The Index Fund/ETF Bubble - How Bad Is It Really?
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- เผยแพร่เมื่อ 28 พ.ค. 2024
- Here is the link to Michael Burry's interview: www.bloomberg.com/news/articl...
Ben Felix's Index Fund Bubble video: • The Index Fund Bubble
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You've probably seen the circulating claim that we're in an index fund bubble; this is of course possible, but let's clear up the facts around the argument before jumping to conclusions!
DISCLAIMER:
This channel is for education purposes only and is not affiliated with any financial institution. Richard Coffin is not registered to provide investment advice and as such does not provide recommendations on The Plain Bagel - those looking for investment advice should seek out a registered professional. Richard is not responsible for investment actions taken by viewers.
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Happy Friday! What are your thoughts here? Are we in a bubble or are these claims nothing more than fear mongering? Let me know!
So am I doing wrong if I want to put my money on a 3x leveraged ETF like TQQQ if this ETF is meant to follow the market and it's
relatively stable compare to an oil ETF or commodities? I'm starting investing, so with this TQQQ I find diversification with a stable levegeraged gains...
Please correct me If I'm wrong.
The Plain Bagel, hey buddy great video very controversial!
I’m putting out a video a little later and I think there is validity in the ETF bubble since ETFs are sector based. Yes most are asset based but many are synthetic yes 100% derivative based and on top of that some of those are leveraged. This is what my video will be about these are defiantly in a bubble.
Fernando Orozco that’s a 3x leverages 100% derivative based so it’s insanely risky just FYI you make your own decision. My video is on that exact index.
Tom Isaacs ....in my opinion the questions you have to ask yourself are 1) "what is the empirical evidence on active vs passive investing?".....the answer is, on average, that after fees and expenses, active management tends to produce worse results!.....Now, that is on AVERAGE, so there are some good stock pickers who can, after fees and expenses, "beat the market", but they are few and far between and even fewer can do this consistently. (i.e. Investing is a long-term activity, so being lucky/good over one period, may not happen over thirty to forty periods ).
The second question is: "do you have a competitive advantage (or do you have access to someone who does)?....if the answer is yes, then active investing may be for you. If the answer is is no, then stick with passive investing. The problem here, is how to determine "competitive advantage"?....past history may or may not be a good indicator....will strategies that worked in one investment regime work in another?....How does their strategy change to,reflect different regimes?,,etc.
If enough people belive it is a bubble it will burst as one. If people are happy with passive investing on ETF and its derivatives and discard the idea of a bubble we will eventually be in one. To avoid a bubble we need balanced thinking on both sides :p but heck I am neither investor neither PhD. Thanks for you video it is really easy to watch and I feel I learned something
Micheal Burry, the man who has successfully predicted 55 of the last 2 financial crashes.
After is chip short last fall, someone should check on him
Holy LMAOOOOO
The market crash will occur after I begin investing for the first time
If your young enough to be investing for the first time and your not desperate for the money you can just ride out the crash. Index Funds will eventually recover their value unless the US economy completely and permanently falls apart
The market did crash after I invested for the first time and I just held on and averaged down and eventually exited from a few bad choices a year later with a fair profit.
I was just thinking the same thing lol
Currently down a couple hundred on an equity trade. Bought in at a new low of $15 and I thought I hit it smooth but it keeps going down. It concerned me but then I remembered that I'm an 18 year old college student with no dependents and about 85% disposable income so. Even if it does crash when you begin, just buy more lol see it as an opportunity.
Lmao!
This was an excellent nuanced discussion of a poorly understood topic. Well done, Richard!
Thanks Ben!
Ben Felix true well spoken
I love this simulation where my favourite finance-related youtubers get to discuss with one another.
Keep up the good work you both!
@@ThePlainBagel Whew! I was worried Ben was going to give you grief for coming out as an *active investor* ... dun dun dunnn! :D
Ben would not give "grief", Ben will just hand over the Peer reviewed papers and throw words like "CAPM" or "%-factor" at him until the problem goes away xD
Everyone tells us to diversify, there’s nothing more diversified than investing across the index
I’ve read that “diversity” ends after about 12-13 funds.
@Bastian 111 sure, the more the better. It’s hard to know what will do well. Every time I buy an individual asset It craters so I might be cursed
If you're diversifying for risk management, you should also look into stocks with a negative beta (move opposite to market), or hedge with shorts (I don't advise shorting) or puts. As someone here mentioned, gold and bonds are also great diversification tools (in a bull market they are often overlooked for their low return). But just keeping a healthy percentage of cash is also risk management.
