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The Index Fund Problem Looming in 2024
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- Опубликовано: 15 авг 2024
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Michael Burry back in 2022 said that the only difference between now and the dot-com crash is the passive investing bubble that's been forming over the past decade. And now, with the magnificent 7 roaring ahead, that index fund bubble seems larger than ever before. But is this something that investors need to be concerned about?
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★ ★ CONTENTS ★ ★
0:00 The Passive Investing Bubble
2:48 Tech Stocks Over-inflating the Market
5:53 Market Distortion From Blind Buying
9:27 Will the Bubble Burst?
My Podcast: / theyounginvestorspodcast
Brandon van der Kolk is authorised to provide general financial product advice in Australia and is an Authorised Representative (Number 1305795) of Guideway Financial Services Pty Ltd, AFSL Number 420367. Any advice is general & does not consider your financial situation, needs or objectives so consider whether it's appropriate for you. Read Brandon's Financial Services Guide available from guideway.com.a.... Past performance is not a reliable indicator of future investment returns.
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Do you still have a sharesight deal? It is time to up my game.
@@robsalvv5853 I do, thanks for considering me :)
It's sharesight.com/newmoney
@@NewMoneyRUclipshey guys, there are couple of sneaky scammers in the comment section. It would be nice to delete these comments.
I did lots of backtesting and found that 20% SCHD/DGRO, 20% VGT/QQQ/SCHG 20% VOO and 40% bonds or 4%+ money market matches the growth of SP500 in up years but reduces the losses in down years by 40-60%. I'm still looking for companies to make additions to my 350K portfolio, to boost performance. Here for ideas...
I would avoid index funds, mutual funds, and specific stocks for the time being. Right now, the best option is a fixed income of five percent. Put money aside for the times when the market really starts to bounce back. most importantly consider financial advisory for informed buying and selling decisions.
I had a similar experience. A financial advisr could really help you re-adjust and identify blindspots that you yourself do not notice, like mine did in advising me during COVID on how the pandemic will shape things, and I made it out big and still make up to at least 20k in dividend per month.
Wow, that's incredible. Could you recommend who you work with? I really could use some help at this moment please.
I've experimented with a few over the past years, but I've stuck with the popularly ‘’Victoria Louisa Saylor” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look her up.
Thank you for the lead, searched Jennifer by her full name and at once spotted her consulting page, she seems highly professional having over 12 years of experience. amazing!
Active managers complaning about passive investing. Nothing new.
Hahahaha true. Even if they get lucky and break even, the fees alone would mean you are behind.
Especially, given that overall with passive investing, I save LOTS of money over time re tax efficiency AND better overall performance.
Guys like this just want clicks -- they're not AT ALL credible.
shallow people being shallow. nothing new.
@@rogergeyer9851 lots of academic research disagrees. passive is overbought, but is a religion now and people get triggered hard when it is questioned
@@Questionsabout-yv1ks Lots more professional research shows active investors are on average no better than passive ones.
Look at it this way. There is no perfect strategy. Bubble or not. Index/ETF investing is still the best option for the average joe. We don't get paid to sit around and analyse balance sheets 8 hours a day. For the common man index investing is still the best option!
You are correct and worst of all as he said most of them are terrible at it. I worked at Morgan Stanley in an active management part of the business. Most if not all of our active managers were not beating the index. I got shot down when I mentioned this. Passive management is a dirty word.
I feel this video has overplayed the issue. Whilst he’s correct regarding the s&p500, the issue on the vast majority of other etfs is non-existent
@@shiftykiwiofcourse u got shot down. Its like u said smoking is bad whilst working for marlboro. People dont like seeing the truth when their income depends on NOT seeing the truth
Scumbags live off AUM and not performance gotten.
I have spoken to 8 best i vestor firms and none could beat me (sp500 index) over any period of time. Trust me, they were NOT happy with me telling them this
it's the best option until it isn't.
@@PeterParker-wj3cr why are my posts being removed?
so true.
Transfer of wealth usually occur during inflation and market crash at times like this. So for me,this is time for aggressive investment. The more stocks drop, the more I buy. I'm just focused on making better investments and earning more as recession fear increases.
Investing without proper guidance can lead to mistakes and losses. I've learned this from my own experience.If you're new to investing or don't have much time, it's best to get advice from an expert.
Many people minimise the importance of counsel until their own feelings become overwhelming. A few summers ago, following a protracted divorce, I needed a significant push to keep my firm solvent. I looked for licenced advisors and found someone with the highest qualifications. She has contributed to my reserve increasing from $275k to $850k despite inflation.
Glad to have stumbled on this comment, Please who is the consultant that assist you and if you don't mind, how do I get in touch with them?
Svetlana Sarkisian Chowdhury a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.
Thank you so much for your helpful tip! I was able to verify the person and book a call session with her. She seems very proficient and I'm really grateful for your guidance
If 7 of the biggest companies in the world dropped FIFTY % the index would only go down 16%? Seems like a good result.
