Could index funds be “worse than Marxism”?
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Sure, index funds are freeloading a bit in the sense that they don't allocate any resources to scrutinizing the prospecta of each individual company, they just assume that other market players have done they homework.
This would be a problem if every investment was passively managed but that's not the case and it will never be. If we ever came close to that, then actively managed funds would outperform the passively managed ones by large margins.
That's not exactly true. There's people and committees decided what's in the index, and therefore, what's in the index fund.
Maybe provide an alternative where the average American doesn’t need to be an active stock manager or get pilfered by a hedge fund, and maybe we’ll see something more akin to a market that allocates capital efficiently
Sounds like a good reason to learn about investing! Picking up there basics of passive/couch potato investing, including the theory behind the strategy, is pretty easy assuming you have some basic financial literacy and math skills.
There's nothing magical about passive investing. You're literally just investing in the entire economy by buying a little bit of everything.
If that's stops working it's because something deep and fundamental in the economy or stock markets has failed, and if that happens, you'll have much bigger problems.
If Bitcoin is skyrocketing, than you have bigger problems to worry about, indicating societal collapse.
People should worry less about market structure and incentives. We have serious issues to repair in the financial markets, but the more pressing concerns should be quality of life, security, and productivity. We needlessly limit our universe of acceptable institutions and practices with a priori reasoning like "Marxism is bad, so this other thing must be bad too because I can describe it similarly."
For what it's worth, I think index fund concentration is a symptom of the moral hazard of bailing out losers and failing to help winners improve on critical growth areas. The downside is protected, so equities rally. As they rally together, correlation rises and people diversify using index funds rather than picking stocks. Allow some dispersion and stock picking will come back.
Two of this year's major volatility events have involved multi-billion-dollar losses by hedge funds with concentrated margin positions (Melvin and Archegos). It's only a matter of time before a chain reaction occurs, whereby one hedge fund liquidation leads to margin calls for other hedge funds, who in turn liquidate and exacerbate the process. If that happens big enough (or repeatedly enough), it will beat the bubble bullishness out of us.
The emphasis on material determinism which was the poor child of history and philosophy was genius but the near fanatical fixation on dialectical materialism just tainted the rest of his work to the point of irrelevance. While most historians and economist agree that the contributions of Marx made their field more down to earth by extending their studies with the human condition and material limitations, none would say that they based their research on Marxist dogma.
While the problems he raised were not invalid, the vast majority of Marx's core predictions never came to be and the solutions to the problems he exposed were based more on messianic prophecies than on meticulous reasoning. Conditions gradually improved as opposed to a "liberating" revolts. Economies didn't collapse enough often to make it impossible to recover, the proletariat never shared any kind of unifying will based on their misery and in fact revolutions were always led by well fed and well educated petits bourgeois including Engels and Marx.
> People should worry less about market structure and incentives. We have serious issues to repair in the financial markets
What else would you propose and that would act both as a motivation and as a limitation without resorting to micromanagement?
As such we really can't tell what the world would have looked like had his ideas not gained traction.
But other than that, we don't really know whether or not he'll be right or wrong, because the core proposition of his predictions were that capitalism would start seeing crises once it had exhausted the ability to expand into new markets.
And there he certainly did massively underestimate the extreme growth the world would see in population and how long it would take capitalists to fully expand into underdeveloped markets.
In that respect Marx biggest demonstrable failure was that he was too optimistic about the rate of expansion of capitalism.
Whether or not he'll be right about capitalism "eating itself" by being so efficient that it will drive the price of labour towards zero and so destroy the very markets it depends on, is not something we can really tell until we see how capitalism behaves once most countries have taken the "easy gains" of a developing economy. Once growth in China, India and Africa flatlines, we'll be able to get a real idea.
A key question will be whether at that stage capitalism continues to drive down cost, and if it does whether or not sufficient redistribution happens to counter it and at a minimum maintaining purchasing power.
That doesn't make any logical sense. At best it means self-contradictions: "The model fails because of itself".
> E.g. Germany got the worlds first modern healthcare and pensions insurance because Bismarck, terrified of a repeat of the uprisings of 1848 as Marxist and other revolutionary groups gained support, pushed through massive healthcare and pension reforms that became a blueprint for large parts of Europe.
