@RickMandler @matt_levine @ritholtz 1/ they are good for low information investors, but undermine the informational purpose of stock markets (outsized return should be a reward to information work);
@RickMandler @matt_levine @ritholtz 2/ they set up a terrible political economy: it's bad enough that firms and industries lobby for the state teat, but now the investor class broadly lobbies (very successfully) for support of indices of firms. the S&P 500 is politically too-big-to-fail;
@RickMandler @matt_levine @ritholtz 3/ as discussed in the paper, they are a tacit form of old-school trusts. cross-ownership and board participation are what inspired the original anti-trust movement. we've brought that back dressed angelic in saving mom-and-pop from investment manager fees;
@RickMandler @matt_levine @ritholtz predatory investment managers suck, but mom-and-pop is what savings accounts / bank CDs that pay competitive rates are for. 4/
@RickMandler @matt_levine @ritholtz we'd have a better world if small money, low-information investment was segregated from corporate control and equity risk... 5/
@RickMandler @matt_levine @ritholtz if equities themselves were UNDIVERSIFIEDLY-held, so that the investor class was necessarily set against one another in competition, no joined together in the caricature of Marxist capital it has now entirely become, and successfully. 6/
@RickMandler @matt_levine @ritholtz diversification itself is a tragedy of the commons. we talk about it like it's mother's milk, because it's a "free lunch" from an investors' perspective. 7/
@RickMandler @matt_levine @ritholtz but the dollar-weighted investor class is well-diversified, the class has a unified interest in the continuation and expansion of what are supposed to be the hard-won, transitory profits of incumbent firms. 8/
@RickMandler @matt_levine @ritholtz the economic models under which capitalism might be zero have economic profit fall to zero at equilibrium. 9/
@RickMandler @matt_levine @ritholtz diversified investors ought to get mere "accounting profit" — return to physical capital as a competitively provided factor of production — as transitory "winners" would be an tiny share of a true market portfolio. 10/
@RickMandler @matt_levine @ritholtz there are a lot of reasons why they don't, why we live in a society where profit includes not just return to factors of production but a sustained and growing markup. i won't say indexing is responsible for that. 11/
@RickMandler @matt_levine @ritholtz but it (and the large penumbra of quasi-active funds that evaluate themselves against indexes and so limit "tracking risk") is consistent with, part and parcel with, the investor-class-dominated political economy under which we labor. /12
@RickMandler @matt_levine @ritholtz it's not for nothing that Donald Trump tries to sell the affluent swing voters who will recoronate him or save us all on a pitch that... /13
@RickMandler @matt_levine @ritholtz under Biden (imagine if it were Bernie!) your 401Ks—remarkably insulated under his administration from what for everybody else is experiencing as a near-existential crisis!—would suffer. /14
@RickMandler @matt_levine @ritholtz the broad public's stake in large-scale industry is that it should be a brutal contest of competitive firms. 15/
@RickMandler @matt_levine @ritholtz instead we've created a world in which the moneyed classes coordinate under the interlocking ownership of equities to shirk the work of finding or creating unusual excellence... 16/
@RickMandler @matt_levine @ritholtz they coordinate to use political power in support of market power so the haves can continually extract from the broader public and call it a "free-market". again, indexing is just one piece of that, but it is of a piece with it. /fin
@RickMandler @matt_levine @ritholtz ps. although in practice i've been short indices more often than long, i may well use them. index funds are in our present catastrophe a very useful tool for assetholders, and sometime i act in the role assetholders. (index fund holders don't deserve the name investor.) /ps1
@RickMandler @matt_levine @ritholtz indexing is an important part of the game we are currently playing, that i too play. but it's a game the table underneath of which we should throw over, a predatory game that helps sustain a stratified, unjust society. /psfin
