Okay, I understand some things and don’t understand more things. But I get the concept. I was invested in VOO because Alex Hormozi says Warren Buffett recommends to put all your money in the S&P 500 and leave it alone. The connected article on broken markets was very eye opening. Does hype need to be a factor in active investing? Has Silicon Valley messed things up with these valuations that get more and more extreme? Is tech to blame? This is opening my eyes to how much more I need to learn, but it was nice to hear you say don’t be scared and learn and go back to basics.
I don't think Tech is to blame, I think it's mostly top-down passive investing taken to extremes, where no body does the work and just relies on MARKETS to do the work for them.
Implicitly by not doing their own work and just indiscriminately buying means they rely on MARKET FUNDAMENTALISM to do the work for them.. i.e. That markets are efficient and you are paying a fair price for anything you are buying now.
If this confuses you let me give you an example: I bought AAPL in December 2013 paying something like 10X earnings when Apple had more room to grow and was earlier days in its life cycle.
Now it's selling for 40X earnings with worse prospects. This is a simple example but it is to drive the point home.
Their is also a dose of self-entitlement and self-privilege in the mix - in that people today think that the markets OWE them a steady 8% a year and so if they park their money in the VOO or the Nasdaq or the SPX, then everything is taken care of.
I stand strongly opposed to that mode of thinking and have antagonised it philosophically many a time.
I understand. And I do believe this thinking is normalized because this is the advice that is constantly shared: “You will always see a return on the S&P.” And, “The S&P always outperforms active investors.”
While that (mostly) holds true, it results in the passive investing we see now. And I get the point that it’s expected vs understanding and learning.
But a question: If indexes are doing better than active investing, what are active investors doing wrong? Maybe wrong is not the correct word for the question, but the point is there.
Indeed it has been normalised because of the rise and rise of passive investing!
But on to your point and question about Passive Vs Active - which is very important.
Why has passive over-performed?
For me the answer/answers is/are simple, one just has to look retrospectively what have been the drivers of performance for the indices say the past 15 years.
Technology has done very well, and earnings multiples on said Big Tech / Any Tech companies have expanded massively. If one was not long that, he underperformed.
But "PASSIVE" WAS long that because they own 100 or 500 companies right? i.e. Nasdaq 100 / S&P500. And as those companies grew in value, so did the weight in their respective indices...
So if an active manager was NOT long any of those names, he fell behind.
The part "Long Optionality" in this piece below is a good point too. Passive vehicles were long optionality, now - not so much!
Okay, I understand some things and don’t understand more things. But I get the concept. I was invested in VOO because Alex Hormozi says Warren Buffett recommends to put all your money in the S&P 500 and leave it alone. The connected article on broken markets was very eye opening. Does hype need to be a factor in active investing? Has Silicon Valley messed things up with these valuations that get more and more extreme? Is tech to blame? This is opening my eyes to how much more I need to learn, but it was nice to hear you say don’t be scared and learn and go back to basics.
I don't think Tech is to blame, I think it's mostly top-down passive investing taken to extremes, where no body does the work and just relies on MARKETS to do the work for them.
Implicitly by not doing their own work and just indiscriminately buying means they rely on MARKET FUNDAMENTALISM to do the work for them.. i.e. That markets are efficient and you are paying a fair price for anything you are buying now.
If this confuses you let me give you an example: I bought AAPL in December 2013 paying something like 10X earnings when Apple had more room to grow and was earlier days in its life cycle.
Now it's selling for 40X earnings with worse prospects. This is a simple example but it is to drive the point home.
Their is also a dose of self-entitlement and self-privilege in the mix - in that people today think that the markets OWE them a steady 8% a year and so if they park their money in the VOO or the Nasdaq or the SPX, then everything is taken care of.
I stand strongly opposed to that mode of thinking and have antagonised it philosophically many a time.
Just a short explanation of some of the dynamics.
I understand. And I do believe this thinking is normalized because this is the advice that is constantly shared: “You will always see a return on the S&P.” And, “The S&P always outperforms active investors.”
While that (mostly) holds true, it results in the passive investing we see now. And I get the point that it’s expected vs understanding and learning.
But a question: If indexes are doing better than active investing, what are active investors doing wrong? Maybe wrong is not the correct word for the question, but the point is there.
Indeed it has been normalised because of the rise and rise of passive investing!
But on to your point and question about Passive Vs Active - which is very important.
Why has passive over-performed?
For me the answer/answers is/are simple, one just has to look retrospectively what have been the drivers of performance for the indices say the past 15 years.
Technology has done very well, and earnings multiples on said Big Tech / Any Tech companies have expanded massively. If one was not long that, he underperformed.
But "PASSIVE" WAS long that because they own 100 or 500 companies right? i.e. Nasdaq 100 / S&P500. And as those companies grew in value, so did the weight in their respective indices...
So if an active manager was NOT long any of those names, he fell behind.
The part "Long Optionality" in this piece below is a good point too. Passive vehicles were long optionality, now - not so much!
https://www.philoinvestor.com/p/is-the-nasdaq-in-a-reflexive-bubble
I feel like I'm drinking from the firehose! So much info! Thank you for this perspective, Philo! Excited for your upcoming course
🫡❤️🦉