We get these kind of articles because US stock market has been going up for a decade. Passive investing = risk free money according to author.
I can't believe there are sooooooooooo many comments made on this idiotic post. Maybe we are the true idiots.
"Owen Sullivan isn’t a millionaire or one of the Wall Street elite. He was just one of the many folks who was hit hard when the housing bubble burst… and decided he was never going to let that happen again. Since then, he’s worked with industry experts to develop strategies and techniques to bulletproof his finances — and yours — against the next crisis. His methods don’t require years of financial experience. These are simple strategies that anyone can follow. After all, financial prepping shouldn’t be reserved for a select few." So he was long during the 2008 crash, and thought he was foreseeing something similar happening when he wrote the article. Anyone else notice the date of it? Oct 1st, 2018. He became a bitter long burned by the crash from 10 years back, and became a bear, maybe. Well, I wonder how he feels now that we are WAY past the Q3 2018 peak, after the 20% downdraft that following quarter, a mere 14 months later.
All I see when I read this is: He also says this: Which when translated means: This guy is a clown. Price discovery is a solved problem with HFTs buying order flow, and there's no more floor trading. If you want to trade actively, fine, if you want to passively invest in index funds that's fine too. He could've made one good point - indexing is dangerous because mindless investment in highly correlated instruments is bad, or perhaps indexes are often market cap weighted which doesn't provide the security that passive investors believe they have. Instead he just goes on bleeting like he lost his last customer because despite his best efforts he's a horrible trader. This is only a tier up from the normal "the market is broken and im not a bad trader" shitposts we see here every week. Even better, at the bottom he shills his "top secret information from the CIA" (called project prophesy - a "tool to tip you off to surprising political and economic events") complete with a shitty video upsell.
I have heard this kind of talk about traders being parasites. The successful traders don't create useful things, yet get rich out of it. I do trade, so I do get affected by this kind of talk because there's some truth to it. Some only. It's true that traders don't produce really useful stuff compared to entrepreneurs or engineers who create new, useful products/services. However, they are not parasites, not totally useless. They are simply less useful. Traders contribute to liquidity, price discovery process. It can be argued that the successful traders are overpaid relative to their social contribution. Same argument can be made about hedge fund managers. But I repeat, they are not useless. Simply less useful.
I do not recall anything being mentioned about traders being parasites..."passive investors" were the parasites. Did I read the article wrong?
The premise is that when there are too many passive investors, then something bad is going to happen. So, how does that work, exactly? The author explains: Except this is just wrong. Passive funds own the index, they don't need to do anything to track it (besides some minor rebalancing once in a while). That's why it's called passive. Passive funds only sell to raise cash when their clients are liquidating the fund. If clients panic liquidate a passive fund because of market decline, they would probably panic liquidate an active fund just the same. Most active funds are constrained to be close to 100% long anyways so their beta is close to 1. In reality the aggregate level of the index mostly depends on the aggregate preference for equity allocation - active or passive makes no difference to this. Some amount of active management is needed to keep valuations sane within the index, but this is relatively trivial. At the same time, the presence of a large amount of active management doesn't prevent the formation of bubbles or their subsequent deflation (cf. TMT bubble)
Not in the article. It's just that this article triggered me about criticism about traders. You hear that sort of criticism in the comment section of news articles, especially from Financial Times. I wonder what the traders on this forum have to say with regards to this kind of criticism about traders - that they are overpaid relative to their social contribution.