
The growth in passive funds has caused markets to become more correlated? - abhi3
https://www.bloomberg.com/view/articles/2016-08-24/are-index-funds-communist
======
PopePompus
This article brings up a point I used to worry about - if people are just
automatically pumping money into a list of stocks, how does the price remain
connected to reality?. But apparently the answer is that mis-priced stocks
present an arbitrage opportunity
([https://www.investopedia.com/terms/i/indexarbitrage.asp](https://www.investopedia.com/terms/i/indexarbitrage.asp)),
so as long as a few people are paying attention, the price remains rational,
and the remaining people paying attention are rewarded for doing so. The
Economist had an article about this issue recently and they concluded that the
main effect of Index Funds was to drive low-performance fund managers out of
business.

~~~
qubax
> The Economist had an article about this issue recently and they concluded
> that the main effect of Index Funds was to drive low-performance fund
> managers out of business.

If that's the case it should drive most fund managers out of business since
most of them don't beat the S&P over time.

[https://www.cnbc.com/2017/02/27/active-fund-managers-
rarely-...](https://www.cnbc.com/2017/02/27/active-fund-managers-rarely-beat-
their-benchmarks-year-after-year.html)

And as more money gets funneled to index funds, the vanguards and fidelitys of
the world could lower fees on their index funds which should put even more
pressure on most fund managers which could create a vicious cycle. Maybe we'll
be left with just index funds and a handful of rock star fund managers.

~~~
cmdkeen
It also very much depends on who is doing the investing. If you're CALPERs
with ~$320bn you don't want to put it all into the S&P 500. Diversification
through exposure to other, ideally uncorrelated, equity types or asset
classes.

The best asset managers charge low fees, they make up for it very comfortably
in volume and long term holdings. Warren Buffet famously doesn't sell, he
doesn't need to make thousands of deals a year to eke a small profit from
each, he needs to judiciously pick fewer things that are going to do well in
the long term. All too often people don't want to properly invest however,
they want to speculate.

------
kaycebasques
Theoretically, I think the concern is reasonable. The "concern" here being if
everyone switches to passive funds, then the behavior of markets will change.
However, when you look at the numbers, it doesn't seem like this concern is
actually a reality.

> The market capitalization of the S&P 500 is roughly $22 trillion as I write
> this. The entire ETF market in the U.S. is $3 trillion. That’s 14%. Even the
> whole industry—about $4 trillion, would only be 18%.

[https://www.etf.com/sections/blog/no-etfs-dont-
own-37-sp-500](https://www.etf.com/sections/blog/no-etfs-dont-own-37-sp-500)

This statistic was actually a big wake up call for me about 6 months ago. For
a long time I had been investing based on theoretical ideas, like the one
mentioned in this Bloomberg article that we're discussing. After I saw this
statistic, I realized that I needed to look closer at the numerical reality
when making investing decisions. This is probably obvious to many of you. I'm
just sharing the moment when this insight really hit home for me.

~~~
pfortuny
Right, the concern is true. However, when that happens, arbitrage
opportunities arise elsewhere (based on that correlation). As a matter of
fact, one can start "betting" on the correlation being high and the only way
for the "opponent" to win is to dislodge that correlation.

In the end: technical analysis is useless by definition.

~~~
akvadrako
It's useless if other people are doing it too, but if you are ahead of the
curve there should be money to be made.

------
osullivj
There's a phrase we use in investment banking: "talking his own book." A
trader is talking their own book when the superficially neutral view they give
of the market is designed to promote the value of their own positions. The
active managers that Levine quotes are talking their own books when they decry
passive funds. As ever, one should follow the money, and ask who stands to
benefit if a view of recommendation is implemented. "Where are the customers
yachts?"

------
Xixi
A pet theory of mine: if everybody starts investing in passive funds
replicating indexes, then the creativity will go into increasingly more
sophisticated indexes.