And Marxists actively frowned upon those gradual increment in workers welfare because it directly contradicted a core tenet of Marxism that only a "real" revolution of the proletariat could increase workers' condition, which wasn't the case. Social democrats are not Marxist, were always frowned upon as "Marx-falsifiers" and even without Marxism, revolts, revolutions and civil wars happened well before Marx.
> But other than that, we don't really know whether or not he'll be right or wrong, because the core proposition of his predictions were that capitalism would start seeing crises once it had exhausted the ability to expand into new markets.
Sure, there never was a total lack of new markets but there was also many capitalist economies that did not have direct access to those markets and yet they never collapsed as Marx predicted. If anything, it means that it doesn't have that much of an impact on a capitalist economy's survival. And it's not like economists are not aware of scarcity of resources, labor and market, and in fact those factors come into play although not in a "total lack of new markets" but in a more gradual way.
> Whether or not he'll be right about capitalism "eating itself" by being so efficient that it will drive the price of labor towards zero and so destroy the very markets it depends on, is not something we can really tell until we see how capitalism behaves once most countries have taken the "easy gains" of a developing economy. Once growth in China, India and Africa flatlines, we'll be able to get a real idea.
Developing countries such as African countries and China and India are already seeing their remuneration increasing at tremendous rates, this can be seen by all metrics ranging from alphabetization rate going up to fertility rate going down. Yet the pre-Covid economy was soaring amid those factors. This goes directly against Marx predictions, those were not dampening the wellness of the global economy, and it's not like new populated continents were discovered. And a big factor for this, as it was for Malthusianism's failed predictions, was technology and automation, whose potential was never truly considered.
It makes perfect logical sense. The predictions changed behaviour. The changed behaviour meant the original predictions were based on conditions that no longer applied.
> And Marxists actively frowned upon those gradual increment in workers welfare because it directly contradicted a core tenet of Marxism that only a "real" revolution of the proletariat could increase workers' condition, which wasn't the case. Social democrats are not Marxist, were always frowned upon as "Marx-falsifiers" and even without Marxism, revolts, revolutions and civil wars happened well before Marx.
This is massive oversimplification.
The Communist Manifesto itself includes a list of electoral demands for reforms, that includes things like e.g. free primary education. What it doesn't include is a call for revolution, but a reactive suggestion that if forced by circumstance the working class makes itself the ruling class by means of revolution, then that would in a stroke sweep away the bourgeois state.
Marx left the door open for electoral politics already then. Indeed, the Communist Manifesto also expresses his support for the activity of the Chartists in the UK, who aimed to expand suffrage, to the consternation of more hardline revolutionaries who saw it as pointless.
Later, one of Marx own most famous works - Critique of the Gotha Programme - does not critique said program by rejecting the idea of electoral policies, but instead critiques and suggests changes to said electoral program set forth by the Social Democratic Workers Party in Germany, a party closely aligned with Marx and Engels, and one of forerunners of the SPD. And incidentally one of the parties that helped scare Bismark into action.
The founder of social democracy - Eduard Bernstein - was a personal friend of Marx, and a Marxist himself. Modern social democracy is a very different thing, but from the start it was strongly aligned to communism, with many modern social democratic parties tracing their origin to Marxist organisations.
Incidentally, the Erfurt Programme of the SPD, published in 1891, was written by Kautsky, Bebel and Bernstein, all three of whom were outspoken Marxists, though Kautsky and Bebel were much more "orthodox" in their support for the need for revolution.
The sharp separation between social-democrats and revolutionary socialists of various shades first started taking shape towards the very end of the century and sped up with a number of social-democratic parties supporting World War I, leading to splits, and further splits after the Bolshevik coup. That separation was not "complete" until the late 1920's with the Stalinisation of Komintern.
> Sure, there never was a total lack of new markets but there was also many capitalist economies that did not have direct access to those markets and yet they never collapsed as Marx predicted. If anything, it means that it doesn't have that much of an impact on a capitalist economy's survival.
Marx didn't predict that a capitalist economy would immediately collapse if it did not have access to new geographic markets, so this is entirely flawed logic. His prediction is very simple:
Companies will eventually need to reduce the cost of labour per unit of value produced to survive, because it will be the easiest remaining way to compete, and this will eventually drive unemployment, and that this will eventually lead to escalating crises.
