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vgr's profile
Venkatesh Rao
Venkatesh Rao
Venkatesh Rao
@vgr

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Venkatesh Rao

@vgr

Conversational account. For work follow @ribbonfarm, @breaking_smart, @artofgig. Tweets are 90% vacuous views, apathetically held. Mediocritopian. IKEA builder.

Los Angeles, CA
venkateshrao.com
Joined August 2007

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    1. Venkatesh Rao‏ @vgr Jul 7
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      To be clear, Malkiel is primarily against "active investing" in sense of pro traders charging commissions to do more active trading esp. in volatile times. I'm suggesting something more milquetoast: hold a few long positions to slightly distort a basic index/passive approach.

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    2. Venkatesh Rao‏ @vgr Jul 7
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      I guess I could label the posture I've accidentally landed in and rationalized to not change as "supercharged passive" or "accelerated passive." Just buy a bit more of a subset of things that are already heavily represented in the index.

      2 replies 0 retweets 1 like
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    3. Sanjay Paul‏ @armchair_prof Jul 7
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      Replying to @vgr

      I think you've missed an important point here: when you invest in the SP500, you're investing in an algorithm. And that algorithm is cap-weighted. FAANG is roughly 12% of the SP500 already and that will likely grow.

      1 reply 0 retweets 0 likes
    4. Sanjay Paul‏ @armchair_prof Jul 7
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      Replying to @armchair_prof @vgr

      But a classic investing fallacy is assuming an indefinite gravy train when times are frothy. Cap-weighted passive investing protects you from that cognitive misstep.

      1 reply 0 retweets 0 likes
    5. Sanjay Paul‏ @armchair_prof Jul 7
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      Replying to @armchair_prof @vgr

      In the first place, it's generally accepted that FAANG are growth stocks, heavily analyzed, and priced efficiently and almost certainly relatively expensive by sheer virtue of their preeminence in the retail investor psyche.

      1 reply 0 retweets 0 likes
    6. Sanjay Paul‏ @armchair_prof Jul 7
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      Replying to @armchair_prof @vgr

      Beyond that, you could easily construct a compelling 'anti-case' for every stock in FAANG. E.g. Amazon: their core business depends on rapid shipping and there's a lot of innovation happening to make this generally available to e-tailers. AWS is in a competitive space.

      1 reply 0 retweets 0 likes
    7. Sanjay Paul‏ @armchair_prof Jul 7
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      Replying to @armchair_prof @vgr

      So will Amazon ever be able to raise margins or will price-sensitive consumers go elsewhere as soon as they try? Will their slice of the market go down as competition increases and D2C goes up?

      1 reply 0 retweets 0 likes
    8. Sanjay Paul‏ @armchair_prof Jul 7
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      Replying to @armchair_prof @vgr

      These are among the many open questions that are presumably priced in by the many institutional analysts who devote their entire lives to understanding Amazon's business in very precise detail.

      1 reply 0 retweets 0 likes
    9. Sanjay Paul‏ @armchair_prof Jul 7
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      Replying to @armchair_prof @vgr

      When you invest in a passive index, you get to leverage the work of those analyst at basically no additional cost. They are intelligently establishing the relative worth of FAANG against the broader market.

      1 reply 0 retweets 0 likes
    10. Venkatesh Rao‏ @vgr Jul 7
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      Replying to @armchair_prof

      I did not miss that point. I understand how indices work and how analysts affect things. I'm saying investing more in a stock already represented in a cap-weighted way in an index is a way to bet that the market is efficient but *wrong*

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      Venkatesh Rao‏ @vgr Jul 7
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      Replying to @vgr @armchair_prof

      If a million analysts all share the same wrong assumption that is undermined, then the 2 billion hours of analysis they've put into driving the market to its current efficient "equilibrium" can be undermined by that one wrong assumption being recognized. Effort != value.

      12:45 PM - 7 Jul 2020
      2 replies 0 retweets 0 likes
        1. Venkatesh Rao‏ @vgr Jul 7
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          Replying to @vgr @armchair_prof

          Covid is the market equivalent of a cache invalidation or a branch prediction error. A lot of assumptions have been suddenly invalidated. A lot of intelligence encoded in the previous equilibrium have been undermined in ways that are still being processed.

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        2. Sanjay Paul‏ @armchair_prof Jul 7
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          Replying to @vgr

          I can see why you feel this way. I guess I have a quite dramatic difference of opinion. The analysts are, collectively, a gigantic meatspace ensemble model with a lot fo computing power. Departing from their projection is by definition a contrarian view, with attendant risk.

          2 replies 0 retweets 0 likes
        3. Sanjay Paul‏ @armchair_prof Jul 7
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          Replying to @armchair_prof @vgr

          But I would like to hear you flesh out why you believe this way of thinking makes sense even though it defies traditional investing wisdom. You would also need to address the very real issue of hindsight bias.

          0 replies 0 retweets 0 likes
        4. End of conversation

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