You might for instance want to make the bet that the market at large is
systematically underestimating the risks related to global warming in
particular, and the environment in general. Said differently, it is entirely
possible that governments will start to tax the hell out of various
externalities, like CO2 emissions, or plastic garbage generation. Or maybe
courts will ask companies to pay to clean up after their own mess.

If you believe that this is true, then indexes (existing or being created)
weighting in those risks will over-perform the S&P 500 in the medium term,
until a couple of companies are wiped out and analysts start to correctly
price in these risks...

That's just one example of the kind of creative index that could be created.

~~~
ndesaulniers
A "creative index" is another term for a "fund."

~~~
pmart123
I disagree with your definition strongly. An investment portfolio at the end
of the day is just a collection of securities, and an index is a frictionless
way to measure and evaluate a collection of securities, typically to a
predefined methodology. You could run a S&P 500 like separately managed
account to replicate a passive index, and this would have nothing to do with
being invested in a fund. Meanwhile, Yoi could create a commingled fund,
mutual fund, or active ETF that has no index.

~~~
throwawaymath
The commenter's point is that the "predefined methodology" can be
indistinguishable from active investing if it's sufficiently complex and
frequent. It starts getting pretty silly to call it passive. Otherwise an
active investor could simply codify their entire investing methodology into an
algorithm and start following it passively, then declare that they're just
adhering to a very complex index. But quantitative investors are still active
investors.

If you take a widely accepted, reasonably broad market definition and an index
to track it (such as the S&P 500 for equities), then sure, you're investing
passively. The portfolio reallocation and equity inclusion happens according
to rules which organically rise from the market definition itself.

But you can creatively define a market for any kind of security and then an
index methodology for tracking that market which may involve a complicated set
of inclusion rules that are arguably just active investing. This is something
Matt Levine has talked about in his column on a number of occasions - some
active investors are now rebranding their funds as index funds for creative,
synthetic indices.

The practical distinction between beta and "smart beta" is a lot larger than
the distinction between "smart beta" and alpha, regardless of philosophical
underpinnings.

~~~
pmart123
>>> A "creative index" is another term for a "fund."

I agree with what you are saying, but I'm referring to the previous commenter
conflating that a "creative index" or passive investing strategy is a fund, or
needs to be implemented through a fund structure.

Smart beta is really just factor investing with very tight constraints around
index tracking error. i.e. It's seeking out high beta and low alpha by design,
so given it is aiming for some variation in alpha, I think your argument makes
sense.

------
sysk
> The function of the capital markets is to allocate capital.

I never fully grasped this idea. I have no problem understanding that venture
capitalists, angel investors or investors that buy shares at IPO do allocate
capital. However, why is trading existing shares considered "allocating
capital"?

~~~
coltonv
This is one thing that frustrates me about investing in the stock market. The
idea of calling trading "investing" feels so inaccurate. I didn't invest in
your fortune 500 company, I bet on the idea that other people down the line
would bet on the same company but that they'd bet even harder. I wish
investing was more like selling small corporate loans. I'll give Amazon $50
today if they pay me $100 in 10 years. Sounds great to me, take my money, do
something with it, and pay me back. That's investing.

I've grown much more comfortable investing in real estate as a result of this.
When I invest in something I want to see how that investment was used, how it
helped, and get returns based on how successful my ideas were. If I renovate a
house or invest in my buddy's business, I get exactly that. It may fail, but
at least my money mattered and I saw what it did to help. When I invest in the
stock market I get none of this.

~~~
asdfasgasdgasdg
I don't agree. In a farming village centuries ago, a man bought a second hoe
from an estate sale. He would go on to lend it to others who needed a hoe, and
charge rent for the use of that hoe. Over the seasons, his hoe brought him
good rent, but then it came time to sell it. Because many of the hoes in town
had been made by the blacksmith's apprentice, several had broken over the
years, and the old master blacksmith's arthritis had prevented him from making
new ones. But our hero's was one of the few crafted by the master, so over the
intervening time, and with careful maintenance, it had actually appreciated as
an asset, in addition to the investment income it generated.