But a pre-requisite is that labour first needs to become the easiest factor to optimise.
> Developing countries such as African countries and China and India are already seeing their remuneration increasing at tremendous rates, this can be seen by all metrics ranging from alphabetization rate going up to fertility rate going down. Yet the pre-Covid economy was soaring amid those factors. This goes directly against Marx predictions, those were not dampening the wellness of the global economy, and it's not like new populated continents were discovered.
There's nothing in Marx' predictions that goes against this. This goes back to the insistence that capitalism is first at threat of crises once reducing the cost of labour becomes the primary competitive lever.
I pointed to China, India and Africa explicitly because they still see the easy gains of developing economies, where there are a plethora of ways to drive growth that are easy enough that focusing on reducing total labour costs are not worthwhile. Just like Europe and the US exported low-paid work to India and China, China and India are exporting low paid work to Bangladesh, Vietnam and Africa, and in doing so allowing for salary growth in their own countries. But even within Africa this is happening between countries at different levels of development.
The point I was making is explicitly that we have no way of determining whether or not Marx was right about what happens when there are no further places to export competitive pressure until those places have exhausted the easy gains.
Basically: Once even sub-Saharan Africa starts seeing GDP growth rates closely track declining population growth numbers is the first point in time when we will actually be able to start making a judgement about whether his prediction that aggregate labour costs will be driven down is true or not, and whether or not that will have the effect of causes crises.
Were at a minimum many decades away from that, maybe much longer.
And he may well be wrong, but we can't tell anytime soon.
> And a big factor for this, as it was for Malthusianism's failed predictions, was technology and automation, whose potential was never truly considered.
Socialism already pre-Marx, in their earliest formulations by Henri de Saint-Simon , was based on the expectation of technology and automation eventually removing the need for labour. If anything, the biggest errors Marx made was to assume too rapid growth, and a too rapid declining need for labour.
Ultimately socialism as an ideology started as a near fetishistic belief in rapid technological advance. Marx is gushing over the advances brought by capitalism like an over-excited fanboy at the start of the Communist Manifesto.
To the point where overestimating the speed of technological advance was clearly a problem with his predictions.
This is absolute nonsense. That's not what models are nor how they work. Marx makes it pretty clear that his theories are the definitive course of History, which obviously isn't the case.
> The Communist Manifesto itself includes a list of electoral demands for reforms, that includes things like e.g. free primary education. What it doesn't include is a call for revolution, but a reactive suggestion that if forced by circumstance the working class makes itself the ruling class by means of revolution, then that would in a stroke sweep away the bourgeois state.
What are you talking about? The Communist Manifest to explicitly calls for revolutions and radical fracture of societal values through the entire text. Incremental improvements were always used for making certain points about class struggle but was never proposed seriously as a solution.
> Marx left the door open for electoral politics already then. Indeed, the Communist Manifesto also expresses his support for the activity of the Chartists in the UK, who aimed to expand suffrage, to the consternation of more hardline revolutionaries who saw it as pointless.
They merely talk about Chartists if not for a mere moral support and used as an example that History always leads to class struggles and never as an alternative to the revolution.
> Later, one of Marx own most famous works - Critique of the Gotha Programme - does not critique said program by rejecting the idea of electoral policies, but instead critiques and suggests changes to said electoral program set forth by the Social Democratic Workers Party in Germany, a party closely aligned with Marx and Engels, and one of forerunners of the SPD. And incidentally one of the parties that helped scare Bismark into action. The founder of social democracy - Eduard Bernstein - was a personal friend of Marx, and a Marxist himself. Modern social democracy is a very different thing, but from the start it was strongly aligned to communism, with many modern social democratic parties tracing their origin to Marxist organisations. Incidentally, the Erfurt Programme of the SPD, published in 1891, was written by Kautsky, Bebel and Bernstein, all three of whom were outspoken Marxists, though Kautsky and Bebel were much more "orthodox" in their support for the need for revolution. The sharp separation between social-democrats and revolutionary socialists of various shades first started taking shape towards the very end of the century and sped up with a number of social-democratic parties supporting World War I, leading to splits, and further splits after the Bolshevik coup. That separation was not "complete" until the late 1920's with the Stalinisation of Komintern.