If the AI bubble explode, a supposly diversified index, with 500 companies in every profitable sector, will go down 16%. And that is not comting the people in the ETF that will sell there share when it goes down 10 or 15%. The problem is the influence of a single sector on the ETF, espaccialy when this sector is so hard goes all in in the unkowned
But wasn't that already happening in 2007 or any other time some sector had a too large share? @@Dark_Oopa
Exactly. Wtf this guy is fudging about
In the case that the Magnificent Seven goes down 50%, you probably have the rest of the S&P 500 crashing too.
Exactly, seems like a great result. If you can't stomach a 16% loss in the short term, then you probably shouldn't be invested in the market.
Your big crash has been looming since 2020, 2021, 2022, 2023, 2024.....
Same as Michael Burry ...or Chicken "Genius" Singapore 😂
Still looming
To be fair the market has never seen a global pandemic. Everything I learned in college about finance is not happening. Inverted yield curve, interest rates rising, more demand for bonds… yet there has been no negative price action in the market. Nothing makes sense and I refuse to employ my money into the markets today. I still think it’s a bubble and I’m firm on my stance. There will be a crash.
Agree. Technically, late '21 through late '22 was a bit of a crash, but it bounced back just fine
You nailed it!!! True
Find quality stocks that have long term potential, and ride with those stocks. I have found it takes someone who is very familiar with the market to make such good picks.
@@Kai-p2g How can I participate in this? I sincerely aspire to establish a secure financlal future and am eager to participate. Who is the driving force behind your success?
@@Kai-p2g
How can I participate in this? I sincerely aspire to establish a secure financlal future and am eager to participate. Who is the driving force behind your success?
How can I participate in this? I sincerely aspire to establish a secure financlal future and am eager to participate. Who is the driving force behind your success?
I just googled her and I'm really impressed with her credentials; I reached out to her since I need all the assistance I can get. I just scheduled a caII.
I just googled her too, turns out she has several convictions for fraud in the past
If it drops 15% buy the dip =D
Yeah my strategy has been passive DCA, but stop when it gets frothy and then restart when we're in a downturn
The Reddit strategy lol. You wouldn't even bother understanding why it dropped, would you?
@@will4417 Tbh if we're talking about index funds yeah that's unnecessary and maybe not even feasible
@@sauercrowder If you put money into anything just because it's been going up, then that's called recency bias. The US has revived a dead horse in the past by throwing cash at the economy, but just like PE ratios, national debt can't grow to infinity. This isn't sustainable.
@@will4417 You're literally watching a video about the fact that people are continuously adding more and more of their money to the market. There is no reason to believe the next correction will somehow be permanent, and if it is you've got bigger problems.
"Buy the dip" is bad advice, sure, but if you're still investing passively and intending to hold for a long time, there is really nothing wrong a strategy of buying more aggressively after a downturn. It just angers people like you because you think you're smarter than that and that there should be justice in the market where your overthinking is more profitable than someone else's dead simple investing strategy and discipline.
"They are invested into not because of business performance, but simply because they are in an index" Yes, but why are they in the index? Probably because of business performance(checked by the index provider), so there is no problem after all, I guess?
exactly my thought
Not really. The index is like a tape measure, and only measures one thing - market cap. It doesn't measure fundamental performance. And there are different measures like the S&P 500 Equal Weight Index. You don't know which one is telling the truth do you? That's why you have to know which index doesn't provide misleading results. Do it's time to brush up on your understanding of how indices can be constructed to polish poop.
@@CuriousCrow-mp4cx "only measures one thing - market cap. It doesn't measure fundamental performance."
Yes, but fundamental performance (or estimation and prediction of it by active market participants) affect the stock price and thus also the market cap and share in the index.
Yeah these idiot utubers thinks its the same 500 compies forever
It's not a bubble. It's that there is so much debt in the system, central banks have to monetize the debt to keep the system from collapsing. All that's happening is global liquidity is rising like 8-10% per year and it's repricing the price of scarce assets via currency debasement. Basically if you divide SPY or VOO by the Federal Reserve balance sheet, the market has been flat since 2008. I mean you can stop passively investing because you think it's a bubble. But if that bubble bursts then even your cash sitting on some bank's computer system or in a stable value fund in a 401k is going to get confiscated by the banks to back stop a systemic collapse. That happened in Greece over a decade ago. So it's safer to just leave it in the market. You're more at risk of being left behind by currency debasement than you are of a 80% collapse of the SPY.
That is a reasonable argument. Stocks may be a good hedge against inflation. But if you are worried about inflation gold and gold stocks might be a better choice.
i agree. hahahah everytime market prices rises its a Bubble and if it fall its recession.. fking wanabe wallstreet utubers.