This was unquestionably an investment on his part, in the traditional sense of
the word. Our hero bought a productive asset and earned returns from that
asset. It was nice that it also appreciated, but that's not necessarily what
he bought it for. Or maybe he did. It doesn't fundamentally change the nature
of his effort.

Buying a stock is very much like that, with lower transaction costs and risks.
Only the productive asset you're buying is not a physical one, but a legal one
and social one.

Also, you can buy corporate bonds. They don't pay shit because everyone wants
a safe investment like what you're describing, and money is real cheap right
now.

~~~
eldavido
I see your point.

You are correct in that there is no net new creation of equity capital in a
secondary market trade.

I look at it this way: there is a fixed amount of equity capital floating in
the world at any given moment. At any point in time, someone has foregone
consumption (decided to forego eating a pizza today), at some point in the
past (distant or recent) in order to own a piece of that equity.

Also keep in mind companies issue and retire equity on a more or less ongoing
basis through employee stock grants and buybacks. So it really is a question
of how much you want cash vs. shares of stock, and how that tradeoff works for
others.

~~~
Godel_unicode
> there is a fixed amount of equity capital floating in the world at any given
> moment

This is absolutely not the case.

------
dang
The article is interesting. We replaced the baity title with representative
language from the text. Hopefully that will spare us all yet another boring
flamewar about the c-word.

If anyone can suggest a more accurate and neutral title, we can change it
again.

Edit: ok, you guys didn't like "When analysts are replaced with index funds,
the market stops allocating capital", so I dug up another representative
sentence from the article.

The best way to complain about a title is to offer a better one, so if you
don't like this one either, maybe take a crack at it?

~~~
tanderson92
The "index funds" thing is throwing people off the track of the article, which
is more about robots than index funds proper. Perhaps "when human analysts are
replaced with algorithmic robots, capital markets will feature less activity
but what about efficiency?".

~~~
dang
It needs to be 80 chars or less.

------
Terr_
This is equivalent to worrying that _all_ the animals in the entire world
might eventually become helpless herbivores.

Relevant past topic:
[https://news.ycombinator.com/item?id=12368136](https://news.ycombinator.com/item?id=12368136)

------
Latteland
I have thought for a while that most of the financial advisers are just
middlemen on the stock market, getting a small amount of my money by trading
for me. If I just buy index funds I'll do fine. My financial adviser who
charges me at 0.75% management fee didn't protect me from huge losses in 2008
and 2009. I don't necessarily blame her, but she was not really different than
buying an index fund or a managed year retirement fund.

~~~
jypepin
Exactly. The Little Book of Common Sense Investing is a very nice read on that
matter.

~~~
bootsz
"A Random Walk Down Wall Street" is another good one. Doesn't take much
reading/investigation to figure out how bad of a deal most investment
"management" services are, at least for the average person. It's not too
unlike a casino: in the long run the house always wins. You're not the house.

~~~
jypepin
Indeed. It's in my kindle and will get to reading it asap!

------
jorblumesea
If you went to a financial advisor 30 years ago, they would have said "give me
your money and I'll make you a portfolio". He/she would then have bought most
of the S&P 500 or some other exchange in a diversified manner buying equities
and bonds. They would have shifted around your allocations ever so slightly
every quarter, buying some stocks and selling others. But really, the strategy
was to buy and hold. Bonds were similar.

Is that not indexing under another name?

~~~
kgwgk
He would not buy “most of the s&p 500”. He would pick stocks to (try to) do
better than the s&p 500. Indexing was not common 30 years ago.

[http://s18674.pcdn.co/wp-content/uploads/2015/05/Index-
marke...](http://s18674.pcdn.co/wp-content/uploads/2015/05/Index-market-
share.jpg)

~~~
jorblumesea
Indexing was very common, it just wasn't called indexing. It was called
"active investing" but the reality is it wasn't as active or as smart as
people think it was. It was very similar to today's indexing where you would
funnel your money into the Facebook, Google, Amazon's of the day and collect a
fat fee. This is how index funds work today, when you invest in a S&P 500
index fund it's really weighted towards the huge hitters. The dirty secret of
active investing is every active investor had some kind of index-like fund
going that constituted a large percentage of their portfolio.

That graph is precisely my point, it's all about how we're measuring what it
means to be an "index". You could engage in index-like behavior but be an
"active investor". Indexing is just a label.