@@senne5699 shorts are too scary for me , but you’re other ideas sound good to me. Thanks
In my mind, if a total US index fund tanks that means the entire us stock market tanked. No point in owning individual stocks. Imma just buy more of the index fund at a discount
Sean Lei - Money & Minimalism you’re a genius. How do you do it!
If that happens I suggest diversifying into canned beans and 5.56 cal.
@@Swarm509 Eat the beans then sayoonara?
@J White The best low-cost passive index funds have
J White Are you proposing to invest in individual stocks to avoid a .04% expense ratio? You could beat an index fund but the chances of beating a diversified, broad index are *very slim*. This is why so many stock pickers perform so poorly. Also I wouldn’t go so far as to say stocks are extremely illiquid. Equity tied to houses are extremely illiquid, but for stocks you just sell them and wait a few days to transfer to your bank account. In the event of a recession and the economy tanks, there may be more (panic) sellers than buyers, but as warren buffet says the smart investors will simply continue to hold their assets and buy more.
I'll be writing a research paper on this, or more about how ETFs are taking away clients from bad investment managers.
Interesting thesis. That would be a long term plus for active investment as trust is restored.
Is that an original thesis? Not really. That debate has been going on in the discipline for years. However, you should consider that although index funds and ETF's are empowering the Ordinary Joe to passively invest, he might just be jumping from the frying pan of poorly performing active fund managers into the fire of badly index designers. Remember, the Ordinary Joe barely understands how the underlying assets of IFs/ETFs are structured, or how sound the indexes are. But, they're easy right? Index Funds are considered to be safer than ETFs, and there's possibly a very good reason for this: probably a lot of those poorly performing Active Asset Fund Managers have been following indices in the main and limiting their exposure to more risky investments. i.e. They been hedging their bets, hence the underwhelming performance.
I would like a copy of your report
Very interesting topic, take note of how AALTX has a load, while VFIFX does not have a load. Good luck.
@@BigHenFor I dont think all those issues are relevant for "ordinary joe", after all it just tracks some top companies based on some criteria and there are so many ETFs that it kind of is an active purchase...statistical research has shown that active funds only sometimes beat related ETF (maybe 5% of them, dont remember exactly) and almost none of them are able to do it time and time again up to a point of it being almost impossible for ordinary joe to find such active fund (for example in my country in EU there are maybe 1000 active funds and NONE of those beat the market, the difference vs ETFs is like 3-4% PER YEAR - just do the math in 10 year scenario)....the key for Ordinary Joe is not to pick the best option but to avoid mistakes (just like in tennis for example, better players on average are those who do less mistakes not those who actively beat the opponent by great strikes)
Active fund managers will never like passive investing, because it doesn't line their pockets. I will still listen to Jack Bogle's and Warren Buffett's advice any day of the week.
65% are « market timers». Of the people buying etfs and indexfunds. Thats the main reason they lose over time. People panic and are addicted to short term gratification and the obsession of wanting to predict the markets and politics in the short term. The mix of anxiety, envy, greed, panic is the main movers in the markets.
Yeah the expense ratio is drastically lower with etf’s
Fuck yeah, and Ramit Sethi.
Yeah but buffet recommends putting money into the s & p 500 not all the nonsense ETFs out there
On 11/15/2019 when this video was posted, the S&P 500 was at ~3,000. It is currently at ~3,900 (12/12/2022), down from the peak of ~4,700 at the end of 2021. Interesting to see where the markets went since this video was made
Based on that data do you believe shorting index funds back in 2019 could be a good decision?
@@erickzts Imho no unless you knew about the chinese virus and the impact it was going to have
@@erickzts 🤣
S&P 500 just hit all time high of 5,000 today on 2/9/24. It seems we are walking on thin ice right now.
@piewert787 it definitely will crash at some point, the line cannot go up forever, but that doesn't mean it's an index bubble.
When you invest in a total stock market index you're essentially betting on the US economy to continue to grow.
Thing is, the US economy has never not recovered from a crash, even apocalyptic crashes and crisis like the housing bubble or the great depression. You're essentially betting on the nation to continue to fare well, which it has consistently done so since its several hundred year inception.
