The Index Fund "Tipping Point" 

Was about to say, who are you and what did you do to ben!!!

I checked the comments to see a coment to the hair. Was not disaponted 🤣

Ben, u're lookin good. Just wanted to tell u!

Hair implants are a thing

Isn't that what happened when covid first came? (with among other things, people not being able to get a haircut due to lock downs)

I was thinking that exactly and at the same time i am really worried it's getting too big

Yep, my favourite line. Confirmation bias is an important part of temperament. And wealth accumulation is nine parts temperament.

I was thinking the same. The top 500 companies are getting more money than they deserve. The index bubble will pop. And people might lose their retirement

Ouch, I felt that!

@@teaadvice4996 they don't get any money when you buy a share. The only way the share price might help them is by maybe making it easier to get loans but banks will still look at the company's ability to pay back

Omg I was thinking the same thing! Hair, when did that happen!? And it was voluntary!?

@@XAUCADTraderit wasn’t voluntary. Ben did not ask for this, and yet there they are.

continued growth of Index fund popularity, goes for an investor hand in hand with, continued hair growth.

The price of a good haircut is TOO DAMN HIGH!!

It’s feels so weird to see hair on his head .

He is not bald after all! Crazy times

Still not grey yet

The key is that many active investors don't realize or don't believe in this dynamic between active vs passive. To be fair, we're in uncharted waters here as index investing strategies continue to claim more and more capital share and various movers and shakers continue to opine on what exactly is going to happen, but I think it's safe to bet that people will do what's needed to make money. Passive investing will be a thing for as long as it competently generates wealth. Me? I'm overjoyed that people love passive strategies, doubly so because they continue to obsess over large caps. Leaves a very fertile and low traffic area for people like me to make their fortunes and I'm glad I don't have to compete against a horde of other active investors.

@@KatelynCate I've never understood the love for low cap stocks. Especially in aggregate. They underperform the large cap stocks in the long run, and they do so for a few fundamental reasons. Large cap companies have economies of scale to help improve profitability. Low cap companies do not and must compete with large cap companies that do. In addition, there is much greater risk that unexpected market shocks could dramatically alter the profitability of low cap stocks, and without a large asset-base (and "too big to fail" federal subsidies) low cap stocks are more likely to succumb whereas large cap might be more likely to survive. Of course, a number of low cap companies will become large cap companies, but the general trend will be for fewer of them to do so. In other words, the expected value for investing in a collection of low cap stocks is lower than the expected value for investing in large cap stocks. That said, low cap stocks generally have more room to grow, so the few that do eventually become large cap stocks have a ton of potential for small cap investors. But fundamentally, your stock picks would have to be not just average, but substantially above average in order to generate a profit. Naturally, you might expect that percentage of skill would be close to 50%. It might be higher because of the benefits of large cap stocks over small cap stocks, but the difference between the two aggregates is substantial, but relatively small. However, close to 80% of active investors fail to beat the market. The remaining 20% are not necessarily intelligent investors, either. As I've just said, you'd expect closer to 50% to be making more than the market just by random chance. How many of the 20% succeed by random chance and how many succeed by skill is difficult to determine. But if the odds are greater than 80% against you, why take that risk? You can't effectively diversify your investment, because as you increase your diversification, your income will trend to the lower average that the small cap stocks generate. You have to be able to reliably pick substantially above-average stocks and risk a large proportion of your portfolio in them in order to prosper, and any mistake (or unpredicted shock) can wipe out or substantially decrease your investment. I get that most people think they are substantially smarter than the average person. But realistically, half are below average. And even if you look at investment fund managers who have years of formal education, teams of coworkers to assist in gathering information, and spend their full time monitoring the market and looking for non-public information, they STILL tend to underperform the market by wide margins. What gives your average Joe without all those advantages any hope of beating the odds?

@@Mathignihilcehk Historically, small-caps have outperformed large-caps on average, not the other way around. However, that's because small-caps are incredibly risky, especially if you're investing in a handful of individual stocks. All the logic you were talking about is the reason investors tend to shy away from small-caps, which is exactly why they have higher returns. What factor investing seems to tell us is that the highest returns in aggregate are from the really bad companies that individual investors stay away from like the plague because they're too risky. Having no-one else crowding you out means you can get them at dirt-cheap prices.

You have to look at it from the perspective of single active investors, if they do know about this balance, then their thoughts should be along the lines of not having enough sway over people to actually create inefficiencies, or they know that they arent actually good enough to exploit the inefficiencies. In either case getting more people to invest in either their stocks or management product is the right play. If they dont know about it, then the same also holds true.

@@IamGrimalkin higher risk doesn't cause outperforming. More risk asks for higher returns because it has to account for losses. Just like how people with bad credit have to pay higher interest rates to compensate for others in their risk category who go bankrupt. The historical outperformance of small cap has more to do with it being less attractive because it's more work to invest in a lot of small companies than to invest in a few big ones. But later funds have been created to specifically target small call so now that's mostly gone. As always, an investment strategy only beats the market until too many use it

agreed

3/4 of buyers are not long term investors but short term speculators. So the short term investors are « pricing» the markets when they are selling/buying motivated by fomo and fear of loss. Humans never learn. That is the avrage investor is motivated by emotions.