~~~
kgwgk
Of course the market as a whole has been always indexing by mathematical
necessity. Indexing is just a label, true, but it happens to be the label
applied to investing exactly in proportion to the weight of each stock in the
index. As opossed to "active investing".

~~~
fjsolwmv
But the subtler point is that your index fund is mostly invested in a few big
companies,plus noise. AAPL ($1T) itself is 3% of the entire US stock market
($30T).

------
forkLding
The issue is that in the long run, index funds or passive investors do
outperform hedge funds or active investment management as shown by Warren
Buffett:

[https://www.cnbc.com/2018/02/16/warren-buffett-
won-2-point-2...](https://www.cnbc.com/2018/02/16/warren-buffett-
won-2-point-2-million-on-a-bet-and-gave-it-to-girls-inc.html)

There are a lot of factors at play but simply for your non-analyst mom-and-pop
investors, they don't have time and the know-how to investigate stocks and
index funds are just much more accessible and as they say, in the long run we
are all dead.

~~~
CryptoPunk
This is true right now, but it's situational, not a constant that is
guaranteed to remain unchanged. If passive investments continue growing as a
percentage of all investment capital, they will eventually underperform
actively managed investments because market prices will cease to be reflective
of value.

~~~
C1sc0cat
This is happening all ready for example one of my active investments saw the
bank crash coming and mostly sold out of banks before the crash.

Then again this IT was started in 1888 and has increased its dividend every
year for the last 51 years.

------
ISL
To me, the interesting question is: if the market is mostly index funds, what
does that do?

Lots of passive money means that the market is an amplifier for the decisions
of those who choose to make their own decisions. Want $AMZN to have a little
more market capitalization? Buy some, and the entire market is _forced_ to
follow you. Sell some, and they will follow you, too.

It is herd behavior (which can be quite beneficial), but it affords certain
advantages to those wily enough to use the herd instinct for their own
designs.

~~~
masterjack
Not quite. One reason why many passive indices are market-cap weighted is so
they do not have to regularly trade. Suppose a fund needs to be 1% AMZN. Now
you fire up a hype train and the price of AMZN doubles. It now represents
twice as much of the index, market-cap weighted, so the fund wants to be 2%
into AMZN, but their stake has doubled with the price so there’s no trading
needed! That said, you can generally pick up an extra point or two of returns
by equally weighting and trading against the daily volatility, and some funds
do this, but they cannot scale up to have as large capacity.

~~~
ISL
Ah -- you are correct. Thanks!

------
blazespin
The biggest danger of all this money in index funds is that the market becomes
to big to fail and the government has to keep propping it up. In fact, it
becomes a way to actually disburse wealth - enact policies such that they go
to people in the market.

~~~
fma
China did that in 2015 when stock were tanking.

"...forced state-owned brokers to promise to buy stocks until the index
reached a higher level, mobilized state-controlled funds to purchase equities,
and promised unlimited support from the central bank. "

[https://www.brookings.edu/opinions/making-sense-of-chinas-
st...](https://www.brookings.edu/opinions/making-sense-of-chinas-stock-market-
mess/)

~~~
C1sc0cat
They tried that in 1929 with the Great Crash - it didn't work long-term.

------
jypepin
> Indexing is cheaper, yes, but that's because active management has positive
> externalities, and if no one will pay for it, those benefits will disappear.

Oh yeah? which benefits? When you know that on average, an astonishing 90
percent of actively managed mutual funds underperformed their benchmark
indexes over the preceding 15 years. The index superiority was consistent and
overwhelming.

I recently read the Little Book Of Common Sense Investing, and it was
brilliant.

~~~
throwawaymath
_> Oh yeah? which benefits?_

Price discovery. Price discovery is directly facilitated by trading. The more
frequent the trading, the more efficient the pricing mechanism (all else being
equal). Active trading also facilitates higher liquidity.