But if the US economy completely disintegrates (civil war, nuclear anhilation, ect) then investment strategy doesn't really matter at all, does it? If the index fund investors are screwed, then EVDRYONE is screwed.
... except those that heavily invested in international markets.
I'm Chinese living in Australia, so Im heavily invested in three markets including the US. However I dont think my portfolio will survive a US disintegration lol The Aus market follows US to the beat, and the Chinese market gets moved by foreign investors(US) regularly.
Every country does well until it doesn't. The past tells you nothing about the future.
The market could plateau, crash and start growing again but you have no assurance it will exceed the original plateau limit
except japan never recoverred
Japans index is not likvid and open for foreign retail investors. That is it is mostly just profesjonals investing there and lokals who where broke in the 90s. The us economy is ALOT larger and is globaly ownd. That is the whole planet buys dollars, apple stock and s&p500 etfs and indexfunds
The funds themselves can't be in a bubble. Only the underlying investments can be in a bubble. If the stock market is in a bubble, then we aren't going to be any better off holding actives rather than passives. In reality, after charges, we'd be even worse off. Passive investing is becoming more active now anyway - we can now track styles - value, momentum, quality, size....there is an algorithm for everything! It doesn't make any difference if an algorithm makes the buy/sell decision, or a manager does. Fund managers are just butt hurt that they can't just give us market returns or worse and charge 1% anymore. They now have to sing for their supper by outperforming. Most of them can't do it!
So true
What you're saying is true but it isn't any different than what people like Burry are saying. Passive ETFs are creating a bubble, not exclusive to passive ETFs but to the market as a whole. Anyway, it's not true anyways. There will always be price discovery. Look at daily, weekly, monthly movements in s&p 500 stocks individually. They don't move up and down together in unison.
Fund managers have algorithms that you don't have. There are some robo investing tech with extremely low fees, but typically they just do weak tax harvesting techniques and also do nothing more than active rebalancing.
Active investing through advisors use tactical investing strategies over strategic investing. And even then, robo investing people, invest emotionally still. Your advisor is supposed to keep your emotions in check and keep you on track, mentally and emotionally, and financially.
Now, it's true that the underlying investments would have to fail first for the etf market to burst. Makes the most logical sense.
And couldn't the same thing be said about mutual funds??
The underlying stocks may be more liquid and easier to sell, but I don't know why the underlying stocks would be more liquid to sell than the etf? You can explain that part to me.
Ooooo the ETFs can be in a bubble! Because etf trade on their own and the trading (buying and selling) is what make the price go up and down, so if ETFs are trading more than the underlying investment, then the value of the ETF can begin to pull away and be different than the underlying investment.
So if the prices increase soooooo much more than the underlying invest, when the underlying invest fails, then the etf will tank exponentially more than the underlying invest, percentage wise.
He mentions arbitrage, which can work only in bull markets.
@J White Why would passive investors sell off at the same time? They're people who are in this for the long run no matter what, do you really think they'll all be triggered to sell at the same time?
The problem is active fund managers and their high fees. Most active fund’s performance is less than the similar index fund. I worked at on company and all the fees added up 7% my 401k never had a gain. I got the boss to drop that company.
YES!!! Thank you! Finally, someone points out that REGULATION also played a very big role in fueling the fire of lending to high risk credit borrowers. The movies and media seem to gloss over those failed regulations and many, many other failed regulations.
Regulation ALLOWED high risk lending, whereas high risk lending would happen in private market regardless. So you are also going too far to the opposite extreme.
Need example? What do you think loan sharks are?
@@dailyrant4068 they lent to high risk people because the government guaranteed them pay outs if the people couldn't afford payment. these guys aren't dumb, they would only lend money to certain people if they knew they would be reimbursed by the state. not a good business model to lend money to people who can't afford to pay you back, right?
You hear "regulation" and assume it's bad, instead of assuming that there's good and bad regulations.
Don't spread your bias
If it crashes, I will buy a lot. If it does not, I will buy just a little.
If it crashes you keep the money in, there no way the entire S&P 500 fails
@@owenferraraExactly, if the committee sees failing companies they remove it from the 500 list. And replace it with higher valued ones
Just buy every month a little.
@@owenferrara it already did
@@tomuxp1 My comment still stands. Leave it in. It will recover. Will it be a quick recovery? No. Will it happen? Yes. Should you take your money out right now? Absolutely not
Thanks for making this video Richard! I think it's very important to make sure that headline topics like these receive a nuanced take and that we make sure to take into account all available information.
