1Settimana
Of course, many believe they can find the top 4%! Everyone who holds at least one share for the long term does.
Without these dreamers, neither the stock market nor the ETFs themselves would work.
So let's hope that more than 80% continue to consider themselves above average. 😁
Without these dreamers, neither the stock market nor the ETFs themselves would work.
So let's hope that more than 80% continue to consider themselves above average. 😁
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1Settimana
@Epi There is certainly something to it... 😬
But to say that the market or ETFs only work because of the dreamers is probably too short-sighted.
ETFs work because they track the market as a whole, not because enough people actively make bad bets. Even if everyone acted rationally, the market mechanism and ETFs would still exist, just with different pricing processes I think.
Of course, I still count myself among the dreamers 👀
But to say that the market or ETFs only work because of the dreamers is probably too short-sighted.
ETFs work because they track the market as a whole, not because enough people actively make bad bets. Even if everyone acted rationally, the market mechanism and ETFs would still exist, just with different pricing processes I think.
Of course, I still count myself among the dreamers 👀
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•1Settimana
@VPT Passive index investing (which is probably what is meant by ETFs, although there are 1000s of niche ETFs to which everything you have said does not apply) is not a price discovery mechanism. If a company goes bankrupt, the share must become worthless. The passive investor doesn't care. If all investors were passive from now on, the current composition of the indices would remain the same, regardless of what the companies do. I think that would be pretty dysfunctional.
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1Settimana
@Epi Yes, that is exactly what is meant 😑
...If all investors really were passive, there would no longer be an efficient pricing system, that's true, but it really is a theoretical scenario.
I just meant that ETFs are not dependent on enough "stupid" decisions being made, i.e. they don't just live off mispricing or overreactions. Rather, because they reflect the entire market and thus automatically benefit from long-term growth, productivity increases and corporate profits - it is clear that the general price formation is a separate mechanism and depends on the supply and demand of the "active".
The changes in pricing mechanisms were more related to the fact that if everyone were aware that only 4% of shares are responsible for market profits, the processes would probably adapt:
- less stockpicking, more ETF investments
- use of quantitative or rule-based strategies
- Higher valuation of top performers
- Focus on alternative investments
- etc.
...If all investors really were passive, there would no longer be an efficient pricing system, that's true, but it really is a theoretical scenario.
I just meant that ETFs are not dependent on enough "stupid" decisions being made, i.e. they don't just live off mispricing or overreactions. Rather, because they reflect the entire market and thus automatically benefit from long-term growth, productivity increases and corporate profits - it is clear that the general price formation is a separate mechanism and depends on the supply and demand of the "active".
The changes in pricing mechanisms were more related to the fact that if everyone were aware that only 4% of shares are responsible for market profits, the processes would probably adapt:
- less stockpicking, more ETF investments
- use of quantitative or rule-based strategies
- Higher valuation of top performers
- Focus on alternative investments
- etc.
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•6G
@VPT I go along with that. I believe that more money was invested passively than actively for the first time in 2024. This probably also explains the blatant concentration of capital in the top 10 market capitalizations.
What I find exciting is the question of when (not whether) this trend towards passive investing will reverse again and what effects this will have.
Just imagine a whole generation of passive investors starting to switch from saving to de-savings in 25 years' time. In other words, passive saving without regard to valuation. Then, instead of 25 years of stock market boom, we will have 25 years of bear market. 😳
What I find exciting is the question of when (not whether) this trend towards passive investing will reverse again and what effects this will have.
Just imagine a whole generation of passive investors starting to switch from saving to de-savings in 25 years' time. In other words, passive saving without regard to valuation. Then, instead of 25 years of stock market boom, we will have 25 years of bear market. 😳
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@Epi yet another reason why I am strictly against financial education 👍
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•6G
@DonkeyInvestor Passive investing is actually financial semi-education or knowledgeable ignorance. Active beginner traders are ignorant ignoramuses and active professionals or insiders are knowledgeable knowledgeable people. The passive investor says to himself: Okay, I have no idea, so I always take everything (the heap).
In this respect, passive investors are actually semi-educated.
In this respect, passive investors are actually semi-educated.
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