A new look at active vs passive (Michael Green)

Your argument is exactly what Michael Green talks about [1]. The talk I linked is from January of this year and he basically predicted the exact crash we saw in February. Individual stocks were going up and down tracking the S&P 500 exactly, based on no news or any kind of information, just that they were in the S&P index. The price of the stock did not reflect the company's financials or outlook. We're about to see this when Tesla gets added to the S&P 500 - funds will be required to purchase Tesla stock at any price. The reason that I'm personally an index fund skeptic is that I like to understand what I'm invested in. If you look through the S&P 500 members, there's dozens to hundreds of companies basically no one's ever heard of, and companies that I personally don't see a big future in. If index funds didn't exist, why would I take $100 of Fifth Third Bancorp or TechnipFMC when I could get $100 of Apple or Slack instead? The former is what you get when you invest in the S&P, while the latter are products I use everyday, and I feel that I understand how they make money. If you hang around investing subreddits long enough, it starts to feel like everyone's parroting the same 5 sentences about expense ratios and diversification, with no analysis or critical thought put into what the actual investments are. [1] [VIDEO]

You'd probably be interested in listening to this talk by Michael Green: [VIDEO] He goes into a lot of data around the idea that the market is "too passive", and he believes that we were already at that point last year before the pandemic.

I see Burry as a financial pen-tester. He researches very deeply into the mechanics of how the market works. He's looking into the code. Once he finds a bug, he finds what effects would occur if the bug occurs. Once he has found something with a big enough impact, then he asks what would trigger it to occur. In 2006 he found excessive margin being applied to housing. He saw that the Fed was raising their rates. He knew that it was inevitable that this would cause foreclosures. There were massive bets bigger than anything the system could bear, and in fact his bets were a piece of it. Was he early? Yes. Had he been later, would he have got a bigger return? Perhaps not. It was only that he was so early that no one else had a clue that he was given such amazing odds. Now he sees the bubble is happening because passive investing into the stock market through our 401k's has driven the smart money of the money into front-running that passive investment[0]. He's saying the massive 30% increase in the money supply after CO-VID is going straight into the stock market and that flow is drying up. Every stock is now far above their value, with their 'value' being their net future risk adjusted returns. Burry sees that this is unsustainable, and he sees that this bubble is now two times of magnitude as large as any other bubble ever created. When a small percentage of people pull their money from the being invested in passive funds, they will quickly overpower the buy pressure and the mar

Completely inaccurate, and written in an obnoxious immature style. Speaking with complete authority, yet doesn't grasp the 101 level knowledge. >But the buyback hasn't reduced the price of the company's shares: it has doubled that price. The company has made its shares more valuable while making itself less valuable. Yes, this is what distributing profit looks like in all businesses. From a furniture shop to a car manufacturer corporation to a SaaS software company. The money comes out of the corporate balance sheet (reducing the value of the company) and is distributed to shareholders. Unless a company can infinitely grow, this is what companies tend to do eventually. Sometimes a company doesn't want or need to grow, and that's OK believe it or not. Not every company needs to grow a thousand tentacles like Amazon. Ironically, I'm sure the author would not be a fan of that company, yet this is what they are advocating for (extreme aversion to returning capital and pursuing growth at all costs). >If you think that markets are a computer that calculates efficient allocation based on prices, this should freak you the fuck out Completely ridiculous. First of all, this is priced into the market. When a stock goes ex-div and announces a dividend, the share price drops by the amount of the distribution. There is an arbitrage trade that ensures this is the case. Likewise, buyback auths are immediately priced into the future via the options market, and guess what, they usually have ze

You are being mindful of some real risks and concerns. That said, there's no reason to have to feel like you need to take a stab at it totally by yourself. Heck, that's what I'm doing in the day to day - putting together a few of these portfolios for people. There are certainly advisors and managers who know the academic side of this and can diversify away from concentration risks and such. There are also many great tools in the relatively recent future that have opened up for common investors to diversify smartly. You can get pure trend following wrapped up in an ETF. You can get 100% equity 100% bond wrapped up in an etf at half of the size, so you can fit Gold and Trend in a portfolio with no hassle (both are low return but great from a diversification standpoint, so most retail investors want to lever up a bit to get back to the standard SP500 return/variance profile). If you don't or can't find someone who can math it out for your individual case, it's also an option to just pull a few of the best proven individual ideas, such as "have some international diversification". ETFs are easy to grab here. Even 10-20% can pad out some of the US concentration and dollar exposure a bit. Smallcaps, like you said, are another way to shift away from the "size factor" dominated index weighted ETFs. The Nifty 50 bubble in the 60s was a major catastrophe, and history rhymes, so why not hedge a bit while still sticking to a proven investment framework? No financial advisor is going to l