Monthly Archives: October 2019

The Bubble In Indexing?

Seems like there are lot of opinions on the increased popularity of indexing, so I will add one more to the mix.

I think indexing will continue to increase in popularity until it stops working.  What does stop working mean? It means when the average market performance is down (for a period of time longer than two weeks).

Sure, everyone likes indexing when the average performance is up.  Or significantly up. Folks don’t feel bad about being average, because of their low cost, low effort strategy. Plus there are news stories about how their strategy is beating some smart hedge funder to make them feel good.

I’m guessing that they’re not going to care about how low cost their strategy is if the average market performance is a loss.  Average will become unacceptable. They won’t feel smart.

And then there will be news stories about investors who aren’t average, who didn’t lose money. At that point, investors will be start looking for other strategies.

To be clear, I am not predicting market losses. I’m just saying that it’s going to take sustained market losses across broad asset classes to create an inflection point in the current index investing trends.

Also, this is not a referendum on the effectiveness of indexing investing. In all likelihood, it’s the the most optimal strategy over the long run for the vast majority of investors out there. Is your thesis really based on most investors doing what’s optimal at all times? Since when has that happened?

That’s my two cents…

It’s felt pretty good, on average, to invest in *anything* the last three years….

Influential Reads – September 2019

I’ve been trying out the reading books from the library on a Kindle strategy and it’s increased the number of books I’m reading, but maybe decreasied the amount of sleep I’ve been getting.  Mrs. SFTE thinks it’s the blue light?

Updated stats through September:

Saved ArticlesBooks
JanuaryN/A2
February901
March390
April630
May393
June630
July790
August881
September513
October890
Total60110

Here are my most influential reads – in no particular order:

  1. Underrated Skills – The entire article, read it.
  2. Yogababble – “Nope, similar to Chuck Norris, Christie Brinkley, and Tony Little, you sell exercise equipment.”
  3. On The Great Jihad And Other Possible Futures – “The differences between stocks will matter again. Why? Pricing power is why. Businesses with pricing power will survive and even thrive. Businesses without pricing power will struggle. Many will die.”
  4. Everyone has forgotten about why Donald Trump can’t win a trade war with China – “There seems to be a fundamental inconsistency between achieving that outcome and the Trump administration’s other economic nationalist priorities, which focuses on bringing manufacturing production back to the United States, even if that comes at the expense of everything else, including American farmers.”
  5. The Dow’s 1.6% Gain Hid Turmoil Beneath the Market’s Surface – “But those numbers entirely miss the point. It was a week when everything that had been working stopped working, when losers were suddenly winners.”
  6. The Endgame for the Bull Market in Bonds – “The worst asset to hold in this hypothetical bonfire of the currencies? A “sovereign bond with a negative yield, closely followed by paper money at zero yield, both with a theoretically infinite supply.”
  7. Cloud software is nuts, and it’s crashing – “Momentum — buying stocks that are going up — is the crucial factor here because the cloud companies, with their sky-rocket-in-flight share prices, are some of the stocks commonly found in this particular factor strategy.”
  8. Only the Fed Can Save Us – “Jerome Powell and the Federal Reserve must stand up to Trump. If they don’t, the American economy is heading for disaster.”
  9. The Trade War Is About to Hit Your Pocket. Literally – “While 82% of intermediate inputs are already affected by tariffs, just 29% of consumer goods have had levies to date. That figure will now rise to 69%, and 99% when a final tranche is imposed on Dec. 15…”
  10. The upside down, inside out negative yield financial world – “If normal creditors and lenders cannot provide a reasonable story for their negative time value of money, we are left with an explanation that these negative rates are imposed on the markets as a form of financial repression by central banks.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.