> When we first started investing, we approached it from two beliefs: 1) you are unlikely to grow a portfolio without a small percentage of it allocated to more active investments
I wish you all success, but this assumption goes against about a half-century of academic research. You might say "but it's crypto!" But the law of averages is brutal, and it is agnostic to whether we're in a crypto world or not -- if some fraction of market participants get an above-average return, mathematically, some must get a return that is below-average.
Active investing is not the same as day trading. Most people do not realize that "passive investing" is basically zero sum (albeit harder to calculate because of being stretched over long periods where inflation becomes significant), just like short term trading. Value creation only comes from active investing (long term focused, but active and researched). The kind of active investing that Warren Buffett does is more similar to what VC's and private equity firms do than someone who buys and holds an index, spreading their money evenly across all big companies without any regard to which companies are deserving of investment.
Passive investing isn't zero sum - it's positive sum. If you could buy a fraction of earnings from every business in the economy (i.e. both businesses that currently exist, and future businesses that are founded in the future), then you get a rate of return that is roughly the growth in GDP.
Concentrated portfolios are also positive-sum, and have returns higher than passive investing if you are smart or lucky.
Passive investment has been a good strategy for collecting wealth, but it adds no value to society. Instead of efficiently placing capital to generate new wealth, you are spreading just as much capital to companies that will fail or squander their current valuation as companies that will succeed and should have more capital. It's only more profitable than mutual funds because ETF's have lower fees due to special tax rules around rebalancing. Add in that the capital gains tax bracket is significantly discounted and that the Fed will rescue the stock market at all costs, and you have a solid 8% annual growth (but as a result of a misaligned economic system, not because your money is actually contributing to GDP).
Putting your money in the bank is probably a better contribution to the economy (because banks have trading desks dedicated to more efficiently allocating capital), although it is a terrible personal investment strategy in today's low interest, inflationary environment.
I just want people who demonize active investing to understand that their passive investment strategies contribute less or equal value to society, contrary to popular belief.
That makes no sense. Trading desks at the banks are not dedicated to "efficiently allocating capital", they are there to turn a profit no matter what. What's good for a trading desk might not (and often is not) always good for the economy.
You say that passive investment provides no value to society because it provides capital for failed and successful businesses equally. But there you said it: it contributes capital to companies that will succeed. How is this "No value to society"?
>It's only more profitable than mutual funds because ETF's have lower fees due to special tax rules around rebalancing.
No, it's the other way around. It's because ETFs have been found to be more profitable on average than mutual funds, that it was heavily incentivized to invest in them. ETFs are profitable for structural reasons, because it's really hard to beat the market on average.
> it contributes capital to companies that will succeed. How is this "No value to society"?
Because pumping up the market value of a "bad" company contributes negatively (not zero) to the economy. Any benefits that a future innovative company would reap from your capital are canceled out by the same benefits that their wasteful competitors reap for talent and secondary stock offerings (which can be spent on anything, potentially bidding up prices of raw materials, real estate, etc. for the "good" companies).
Is it a perfect 1:1 cancellation? Probably not, but it requires too much data for either of us to calculate it directly. But a fair assumption is that blindly investing in the entire stock market via a passive index, even if you are hugely wealthy, has negligible benefit to GDP, compared to active investing (assuming you are good at it).
(I think) His point is not that investing is a zero sum activity but that active trading basically is. For me to make money day trading someone needs to loose money. The total "growth of the pie" is a slow process that you capitalize on by buying and holding.
Possibly -- you sell stock in fossil fuel companies, and reinvest in some other, hopefully more sustainable, company. It's not the divestment part that helps, it is the reinvestment.
Okay, if that's the case, then say "investing in sustainable companies" rather than "divesting from fossil fuel companies" because doing the latter does not imply that you are also doing the former.
And by the same logic I mentioned, you'd still have to be buying the stock from the company itself, not from someone else, to ensure that you're actually helping them. If a company isn't selling their stock, it's not at all clear that buying their stock from someone else helps the company.
Yes, the story is inaccurate: the study was about how power, not luck, changes perceptions. But the message is still right. It's easy to be a jerk if you are powerful. (And it's easy to be negative when you're just commenting on the Internet.)
Edit: I got it wrong, the original study was four people as Lewis reports, not five as some commenters here believe. Lewis is also right about table manners, btw.
> Yes, the story is inaccurate: the study was about how power, not luck, changes perceptions.
I think you misunderstood the situation. The Michael Lewis speech is precisely pointing that power changes perceptions, because we like to believe that we deserve the power you have. He's challenging the students to eschew that altered perception by pointing out that they're in that position of power but, like in the experiment, their power doesn't come from intrinsic worthiness but from sheer dumb luck.
This is factually incorrect, in addition to being bad advice. You take on debt when the net present utility of the purchase is greater than the price of the debt.
Here's a simple example to illustrate: you have an interview tomorrow, and you want to buy a suit to be sure you are appropriately dressed for it. The net-present-utility of the suit is quite high -- not having one may cost you the job opportunity. On the other hand, a suit is a depreciating asset. It is also not an income-generating asset (i.e. you may sell the suit the day after the interview at no loss of income.)
Using the reasoning of "debt for appreciating/income generating purchase" will preclude you from buying this suit, sensible though the purchase is.
Before you buy into the negativity of some comments on this thread, take a moment to pause. Andrew has achieved some truly remarkable feats. Why not accept what he has achieved is many standard deviations away from the average, and try and learn from what he thinks was useful?