I like investing in close-end funds that pay monthly dividends. The trick is to hold long term and reinvest the monthly dividends plus buy more shares on a monthly basis or whenever you can afford to. This can be easily done because close-end funds are bought and sold on the stock market just like regular stock. That’d be enough to create a portfolio that would pay you between $50k to $70k in dividend income
Just because there are opportunities in the market doesn’t mean you should go in blindly. To understand the potential factors that contribute to your financial growth, I'll advise you to seek the help of a professional
Due to my demanding job, I lack the time to thoroughly assess my investments and analyze individual stocks. Consequently, for the past seven years, I have enlisted the services of a fiduciary who actively manages my portfolio to adapt to the current market conditions. This strategy has allowed me to navigate the financial landscape successfully, making informed decisions on when to buy and sell. Perhaps you should consider a similar approach.
How can I reach this advisers of yours? because I'm seeking for a more effective investment approach on my savings?
My CFA ’’ Sharon Ann Meny, a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market..
Thank you for the recommendation. I'll send her an email, and I hope I'm able to reach her.
So Burry is bitching because passive buying and holding helps to maintain a price point but will inflate future prices due to reduced supply of that stock.
Basically, he's complaining that there is less available for him to churn or to short because he can't\won't knock on a gazillion doors asking to borrow your stocks so he can sell them to devalue them and then buy them back and pocket the profit while you "benefit" from a few pennies per share and a devalued portfolio. Tough shit Michael
something is wrong with your brain
Exactly. Still not a fan of index investing. But it is effective.
@@michaelegerszegi4261why are u not a fan of index investing? I understand if u are exception on the rule with active managers like buffer or peter lynch then thats great. But for 99% of people index in say sp500 is superb decision for longterm investing
I guess he will find a way
@@michaelegerszegi4261 why arent u exactly fan of indexing?
This is nothing new, I've heard the same thing 5 yrs ago. And now
yes it has been a subject for years. it is indeed a risk. an ETF is essentially a derivative, as it's built on a basket of other stocks. there is always a risk in derivative products. so far, all is good.
I do not think these arguments hold true:
1. Most investing has always been passive. Even Founder-owners of a company are not gonna sell because their company has had a bad quarter. Same for pension funds or sovereign wealth funds and the like which have been trying to offset risk by averaging the market for a long time. Vanguard just made this accessible to the average investor.
2. In a crash, who is more likely to make the crash worse by panic selling - a passive investor who looks into his stock portfolio once a year, or an active investor trying to beat the market daytrading single stocks with leverage?
3. When the value of a position in an index goes up, the index fund does not have to make new purchases of that stock. They already hold it, and its value increased according to its value share in the index.
I am only worried about companies entering and leaving the index. Someone may be able to acquire a large position in an out-of-index company, pushing it into the index. Then funds need to buy the stock to reflect the index, pushing the price further. Then the original investor can sell at the inflated price, dropping the company out of the index. Funds have to sell at dropped prices. Rinse/repeat.
I love your last point man. Is there something that I’m missing. Why don’t people look to invest in a company that the big 3 might have to buy a large large large portion of to satisfy the conditions of the top 500 companies. Any idea how often companies enter and leave the top 500. Also I just thought of this. It’s likely the big 3 own shares in all companies within striking distance of the top 500 for that reason.
*Appreciate your videos! I’m 54 and younger generations should know there’s no shortcut to acquiring wealth, but there are ways to go about it. Fellow millionaires don’t tell the poor/middle class they need the knowledge of finance coaches to help build their wealth. If anyone here needs a good coach, here’s it..*
Elizabeth Greenhunts
get to her with the name
Many needs this lnfo. Good stuff
@New Money please clean the scam bots chains
As an investing enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?.
Just because there are opportunities in the market doesn’t mean you should go in blindly. To understand the potential factors that contribute to your financial growth, I'll advise you to seek the help of a professional.
A lot of folks downplay the role of advisors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for licensed advisors and came across someone of utmost qualifications. She's helped grow my reserve notwithstanding inflation, from $275k to $850k.
This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? i'm in dire need of proper portfolio allocation
NYCOLE CHRISTINA VANNATA a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.
Thanks for sharing, i did a quick search and found her web page, i hope she responds to my mail soon
If index funds “irrationally” holding up prices, why TSLA, Nvda etc would suddenly drop 5-10 ? And FB dropped 50% after it became META? A humble question looking for answers
check out some of the research on index effects - the math says that the largest stocks will get larger, due to the concentrated effects of index inflows. Also check out how index funds use derivatives to avoid creating market effects. For those with the courage to ask the question, it turns out that indexing is a good idea, but it has some surprising risks.
Of course, the index true believers think that indexing is a free lunch...
always thought about this. maybe the drops come from sell-off from active managers. other asset managers (like those managing assets of an insurer) have liabilities to manage and have different criteria for assets e.g a limit on volatility. this question definitely needs further investigation.
