It’s a new ballgame for investing in equities

While the metals industry is wrestling with indexes and their validity, Wall Street is doing the same. The era of “stock pickers” is rapidly coming to an end, with most investors becoming passive investors by investing mutual funds with a market basket of stocks. Investors don’t want to take the risk of picking a few stocks in hopes they outperform the market. Now, investors want to outperform the stock indices, S&P and Dow Jones, by buying into better performing mutual funds. The mutual funds of course select the stocks that fit a specific category and do the all important weighting, i.e., how much to buy of each stock. However, this is a reduces the risk of picking losers.

This has already been characterized as the ‘do nothing’ revolution. Risk is definitely out even in the equity markets.

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2 Comments on "It’s a new ballgame for investing in equities"

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David Hanick
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Risk by any other name is still risk! “Investors” have simply transferred their “risk focus or appetite” from companies, to industries, to markets. Why do all the heavy lifting on one company or industry when indexes are available? Why? Because the devil is in the details. One need look no further than the recent housing bubble. What looked like a good thing from 50,000 feet turned to shit when started looking at real value of the “underlying assets.” Can another bubble be in the works?

alanpatrickryan
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David: I am a huge believer in bubbles. If you examine the economic data, between bubbles the US economy grew at a snail’s pace; CAGR hides this. Bubbles provided the juice. Lots of people made money in the housing, technology, real estate and financial bubbles.
Okay some of the oversized profits were given back, but isn’t that better than a no growth scenario?
RE risk, someone’s risk is another person’s reward.

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