For example, it's been seen that in the long term no effect is had on stock prices that are added to an index.
Too many fortune tellers in the financial market... One of them is very likely to be right, but a priori can you tell who?
As always, great discussion on a complex topic. I’m not worried about a bubble..... yet. I’m more concerned about the growing concentration of voting shares among a small group of institutional investors and the potential implications of this.
This. Even now in July 2021.
The only way how index funds can be in a bubble is if the underlying assets are in a bubble. The fund tracks the underlying assets not the other way around.
Duh, S&P 500 P/E is 40.
4 years later . . . no bubble
love the videos, and I admire the segway from pure animations to videos of yourself... good content... keep it up!!!!!!!
Et al is just latin for "and others" many financial papers since they have multiple authors, will use et al instead of listing the names of everyone who contributed.
Wrong! Et al is a polymath who has published more papers than anyone else in history.
Burn Er Heard he’s best friends with Feat.
@@stevenfung1333 starring has been real quiet since the feat. mixtape
Agreed , with all the data and knowledge accumulated I still believe that it is extremely hard to predict a bubble . There are so many factors that come into play and so much complexity.
Of course a hedge fund manager would call them a bubble. Hedge fund managers can't out perform the rates of ETFs
cartiphulis Burry’s hedge fund closed in 2008.
@@asmrbill5931 He still runs a hedge fund
and the pandemic triggered the crash.you get an L my friend.
For anyone who doesn’t understand why people don’t like ETFs.
1. If everyone buys into any one thing at a high enough rate there will be a liquidity issue sooner or later
2. Passive investing means that you aren’t actually evaluating whether a company is worthy of your investment or not, you’re simply deciding that if your portfolio is diversified enough, you are ok with losing on some of those companies because another one will be added to the fund.
3. Prices increase for Individual stocks when added to an index even though said company may not deserve your investment. So you effectively have stocks in your portfolio just to say that your portfolio is diverse and not because you believe every individual stock in the portfolio is a good investment.
4. If everyone is invested into ANYTHING, do some research and you’ll see that that’s not necessarily the way to go (1987, DotComBubble, 2008) and holding the opposite side of the majority has always panned out for those who do the requisite research.
@@leocriss6354 I get what you're saying but I truly believe that lots of these so called stocks that end up being listed in the indexes are actually the result of active investors. Surely we can all agree that Tesla doesn't deserve the hype it has right? As a result sooner or later is bound to be in the S&P 500 and a result of that will be it will be added to the big indexes. They say time is money and I rather the rest of the people decide where they spend their time. I'll just choose the basket that they themselves chose to be in the position for me to put my money. Will I put my savings on the tech sector? Probably not yet I see people put 100's of thousands behind one specific stock. Nowadays to become a billion dollar enterprise all you have to say is that you smelled the insides of a new Tesla car. Doge to the moon and what not. The bubble is elsewhere imo. Nobody making a movie out of the indexers anytime soon, meanwhile Burry making a cameo in this GME fiasco.
I really like your channel. I learn so much from it. Not only the content is great, but the way it is presented is very compelling and the videos are so well put together. Thank you so much. Keep the good work.
I always come to this channel for a nuanced and sober opinion on investment topics. Well done.
Cremers and others
Aurko Mitra I laughed so hard at that part, but no one else in the comments seemed to notice hahaha
This has become my favorite channel on TH-cam lol. Great job as usual.
Always appreciate your thoughtful analysis and explanation! I'm a pretty big passive investor too. Although there isn't a large amount of trade volumes, what do you think would happen if there's a large sell off and ETF holders decide to sell? I think that scenario could lead to a more precipitous fall on the underlying securities.
This was exactly the video I was looking for! Thank you
Awesome video. Great job staying away from fear mongering, everyone tries to make a name for themselves trying to call the next “bubble” when in reality if anyone had any real evidence and publicized a bubble, that itself would deflate the bubble before it pops. They’ve been calling for the next crash since I started investing in 2012, and if you listened to those trying to sell you fear you would’ve missed out on 7 years of solid bull market. It’s always time in the market, not timing or trying to call a bubble.
I have beaten Micheals returns for the last nine years so I will just keep on keeping on.
All knowledge aside, not only is this video quite informative, the comments are surprisingly academic and constructive too.
Still, thanks for the info! I just started investing last March, and I’d like to know the rundown of all things finance.