The answer is because prices were being held irrationally high. Duh.
My 2 cents. If your investment window is long enough (20+ years), it doesn't matter. You'll DCA your way to a lower average price and eventually you'll be in the green even if the market is bleeding, at that point you just made it. You cannot say the same about stocks, you have the certainty that the overall US market will go up, even if it doesn't break its ATH, but a stock could be in a perma decline until it fills bankruptcy. That's why you don't pick single stocks.
Also look at the top S&P companies 20 years ago. Completely different but the index still up the to the right. Next
Honestly, this concerns me and has left me uneasy. Especially this potential depression, no more a recession. I'm unsure about my $130K account strategy, considering the uncertainty of this whole recession mostly.
Agreed! this is why I work with one. My $520k portfolio is well-matched for every market season yielding 85% rise from early last year to date. I and my advsor are working on more figures for this year. IMO, financial advisors are the most sought-after professionals after doctors.
I could really use the expertise of this advsors.
Her name is 'BONITA JEANETTE RODRIGUEZ’. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment.
Thanks for sharing. I curiously searched for her full name and her website popped up after scrolling a bit. I looked through her credentials and did my due diligence before contacting her. Once again many thanks
Give instructions for a recipe on classic apple pie.@@priyankamahatma6672
1) The passive investors aren't setting the price. It's the active investors.
2) If there is a passive investing bubble, it's a great opportunity for active investors (such as Burry) to make some cash and get prices back to the proper level. If you are continually buying, then these ebbs and flows are to be expected and totally fine.
3) Most people also diversify into international and small/mid cap so the concentration which diversifies beyond the magnificent 7. Also these companies have incredible profits and have had a long record of great growth despite being continually labeled as too expensive. If you had stayed out of these companies, you would have missed out on a great run over the past 2 decades.
4) This weighting of the top 10 companies is not wildly different than throughout history of the S&P500.
incorrect, the passives MUST purchase each time money flows in. you should look into how much stock purchases are driven by so-called passive inflows. passive funds are passive only in decision making, they are very active in price setting
@@Questionsabout-yv1ks As he pointed out the vast majority of the trades within passive index funds are within the secondary market. Also there have been several studies that show it takes very little active trading to set the price. Also again, if prices are severely distorted, it's a great opportunity for an active investor to come in and make a ton of money.
@@TheBlackMage3 Not really, because the inflated value from passive investors isn't going to go away. Active investors cannot capitalise on the deviation from true value because there is no deviation. The speculation term that the passive inflows create is genuine value. It would be like trying to short dollars because they have no intrinsic value, and their value comes from people being prepared to trade with them. That's all true, but while people are prepared to trade with them they retain their value.
Active investors will manage the price to reflect all terms, including the projected grown in share price from the passive investor term. If the passive investment market is expected to grow, then those stocks will be expected to grow, despite being functionally unrelated. It introduces a feedback term, and this feedback term is getting quite big.
The challenge with bubbles is that there is no way to make money off one until it bursts, and predicting when that will happen is extremely difficult.
Burry wrote that in 2022, it's now 2024, so not last year. Things change over two years.
Yes, my bad - I did say the wrong thing there. My apologies!
I have a 3 fund portfolio consisting of 33% S&P, 33% Total stock, and 33% international. I feel a need to focus on complete growth so I went 100% stocks, but does the SP500 and TSM overlap too much to make sense holding both? However I’ve been in the red for a month now. I work hard for my money, so investing is making me a nervous sad wreck. I don’t know if I should sell everything, sit and just wait but watching my portfolio dwindle away is such an eye -sore.
Stay calm and keep buying.
Passive investing bubbles arguments can be applied to bank saving accounts: basically everyone who is not a investing guru investing in something “safe” creates a “bubble”
Given the current volatility in the stock market, I believe investors should divert their attention to lesser-known stocks. With 35% of my $270k portfolio invested in stocks that have sharply declined from their previously high status, I find myself at a loss on how to proceed, feeling overwhelmed by the situation.
Safest approach i feel to tackle it is to diversify investments. By spreading investments across different asset classes, like bonds, real estate, and international stocks, they can reduce the impact of a market meltdown. its important to seek the guidance of an expert
Many people minimise the importance of advisors until they become overwhelmed by their own feelings. I needed a big boost to keep my firm afloat following my protracted divorce, so a few summers ago, I looked for licenced advisors and found someone with the highest qualifications. She has contributed to my reserve increasing from $275k to $850K despite inflation.
How can I participate in this? I sincerely aspire to establish a secure financial future and am eager to participate. Who is the driving force behind your success?.
Actually it’s a Lady. Yes my go to person is a ’Melissa Jean Talingdan”. So easy and compassionate Lady. You should take a look at her work.
Thank you for this amazing tip. I just looked the name up and wrote her
up, to schedule a call. many thanks
You were saying this like 5 years ago - if we listened to your doomsaying you would have missed out on an incredible bull run. Why? Because you’re afraid of a 30% etf price drop?
