The whole point of index funds is that you don't have to pay management fees to managers. It's very expensive to hire a team of people to analyze the entire stock market in detail and chose the best 500 companies, and historically people who did that on average didn't beat the S&P500.
Just look up the performance of Mutual Funds vs S&P500.
That is the point, and index funds pay many less managers. However they all have a few managers to handle the various paperwork needed and those managers do make some decisions. They have much less influence vs a traditional funds, but it is slightly above zero.
I think the point is that they don't have the influence to intentionally deviate from the index because they think they know better. If your mandate is to be passive, then you need an index to follow. If you are that sure the S&P 500 index is wrong for some reason, or whatever other index you follow, then you need to invent a new index. Then, you can follow the new index.
At least my index funds do that. They don't get to constantly trade like non-index funds do, and they typically stick with the index, but every index fund I own has a line about "we select stocks that we think will match the index", which is different from buying the stocks from the index.
Again, the vast majority of the time they are matching the index stocks. However they have the right.
I guess that's true but put yourself in the position of a major fund manager. Would you rather explain "We lost 3% this year because of a dumb IPO because we track an index that includes dumb IPOs," or would you rather say, "We lost 3% this year because I decided, as a passive fund manager, that the index was wrong and I knew better"?
Your career would be over.
Or at least, you would have to transition over to an active fund!
No, that's not how it works. The resource managers who hire and promote fund managers are well aware of how trading large blocks too quickly can skew pricing. No one expects performance to exactly match the index. Read the prospectus.
I'm willing to buy the idea that most fund managers have the lattitude to give SpaceX the standard seasoning period, instead of buying in right when they hit the index. Which funds will do that? If it's all or most of them, that'd be nice.
This fundamentally misunderstand the point of an index. The fundamental reason S&P 500 exists is to let people buy the entire market ( the top 500 companies make up most of the entire market ). That is it. Period.
They are not saying these 500 companies are going to be the most successful in 6 months or 10 years. At one point Enron was 0.6% of S&P500 because it was a large company, not because the directors at S&P500 thought the management were honest people.
If you don't like that, fine, don't buy S&P500 and buy stocks or other funds that do have companies you like.
This disregards the fundamental reason why people buy index funds in the first place. Rules for consistent GAAP profitability and cooldown periods specifically prevent retail investors from being exposed to particular malicious stock market tactics and overall risks that otherwise could significantly hurt them in the short term. So it's more like saying "you don't like extra risk? too bad."
Yes, if someone thinks that the top 500 companies include too much risk then yes too bad, you need to move out of SPY.
It isn't called the S&P495 because they kick out 5 of the biggest companies that some people consider to be risky.
I personally think its super risky to want to be Diversified and NOT include any exposure to SpaceX. Yes, Elon is unique but that doesn't mean his companies are going to fail especially given the potential risk of AI changing the world. Is IBM going to keep selling overpriced IT outsourcing in 5 years?
It's not about the overall long term risk of the company, it's the inherent short term risk of the IPO that will potentially hurt retail investors. Why not have them trade for a while and go to business as usual so things settle down and the index can prevent wild fluctuations? The only ones who might benefit from this rule change are pump-and-dump types.
The goal of SP500 is to provide exposure to the 500 biggest companies, not protect shareholders. I think IBM might do poorly when AI destroys their overpriced IT outsourcing business, but that doesn't mean SP500 should kick them out.
The reason why I liked the SP500 is especially BECAUSE they had guardrails against unprofitable speculative companies that just got added on the stock market. On average those stocks are going down on their first public year. The SP500 made sure to have a cooldown period before adding them.
Now you are trying to justify why we should have them anyways, even though I never chose that to start with.
The issue everyone is having is the rule changes to add them in a couple trading days. How can you defend that?
This is simply not true and a misrepresentation of the issue. There is no issue with SP500 buying into all these companies. The issue is that “valuation” should be determined by the market before the index funds buy into it hence the original rules and policy in place. Else wise we run into the issue now where our 401K is pumping the IPO, regardless of fundamentals.
> The fundamental reason S&P 500 exists is to let people buy the entire market
And why do people want to buy the entire market in the first place? They want to diversify and insulate themselves from a single company crashing their portfolio value.
What are people afraid of right now? They're afraid of a single company crashing their portfolio value.
Why are people afraid of their portfolio value crashing? Because these 3 companies will fundamentally increase the overall risk and volatility of the index.
The problem is people equating S&P 500 with "set and forget" investment when that's never what it was. It's an index. You're not paying anyone to balance it with a particular risk profile.
There are indexes that invest equal amounts of money into all companies, so Nvidia doesn't dominate. Or you can pick low growth high dividend indexes to insulate against AI. Or just grab Vanguard LifeStrategy if you don't want to think.