Humble,.simple and very useful. Thanks a lot for your work and insights. Loved it :)
This kinda goes along the lines of inflation. Because a lot of people recognize a store of value that store of value is overvalued than it should over decades
Thank you for the video! Very informative! Certain indicators do point out the bubble formation, in my opinion. All market cap weighted index funds blindly track equities based on their benchmark indices, irrespective of the dependability of the underlying stocks. A few examples/facts that are frustrating about index funds are as follows:
iShares Russell 2000 Value ETF (IWN) and iShares Russell 2000 ETF (IWM) are now both tracking AMC as it's Rank 1 holding, only because this meme stock gained a higher rank based on market cap, only in the last few months. Both the above ETFs also used to track GameStop (GME) in their top 10 holdings for many months this year, but now, the attention seems to have shifted to AMC. Index funds do not care for volatility / turnover within the index caused by market cap changes. Also remember that indices are fully actively managed, in that, someone makes a decision to add or kick out a stock, so there is risk involved. The fund itself is termed as low cost, obviously because the allocation is all automated, but the risk is there because you are 100% relying on the decision made in the index.
All Large Cap Growth ETFs, you name it, Vanguard, Blackrock etc, have all been tracking Tesla which is in the top 5 rank since last year, because it got promoted to S&P500. Tesla is still a questionable stock for it's reliability based on the high speculation and overvaluation! Tesla has huge volatility and uncertainty, and to put a large chunk of your retirement savings in Tesla via an index ETF is not very comforting! The decision to promote Tesla to S&P500 top 10 was very brash in my opinion.
For anyone invested in index funds, they are inevitably forced to invest their money indirectly in meme stocks or stocks that are overvalued because a market cap weighted index tracks it!
"Regulation also played a key role in encouraging banks to lend to lower credit borrowers"... needs to be discussed more, but it can get political at that point. So people, just do your research ;)
It turned out the risk models of banks weren't racist after all. :)
Amazing depth in the way you describe and explore things! subscribed!! thank you for this amazing content
So long as the invested money isn't borrowed money, it won't explode disastrously. It may still go down or up, but every crash in history has been caused by major borrowing in the belief that people will make easy money. Passive investing doesn't really work that way. It's usually people taking the top part of their paycheck and then spreading it across the market. That means it can be directly affected by other market forces, other bubbles, but in of itself can only provide capital gains because it's already the investor's money. There's no credit or loan to be paid back that the investor would default on causing a devastating crash. It's not the collapse of the market that causes a recession or a depression, it's the inability to pay back the debt.
Are you Canadian? Because you discussed someone’s claim in a very classy way and your ending to the video surprised me. I wish more people discuss stuff like you 😊
great comparison of CDOs & index funds- people really need to understand how fundamentally different they are, despite being similar from a broad POV
A very good topic to get into. I like investing in both index funds and individual stock (mostly value for both). They both produce, and they both make money. Value index funds currently are underperforming compared to total index funds, but that's okay as long as I know it's safer during bear markets or recessions. And I know my stocks I pick as value are safer than others. Bubbles are a scary topic, but if we keep investing in value, the bubbles that are created are nearly nonexistent, and if they do happen it's minimal.
I'm an adviser over in Australia. Your content is great and universal! Keep it coming.
The main reason I’ve got into ETFs and Unit trusts really centres my circumstances. I’m 24 and just graduated from University. I have put some of my savings into investments but the majority (approx 3/4s) into a savings account so I can put down a deposit on a property sometime in the new year.
So from my view, I’m A) just starting out and B) have very limited capital at risk. Therefore, I’m happy to accept short term losses as I’m planning to be in the game for decades yet.
So to me, ETFs and UTs are a good way of exposing myself to varied and diversified investments without paying through the nose in commission. As I get pay checks each month and save more, I may look at switching more to the underline investments more. At the moment UTs are particularly valuable to me as they only have a single daily valuation point. So it’s easy to keep track of how things are going.
Would appreciate any thoughts people have on this approach.
How’s it been?
@@belt1749 worked pretty well since I wrote this thanks.
Yo dude, ma man you explained this so well. I'd love to see more videos explaining stuff.
Great stuff man.