Agree 100%
No he’s not saying that.
If those companies lose 50% of their value, the world economy crashes. Index or no index it will not matter 😂
people have been talking about index fund bubble for years now, but very few people ever get rich by predicting a crash.
you are correct. i have been worried about the construct of ETFs since 2018. haha. they are risky. no doubt about it.
Indeed. I was reading an old book from Peter Lynch recently. While the book was several decades old, Peter Lynch talked about how investment professionals were concerned about a mutual fund bubble and too many people putting too much money into passive mutual funds (this was before index funds really became a big thing). So yeah, these people have been crying wolf for decades now about this non-existent problem.
I agree with you there, Simon!
You work for a 40yrs to have $1m in your retirement, meanwhile some people are putting just $10k in a bitcion coin for just fe months and now they are multimillionaires thanks to Charlotte Grace Miller
She is my family's personal broker and also a personal broker in many families I'm United States, she's a licensed broker and a FINRA AGENT in United states
I'm surprised that you just mentioned and recommended Charlotte Miller, I met her at a conference in 2018 and we have been working together ever since.
The very first time we tried, we invested $1000 and after a week, we received $5500. That really helped us a lot to pay up our bills.
I'm new at this, please how can I reach her?
She's always active on Whats~App...
I don’t understand your point. What’s your recommendation if people shouldn’t invest in passive index funds? Volatility is the price we must pay for higher returns.
I will be forever grateful to you, you changed my entire life and I will continue to preach on your behalf for the whole world to hear you saved me from huge financial debt with just a small investment, thank you Charlotte Miller.
She is my family's personal broker and also a personal broker in many families I'm United States, she's a licensed broker and a FINRA AGENT in United states
The very first time we tried, we invested $1000 and after a week, we received $5500. That really helped us a lot to pay up our bills.
I'm surprised that you just mentioned and recommended Charlotte Miller, I met her at a conference in 2018 and we have been working together ever since.
I'm new at this, please how can I reach her?
Really you people know her? I was even thinking that I'm the only one she has helped walk through the fears and falls of trading
So a few people would lose trillions while the vast majority of passive investors would lose 16% if the s&p grows 10% a year on average those passive investors would need 1 1/2 years to regain their losses.
Hard to take it seriously when it's active investors complaining about this "probelm". The problem is it's harder for them to be grifters 😂
they are not complaining, they are pointing out that the mindless autopilot buying by passives creates rigid markets.
Trees do not grow to the sky, the day will come when passive's inherent flaws will play out. I use passive myself, but my finger is always near the "sell" button.
@@Questionsabout-yv1ks sure bud, it's just advisors wanting your $$$, but sure.
Passive investors will NOT trade or sell the stock, which creates stability on the stock market a.k.a. in the stocks they hold!
So Mag 7 falls 50% and the index falls 16%…..is that supposed to be an argument for or against passive indexing? 16% drawdown is nothing unless you’re
Agree. Also the index has a much better chance of climbing back after a correction than some individual stock that got whacked and now has to turn its fortunes around, fire ceo etc etc etc
All the time I save from passive investing, I invest into myself, my career, my family, and my hobbies.
Your video suggests that mega stocks are severely overvalued, which I find confusing. For example, Microsoft (MSFT) has a P/E ratio of 39, with $211B in revenue and $72B in net income. These numbers don’t indicate a bubble to me. Did I misunderstand the message of your video?
Bingo. There’s a correction coming, but to think it’s happening with 5/7 of the bigs is simply ludicrous and shows whoever is saying that has no idea how those companies got that large and stayed that way for that long.
The first 3 comments I read were bots. Some specific person helped the bot earn unrealistic returns. Another bot is really interested in getting help from this person. These are all over finance videos.
if m7 companies drop 50% doesn't S&P500 ETF get rebalanced ? i.e. - less shares of those companies, and more of others ? So in the end it's not 15%, but much less than that ?
Is this a rerun?
I wanted to revisit the idea in 2024 with all that's going on in the Mag-7, but you're correct, I have covered Michael Burry's thesis when he first came out with it :)
This is the best time to be an active investor as passive investments have crossed one 50%.
The biggest issue with passive investing right now is the valuations of stocks that are part of market-cap weighted index.
Thanks for the video. But based on the fundamentals of passive investing that Warren Buffet, Jack Bogle, and others have fortunately shared, this crash would only be beneficial to those who are committed to “staying the course.” This is because if the index fund bubble does pop, it will be a great opportunity to buy them ‘on sale’ assuming one has cash available. So while yes the market is setting up to pop at some point, I would argue that it’s only natural/unavoidable - history tells us this. And until passive investors choose to actively research stocks to invest in, I think passive investing will be the way to go - as long as one can stay the course :)
Are you suggesting that investing driven by a Ponzi scheme (blind buying) is acceptable?
