Strategy for an amateur, other than sticking everything in a diverse index fund?

Hoenir

Cus said:

GeoffTF said:

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

I don't know how the above accommodates the fact that retail investors invest in market cap based passive trackers without consideration to a concept of value of the underlying components.

Edit to add: I guess in the past more people would give their money to an active fund who would make an assessment of value. Now they give their money to a passive fund that doesn't. This must create a distortion 

There's been an ever increasing focus on lower cost options. Greater the AUM the lower the expense ratio. The greater the flow of money that gets channelled into a narrower range of stocks. There's little price discovery as a consequence. With active investors (other than the likes of Berkshire Hathaway) neither selling or buying in sufficient volume to move the dial significantly. 

Classic example a few years back was the iShares II plc Global Clean Energy UCITS ETF (INRG) . Restricted to just 30 stocks , at the time,  it's value rose extremely sharply. Peaked. Suffered a vertical decline. Then subsequently drifted lower and lower. As all the investor buzz evapourated. 

InvesterJones

Cus said:

GeoffTF said:

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

I don't know how the above accommodates the fact that retail investors invest in market cap based passive trackers without consideration to a concept of value of the underlying components.

Edit to add: I guess in the past more people would give their money to an active fund who would make an assessment of value. Now they give their money to a passive fund that doesn't. This must create a distortion 

Well the consideration is simply 'take what others have already decided' rather than form an individual view - for retail investors that might be a more well-matched outcome considering expertise level. As far as distortion, if you're saying the current valuations are correct then you're not changing anything, so I guess the only distortion would be making it harder for contrarians to meaningfully move markets, but if you're a said contrarian then it's a good situation as it means you've got plenty of people to make money from.

GeoffTF

Cus said:

GeoffTF said:

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

I don't know how the above accommodates the fact that retail investors invest in market cap based passive trackers without consideration to a concept of value of the underlying components.

Edit to add: I guess in the past more people would give their money to an active fund who would make an assessment of value. Now they give their money to a passive fund that doesn't. This must create a distortion 

The same reasoning that I applied to a global tracker also applies to a US tracker. A market weighted US tracker does not distort the prices in the US market, because it allocates its capital in precisely the same way as the active investors in that market do in aggregate. The active investors in the US market determine the prices.

Hoenir

GeoffTF said:

Cus said:

GeoffTF said:

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

I don't know how the above accommodates the fact that retail investors invest in market cap based passive trackers without consideration to a concept of value of the underlying components.

Edit to add: I guess in the past more people would give their money to an active fund who would make an assessment of value. Now they give their money to a passive fund that doesn't. This must create a distortion 

The same reasoning that I applied to a global tracker also applies to a US tracker. A market weighted US tracker does not distort the prices in the US market, because it allocates its capital in precisely the same way as the active investors in that market do in aggregate. The active investors in the US market determine the prices.

The entry of Tesla into the S&P500 in December 2021 provides an interesting alternative perspective. 

GeoffTF

Hoenir said:

GeoffTF said:

Cus said:

GeoffTF said:

Linton said:

GeoffTF said:

Hoenir said:

Unquestionable that passive investing i.e. index tracking is now driving concentration. US retail investors only have around 10% exposure to non US listed stocks. Bought into the whole MAGA illusion. 

There is no reason to believe that global market weighted trackers are driving concentration. Anything else is active investing. A market weighted global tracker tracks the market, and so do all the active investors in aggregate. The market weighted global trackers do not trade, except to respond to corporate actions and companies entering and leaving the index. When units are created, the fund buys an equal proportion of each stock from the active investors, i.e. a global market weighted tracker allocates its capital in exactly the seem way as the active investors do in aggregate. The active investors fix the market prices. A global market weight tracker passively tracks them.

US retail investors are clearly active investors in aggregate.

One could argue that active investors being disproportionately located in one large country with a strong bias towards investing in their local market does not mean that UK investors should invest to an equal degree in that market.

That is besides the point that I was addressing, but is valid nonetheless.

US retail investors can overweight the US market only if others underweight it. For every dollar that thinks that the US market is underpriced, there is another dollar that thinks that it is overpriced. The valuation of the US market moves up if the buyers are keener to buy than the existing holders are to sell.

There are investors who believe that the US market will continue to outperform, and others who believe that it is overpriced and will underperform. They are in balance at current prices. The US bears have been underperforming for a long while. That will reverse one day, but nobody knows when, how big the reversal will be, or how long it will last.

I don't know how the above accommodates the fact that retail investors invest in market cap based passive trackers without consideration to a concept of value of the underlying components.

Edit to add: I guess in the past more people would give their money to an active fund who would make an assessment of value. Now they give their money to a passive fund that doesn't. This must create a distortion 

The same reasoning that I applied to a global tracker also applies to a US tracker. A market weighted US tracker does not distort the prices in the US market, because it allocates its capital in precisely the same way as the active investors in that market do in aggregate. The active investors in the US market determine the prices.

The entry of Tesla into the S&P500 in December 2021 provides an interesting alternative perspective. 

The S&P 500 is not a US market weighted tracker, because it has rules which exclude many large companies. People who buy the S&P 500 are active investors.