@@Ikaros23 What’s your source of 3/4 of the market being speculators?

@@Ikaros23 if you're actively deciding on when to buy and sell you're not a passive investor, even if you invest into an index fund. Besides those people usually invest in all kinds of things, not just the broad market, so there's some price finding going on

It's fake.

That's his "winter coat" coming in.

Absolutely, that's a must!

Right? He's a wealth of knowledge. You can tell that's it's knowledge he intuitively understands and isn't just stuff he memorized from a book.

Yeah he got his hair back! awesome!

Yep can confirm, but how come this video was posted 15 minutes ago but your comment was 16 minutes ago????

@@RobertoMattes he never lost it. just shaved it regularly

Nice!

Similar. Different angle and evidence this time.

Most people don't care about investments. Of those that do, many of them probably don't watch RU-vid. And so on down the filter. I'm watching this, but I'm not subscribed. It just gets recommended to me.

If you are "investing" in anything that has 40-80% drawdowns, you are NOT INVESTING, you are a gambler watching youtube videos that tell you you're an amazing investor. If this soothes your emotions, so be it. It wont protect your hard earned capital.

@@Biggischkris And it discounts the effect on your future emotions.

@@Biggischkris that 40 to 80 percent drop isn't necessarily permanent in index funds over the long term, investors should worry most about the risk of permanent loss of capital, not the risk of temporary capital loss due to market volatility, hell even active investing could still be considered smart investing if the lost capital is eventually recovered, real long-term investors care little about volatility no matter how bad it is

@@Biggischkris market index funds has dropped more than 40% before and it will happen again, so it's failing now?

Depends, inflation was pretty obvious that I made 25% out of the increase in price of commodities alone. If you’re industry insider you will have plenty of opportunities to make money, sadly many of such opportunities also happens when index is at its weakest so it makes bad pair of investments tools for me

If someone uses index funds and tries to time the market. They are effectively an active investor. They just don’t want to admit it.

@@DeepFriedLiver I agree. How can you "time" the market with dollar cost averaging on index funds?

@@michaelyoon9355 if you have access to all your capital now, lump sump would be a better idea than DCA if you believe that the market would go up over the long run, if you believe there would better buying opportunities due to low price in the future, then you would want to invest later and not now when price is high, the issue now is, trying to predict the market's low is a loser's game with most failing to do it, DCA although it is more systematic than discretionary market timing, still has some element of the expectation of lower stock price in the future, besides, if you believe the market would be up over the long term, why would you hold on your investments unless you believe there would be better buying opportunities in the future (effectively market timing)

If I recall correctly, his main concern is that a large withdrawal of funds during a panic will cause the liquidity of a subset of the stocks in the fund to completely dry up causing those stocks to collapse in price. Normally an investor would cease selling those particular shares in such a scenario but because the index funds must sell shares blindly across the board, they continue to sell those severely underpriced shares as clients continue to pull out funds. If confidence in the market is restored and funds start to flow back into index funds, those illiquid stocks immedietly shoot way up in price due to the low liquidity before the fund is able to rebuy the shares they sold. Liquidity is not usually a problem in large cap stocks in normal market conditions. However, you constantly see this in small cap stocks that are always illiquid. If you view each stock as having only a limited number of people who understand it and have cash on hand ready to buy it, once those people have exhausted their cash during a heavy sell-off, the stock price may collapse until the price becomes such a bargain that less knowledgeable investors are willing to spend their limited cash on it rather than stocks/8ndustries they are more familiar with. Hopefully that conveys the general gist of the concern and can serve as a starting point if you want to investigate it further.

@@jonathansteinbronn4738 Thanks! Appreciate it

It’s not really the managers since they are following indexes based on market capitalization weights. This means that the market is dictating the weights of the assets in the index. If markets are efficient these capital allocation decisions are theoretically optimal.

Stock picking doesn't work I'm afraid.

I am doing the Pl. Fin. right now too. I don't have pieces of advice ranked by importance. Try to learn something new every day. I am always ashamed of how little I knew a year ago, and I think that's a good feeling to have when you work in a knowledge-based field.

That would be my take as well. If at some point enough passive investors are part of the market, a proficient active manager could manipulate the market, since passive investors would gravitate towards the weight the active investor produced towards a specific investment, and he would gain from it. If this is not possible, passive investing should be useful in the regular known information ways, right?

The avrage buyer of etf’s and indexfunds are short term speculating. So they are « pricing» the market. The index investors could be a part of creating the bubble. But bubbles would be created anyway. It’s more likely they make the market less risky ( there will always be indexinvestors buying and selling in any markets creating a stable flow of liquidity in crisis markets). All over most investors are trying to time the markets. This is human nature

Although Ben has actually advocated for using gearing or leverage in previous videos the over 100% comes from a loan on a house or small business loan, something like that , that can be used as partial collateral and serves some practical function in your daily living. Not just stonks and bonds.

This is a very time period specific portfolio. It looks amazing for the last 40 years. Through history the left tails of stocks and bonds are much more correlated than they were over this period, so this strategy would look much worse.