To me, that the top comment right now is about how Baidu "cheated" on an AI benchmark says both that no one can have perfect oversight, but also that no matter your other achievements, someone will always point out a shortcoming.
I just checked their site, and they act less like a hungry startup, and more like a don't-care near-monopoly.
Three examples:
- You can't see prices for many items without logging in. For a site that is geared towards price-conscious consumers, this is such a silly move. Alternatively, they consider login/registration as a worthwhile conversion (otherwise they could show you the price when you add something to cart.)
- Yet, their registration page doesn't let you create an account with Facebook, Google or anything else. If you care about conversions, act like you care!
- Their Help is an email address or a phone number. Seriously? No chat? No FAQ? Even Comcast has this figured out. If your LTCV is > $500, there is no reason to skimp on support when you don't have traction.
It's possible the login gate is a necessary concession: many retail brands have policies in place that dictate a minimum advertized price. Publically offer the product at below that cost, and they will stop selling to you. They do this primarily to protect their other retail customers and to some extent, their brand image.
Crucially though, a brand will often times allow you to sell a product lower than M.A.P. as long as you deal directly to a customer in private. It's possible Jet has made deals with brands that allow them to sell under M.A.P. as long as they do it behind a sign in gate.
It's not just on the customer side. My mom, an Amazon seller, has been trying to get in to list her stuff since about two weeks after Jet went online. No response at all.
They were at Channel Advisor Catalyst, a trade show for e-commerce channels and services. We do shipping auditing and were exhibiting; they wouldn't give me much chance to chat with them. Not that they need to talk to me, but for the nature of the trade show, it felt like they were less interested in talking to vendors and potential partners (the point of that show) than press (since the show is b2b, not b2c)
We have a login gate on Open Listings [0]. I'm pretty torn on it. On the one hand we want to reduce friction for people to get to our detail pages. On the other hand, if you just browse a few listings, you might never understand our value prop and we won't be able to actually save you money on your home purchase. Capturing emails allows us to trigger a drip campaign that teaches users about our value prop. The typical buyer signs up, starts requesting property info a few days later (competitive analysis, details we're not allowed to display), then puts in offers a couple weeks after signing up.
I suppose it's a little different with real estate (really big ticket item, you just buy one) but the general principle holds -- getting an email allows you to engage with a user over a longer period of time.
Requiring the user to register to see the price is purely for metrics. Number of new and active users are things investors typically like to see. I use to work for an e-commerce and we did the same thing.
This seems like a foolish requirement for an investor to impose.
The more intent a user has, the higher you'll see conversion rates, generally. And if I've already seen a great price and want to buy my intent is way higher than if I'm just curious about what their price is. Terrible time to kick a user into a funnel if not for contractually-obligated reasons (like other posters bring up).
For the first example, I think the sellers put this condition in the contract. They (sellers) do not want to publicize low prices. The second example is a valid point. Though I personally keep my social networks in their own box. In the third example, they have a phone number! I think most tech companies avoid displaying/having a phone number to contact.
Can't comment much on if they don't look hungry. The founder has already sold one company to Amazon.
Articles like this are evidence that people are still surprised that capital grows faster than labour. At least in fair capitalist society the surest way to become wealthy (statistically speaking) is to understand:
- The total wealth of the world is expected to keep increasing
- Capital grows faster than labour
- Taxes and disasters redistribute wealth
This is why investing in index funds that don't pay dividends is such a good idea.
Capital only grows if it can be deployed in new endeavors that generate more revenue (and as a by-product usually increase the amount of labor at work). That's part of the problem. Not enough public companies know what to do with the excess cash, and therefore don't end up creating more value.
Companies with excess cash do not store currency in a vault. They invest it, usually in short term investments convertible to cash, but investments nevertheless.
OT: If an index fund doesn't pay dividends, what happens to the dividends? Presumably the fund owns shares in every stock in the index, so there should be dividends?
Does it just go towards paying the fund overheads? What about for an ETF index fund?
I misphrased above. The index fund will pay out a dividend if the underlying stocks do. Fortunately for investors, Companies are paying dividends less and less frequently, preferring to do stock buybacks (which improve the stock value) instead. Dividends are also "qualified" if you've held the stock long enough, so you pay the lower capgains rate.
Dividends and stock buybacks are both ways companies enrich their stock holders. But I view them as largely the same thing. When a company doesn't have new markets, then it doesn't create new products or services, so it literally doesn't know what to do with the money, so it just plows it back to shareholders, and these are just two ways that happen.
Buybacks are much more tax efficient though. If you would have reinvested all dividends (after paying taxes on them), with a buyback you instead do nothing and pay no tax.
That you need millions to make bajillions? Doubt that folks are surprised ... angry may be. That first million requires hard-toil labour often deliberately prevented from ever being obtained by the same moneyed class.
The only other practical way, like the article says, is to steal.
You only pay capital gains taxes when you realize gains, not every year.
Trump would pay 15% of $20B = ~$3B, so his net worth would be $17B. And this is assuming that his stock investments don't pay qualified dividends that are reinvested. So, yeah, he'd have much more than $12B.
If you buy a stock and hold it, you don't have to pay capital gains along the way. But if you buy a mutual fund and hold it, capital gains will pass through to you whenever the manager sells stocks to adjust the portfolio. There are "tax efficient" mutual funds whose mission is to minimize that churn, but no fund can keep it at zero. I don't know how many tax efficient mutual fund options there were in 1982.
Commodities I think no longer do, but did until recently.
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