Neither of these things can be properly facilitated by a passive index. Buying
and selling (bidding and asking) is a mechanism for expressing optimistic and
pessimistic sentiment about an asset's price. The only thing a passive index
can convey is neutral sentiment, because it's just holding.

For a specific example of why this is important, let's look at something
slightly different. Indices are only capable of expressing neutral sentiment
in a market. It lacks the buying and selling functions. But private equity -
such as venture capital investing, likewise lacks certain price discovery
functions that public markets have. Private companies cannot be directly
shorted regardless of how large their valuation. Likewise since liquidity is
low it's easier to buy more shares than it is to sell shares. This naturally
leads to a positive pressure on the pricing mechanism, resulting in inflated
valuations that don't take into account pessimism.

Regardless of whether or not you feel tech is in a bubble, this is one reason
why tech valuations have skyrocketed. There are credible arguments that
similar distortions could happen to public markets if passive indices capture
the vast majority of investing. But that's by no means a certainty.

------
atemerev
The only driving force for the popularity of passive investing is the bull
market of the past 10 years.

It will be significantly less popular when we hit the next recession.

~~~
fjsolwmv
That's not true if actively managed funds fail as bad or worse during a bear
market.

------
anonu
This is a common refrain. Passive indexing is killing the market. ETFs are
killing the market.

I take a very cyclical approach on everything. The rise of passive actually
creates huge opportunities for active managers. We see this already in the ETF
landscape: you can invest in any product today for very cheap. This creates a
new challenge to manage the portfolio of the future. 60/40 allocations are the
exposures of yesterday.

------
3pt14159
It's actually a great article with a HN title that misrepresents what it is
actually about. Anyway, with that proviso, here is my take:

So long as the bots aren't conscious there will be no bot-dominated stock
market. Too much information is wrapped up in conscious thought that isn't
easily expressed in stock market pattern matching. The article mentions that
the line between active and passive isn't as clear as people that make it out
to be say it is, and that is true, but it's also incomplete. Certain events
are conceivable to humans that are not conceivable to machines. Short of
simulating humans, anyway.

For example, I as a human know that there is a non-zero chance that the DPRK
and USA get into a nuclear war. I can know that Trump defaulting on Chinese
held US debt is something that is at least on the table. The quants can try to
pull in percentages from experts all they want (and they were calling my
nuclear weapons arms control friends a year ago asking for percentiles) but it
isn't the same thing because the model is still fundamentally concerned with
statistics and many of the events we understand as humans have implicit
dependence to each other that is hard to model.

It's far easier to employ a small number of smart people and have the models
serve and be tuned by them than to have the models actually run everything.
Plus you don't even really need them sometimes. Take Bitcoin, for example. The
gains were obvious. The incentives were completely aligned and the friction
was in the buy side and it was temporary. I didn't need to model out Bitcoin
to buy it at $4 CAD. I just had to think about it from first principles,
something that is currently not possible with ML.

~~~
eldavido
You strike me as someone who has thought very deeply about this.

I think of it as being too much context. There is just way too much real-world
context for computers to assimilate. We humans might be terrible at
understanding things like abstract algebra but evolution has left us with
pretty well-optimized systems for understanding social cues, complex
behavioral networks, and other nuance of human behavior.

I completely agree with your thesis.

~~~
3pt14159
Thank you David—kind comments like this mean much to me.

Your Github activity seems like it's on a bit of a break. Are you on holiday
or are you looking for something new?

~~~
eldavido
Selectively looking at what's next.

------
ucaetano
This is fearmongering. If the market approached an allocation to index funds
that enabled arbitrage, more actors would switch to arbitrage eliminating such
arbitrage.

It is a self-balancing situation. A scenario of "oh my god, everyone is just
putting their money on index funds" would never happen.

Another way to think about it is in terms of evolutionary stable strategy.
Index funds and arbitrage-seeking reach a Nash equilibrium at some point (far
more index-allocated than today's market) where arbitrage-seekers will reap
returns almost equal to index funds, as index allocation starts o not capture
all available market information.