An idea does carry over all the baggage of their progenitors. X was friend with Y, ok, so what? That's high school gangs politics at this point.
> Marx didn't predict that a capitalist economy would immediately collapse if it did not have access to new geographic markets, so this is entirely flawed logic. His prediction is very simple: Companies will eventually need to reduce the cost of labour per unit of value produced to survive, because it will be the easiest remaining way to compete, and this will eventually drive unemployment, and that this will eventually lead to escalating crises. But a pre-requisite is that labour first needs to become the easiest factor to optimise.
There are various signs before collapses. Collapses have a series of events and aggravating context that make them possible. What Marx based his predictions on are just not really there or at least at a scale that makes them possible. Remunerations continued to increase and worker productivity has also increased. And no, labor is not always to optimize when technology is taken into account.
> There's nothing in Marx' predictions that goes against this. This goes back to the insistence that capitalism is first at threat of crises once reducing the cost of labour becomes the primary competitive lever. I pointed to China, India and Africa explicitly because they still see the easy gains of developing economies, where there are a plethora of ways to drive growth that are easy enough that focusing on reducing total labour costs are not worthwhile. Just like Europe and the US exported low-paid work to India and China, China and India are exporting low paid work to Bangladesh, Vietnam and Africa, and in doing so allowing for salary growth in their own countries. But even within Africa this is happening between countries at different levels of development. The point I was making is explicitly that we have no way of determining whether or not Marx was right about what happens when there are no further places to export competitive pressure until those places have exhausted the easy gains. Basically: Once even sub-Saharan Africa starts seeing GDP growth rates closely track declining population growth numbers is the first point in time when we will actually be able to start making a judgement about whether his prediction that aggregate labour costs will be driven down is true or not, and whether or not that will have the effect of causes crises Were at a minimum many decades away from that, maybe much longer. And he may well be wrong, but we can't tell anytime soon.
Again, as new markets fail to appear with the world's there is no real tendencies for that to happen. And also basing the deconstruction and reconstruction of society over an hypothesis is just not prone to good outcomes to say the least.
That's exactly how models work - if they are shown to longer match reality, one changes them, one does not insist on ignoring reality. If one does the latter, it's just pointless doctrine.
> Marx makes it pretty clear that his theories are the definitive course of History, which obviously isn't the case.
Where do you believe he did that?
> What are you talking about? The Communist Manifest to explicitly calls for revolutions and radical fracture of societal values through the entire text. >Incremental improvements were always used for making certain points about class struggle but was never proposed seriously as a solution.
Chapter 2 is the only place that talks of practical steps, and it ends with talking about revolution. However it also specifically talks of wresting property from the bourgeois "by degree". The closest to a direct call for revolution is this:
> If the proletariat during its contest with the bourgeoisie is compelled, by the force of circumstances, to organise itself as a class, if, by means of a revolution, it makes itself the ruling class
You'll note "if" it is "compelled, by the force of circumstances". Which is the justification for why Marx also later argued that the specifics of how the proletariat might gain control would depend on the country, such as e.g. his speech to the IWMA in 1872, whee he said:
> "Someday the worker must seize political power in order to build up the new organization of labor; he must overthrow the old politics which sustain the old institutions, if he is not to lose Heaven on Earth, like the old Christians who neglected and despised politics. > > But we have not asserted that the ways to achieve that goal are everywhere the same. > > You know that the institutions, mores, and traditions of various countries must be taken into consideration, and we do not deny that there are countries -- such as America, England, and if I were more familiar with your institutions, I would perhaps also add Holland -- where the workers can attain their goal by peaceful means."
This messaging remained constant in his works for decades. It is undoubtably true that Marx believed that revolution would be forced on the working class most places, because he saw humanity as inherently selfish and expected the bourgeoisie to fight back up to and including by using force. Unsurprising given that is what he saw when workers faced undemocratic, oppressive, authoritarian states all around him.
But his continued support for electoral politics throughout his life was a pretty clear demonstration that he certainly did not object to it.
> They merely talk about Chartists if not for a mere moral support and used as an example that History always leads to class struggles and never as an alternative to the revolution.
Marx expressed support for Chartists in many other contexts too.