You should revisit this topic cuz this bull runs starting to get scary
Great point about seeing a rapid sell off, you could see this product slide not to mention liquidity. Also enjoyed the points about closet indexers
Bat in soup: "index bubble? That's cute"
nice comment . nice thinking . index is bubble and so are buy back shares. get ready mate save yourself
it's actually not because of bat soup, technically if you cook it you can eat any animals provided they really are safe to eat and had no poison like pufferfish. purpose of cooking is to kill virus or other harmful bacteria though this include good bacteria too.
one of main reason is the market hold live animals and that what the cause of it
haha I mean, rona actually did help correct the market
@@carval51 maybe the animal was not well cooked.
But i dont believe that it was some animal in a soup that caused this pandemic.
@@davidmella1174 there multiple hypothesis
2 that I believe likely is
1. lab where they actually did test a new virus to cure it but the handling is bad which something usual in china either the animal escape or sold again to make some extra buck for people working in the lab resulting in the spread.
2. it just new diseases happen to be mutated from animal to human since the market is full variety of animals that are mostly not treated.
11:10 Imagine a volume of trade 35% by value is made on the options and future contracts of each stock. That will certainly be problematic. And long before that, the market makers would probably adjust their modeling and therefore the bid/ask spreads according to the extent they would then be unable to hedge. The thing is, ETFs is still far from majority. And 35% synthetic doesn't mean literal 35% trade by value in derivatives either. Are the expense ratio fixed in the contract for these levered ETFs? Probably not right? One thing that will happen if the purchase of these ETFs cause excessive trading on options and futures is that the fund expenses will eat up the fund's value. And the effect may as well just end there. It'd be curious to see some modelling on what would happen if demands on these ETFs become excessive. It's still a non-factor at the moment.
Really enjoyed this, thanks for sharing. Productive procrastination!
Great video! Would small cap index funds also be affected by a bubble burst or just the large cap ones..?
"Maybe!"
The influx into these funds is driven in part by low interest rates on term deposits. Those who aren't active investors are looking for a return on their savings
Thank you for recommending Ben Felix's video!
Risk Levels from least to highest: 1. Savings practically no risk - Very low profit, 2. Bonds minute risk - minute profit, 3. ETF, Index funds - slightly risky - passive profit, 4, Dividends - Risky - greater profit/value, 5. Growth stocks - Very risky - Fantasic profit and 6. Collapased/Bankrupt companies - Incredibly High risk - Incredible growth. Lets highlight as you go up the scale from 1 upwards your profit gets bigger and bigger however, with that the fall is much bigger too. Overall its where your boundaries lie.
Great video, did any of these challenges happen during the initial stages of the Corona sell offs. ?
Have you ever covered seed invest on early startups? Pros and cons...
You mentioned you are an active trader. What is your personal general strategy?
I am rewatching this video at 4:30am, because I was worrying about my index-ETF investments and kids' futures... I thank you!
Re: Arbitrage: that's.. how ETFs are designed? That process is the whole point! The AP doesn't create/redeem shares; it just collects the underlying shares, delivers them to the fund company in exchange for new ETF shares ( Like for a mutual fund.. the difference is with ETFs only one participant is authorized, what is called, surprisingly, Authorized Participant. ), and then sells those shares. The trades the AP is doing are the exact same as the ones you described. That's how the AP is paid for their role in the ETF.
The effect is normal: If you are buying a "basket of stocks" , that should have the exact same effect on the stocks' price, regardless of that basked being a mutual fund, an ETF, or simply just the actual set of stocks.
Love your work because of your excellent ability to breakdown complicated topics!
btw, I found you during my CFA Level 1 studies and it helped me understand some of the more challenging topics within the Equity and Fixed Income sections; happy to report that I passed Level 1 and moving on to Level 2 this upcoming June!
I appreciate your work!
End of the day, the value of the company we buy has not much to do with the price we pay.
Quote: Price is what you pay, value is what you get. --Warren Buffett
Warren can afford 2 Ts in his name.
pgo eds 🤣
Nice to see you and Ben Felix working together making videos. 2 of my favourite finance channels here.
the way I see it is that index funds are taking averages so even if there is over-valuation of smaller stock the opposite is happening with the bigger stocks so it all averages out.
Well explained. Subscribed!
Great video! Was doing research on this topic recently and came across this video - Thanks for the research!
Wow! You’re smart! Thanks for sharing that info. You did a great job👍 love the name of your TH-cam channel
People are putting a lot of weight on the opinion of a guy that got it right once.
You speak of him as if he's your ordinary individual investor. The man is a hedgefund manager. A very credible one at that.
Twice actually...