@@yeetboi268 I don’t really understand your question but I don’t think investing is a Ponzi scheme. Investing and speculation are very, very different, and bubbles are a natural course of the economic cycle. The real question - as an investor - is if you are willing and able to be conservative in good times so that you can be aggressive and opportunistic in bad times. If you read Devil Take The Hindmost by Edward Chancellor and The Great Depression: A Diary by Benjamin Roth you will be able to understand my position more clearly. Cheers!
Agree, all the people in here fretting about a correction in the index don't get it. Passive investing doesn't just mean not picking individual stocks it also means long term buy and hold and not trying to time market conditions nor sell when the market inevitably corrects.
Buy the Equal Weight version of S&P500:
The S&P 500® Equal Weight Index (EWI) is the equal-weight version
The index includes the same constituents as the capitalization weighted S&P 500,
but each company in the S&P 500 EWI is allocated a fixed weight
- or 0.2% of the index total at each quarterly rebalance.
Michael Burry's tweet from last year (2022). Which year are we now 😅?
We're on the 10th inning, could it go on further? Hell yes. Are we at the end of this cycle? Hell yes. Can we guess if it will end at the 11th inning? Helll no. Do the Math buddy.
haha. good point.
Yeah you're right Sebastian, my brain did glitch out there haha
the biggest companies in the US drop by 50% and i only lose 16%? that sounds really well hedged to me.
The problem with the 16% fall is that their drop would trigger margin calls and trigger selling in other stocks to cover calls.
Passive investing should also include geographical diversity. You should not only invest in the s & p 500. You should invest globally.
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Sincerely speaking. I will continue to trade and stick to expert catherine daily signals and guides as long as it works well for me.
A lot of folks downplay the role of advlsors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for licensed advisors and came across someone of utmost qualifications . She's helped grow my reserve notwithstanding inflation, from $275k to $850K.
This is correct, (Adriana Catherine )strategy has normalized winning trades for me also, and it's a huge milestone for me looking back to how it all started..
Passive investors use index funds as a sort of bank so when there’s a cash crunch in the investors pockets we may see prices come down.
How do we know that Vanguard's holdings in Microsoft are all index funds? Doesn't Vanguard also have actively managed funds?
Yes, but to a much lesser degree :)
So wouldn't that eventually equalize the market so it's easier for active investors to identify undervalued stocks?
I'm starting to wonder... Is there a way to invest to an earnings index, rather than a market cap index? I feel like you would come out on top every time there's a pricing correction
We talk about asset inflation.. The biggest asset inflation seems to be in these few stock and being translated into index funds.
The mag 7 may or may not be overvalued. If they are overvalued their valuations may or may not stretch. The market could crash or keep going up. Missing out on the best days of the market, and trying to time out will lead u to having significantly less gains over time. Just dollar cost averaging into the s&p 500 as well as a little in a total international index will greatly increase your returns over time.
Investors are still in denial about the fundamentals of the economy. They expect rares will soon be cut and believe the topline GDP numbers signal a strong economy. However, they dont. Credit card balences are maxed out, more credit is hard to come by for consumers, a ton of companies are about to beforced into refinancing their debs at far higher interest and the regional bank backstop program is out this month. There's also the fact that inflation ticks higher than expected every single time the markets believe a rate cut is around the corner and a rate cut would cause a surge in inflation. The fed sees this stuff, guys. The only wild card for us investors is to actively engage the market by trading, we always over complicate things when we speculate. It's not about guessing the market's next move; it's about playing it smart and steady during trading...managed to grow a nest egg of around 100k to a decent 732k in the space of a few months... I'm especially grateful to Sandy Barclays, whose deep expertise and traditional trading acumen have been invaluable in this challenging, ever-evolving financial landscape.
Sandy Barclays program is widely available online..
Over the years, I've been a part of numerous trading programs, sifting through a barrage of information. Yet, nothing has come close to the sheer clarity, depth, and precision of Sandy insights. It's akin to finding a diamond in a coal mine.
Sandy Barclays’s understanding of market indicators is impressive. She knows exactly when to enter and exit trades for maximum profit. Her siignals are top notch..
The truth is, with this recent economy everyone needs more than their salary to be financially stable. The best thing to do with your money is to invest it rightly because money left for savings always ends up used with no returns...
If the market has taught me anything, it's that it always recovers, but I can't seem to focus on the long run, when major factors like my retirement and my reserve are wreaking havoc on inflation. I require a solid data trajectory and solution as soon as possible.
The problem is people blindly buying and buying and completely disregarding how bad the economy really is.
As a passive investor, the actual underlying companies do almost feel completely abstracted from the investment.
I almost don't need the underlying companies to be profitable, undervalued etc: just as long as the value of my shares in 20 years are significantly higher than when I bought them, regardless of whether that price is massivly inflated or not.
