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macrocephalopod's profile
macrocephalopod
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macrocephalopod

@macrocephalopod

Paul Allen, Vice President M&A, Pierce & Pierce (Sie/Hir) | Vegan | Silence is Violence | Women’s Rights Are Human Rights | ACAB (Assigned Cephalopod At Birth)

Joined December 2020

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    1. macrocephalopod‏ @macrocephalopod 11 Feb 2021

      A wrong belief that many otherwise smart people have is that index funds are “momentum investors” i.e. they mechanically buy more as prices rise and sell when prices fall (example from Bill Ackman’s 2015 investor letter below and I saw this *twice* in unrelated threads today).pic.twitter.com/rntUJjob2V

      21 replies 41 retweets 270 likes
      Show this thread
    2. macrocephalopod‏ @macrocephalopod 11 Feb 2021

      This is not true! A really basic cap-weighted index fund mechanic is that they automatically track the index as prices move, with no trading required. This is literally the reason that they are called *passive* funds.

      7 replies 6 retweets 87 likes
      Show this thread
    3. macrocephalopod‏ @macrocephalopod 11 Feb 2021

      For some reason this breaks people’s intuitions and they get really excited about forced buying/selling from passive funds creating positive/negative feedback loops, which, I cannot emphasise enough, is not a thing that actually happens except in retail brain fantasies.

      5 replies 4 retweets 73 likes
      Show this thread
    4. macrocephalopod‏ @macrocephalopod 11 Feb 2021

      Index funds do need to trade, but only on a few specific events - mainly index adds/deletes and corporate actions (e.g. new issuance, buybacks, mergers and acquisitions).

      4 replies 3 retweets 44 likes
      Show this thread
    5. Ivan‏ @Ivan_Vesely_ 12 Feb 2021
      Replying to @macrocephalopod

      Well obviously rebalancing is not the only time etfs transact. They trade (both ways) baskets of index constituents vs own shares with select counterparties every day as per their AP requests. APs are the ones tracking NAV deviation. See etf creation/redemption process.

      1 reply 0 retweets 0 likes
      macrocephalopod‏ @macrocephalopod 12 Feb 2021
      Replying to @Ivan_Vesely_

      macrocephalopod Retweeted macrocephalopod

      Yuphttps://twitter.com/macrocephalopod/status/1360003349228228608 …

      macrocephalopod added,

      macrocephalopod @macrocephalopod
      An important addendum is that index funds also trade when they have inflows and outflows (or an AP trades on behalf of an ETF using the create/redeem mechanism). This is important but orthogonal to the main point, which is that index funds basically never trade on price alone
      Show this thread
      7:22 AM - 12 Feb 2021
      1 reply 0 retweets 0 likes
        1. New conversation
        2. Ivan‏ @Ivan_Vesely_ 12 Feb 2021
          Replying to @macrocephalopod

          Oh sry. But imagine a theoretical - all active players start selling, S&P plummets, but all etf hodlers hodl. No in/outflows. You saying no selling happens? So what does happen? 😀

          1 reply 0 retweets 0 likes
        3. Ivan‏ @Ivan_Vesely_ 14 Feb 2021
          Replying to @Ivan_Vesely_ @macrocephalopod

          Buying in the SP500 happens. The APs in this case would sell etf shares (which trade at a premium to NAV) and buy index constituents. However as we've seen in march, it's the effs that get dumped first, like HYG, which traded at a big discount, if not mistaken.

          0 replies 0 retweets 0 likes
        4. End of conversation

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