If the market deviates from that point, forces push it back into that point.
If the market starts over-allocating into arbitrage-seeking (like today),
returns on index funds will beat arbitrage, pushing capital back into index
funds. If the market over-allocates in index funds, index funds will return
below arbitrage, pushing money out of index funds.

Edit: Right now, the market is still far over-allocated into the arbitrage-
seeking side, resulting in a natural shift to index funds.

~~~
tanderson92
If you carefully read the article, it is very much not about the "What if 100%
of assets were indexed" argument you often see. It's about what happens as
more and more assets are robotically allocated via algorithms. Matt Levine is
not a clickbait writer, and he deals seriously with the arbitrage-seeking
nature of capital markets including robots which will seek to dominate by
predicting what the winners will be.

I think the article deserves a fuller and fairer reading than your comment
indicates you've given it.

~~~
loeg
Levine is great, but the headline (both the ones in the article, and the one
here especially — which differ) suggest that there is no middle ground between
status quo five years ago and 100% index funds, no active investors at all.
(Often journalists don't get to write their own headlines.)

I.e., grandparent commenter is responding reasonably to the headline, if not
the article itself.

~~~
ucaetano
Not really, 2/3rds of the entire article, plus the title and subtitle are
about index funds:

> Are Index Funds Communist?

> But when those thoughtful active analysts are replaced with passive index
> funds, the market stops serving that function.

> Indexing is cheaper, yes, but that's because active management has positive
> externalities, and if no one will pay for it, those benefits will disappear.

> But more fundamentally, there is an alternative view that the rise of
> passive investing will improve capital allocation

> The passive investors can't influence relative prices

> Their worry is that the growth in passive and quasi-passive products

> Or I guess pure indexing -- everyone passively throws money at everything
> that there is, with no judgment at all -- is an imaginable fourth answer,
> and is strictly worse than the others.

~~~
tanderson92
As I explained elsewhere to you, not all passive or quasi-passive money is in
indexed products. And furthermore, reading the article as I encouraged you
originally to do, reveals it is not about index funds.

------
jondubois
The worst part is that many governments around the world use peoples'
Superannuation/401k accounts to invest in index funds. In Australia, employee
contributions of 12% are mandatory... So basically the government is driving
inequality and centralization of wealth using people's own money.

This represents an unfathomable about of money

~~~
danieltillett
You can run a SMSF here in Australia if you want to make your own investment
decisions.

~~~
jondubois
Yes but from what I remember it wasn't that easy to do. When opting out is so
difficult, most people will just stick to the default. This kind of approach
is bound to increase centralization of wealth.

~~~
danieltillett
It is not super difficult (sorry for the pun), but it can be time consuming
and only really worth doing if you have more than $250,000. At least we have a
choice.

------
PaulHoule
Back when hedgies were the masters of the universe and every punk and his dog
was starting a hedge fund and when you could beat treasury bills with "market
neutral" strategies people used to blame correlation on hedgies.

------
arikrak
I'm not sure what the concern is with index funds. For now they're a better
deal than active funds but if they take over too much of the market that will
leave more opportunities for active investors to succeed.

------
jameslk
Once they've found the perfect capital allocation algorithm to replace
markets, they can work on the perfect policy calculating algorithm to replace
democracy

Edit: /s

~~~
UncleEntity
I think they will never find the perfect capital allocation algorithm or solve
the economic calculation problem.

There's just too many self-interested market actors to possibly be able to
predict what their future wants will be to throw out the function that the
entrepreneur provides, those who predict future wants correctly make money and
those who don't lose their investment.