I actually thought the share of stocks in passive funds would be bigger higher.
Kind of a one sided perspective and I don’t think you can call it a bubble. These companies don’t end up under the ‘umbrella’ of an index fund out of nowhere, but based on their performance. If Apple structurally starts to make less revenue, they end up lower in the S&P500 and they also have a smaller part in the index fund.
Yes ETFs do inflate the prices of those stocks. However, i'm also notxparticularly concerned that there will be a massive exodus from ETF positions so the inflation will stick around. It's not really a problem
Lots of Michael Burry's thoughts and comments on this channel.....
Click bait with the guy that wrote SELL in the beginning of 2023, and the rest is history...
Yeah, not so much these days as he keeps pretty quiet. :)
Does this essentially mean that $13.29T of investment is asleep at the wheel?
YES.
yup, and it means crappy s&p 500 firms can survive a long time as long as they can stay inside the index
Who is actually using share owner power towards the company? Vanguard, BlackRock? Where those investor money actually goes when putting money to synthetic ETF? Does this give intensive to get small company fast to be included S&P500? Distortion of free competition?
@@omonkkonen6676 I’m not sure where that money goes, exactly. It’s just fundamentally wrong for an index to be propped up this much by a handful of companies. When only 7 companies have shown significant growth compared to the rest of the index (who’s growth has been declining), it’s a very clear sign of a bubble of some sort. It’s not productive, therefore it’s not viable in the long term.
the crash will be instigated by the trigger happy hedge funds. Dollar cost averagers appreciate a price drop because they can buy more of the share for the same price. They are less likely to panick sell
I think you might be wrong on your conclusion about 95% of the trade volume not coming from etf's:
The stock-investors have a different "rate of their trades" than etf-investors.
Etf-investing consists more of saving plans and occasional buying with left over money.
Stock-investors on the other hand have more people actively trying to take part in the market by buying and selling their stocks more frequent.
That may be true, but common sense implies that fund manager can sense that move and shuffle the portfolio elsewhere so the risk for the fund is not nearly as big as to the individual investor.
16% drop? That’s hardly a crash. Thats a minor blip, hold hold.
I agree with your and Barry's assessment. But here's another perspective. Average American people (not finance-savy) will blindly contribute 401k to S&P500. QQQ and S&P500 will keep rising because of that. Bubbles or not, that is not relevant.
Thought??
I was thinking the same... but not just Americans. Globally retirement funds, here in Australia superannuation, are pouring money into these funds regularly.
There is a difference between "artificially inflated stock prices" and "irrationally inflated stock prices". Learn it.
It's funny that literally two videos ago you were advocating so hard for DCA, and now telling us how it's breaking the market. Not to say both of those things aren't true
Because things are not binary.
@@barybary42and because this guy is a content creator 😂
People worry too much about crash potential and not enough about recovery.
It took VTI 5 years to recover from the 2008 crash whereas it only took VGT 2 years to recover. Still sucks, but that tech volatility also contributed to recouping losses in less than half the time as the rest of the market. Volatility can be a good thing if you’re willing to just ride out the typically shorter lows.
Saying that the Mag 7 is overvalued definitely is just fear mongering. Some of them are moat likely overvalued but on a forward basis, some of them are likely fair to undervalued. People shouting these companies were overvalued for years but their earnings keep justifying those valuations time and time again.
compared to their price changes, the p/e multiple has only barely increased, AAPL has been around a 30 p/e for more than a decade, they just really have grown their earnings. NVDA forward p/e is 40, so maybe that's a little hot, but MSFT has maintained a forward p/e of 40ish for multiple years now. Stock prices really are about earnings, and then supply and demand forces are a second-order effect after that.
Yes s&p being by far the most top heavy in history means absolutely nothing. Thanks for your genius input
Enjoyed this episode a lot! especially the promotion of your course to invest in ETFs :)
Those 7 are now monopolies. Any small companies start to do well or have any breakthroughs, they'll be bought up.
Buy BTC/ETH 👍🏻
Great video as usual. The fact is, the non discovery of price actually makes passive investing way safer because funds will keep moving into these funds regardless of market sentiment and the index will keep capturing the big winners and drown out the poor performing companies. One big test for this approach was Marxh 2020 and I did not see anything specific to passive etf investing that caused an issue.
The professional finance community wants this illusion of a bubble because at the end of the day, these etfs are eating into their management fees and brokerage fees.
I wonder if these index funds are still voting as shareholders. I'm inclined to think this should be regulated. They might have too much power, and they might be responsible for some political and cultural problems e.g. (Disney).
Passive index funds usually beat active investors in the long run. Holding different index funds and sector specific funds gives you tons of diversification. The indexes create floors for markets.
This seems to be more of a problem with the US indices rather than passive investing in general. Buy into the UK, EZ, Australian etc index funds and you don't have this problem to such a degree.
