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CalPERs has not yet made a final decision to go completely passive in their equity portfolio; it is currently being reviewed. Since CalPERS is currently about 50 % passively managed in their equity sleeve, the most likely outcome will be an increase in their passive strategy policy, but not to the 100 % level.
Certainly one reasonable concern is if the entire equity investment community, both institutional and individual, were to commit to the passive approach completely. That unlikely decision would totality destroy the active, competitive pricing mechanism that keeps things somewhat welded to real world profits and possibilities. Active investors keep the marketplace respectably efficient.
But there is little danger that we will all become passive investment advocates or participants. Far too many of us are residents of Lake Wobegon where we are all above average in everything we do. Market-like rewards are just a surrender to mediocrity and are also boring.
Also we love to speculate and gamble. Las Vegas continues to grow and prosper in spite of the losing odds offered. Not all of us are risk adverse, and those that are still visit Las Vegas, the racetrack, and the lottery. We venture into games and investments that have low probabilities of success with outsized payoffs. That’s why IPOs typically soar to unwarranted astronomical prices followed by wealth depleting subsequent adjustments.
The current financial industry numbers do support the observation that passive investing is gaining popularity, especially among the institutional cohort. Something like 50 % of that elite group own passively managed equity products. By comparison, individual investors hold roughly 15 % Index products. There’s a lesson here, especially since the institutions hire only the best-of-the-best money managers.
Since institutions are approximately 70 % of the marketplace that means that overall about 39.5 % (0.7 X 0.5 + 0.3 X 0.15) of equity positions are in passive holdings.
That’s not nearly a full commitment to the passive approach, but a hefty percentage nevertheless. I sure do not want it to be a uniform strategy. I doubt it ever will. I suspect I will become a little uncomfortable when the passive percentage penetrates the 50 % threshold.
I salute the active investors of the world; they make my decisions much easier and make the market work as designed.
Comments
Thanks for the reference.
CalPERs has not yet made a final decision to go completely passive in their equity portfolio; it is currently being reviewed. Since CalPERS is currently about 50 % passively managed in their equity sleeve, the most likely outcome will be an increase in their passive strategy policy, but not to the 100 % level.
Certainly one reasonable concern is if the entire equity investment community, both institutional and individual, were to commit to the passive approach completely. That unlikely decision would totality destroy the active, competitive pricing mechanism that keeps things somewhat welded to real world profits and possibilities. Active investors keep the marketplace respectably efficient.
But there is little danger that we will all become passive investment advocates or participants. Far too many of us are residents of Lake Wobegon where we are all above average in everything we do. Market-like rewards are just a surrender to mediocrity and are also boring.
Also we love to speculate and gamble. Las Vegas continues to grow and prosper in spite of the losing odds offered. Not all of us are risk adverse, and those that are still visit Las Vegas, the racetrack, and the lottery. We venture into games and investments that have low probabilities of success with outsized payoffs. That’s why IPOs typically soar to unwarranted astronomical prices followed by wealth depleting subsequent adjustments.
The current financial industry numbers do support the observation that passive investing is gaining popularity, especially among the institutional cohort. Something like 50 % of that elite group own passively managed equity products. By comparison, individual investors hold roughly 15 % Index products. There’s a lesson here, especially since the institutions hire only the best-of-the-best money managers.
Since institutions are approximately 70 % of the marketplace that means that overall about 39.5 % (0.7 X 0.5 + 0.3 X 0.15) of equity positions are in passive holdings.
That’s not nearly a full commitment to the passive approach, but a hefty percentage nevertheless. I sure do not want it to be a uniform strategy. I doubt it ever will. I suspect I will become a little uncomfortable when the passive percentage penetrates the 50 % threshold.
I salute the active investors of the world; they make my decisions much easier and make the market work as designed.
Your commitment and research is top-gun.
Best Wishes.