Excess Returns The Practical Implications of the Rise of Passive Investing | Mike Green
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Oct 24, 2024 Mike Green, from Simplify Asset Management, is a leading expert on passive investing and its market implications. He delves into how passive strategies influence investor behavior and market dynamics, challenging traditional metrics of stock liquidity. The conversation highlights monopolistic tendencies among major firms and the risks of rigid portfolio structures relying on historical data. Green also discusses how to navigate portfolio volatility and adjust expectations in light of potential market downturns, offering valuable insights for modern investors.
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Passive Investing Misconception
- Passive investors aren't truly passive; they're algorithmically simple investors.
- Their strategy distorts the market by buying proportionally to float-adjusted market cap weight.
Individual Investor Strategy
- Maximize your gains from this effect: Invest in names with a large market impact from passive inflows.
- Consider S&P 500 index funds or even more concentrated options like OEX or NASDAQ.
Hedging Challenges
- Buying protection, like puts, creates a drag on returns, even with risk adjustment.
- The key is picking the right time to hedge, which is challenging.