macrocephalopod on Twitter: "Touch size tells you roughly what your temporary price impact will be, not sure you can draw much conclusion about permanent (more than 10 days) price impact by looking at touch size. Small caps always have a larger touch relative to their adv than large caps.… https://t.co/LqL2s6xsod"

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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

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

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).

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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.

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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)

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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

Jave Galt-Miller‏ @PelopsWar 19 Feb 2021

Replying to @bauhiniacapital @macrocephalopod and

I'm not sure what the point of "relative ownership" is. The question is: do bigger companies get more money due to size, rather than expectation of profit? And does this more money create larger price, which necessarily draws more money, etc, ad infinitium. (Until they don't.)

1 reply 0 retweets 1 like

baufinanciaphaster ‏ @bauhiniacapital 19 Feb 2021

Replying to @PelopsWar @macrocephalopod and

If a fund buys 40 shares of AAPL at $129/shr and only 4 shares of Juniper Networks at $24 apiece, it does not necessarily mean more momentum or price impact on AAPL. If it happens repeatedly, for years, it will mean more impact on JNPR because of relative float differences,

2 replies 1 retweet 1 like

Michael‏ @profplum99 19 Feb 2021

Replying to @bauhiniacapital @PelopsWar and

Except the fund would have to buy 211 shares of AAPL vs 4 shares of JNPR. AAPL is ~10x10 on the screens (obviously more depth can be tapped) while JNPR is perversely 15x15. Impact on AAPL almost certainly higher.

2 replies 0 retweets 5 likes

macrocephalopod‏ @macrocephalopod 19 Feb 2021

Replying to @profplum99 @bauhiniacapital and

Touch size tells you roughly what your temporary price impact will be, not sure you can draw much conclusion about permanent (more than 10 days) price impact by looking at touch size. Small caps always have a larger touch relative to their adv than large caps.

9:51 AM - 19 Feb 2021

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1 reply 1 retweet 1 like

1. Michael‏ @profplum99 19 Feb 2021
  Replying to @macrocephalopod @bauhiniacapital and
  
  Agree. Now rinse and repeat, over and over.
  
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