I’m confused? Are you talking about USA index stocks or Australian? I’ve seen the Australian ETFs have a small gain since 2007. Go and have a look.
I really liked this video and think its an important topic. Its a catalyst to thinking further about the good and bad consequences of index investing. My adoration for Burry is a lot less than yours.
I mostly buy global all-cap. I don’t like to be over-exposed to the S&P 500.
Funny thing is if companies earnings go up they are rewarded if not they are punished so all this talk about bubble is nonsense
So, there has never been a bubble in the history of humanity - just earnings not achieving expectations from time to time.
@@jeronimo196 if you watched the video he explained the difference lol
@@shaunjames2221 he explained that the stock price is determined by the active investors, not by the passive ones.
The active investors haven't been giving a solitary fuck about earnings for years now, especially not in tech. Nvidia and Tesla prices are certainly not based on silly things like earnings or fundamentals.
@jeronimo196 actually that's not true nowadays you see a lot of sell-off before and after earnings- pltr is a great example
@@jeronimo196 We are in Stagflation. My brother works in oe of teh top3 investment bank as an AVP, he said last week, a couple of the guys from the fed came over to his office meeting with his boss and others in similar positions for 1 hour meeting. After the meeting his boss told him they will drop the interset rate in late august then 1 after the election to boost the markets. His boss told him to keep hus hush about this
Index ETF like VOO or SPY , DIA ...etc will not cause a bubble as no net new money comes in....
Mutual fund index will cause bubble
if sp500 investing is doomed then whatever. I'm too stupid for the rest of it. we're on a rock in space. whole thing is a literal bubble. just gonna hope for the best with my little index funds and oh well to the rest of it
If you exclude the mag 7 the rest of the market has traded sideways for the last 18 months. These fund managers need to start looking at the rest these companies and not just pilling in to the top 7. They are creating the bubble, we are buying the whole S&P 500 market weighted, we inflate them all equally
Or... ETF are giving People an easy access to the market that they didnt have before via apps, lower costs etc... and the growth of ETF is just retail clients finally joining in ?
Always f
Good, and always bearish. And therein lies the problem. If we’d sold 12-18 months ago when you recommended we’d be a lot poorer. So fundamentals might say “sell”. But when everyone is still buying..? Sell when you think the crowd is about to. Not when you think the market is overvalued.
Buying the index and etf is NOT investing nor does that make you an investor..
You are ONLY a partaker a buy-stander who pays for for base results...
Tis better than nothing, but NOT INVESTING..
Can historical PE be a good indicator to find if the index is over valued and therefore a bubble?
Which is certainly not the peak at the moment.
All passive investments in the world only make up about 28% of market share. Passive index fund investments are even lower than that (obviously). Therefore, by this logic, we are in a "active investment bubble", if anything.
People are so silly, lol
Panic will create opportunities, passive investor increase the value of the opportunities.
All that will happen if most people were to hold index funds, is that active management will outperform. Once that happens people will sell out of index funds and go into active management and index funds will outperform once again.
This will unlikely happen in general as long as most people are stock pickers. Investing has been solved and its really as simple as holding the index, but yet people STILL stock pick and underperform.
only that active fonds never outperform for more then like 2 or 3 years due to it beeing random. The only somewhat successfull aktive fonds are those that hug an index and trim of the fat by excluding some of the obviously weak companies still in the index.
That is impossible. By construction the passive investors portfolio is the average of active investors portfolios. Since the former pays lower fees than the latter, passive investing will always outperform the average of active investors.
"Don't worry about it..."
ha ha!
When you predict 20 recessions of the last 1 recession
michael burry has been predicting a market crash since 2009 bro 😂😂😂
Ultimately, these would largely be short-term losses, and it really wouldn't matter at the end of the day given the nature of an ETF to begin with plus DCA means this in theory shouldn't even matter for most people.
I see the argument against excessive concentration in a few stocks, but what's the alternative? If everyone goes for 'the door' at the same time will we all just have wads of cash under our beds, or in bank accounts?
Buyers are guaranteed. Volume is guaranteed. The notion that a buyer is required hasnt been true in 15 years.
I disagree, an index brings security to a stock. There would also have to be significant lowering of demand for the index’s to crash badly. There’s stable demand as people buy into the index’s every week.
Did you watch the video at all? It's literally discussed in the Blind Buying segment.
@@yeetboi268 yes I was simply saying why I disagree with Michael burry😂why is that a problem? Also I’m using the argument for the opposite reason mentioned in the video, the video says that blind buying is bad. I’m technically saying blind buying provides lots of stability.
@@thesig301 I see, you're the kind of person who prioritizes performance over safety. Given that, I don't expect you to understand.
I can only wish that you will make enough money so that one day, when your AUM is large enough, you will understand.
@@yeetboi268 wow you’re so smart and sound like a good person! Pointless conversation
index creates artificial demand for a stock