Author Topic: Semper Augustus letter  (Read 28726 times)

Cigarbutt

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Re: Semper Augustus letter
« Reply #70 on: March 20, 2018, 01:40:31 PM »
You are correct.
The strength of a conclusion is based on solid reasoning based, as a foundation, upon the quality of clearly defined assumptions.

I got carried away with empathy after reviewing the indexing topic and after reading this article.
https://www.bloomberg.com/view/articles/2018-01-30/the-dumb-money-is-about-to-become-very-influential
Riding the wave is so much fun.

I'll try no to let it happen again (on this Board). ;)


Jurgis

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Re: Semper Augustus letter
« Reply #71 on: March 20, 2018, 01:48:50 PM »
Nah, I think your post had good and valid observations. Carry on.  8)
"Before you can be rich, you must be poor." - Nef Anyo

Dynamic

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Re: Semper Augustus letter
« Reply #72 on: March 21, 2018, 07:43:11 AM »
I agree that these are valuable observations and discussions.

We sometimes need to be precise about in what way a person, group of people or a fund is acting passively or actively.

For example, assume there exists a substantial portion of retail investors as a collective, the presumably large group who tend to put money into funds at the end of the boom cycle and withdraw it upon signs of trouble, not returning until the market has again showed multi-year gains in the recent past.

That group is making an active decision about the timing and amount of their added or withdrawn funds, regardless of whether the underlying funds make active or passive decisions about buying and selling stocks on their behalf in accord with the net inflow and outflow of investor funds.

On the subset of that group of investors that invest in broad-market index funds (market cap weighted), each fund unit represents the same fractional ownership of each company (or of each company's free float) aside from tracking error and tracker decisions to omit smaller caps or to rebalance them less often to save costs.
At the whole-market level the net inflows and outflows can be considered a contribution to price-setting (based on some kind of active momentum-like behaviour). It does not differentiate between one stock and another within the same index, however, as allocation is passive. Only flow is active and flow (assuming it is momentum-based) tends to accentuate general market rises and declines, but it shouldn't (for this subset) change the relative price-pressures on specific stocks within the index except by how it adds to or subtracts from buying or selling trends created by other market participants, unless it just so happens that, relatively to market-cap, those specific stocks happen to be among the most thinly-traded in general (daily volume as a proportion of their free float), in which case their buying pressure is outsized compared to more typically traded stocks.