Thanks you for the clarification this is not to scare people but make them aware of again...the inherit risks that are associated with these types of financial instruments...but alas the biggest risk is not taking one at all...as I always say don't follow the hard stick to the fundamentals and you'll be fine
Spot. On.
- some dude that works in futures
You work with futures? Proof it by telling the future
7:55 great edit
Very interesting video, thank you!
So am I doing wrong if I want to put my money on a 3x leveraged ETF like TQQQ if this ETF is meant to follow the market and it's
relatively stable compare to an oil ETF or commodities? I'm starting investing, so with this TQQQ I find diversification with a stable levegeraged gains...
Please correct me If I'm wrong.
Fernando Orozco you're not wrong, but there is some material information you are missing that could affect your investment decision. There is something that occurs in leveraged ETF'S called "Beta Slippage," and I'm going to try to avoid complex terminology since you said you're just learning about investing, but essentially, in a really unstable market with no clear trend, the leveraged ETF will significantly undererform the asset it is tracking (in the case of TQQQ, it would underperform QQQ)
However, the opposite applies in a trending market, as long as the trending market is stable (# of up days># of down days for a bull market, vise versa for a bear market). The issue is, this is only a partial reality and markets usually experience quite a bit of chop, even in trending markets
Any sort of choppiness is what kills leveraged ETF'S, but this effect is usually overstated. As long as market volatility is low, and trending lower, the leveraged ETF has a place in a total portfolio.
@@Lakiman52 Thank you so much for this new info, that's why I'm not so interested in ETF's focused on commodities because of the high voladility they have because I'm more on the swing/long term investing side.
That's what I like about this particularly ETF so I can gain more profit compared with the original index with some diversification and also I usually put a trailing stop to watch my potential losses and secure my gains when the trend reverse.
But sometimes I'm not so sure if this is too good to be true, and thank you so much for your advice, now I can apply this advice to my investing strategy.
Fernando Orozco no problem, the only other thing I'd recommend is to not have TQQQ be your entire portfolio, because there is still some significant risk with leveraged ETF'S, it works significantly better if it's only a portion of a complete portfolio
@@fernandoorozco149 TQQQ doesn't really follow the market, it follows the nasdaq-100 which is market cap weighted, making the majority of the index made up of only 8 stocks. TQQQ could be quite vulnerable in a market nearing the end of a cycle. Say the doomsayers are correct and market makes a large correction, there would a large amount beta slippage due to TQQQs daily rebalancing and a trailing stop will probably not be able to protect you if the move is rapid enough.
I know very little about economics, but this was still a very clear and understandable discussion of a topic I have never heard about. Excellent work!
I had never thought about that before. The principle of a bubble is that you paid more than the actual value it's worth. ETF is a vehicle and the price you pay for it might not match the actual value of the underlying shares. What happens if the bubble bursts? You still have shares and the ETF would be back to matching the value of the shares. In my poor understanding, it will only affect the fact that you can buy more ETF. Which turns out to be great.
Read a FT article that took the opposite away, managed funds were in a bubble which has started to burst due to index funds and over charging consumers.
happen to remember the name of that article? would like to read it.
Very interesting
Thanks for giving your take on this
Richard, your humbleness and knowledge is inspiring! Keep up the good work!
But what about Bagel index? Is it overinflated, ready to burst?
Well, I'm not supposed to give my opinion on this channel, but the bagel index is always a sound investment
As a Canadian, I would never short our banks. They have really influenced the general public that they have their best interest in mind with investing. They do not but people think they do.
Great analysis. I also watched the video by Ben Felix, which has the same line of thought (highly recommended). I find one fundamental difference between index funds or ETFs versus the CDOs. CDOs are related to the mortgage and housing industry only? Of course the 2008 financial crisis happened in a domino effect when the Banks were impacted by their investments in mortgages. Whereas ETFs/Index Funds are very well diversified in many other sectors of the economy (which is the point of investing in them: Diversification).
Et al means Cramer was the main contributor/ researcher, the "et al" refers to the group of individuals who also contributed
Amazing video! Thanks!
Day to day trading also happens when the mix of the index changes i.e. changes in % of underlying securities
I have a question about trades changing a stock price. I have heard that if everyone is selling a particular stock, it drives the price down. So here's the question. For every seller of a particular stock, doesn't there also have to be a buyer? You need both parties in order for a stock to change hands. So, that SHOULD keep the stock price stable unless I am missing something.
