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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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.
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Thread brought to you courtesy a warning pop up on my investment account saying I have concentration risks. Question is whether to ignore it....
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And let's not even talk about crypto
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Funny how few people talk about "home ownership" as a risky concentration. I mean sure, you live in an owned home, but it's still pretty risk to have so much of your wealth in a single physical asset, let alone a single stock.
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Vague hypothesis: big disruptions temporarily level playing field between retail investors and pro investors slightly. They've suddenly had a lot of analysis trashed (cache invalidation/branch prediction error), and while they build it back up you might be able to turn faster.
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It's a bit like overtaking on a curve. On long straight stretches, the vehicle with a more powerful engine will steadily pull away. When there is a sharp turn, a vehicle with better cornering but less power can temporarily pull ahead. Inertia/momentum here = cached knowledge.
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I'd really like to see solid critiques of passive investing that don't assume that the only alternatives are active funds managed by shady managers, or being wealthy enough to be accredited as a private investor.
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I'm by no means anything but an entirely average retail investor with an entirely average (probably well below for my supposed social class) net worth. But I am suspicious of "shut up and sit down and let the pros invest; just track the index they move"
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Especially during times when there are massive distortionary forces coming from highly corrupt institutions fighting to survive, AND highly disruptive environment forces like Covid, AND high momentum forces like software eating the world.
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I should add... and when vast amounts of money are invested with varying degrees of automation. Both institutional investors who must follow rules on allocations/ratings and algorithmic things going on.
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There is a lot of "algorithmic momentum" so to speak, leading to institutions and "professionals" of all sorts acting in ways that reflect pre-Covid times. Plus the disconnect from real signals people are talking about (ie Wall Street as a computer cut off from good input)
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Broader point I've made before about difference between boundary and interior intelligence. A good market needs both, but in general BI >>> II, so when signals get cut off, those with intact BI signals by virtue of NOT being institutional might pull ahead
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1/ I'd like to make up a theory of intelligence based on a 2-element ontology: boundary and interior intelligence
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The real danger is in thinking you're either smarter/dumber or luckier/unluckier to explain everything. A third variable, having intact connections with the world/environment that institutions lack matters when the world is changing fast.
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I think Covid got inside OODA loop of Wall Street in a way that nobody has yet recognized. One of the textbook signs of that is being cut off from external reality leading to loop collapse. It's missed an exit that others accidentally did NOT miss by being in the rightmost lane.
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This means what the market is doing right now is somewhere between realizing it missed an exit and taking the next one and doubling back. So now is a bad time to "rebalance" out of whack portfolios to be properly passive.
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When market makes a mistake you accidentally fail to make, you do NOT want a passivity theology tempt you into *actively* tracking that mistake while it is still correcting. Ie, I'll probably still rebalance and try to lower concentration to be back to mostly index, but...later
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I'm not claiming any prescience here. I bet on "software eating the world" not "swew+covid=accelerationist wet dream." I was accidentally a bit more right than the market in a 3-month horizon. Empire may strike back and force world back to dystopian reboot into old normal.
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So I guess my actual implied thesis in NOT rebalancing right now is that the market will not waste the reboot, and will eventually steer into the acceleration despite money printer going brrr to pretend Covid didn't happen.
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