The current situation is unusual. No index can handle all situations. Either adapt or use a fund that does the thinking for you, right?
People use the dollar in business becaUse its a stable currency.
If the US does something to destabilize the dollar, will economists be running around saying “the dollar was never intended to be used for that purpose!”? No.
It doesn’t really matter if the index “wasn’t supposed” to be something it became. The problem is the same. The only difference is who you blame.
The current situation is unusual and the standard rules handled it fine. For some reason they're changing the rules. That's not "no index can handle all situations." It's a deliberate, harmful change.
Why the special rules for SpaceX though? I still do not understand why the world’s richest man and one of the most valuable companies needs an exemption? Genuinely confused.
Why do you assume SpaceX will be a failure? Do you have a track record of being correct on Elon companies? If SpaceX succeeds and its in the SPY from day one that serves everyone who owns index funds.
I have deniability with the phone. I can also just leave it at home if I want or turn it off entirely. That access should also be illegal without a warrant; however, this is far worse than cellular "metadata" tracking.
I don't understand why you assume that the government is following all the laws when it comes to cell phones and cloud data but won't when it comes to ring data?
What laws do you suppose they have to follow, exactly?
Cops need a warrant to track your phone, check which tower it connected to or tail your car for extended period of time.
Cops do not need a warrant to use Flock system. They have an app where they can simply put your license plate and they will get a path showing every move of your car as tracked by the flock cameras, and there are a looot of them (e.g. near San Jose: https://deflock.me/map#map=16/37.335318/-121.881316). And thats without the integration of ring.
This essentially allows them to GPS tag anyone, with no warrant, while "following the laws". So no, it's not all the same.
They definitely need to follow the law when they get it from the Telco, but Cops can use their CSS/IMSI catcher all they want, theres almost no way to tell. But they can not then go to court and say "Yeah—we listened to their phone call and searched the car."
With this its no problem. No Hailstorm to buy for the entire force and there isn't any federal oversight on this sort of thing as near as I can tell. If you think police don't do crimes I've got a bridge to sell you.
They can do it right up until the battery truly discharges. You can’t turn off WiFi/BT for real either. Icons will go dark and your WiFi and devices won’t work, but underneath the radios are still plenty active and powered on.
Waymo cannot scale. So for most people it's irrelevant.
Tesla FSD makes driving 90% less taxing mentally. It does 99.9% of the driving perfectly. And its getting better. We are quickly approaching a situation where people who don't drive Teslas are like people who cut their grass with Sickle as compared to people who have driving lawn mowers
LOL, the BTC people who thought "Digital Gold" was a good slogan are going to learn what happened to self custody of gold and the gold standard.
BTC is in a much worse situation than gold was in 1970. The government has the technology to follow transactions and require BTC transactions to be done on their chain with their BTC equivalent GBTCs. That is until the government decides to issue print more BTC equivalents
This is such an interesting time because the percentage of people who are making predictions about AGI happening on the future are going to drop off and the number of people completely ignoring the term AGI will increase.
That doesn't seem likely because the LLMs haven't really delivered any great products that can cover the money spent and so AGI hype is essentially to keep the money flowing.
The counterintuitive part of automation is that it removes parts of the economy rather than making the economy bigger. You end up with more goods but the value people assign to them goes down as they don't provide additional social advantage.
For example at one point nails were 0.5% of the economy and today owning a nail factory is a low margin business that has no social status.
Similarly the percentage of the economy and social status associated with frontend software dev will get automated and become a smaller percentage of the economy.
Since social status is a zero sum game people increase spending in other areas where social status can be helped.
> The counterintuitive part of automation is that it removes parts of the economy rather than making the economy bigger
So you believe in zero sum economy? I think new capabilities lead to demand expansion, they mobilize latent demand that was sleeping. There is no limit to desires, not even AI automation could outrun them.
Front-end software dev, call centers, HR, administration like health insurance and eventually some government bureaucracy, law, education, marketing, mass-market entertainment, banking and other financial services, business consulting, financial advice and accounting services, journalism, and probably other smaller employers.
Potentially all of those, and more, become smaller employers in relative terms.
A better nail-making machine is a single-purpose technology. It's not going to affect productivity much in unrelated industries such as healthcare, for example.
AI is a general-purpose technology like electric light or electric motors. It has the potential to improve productivity in a great many productive activities.
As another person said here, even if progress in AI stopped now, we have twenty years' sustained productivity growth ahead of us in adapting processes to use AI more effectively across the whole economy.
Whether the economy as a whole grows or shrinks depends mainly on whether households will buy more entertainment, legal services, financial services, or all the rest because they are now cheaper, and to a lesser extent on whether we can discover new things that households want to buy.
Just look up the performance of Mutual Funds vs S&P500.
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