> An idea does carry over all the baggage of their progenitors. X was friend with Y, ok, so what? That's high school gangs politics at this point.
I have pointed out to you that 1) the most prominent social-democratic party of the time was Marxist. 2) that Marx suggested revisions to their programme, not denounced the idea of a reformist program, 3) that the three co-authors of their later program were all Marxists.
This quite clearly refutes the claim that Marxists in general were opposed to social democratic ideas at the time. The most watered down modern social democracy is certainly not compatible with Marxism - we can presumably agree on that. But social democracy in general was for a long time near synonymous with communism.
It is quite telling you don't offer any counter arguments.
> There are various signs before collapses. Collapses have a series of events and aggravating context that make them possible. What Marx based his predictions on are just not really there or at least at a scale that makes them possible. Remunerations continued to increase and worker productivity has also increased.
What you're again ignoring - without providing a counter-argument, is that the preconditions for the predicted crises has not yet been met. Given that both Marx and Engels kept "tracking progress" on this point in prefaces for the Communist Manifesto literally for decades without getting close to pronouncing the process complete, and with still dismissing much of the world as too underdeveloped gives a good indication of their views on what would be required.
Maybe his predictions will turn out to be wrong when they have been met, but until they are we have no way to tell.
You seem to think I'm hoping he's right. I'm not - it'd be a nightmare. Not because of the end-state, but because if he's right we'll face potentially decades of upheaval. If growth continues and people get wealthier without it, then fantastic.
I'm saying that as someone who do believe in substantial redistribution, and in the dismantling of the state. But I'd much rather that happened gradually and without the chaos. At the same time it would be blatantly intellectually dishonest of me to pretend we have proof he was wrong about this.
> Again, as new markets fail to appear with the world's there is no real tendencies for that to happen.
There are still plenty of easy wins left, so I find it fascinating that you think you know the outcome of a situation that has never happened.
> And also basing the deconstruction and reconstruction of society over an hypothesis is just not prone to good outcomes to say the least.
Whether or not it is desirable is irrelevant to the question about whether or not his prediction that it will happen are correct.
I touched on the big relevant one right now: moral hazard of bailing out companies when they should naturally fail and get pruned away so that healthier competitors can buy their assets and take their customers. We just need to take our hands off the wheel for a second, because we're steering hard to one direction. If you knew that some airlines would fail and others would succeed, you'd try to pick winners instead of just buying some airline ETF.
There are technical issues that need to be resolved because they damage price discovery. Short selling, locate requirements, failure to deliver...GME showed us that all of these technical functions of the market are broken and lose consistency when taken to the extreme. Little technical issues can have large qualitative consequences.
Margin is another example. Archegos was a red flag.
Point being, instead of worrying about market positioning and participant motivation, we have plenty to fix with broken regulations, easy monetary policies, and excessive corporate welfare.
To loop back to index funds...Any strategy in a high-lift bull market is going to be beaten by "buy and hold." The article suggests that correlation is a result of passive investment, but in actual fact the causality is reversed; passive investment is driven by people who watch the correlation and decide that stocks only go up. There's no reason to trade tactically or selectively in a one-way environment. If you fix the environment, you presumably change the behaviors, with no need to think about carrots and sticks.
> The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground — what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?
To Marx, socialism is the consequence of capitalism driving competitive pressure to a point where capitalism tears itself apart. As such, easing competitive pressure would be a bad sign from his point of view.
One thing I never understood from The Communist Manifesto, was how did Marx not realise that what he was describing about the commune and communal living was exactly the same conditions described under surfdom but having the State taking place of a Lord.
Overall Marx wrote very little about what he expected a communist society would look like, and almost none of it is in the Communist Manifesto, which is much more focused on immediate political goals and relations to long extinct other political movements.
How you have gotten the notion that Marx supported the continuing existence of a state, or a strong state of any form, I'm also unsure of, as he firmly argued the state becomes superfluous in a classless society, and otherwise regularly argued against a centralized state even in the shorter term.
E.g. in his works on the Paris Commune he criticized the communards for not going further in destroying the state, and expressed support for the proposed loose federation of communes in its stead.
And in Critique of the Gotha Programme, he skewered the forerunner of Germany's SPD for proposing state run public education, and pointed to the model then employed (1872) in the US as a preferable model to giving the state control over education.
