Are index funds a meme?

[Anonymous No.53550667]

Let there be two groups: active investors and passive investors.

Active investors pay for teams of analysts, they do trades more frequently so they pay higher brokerage fees + the bid/ask spread loses them money too. Uncle Sam is not favouring active investors neither.

Passive investors pay BlackRock or Vanguard small annual fee (or nothing at all), with very small counterparty risk. They also pay spread, brokerage fees and taxes but much smaller on average than active investors. If they have enough money and want to avoid counterparty risk and fees, they can go full autism and buy individual stocks themselves and just never trade one for another - hodl as you would the ETF tracking index.

The two groups together hold the whole stock market and thus will make, by definition, whatever the market returns minus their respective expenditures. Since passive investors have much smaller expenditure than active investors, they will get, on average, higher returns than active investors.

It is self-explanatory that passive investors are freeriding on active investors's efforts that set the prices.

Since people are becoming increasingly aware of this, more of us plebs turn passive with each passing year.

If everyone turns passive, the stocks are no longer priced well enough and a bubble like we've never seen before emerges.

Is there a mechanism that will correct the prices? How would you force people to actively trade? If you make index funds illegal - people can practice so called "closet indexing" - they will just buy stocks hap-hazardly and hodl forever. My final question - why weren't people doing it prior to index funds? It is basic arithmetic. Before index funds were created, you could just buy random stocks and never sell. Most of the stocks would fail but a few of them would make your portfolio beat the average investor by the expenditures they have to pay.

[Anonymous No.53550965]

>>53550667
Too much indexing opens the way for active investors.
But only the brightest of active investors reap the rewards.
So the average normie should in most cases stay passive.

[Anonymous No.53551126]

>>53550965
>Too much indexing opens the way for active investors.
But only the brightest of active investors reap the rewards

I hear this argument all the time but does it actually make sense? Imagine that too much indexing happened and now only the brightest, most competent active investors survived and are left in the market. How will they, as a group, make higher % return than index investors as a group when they are still part of the same market? Nothing changes when most people turn passive - the active investors still must make less than passive investors on average, no matter their skill - because of all the extra expenditure they have.

The only way for an active investor to have higher return than the market is to have a sucker on the other end (less skilled/lucky active investor) and this fact doesn't change when indexing becomes too large.

[Anonymous No.53551143]

>>53550667

Index funds are still a safe slow growth bet. But if you want to make some real money faster, you need to take more risk.

Also, the info gap is narrowing with big institutional funds if you use the right tools. It's going only going to get better with AI. Soon the average Bizraeli will be able to look at patterns and assess opportunities in his skidmarked underwear that it used to take whole teams of investment analysts to pull together for their Vanguard manager.

Oh, and Vanguard's own analysis is generally good, but seriously lacking in other areas. They've been bullish on international shares taking off for years and many of their built-in retirement funds and such are international index fund heavy. Yet international shares continue to shit the bed vs. US companies.

VTSAX has a 54% five year gain, while VTIAX only has 2%. Yet in every report for their normie investors, Vanguard continues to insist international shares will soar and outperform US companies.

[Anonymous No.53551282]

>>53550667
I think having one position in something like VTI is good and with spare cash looking into hidden gems whether it be crypto or stocks is a good idea

[Anonymous No.53551365]

>>53551282
anon have you even read my blog? I know the English isn't the best but the idea is alarming.

[Anonymous No.53551493]

>>53550667
Retail and most institutional investors should be passive. Bulge bracket trading desks, hedge funds, and prop shops have always controlled the market. You can either ride along with them cost-effectively or get rekt.

[Anonymous No.53551767]

>>53551143
>Also, the info gap is narrowing with big institutional funds if you use the right tools. It's going only going to get better with AI.

Nah. The chatGPT hype is overblown, it's not some magic box that can predict the truth as many people make it seem like.
Stocks move on a multitude of factors, but mostly just future discounted cashflow which can literally be calculated in a spreadsheet.

Besides that 99% stocks will trade at fair value, since well the market is quite good at what it does

[Anonymous No.53551780]

>>53551767
predict the truth the future*

[Anonymous No.53552918]

"I beat the market and here is the proof"
>t. not a single chud on this retard board