitz_Paradox

Ben Felix, of PWL Capital in Canada, has good article/video on this:

* https://www.pwlcapital.com/there-is-no-such-thing-as-an-inde...

* https://rationalreminder.ca/blog/2020/1/31/there-is-no-such-...

From the article(s), Blackrock estimated that only about 5% of buy and selling is done by index funds, so the vast majority of market activity, where price discovery happens, is still with the active folks.

See also the recent financial markets discussion with some of the sub-threads on about the (alleged?) usefulness of HFT systems in keeping liquidity high:

* https://news.ycombinator.com/item?id=24746836

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