(He also argued for an armed working class for it to protect itself against oppression - in many ways he was more closely aligned with US politics than with the various 'socialist' states)
But this has echoes to me of Marx words on the bourgeois view on women, which he ridicules in the Communist Manifesto by claiming that some of them saw that communists wanted to remove private property and assumed that meant sharing women too, because they saw women as an economic asset, while of course he argued for no such thing.
Engels went further than Marx in speculating about future societal structure, but he too to my knowledge only went as far as suggesting that society would have a responsibility for childcare. A statement that's easy to misconstrue into suggesting society take over responsibility overall vs. a responsibility for e.g. providing nursery options and school spaces.
The idea of Marx arguing for children to be cared for by the commune in any case sounds like projection of the same kind as with women in seeing children as property where a statement about responsibility becomes a statement of ownership.
Notably it is mostly rich people who think they have the right to treat children as property that can be shipped off to boarding school without a say in the matter.
Ok, looks like I’ll have to have a second parse of Communist Manifesto.
I’m not sure where I got that info from then... but could have sworn I did a few double takes while going through Communist Manifesto because of these thoughts. Weird.
> claiming that some of them saw that communists wanted to remove private property
Apart from your woman comment from above, isn’t the removal of private property one of the primary aims of The Communist Manifesto? Seems fitting given his experience with property law that he began to hate the concept of it.
Also, sorry... I don’t have anyone really to bounce my questions off on about this topic :)
“Over a ten-year period commencing on January 1, 2008, and ending on December 31, 2017, the S&P 500 will outperform a portfolio of funds of hedge funds, when performance is measured on a basis net of fees, costs and expenses.”
Avoiding bad companies seems like it would be easier, but if everyone knows they’re bad then they wouldn’t get much weight anyway, and maybe you’re wrong.
But I’m just explaining why it may be harder than it seems to beat an index, not saying it’s impossible.
Well, who's better equipped to do it, me or S&P? Sure, S&P will make mistakes. I would probably make more of them, though.
As far as how this will affect markets on a macro scale, I suspect it will reduce short term volatility and increase long term swings. I.e., once the percentage of wealth entering index funds has stabilized and we reach the top of a market cycle, the entire index may fall more than normal. People investing passively will indeed start selling when they see a 40% drawdown on their portfolio and panicking headlines across their feed.
When I read any content related to the economy it seems that anything that helps the poor and middle class get ahead is immediately branded as "evil, socialist marxist propaganda", but if it benefits the extremely wealthy (and helps exploit those under them) it's "good for the economy and country".
Index funds are "worse than marxism"? Please. Even the prime embodiment of capitalism, Warren Buffett, recommends them, and have done so for years.
If it was setup as a kind of debate, maybe it would work.
Or just claiming "marxism" is bad itself is "bad". Authoritarian anything is bad, capitalism or communism. Both have killed millions and billions. So authoritarian marxism is bad, but index funds aren't that..so I don't even get where they're coming from.
Non-statist or anarcho-communism has never been implemented much, but would be ideal, or resource-based economy, or some hybrid of anarcho-communism with capitalism... unions/co-ops creating dual power which holds capitalism in check.
That's probably the best of all scenarios. It's highly possible with de-centralized companies and unions on blockchain tech, but not until it's more environmentally sound and the technology more advanced.
I can't tell are they trying to scare marxists/socialists to invest in index funds or index fund investors who are "afraid" of socialism to divest their investments? Should a news agency really be pushing either of these agendas?
Just looking at the adjectives used gives me a headache:
Passive Index-funds are "pushing" (not investing or "betting") money, Nobody's is deciding anything, and people who invest on it are "lucky", and it moved the financial world to a "oligarchy" (as opposed to the Wall Street utopia democracy that was the financial world before Index funds?), and it works but no one knows why. Ah, and it's bad for the country, and even it's inventor (Bogle) is against it... A shame they had to quote a dead man and could not found a contact of anyone at Vanguard to comment this article.
There is much more (including the marxism part). but I stopped counting in the middle of the article.
Let's look at the adjectives of mutual funds, you hire someone to "pick", they "bet" and have "market beat-returns" ,even if this is false, as someone already mentioned Warren Buffet bet: https://longbets.org/362/). They "select" investments, using a "vetted manager" (probably like Madoff?), they have "solid returns" (see Warren Buffet again), and they "direct investment dollares", they "take new information".