Unless, of course, all they want is a static model of current consumption at
the expense of human progress.

~~~
jameslk
I'd be more concerned about the potential conflict of interest having such
algorithms control major functions of other's lives. My post was meant to be
sarcastic, however I'm getting a lot of downvotes, so perhaps the sarcasm
wasn't clear.

------
jayalpha
Passive funds were never meant to be used on this scale.

I don't have time to explain it to you, but this post outlines the problems
with passive ETF pretty well:
[http://www.zerohedge.com/news/2017-04-09/horseman-global-
unv...](http://www.zerohedge.com/news/2017-04-09/horseman-global-unveils-new-
shorting-philosophy-using-etf-flows-catalyst)

~~~
zazen
> I don't have time to explain it to you

Just read that phrase again and think about how it comes across.

------
asdfasgasdgasdg
HN title doesn't match article title, and in fact cites a thesis that the
article disagrees with.

~~~
dang
We changed the title, in keeping with the site guidelines: "Please use the
original title, unless it is misleading or linkbait." Please see
[https://news.ycombinator.com/item?id=18144886](https://news.ycombinator.com/item?id=18144886)
for more explanation. I'll add a question mark to indicate that agreement
isn't implied.

If you can suggest a better (i.e. more accurate and neutral) title, preferably
using representative language from the article, we'll happily change it.

------
wmnwmn
The market already doesn't allocate capital. Companies almost never issue new
shares, indeed they buy them back. Given that dividends are also trifling, the
market is mainly a large scale gambling scheme. Not entirely, but mainly.

~~~
khuey
Companies issue new shares all the time. Tech company stock buyback programs
are often treading water against employee equity compensation.

------
avyfain
The seminal paper on this topic seems to be Anticompetitive Effects of Common
Ownership[0] by Azar et al, and there's a whole chapter on this topic in
Radical Markets[1], a recent book by Eric Posner and Glen Weyl. Both are worth
reading if this is a topic you're interested in.

[0]
[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2427345](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2427345)

[1] [https://www.amazon.com/Radical-Markets-Uprooting-
Capitalism-...](https://www.amazon.com/Radical-Markets-Uprooting-Capitalism-
Democracy/dp/0691177503/)

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dwighttk
Is a wag's take on this "Idiots no longer wasting as much money betting on
long shots that are longer than they thought" ?

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rootusrootus
Interesting. When I click on the article, this is not the headline I see. I
get "Are Index Funds Communist?" with a byline of "There won't be much left to
do once the investment robots perfect capitalism."

If it were meant as clickbait, the communist headline would be better :)

~~~
dang
The HN guidelines ask for titles to be changed when they're misleading or
clickbait
([https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)).
This one was the latter.

Please see
[https://news.ycombinator.com/item?id=18144886](https://news.ycombinator.com/item?id=18144886)
for more explanation.

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viburnum
He's right, we don't need finance or rich people to run the economy. Bring on
the fully automated luxury communism!

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darawk
This narrative is such a joke, and such a profound misunderstanding of
economics i'm surprised Bloomberg would publish it. Simple rule: if your
argument implies that there is or will be free money to be made in the stock
market, your argument is probably wrong.

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mr_toad
Is Bloomberg a tabloid? The answer may shock you!

~~~
analog31
That depends on how you fold a website. ;-)

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djrogers
The conclusions here seem to be based on a) a purely passive market, and b) a
static amount of capital.

I’d like to see an analysis that offsets the potential inefficiency of a
partially passive market with the gains to the economy from additional capital
being available to invest.

Are we better or worse off with a market that is _n_ % less efficient, but
that has _y_ % more capital from passive investors than a purely active market
would have?

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njarboe
Since the public stock market is no longer a place where companies sell stock
to raise capital to build things to make even more capital (Tesla excepted),
is seems unproductive to give people who can do well in a prediction market of
the future cash flow of public companies (the stock market, basically) lots of
resources for doing that. It would be cooler and more useful if we supported
prediction markets in all kinds of things that people want to know about. The
average yearly temperature at 50 known recording stations in Europe from
2020-2030, 2030-2040, 2040,2050, 2060-2070, etc., would be one many
governments, corporations, and people would like to know about.

~~~
atomical
Prediction markets are more hype than substance. The future can't be predicted
through gambling.

~~~
fjsolwmv
The stock market is a prediction market.

