
Are Index Funds Evil? - jejune06
https://www.theatlantic.com/magazine/archive/2017/09/are-index-funds-evil/534183/?single_page=true
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chrismealy
The article rightly talks about the conflict between investors and consumers,
but neglects the conflict between investors and workers. Index funds returns
are returns to capital. For the vast majority of people, even people with lots
in their 401k, most of their income is from their labor. Most of the increased
national income in recent decades has gone to capital, not labor. If that's
going to continue, in order to maintain shared prosperity, capital will need
to be redistributed.

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nostrademons
Eh, the problem is self-correcting. The more firms act collusively and
cooperatively against the interests of consumers, the greater the potential
returns for an entrepreneur willing to defect from that consensus and her
backers. Then there's a massive wealth transfer from the collective
shareholders of the old cartel into the new business.

...you could argue that there's evidence this is happening now. The economy
seems to have bifurcated into large mutual fund ownership of public companies,
and narrow private ownership of new startups that are aggressively disrupting
those public companies. All that's needed are more arrogant assholes who
believe they can up-end whole industries.

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existencebox
I don't even know where to start counterarguing this there were so many bits I
took issue with. The first point I'd call out is the assertion that
diversified investment will in some way distort corporate thinking in such a
way that it's more beneficial for them to collude than to compete.

I'd argue; 1. that already happens, and is entirely tangential to index funds.
I'd cite the west coast hiring collusion (apple et al.) a few years back. It's
just a matter of when there is "enough benefit" to both parties, and as it
turns out that happens relatively rarely; otherwise each corp seems to act in
self-interest. (as makes sense)

2\. investment in an index is often proportional to the weight of the company
within that strata. Similarly; a company can only be in certain indices by
nature of certain properties. Are we supposed to accept that companies will
suddenly stop trying to be the big dog in their particular pile? Driving
revenue from non-investment sources will continue to be necessary and
competition will continue to serve that end.

Now, I'm not a financier, thus my looking at the above from a primarily
"incentives/psychology" angle. But someone could tell me why I'm wrong to ALSO
say that I don't see why "index funds" are special. Diversification has
existed long before the funds, it just became much easier. You can pry my
diversification from my cold dead hands; even if I have to set up my
allocations/buckets myself. So why should I see this as anything other than an
attempt to make a powerful technique less accessible such that market
inefficiencies can continue to be exploited by the financial elite?

I see many similar echoes in this to a debate in a video game I play (Path of
Exile) at the risk of drawing a strange comparison. Trading in the game is
_terrible_. If you want to trade effectively/diversify/etc you need your own
tools, special skills, time and expertise. As a result many junior players get
screwed/ripped off/scammed/blocked from progressing, where savvey players get
unbelievably rich. Whenever improving trading is suggested, a vocal subset
responds viscerally against it saying it'll ruin the game etc etc; but as
someone who currently takes a good amount of advantage in the current
information assymetry, I don't buy that argument. Plenty of other games have
good trading; and in the same sense, I imagine large funds were all heavily
diversified similarly to indices prior to the 1970's.

So someone who knows this shit: tear my arguments apart. Show me why I
shouldn't see this as just another instance of financial misdirection.

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pkilgore
I agree the title should be 'is common ownership evil'... because as is clear
from the article itself, large individual shareholders like Berkshire Hathaway
will still have these hypothetical incentives. Picking on index funds merely
criticizes regular folks' only access to the power of diversification not
diversification generally.

That said, I think diverse common ownership is probably less risky than
concentrated common ownership due to collective action problems in the former
that don't exist in the latter. E.g., if 10k people commonly own 25% of each
airline, it's a lot harder for them to push for collision than if a single
fund owns 25% of each airline.

Regardless, very interesting article.

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mcone
This is very similar to another article that recently hit the front page:
[https://news.ycombinator.com/item?id=14811054](https://news.ycombinator.com/item?id=14811054)