Just to finish, apparently Index-Funds in XXI century are destroying the economy and companies, and what's the solution, besides giving back the control of the financial world to the good-managed and have everyone-interest in mind Wall Street multiple failed investment companies along the years: Drexel Burnham Lambert, Lehman Brothers, Salomon Brothers, Citigroup, etc..
"The antidote lies not just in fixing passive investment, but in making markets be markets again. Perhaps we could all use a little more of that manic stock-picking energy, not less."
Ah, the good old "stock-picking energy" that so much prosperity brought us by letting individual people picking stocks with the advice of Wall Street like the golden-era of investment and America prosperity of the late 1920's and late 1990's? Yes, please... /s
I wonder if it's occurred to them that they could perhaps use their knowledge and resources to provide better investment options rather than spending their time being shocked and appalled that investors prefer to pay less and earn more.
As an example individual or smaller investors simply cannot create lower risk options like an index fund by themselves. We don't have the ability to index specific markets and apply a personal weighting. The broad options are: low risk index funds from a broker, medium risk managed funds or high risk individual investments. Most individuals cannot tolerate the risks so have no option but to choose from a list of index funds.
The more interesting thing to me is The Atlantic implying that Marxism is bad. That surprises me a bit.
"You might make marginally less profit on your share trading ... that's worse than Marxism!
Is Passive Investment Actively Hurting the Economy? - https://news.ycombinator.com/item?id=11271758 - March 2016 (93 comments)
... but I'm sure there have been others.
Edit: ah yes - they've been "communist?" and "evil?" for a few years now:
Hidden Dangers of the Great Index Fund Takeover - https://news.ycombinator.com/item?id=22085637 - Jan 2020 (89 comments)
Why Index Funds Are Like Subprime CDOs - https://news.ycombinator.com/item?id=20877700 - Sept 2019 (317 comments)
Half of US stock fund assets are now invested in index funds - https://news.ycombinator.com/item?id=20020997 - May 2019 (206 comments)
Are Index Funds Communist? - https://news.ycombinator.com/item?id=18934946 - Jan 2019 (31 comments)
Bogle Sounds a Warning on Index Funds - https://news.ycombinator.com/item?id=18568088 - Nov 2018 (229 comments)
The growth in passive funds has caused markets to become more correlated? - https://news.ycombinator.com/item?id=18144394 - Oct 2018 (183 comments)
The Growing Peril of Index Funds: Too Much Tech - https://news.ycombinator.com/item?id=16021681 - Dec 2017 (68 comments)
Are Index Funds Evil? - https://news.ycombinator.com/item?id=14993516 - Aug 2017 (5 comments)
Vanguard Is Growing Faster Than Everybody Else Combined - https://news.ycombinator.com/item?id=14145308 - April 2017 (347 comments)
A Professor Who Was Right About Index Funds All Along - https://news.ycombinator.com/item?id=12768319 - Oct 2016 (213 comments)
Are Index Funds Eating the World? - https://news.ycombinator.com/item?id=12368136 - Aug 2016 (156 comments)
Are Index Funds Communist? - https://news.ycombinator.com/item?id=12354590 - Aug 2016 (13 comments)
Index Funds May Work Too Well - https://news.ycombinator.com/item?id=10009740 - Aug 2015 (198 comments)
Can You Really Game Index Funds? - https://news.ycombinator.com/item?id=9847706 - July 2015 (48 comments)
Index Funds Considered Harmful (Possibly Evil) - https://news.ycombinator.com/item?id=2258270 - Feb 2011 (18 comments)
Ask HN: Does an index fund count as diversifying? - https://news.ycombinator.com/item?id=1157620 - Feb 2010 (20 comments)
Had to look up failson:
White, middle-class, male, useless people—who have just enough family context to not be crushed by poverty.
- https://www.urbandictionary.com/define.php?term=failson
Seems a bit of a harsh, and loaded term.
I’m not happy about how everyone is on the edge. Pissed off. Ready to be instantly offended. People gung ho about race, class, status what have you.
The world sucks right now so badly.
