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Posts Tagged ‘investing

“Don’t look for the needle in the haystack. Just buy the haystack”*…

Over the course of 2020, Elon Musk’s wealth skyrocketed from $27.7 billion to $147 billion. Musk even overtook Bill Gates, to become the second richest person in the world. This was a tremendous jump in fortune: Musk was only at 36th place in January 2020. Musk’s enrichment was mainly due to Tesla’s rising stock price (TSLA:US), which surged from $86 in January to $650 in December. Tesla is currently one of the ten most valuable companies in the US stock market. 

In an already record-breaking year, Tesla’s largest and most rapid increase in valuation came in November, due to its announced inclusion into the S&P 500 index, now scheduled for 21 December 2020. Within a week of this announcement, Tesla’s share price rose by 33%, as passive funds now have to invest more than $70 billion. This was a remarkable boost for stock of a company that many analysts say is already obviously overvalued.

Just a few weeks earlier, on 21 September 2020, Yinghang ‘James’ Yang was arrested for insider trading by the Securities and Exchange Commission (SEC). Yang was an employee at S&P Dow Jones Indices (S&P DJI), sitting on an index committee that decided about which companies were to be included and excluded from S&P DJI indices. Yang had used this insider knowledge, to trade options on these companies through a friend’s account, making almost $1 million in the process. The case is currently being investigated by US authorities.

While these seem like unrelated incidents, both these episodes in index committee decision making are part of a tectonic shift that has fundamentally transformed capital markets globally. That is, the move towards passive index investing — and the concomitantly growing power of index providers...

A wonderfully-clear exploration of the history of index funds and consideration of their implications: “It’s the index, stupid! Our New Not-So-Neutral Financial Market Arbiters.”

* John C. Bogle, founder of the Vanguard Group and creator of the index fund

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As we watch the watchmen, we might recall that it was on this date in 1773 that a group of colonists known as the Sons of Liberty, disguised as Mohawk Indians, boarded three British tea ships and dumped 342 chests of tea (worth $18,000– over half a million dollars in today’s currency) into Boston harbor.  The provocation was the Tea Act of May 10, 1773, which allowed the British East India company to sell tea from China in American colonies without paying taxes apart from those imposed by the Townshend Acts— which American Patriots strongly opposed as a violation of their rights. Colonists objected to the Tea Act because they believed that it violated their rights as Englishmen to “no taxation without representation.”

The Boston Tea Party was, of course, a triggering event in the gestation of the American Revolution. Parliament responded in 1774 with the Intolerable Acts, which, among other provisions, ended local self-government in Massachusetts and closed Boston’s commerce.  Colonists up and down the Thirteen Colonies in turn replied with additional acts of protest, and by convening the First Continental Congress, which petitioned the British monarch for repeal of the acts– and probably more impactfully, coordinated colonial resistance to them.  The crisis escalated, and the American Revolutionary War began near Boston in 1775.

by-nathaniel-currier
The Boston Tea Party, as rendered by Nathaniel Currier

source

“Who owns the future? This is the question at the heart of every stock market.”*…

 

stock market

 

In November of last year, I opened a brokerage account. I had been reading simple, bullet-pointed introductions to financial literacy for a few months before that, manuals “for dummies” of the sort that I am conditioned to hold in contempt when their subject is, say, Latin, or the Protestant Reformation…

It was driven home to me repeatedly in my early efforts to build an investment strategy that, quite apart from the question of whether the quest for wealth is sinful in the sense understood by the painters of vanitas scenes, it is most certainly and irredeemably unethical. All of the relatively low-risk index funds that are the bedrock of a sound investment portfolio are spread across so many different kinds of companies that one could not possibly keep track of all the ways each of them violates the rights and sanctity of its employees, of its customers, of the environment. And even if you are investing in individual companies (while maintaining healthy risk-buffering diversification, etc.), you must accept that the only way for you as a shareholder to get ahead is for those companies to continue to grow, even when the limits of whatever good they might do for the world, assuming they were doing good for the world to begin with, have been surpassed. That is just how capitalism works: an unceasing imperative for growth beyond any natural necessity, leading to the desolation of the earth and the exhaustion of its resources. I am a part of that now, too. I always was, to some extent, with every purchase I made, every light switch I flipped. But to become an active investor is to make it official, to solemnify the contract, as if in blood…

Justin E. H. Smith (@jehsmith) wrestles with taking stock of one’s soul: “On the Market.”

* John Landgraf

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As we ponder the long and short of it all, we might recall that today is National Pig Day.

pig source

 

 

Written by LW

March 1, 2020 at 1:01 am

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