Could you explain what would happen to one's securities in the event of the bankruptcy of Revolut? I just can't seem to find a proper answer
depends on the country. If I am not mistaken per the Securities act of 1940. A mutual Fund is its own independent company. It is owned by its fund holders, The larger company such as T Rowe Price, Franklin Templeton or another company is only their getting paid officially for advertisement, the talent that runs the fund, etc. If it goes bankrupt the fund would be its own separate company and then the owners of the fund as a group can hire a new board or company to oversea the stock. You can also as a group fire a company from running a fund. It would also require every company in every fund run by the company, to go bankrupt all at once so the mutual fund company can go bankrupt. Its possible yet unlikely. I am generalizing heavily and am using an example for US investors, I have no clue what protections international investors may have.
i think the low trading volumes DO affect price discovery, theyre going to be traded one day
Great video. I think the argument that kills Burys' "doom and gloom argument" is the arbitrage from Authorized Participants, which i have to point out are not the same thing as the "sponsor" as Richard suggests. APs, especially with stock ETFs, that the underlying securities are so liquid, are more than happy to engage in this arbitrage opportunity, as the name suggests they are the only ones who are "authorized" so they get a free lunch to buy or sell the underlying stocks and redeem or create new units. And I think this solves the pricing discovery concern at least for the short term. Now in the long term if prices even after arbitrage significantly deviate from the fundamentals, there will always be active traders to balance things out.
Loved it. Please do more of these
What I see is that people have conflated value capture and value creation so they don't recognize how little value is being created relative to the value being captured. Ultimately, there is more demand for stocks than the value creation those stocks represent. That is, if we recognized that a company's value is a function of the value it delivers to it's customers and not the value it captures for itself, we would see that all of the company's stocks are worth less than all of the investors' money.
Likely true. But that also assumes you assign full value to the investor's fiat currency.
Truth is, it's all based on faith. But there isn't anything you can do about it anyway. All you can do is hope the music doesn't stop before you do. So far, so good.
@@jeffsetter213 I get that fiat currency is an IOU devoid of intrinsic value. I was implicitly denominating both sides in fiat currency because my point was not about how commerce should be transacted. My point was that if a company provides $100K of benefit to their customers but charges $1M and their stock sells for $10M, that is not a $10M company. Maybe at best that is a $500K company.
Any particular advice for late bloomer boomers? ie: retirement investing
Great stuff. Thanks!!
Warren Buffett recommends index funds since many years, he knew if you hype up something it will become a bubble, he indirectly made it a bubble
Michael burry is actually a good guy here
What puzzles me is that people are STILL listening to these "financial gurus" as if they can read the future, meanwhile they engineer the future with their own narratives, for their own personal gain, and at the expenses of the majority of their listeners.
Give me your ice and I will give you water, basically.
@@nachannachle2706 exactly
thx Bagel - appreciate your opinion - who knows - I am fulling the trigger in a month and just sit on cash till mid March, should nothing go to hell till then. China crisis - this index bubble - European energy crisis are all too many concerns for 1 cauldron to ignore
Great video I really like how mitigated you are and the way you try to adopt multiple points of view, thank you so much!
Good insight. Keep it up.
Interesting topic. 100% etf and leveraged funds user here.
Thanks for the vid, its really helpful in my research for synthetix exchange and their synths. It's basically gambling I see.
What comes to Eisman, there's this famous quote from Keynes: “Markets can stay irrational longer than you can stay solvent." To me that really materializes the problem with timing bubbles. It's not enough to know something is a bubble (even if that is very hard by itself), but you'd also need to somehow know when the correction will happen. This also almost bankrupted Burry as he was burning money every day leading to the crash. Not sure for how much longer he could have held his swap positions. And as we see in the movie, everyone was not happy waiting...
To me it seems shorting even something that's a "well-known bubble", especially with lever, seems like a financial suicide as you're almost certain to get knocked out as the underlying increases in value before the correction happens. If it ever happens. You might be right, but can you stay solvent until the market agrees with you? Being right is a sad win if you're already bankrupt 😅
To me one of these was Tesla stock. I was certain for months that it's overpriced on the market, but having no clue when it would correct itself, could not really position myself to benefit out of it in any way. Well, at least I didn't go long on it on the top like so many others 🙏
do anyone know a good place to get analysts reports?
Hey bagel, Im looking for a book to read that will give me a solid understanding of all the various types of investment vehicles out there, what would you recommend?