For instance, an index fund that owns all the companies might not push them to rabidly compete, which looks bad from a traditional antitrust perspective, and as is typical, it's mentioned in this article.
But the same type of incentive means that they are under less pressure to do anything harmful to society in order to compete - damaging the environment, attacking workers rights and ignoring social justice, etc. It is a general way of internalizing externalities. But I never see that mentioned, despite how people love to talk about externalities elsewhere.
Successful companies clearly seek the long term profit.
Amazon, Apple, Microsoft, Tesla, how many examples are needed?
For bad businessmen, yes. They get rewarded by going out of business.
> How often do we even see people carrying the belief that companies have a legal obligation towards "shareholder value" that trumps all other concerns?
A focus on short term value destroys shareholder value. There is no legal obligation for a company to sacrifice the long term for the short term.
Would you invest your money in a company you believed was focused on short term shareholder value rather than long term? Keep in mind that the stock price reflects the best estimation of the future long term prospects of the company.
I definitely disagree with that. I think we can see many, many counter-examples; so many that they're not weird exceptions but a significant part of the picture. Take the recent fun and games with Gamestop, or Hertz, for example. The best estimation of Hertz at the time was that they were going out of business (or at least going through one of the uniquely American phases of a business in which their debts get cancelled, the bankruptcy exit plan leaves shareholders with nothing, and Hertz gets to carry on); yet the share price kept on climbing (perhaps the most common estimation of people involved in buying Hertz shares was that they had a rosy future).
As for the Hertz thing, which I know nothing about, it sounds like the buyers thought the stock had long term upside potential.
In the paperwork to apply for a new stock offering, they openly said that they were going bankrupt (hell, they asked their bankruptcy court for permission to make a new stock offering!) and their stock was going to become worthless very soon (I understand the SEC thought about the act of selling new stock to rubes as one final payday, and after conversation between them and Hertz, Hertz withdrew the application to sell new stock in a company that openly said it was going bankrupt). Their stock kept going up. They'd openly said they were going out of business (soon after that their stock did indeed become worthless), and they were telling people this, and the stock went up anyway. It seems that the majority of buyers were buying it based not on analysis or on any real idea of future earnings.
The best estimation of the future long term prospects of the company was that they'd go bankrupt and all shares would become worthless; yet the share price was yomping upwards because a terrible estimation of the future long term prospects of the company was that they must be recovering because, hey look, they want to sell some new shares!
I guess where this is going is that I say that the price of a stock reflects the current price at which you could probably buy or sell one of that stock (assuming there's a market for it), and any interpretation of its meaning beyond that comes with caveats and conditions. Sure, often, there's some kind of link to the company's "value" or "potential future earnings" or some such, but by no means always and to make a blanket assertion that the stock price "reflects the best estimation of the future long term prospects of the company" is a dangerous simplification.
Many many examples? Yes, I think so. Stock price is the market price; it's not set by anyone based on careful analysis. Some people decide the price they're willing to pay based on analysis, but the actual price is pretty much by definition what people are willing to pay for it, which has no inherent link to what it's "worth".
It's not the first one, either. So I'm not introducing that into "the discussion" nor is this article.
I'm not advocating or asserting that it has good consequences either. I'm saying it's weird that when people speculate, they don't speculate about a class of consequences of their new view.
It is a fact that the major index funds have been putting a little pressure on companies to be more socially responsible, and regardless of whether this is only performative and insignificant, it demonstrates that they could promote whatever one thinks is good for society at the expense of individual profits.
So leaving any reference to it out is an odd oversight. Again, I'm not claiming that common ownership of all the companies is good, or that the funds are doing meaningful good. But a reasonable article would say something about the possibilities to promote the things that people want companies to do that ameliorate competition. Activists are trying to pressure the funds. That's not an opinion, it's a fact.
I believe Matt Levine has written about this from time to time, so really I'm asking why other journalists aren't as fair and balanced as he is.
Edit: Oh, nevermind, I think I see now where you're coming from -- it internalizes externalities because it's all one big owner. Duh. Somehow didn't notice that at first.
That said, I think the problems of lack of competitive pressure are real, and it would better to internalize externalities in a more direct fashion that doesn't cause the problems that turning down competitive pressure would.
Is Amazon equally bad if you view it as one or the other?