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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. Jave Galt-Miller‏ @PelopsWar 11 Feb 2021
      Replying to @macrocephalopod

      Knowing nothing about this, but having listened to a lot of @profplum99, when you say "track the index", what does this mean? Let's take VTI (Vanguard Total Stock Market) - I put $100 into VTI: what does Vanguard do w/that money? How is it spent?

      1 reply 0 retweets 0 likes
    4. macrocephalopod‏ @macrocephalopod 11 Feb 2021
      Replying to @PelopsWar @profplum99

      They buy all the stocks in the index in proportion to their weight.

      1 reply 0 retweets 0 likes
    5. Jave Galt-Miller‏ @PelopsWar 11 Feb 2021
      Replying to @macrocephalopod @profplum99

      That was my recent understanding. But then, wouldn't this conflict with the idea that there is no "momentum trade"? If market cap goes up, weight of stock goes up, so more and more money invested goes to largest market cap stocks?

      1 reply 0 retweets 1 like
    6. David‏ @david_koops 19 Feb 2021
      Replying to @PelopsWar @macrocephalopod @profplum99

      If the market cap goes up, then the weight of the stock in the index goes up (as it should in a market cap weighted index). No rebalancing needed, so no passive flow momentum trade. Different story when it is about inclusion of stocks into an index (like $TSLA).

      1 reply 0 retweets 0 likes
    7. Jave Galt-Miller‏ @PelopsWar 19 Feb 2021
      Replying to @david_koops @macrocephalopod @profplum99

      It's not a question of a rebalance, it's how new money is allocated through time. Monthly 401k money keeps coming in, and so, stocks with growing market cap get more of that new money, no? So, momentum trade, if slower motion than normally assumed.

      1 reply 0 retweets 1 like
      macrocephalopod‏ @macrocephalopod 19 Feb 2021
      Replying to @PelopsWar @david_koops @profplum99

      macrocephalopod Retweeted baufinanciaphaster  👹

      Nope, bau explained why not here -- essentially you buy the same percentage of each company no matter what happened to its price.https://twitter.com/bauhiniacapital/status/1359919249179877376?s=20 …

      macrocephalopod added,

      baufinanciaphaster  👹 @bauhiniacapital
      Yes passive funds "have to buy more" the same way that if the price of a meal at your favorite restaurant goes up, you have to spend more $ for it (duh). But if you still go the same number of times per year, it does not change what percentage of their annual covers you consume.
      Show this thread
      9:03 AM - 19 Feb 2021
      1 reply 0 retweets 0 likes
        1. New conversation
        1. Jave Galt-Miller‏ @PelopsWar 19 Feb 2021
          Replying to @macrocephalopod @david_koops @profplum99

          Jave Galt-Miller Retweeted baufinanciaphaster  👹

          This seems to agree with what I just said?https://twitter.com/bauhiniacapital/status/1359920449799393280 …

          Jave Galt-Miller added,

          baufinanciaphaster  👹 @bauhiniacapital
          IF Stock 1 rises 23-fold in 11 days the weight of that stock in the index is highly likely to go up, and let's say there are $10mm of new inflows. More of the $10mm will go to Stock 1 (the same way more of your disposable income might go to your favorite restaurant for 1 meal/yr)
          Show this thread
          1 reply 0 retweets 0 likes
        2. baufinanciaphaster  👹‏ @bauhiniacapital 19 Feb 2021
          Replying to @PelopsWar @macrocephalopod and

          In dollars, yes. In relative ownership (number of shares) no. And in the end it is flow as a % of float (though ‘float’ is itself not quite itself) which matters.

          1 reply 1 retweet 0 likes
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