12-30-2021, 11:37 AM
Forget about meme stocks. Are massive fund inflows a commoditization of equities or
<!-- SC_OFF --><div class="md"><p>Whenever people discuss a possible asset bubble, they point out at things that might clearly suit the "mania" stereotype, like retail traders investing in meme stocks, the rise of SPACs, NFTs and altcoins.</p> <p>However, in my opinion, there is a much more interesting trend that needs to be discussed, if someone is considering an asset bubble. I think general investing and basic financial eductation are topics that have seen an incredible rise to mainstream culture levels. People are being taught through all kinds of mediums that long term investing in index funds can be a profitable and resonable endavour to build wealth over the span of a life-time, saving money for retirement. Which one of us, during the last 3 years, has never advised a family member or a friend or a stranger to DCA into an S&P 500 ETF? Anyone? Bloomberg has even reported a recent trend that sees parents opening brokerages accounts for their kids to teach them the value of long term investing while they are still young so they have more time to compund. </p> <p>You clearly can see the manifestation of this trend when you look at the massive amount of equity fund inflows that we have observed over the last 2 years. Some could say this is a new era of finance, some sort of commoditization of equities, that are seen as a way to bridge gaps and solve problems like population ageing putting pressure on welfare systems. More hoseholds are getting exposure, what's not to like? </p> <p>However, I would also argue that this bids equity prices high up, and the price action becomes more an index of population trends rather than fundmentals. Also, as earnings yields go down, this method of welfare becomes less effective, unless the financial industry finds ways to bring even more businesses to the public markets and expands its product base. Then there's the problem of the bias towards the US. I live in Europe, where the welfare system is actually even more exposed to population ageing compared to the US, and ETFs here are a trending topic here too, but people are still investing primarily into US equities. If you look at international stock markets, the US stands out as being the more expensive. I think momentum is playing a massive role in today's invetsing framework, both retail and institutional. Some would say it's justified given growth potential, I say it could be recency bias... It's just the US market that's going through this suppposed commoditization process imo, and that would signal there's a problem.</p> <p>Another interesting topic is that, as more and more people become passive, it could get even more difficult for active investors to outperform.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/bragghy"> /u/bragghy </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/rrxx57/forget_about_meme_stocks_are_massive_fund_inflows/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/rrxx57/forget_about_meme_stocks_are_massive_fund_inflows/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>Whenever people discuss a possible asset bubble, they point out at things that might clearly suit the "mania" stereotype, like retail traders investing in meme stocks, the rise of SPACs, NFTs and altcoins.</p> <p>However, in my opinion, there is a much more interesting trend that needs to be discussed, if someone is considering an asset bubble. I think general investing and basic financial eductation are topics that have seen an incredible rise to mainstream culture levels. People are being taught through all kinds of mediums that long term investing in index funds can be a profitable and resonable endavour to build wealth over the span of a life-time, saving money for retirement. Which one of us, during the last 3 years, has never advised a family member or a friend or a stranger to DCA into an S&P 500 ETF? Anyone? Bloomberg has even reported a recent trend that sees parents opening brokerages accounts for their kids to teach them the value of long term investing while they are still young so they have more time to compund. </p> <p>You clearly can see the manifestation of this trend when you look at the massive amount of equity fund inflows that we have observed over the last 2 years. Some could say this is a new era of finance, some sort of commoditization of equities, that are seen as a way to bridge gaps and solve problems like population ageing putting pressure on welfare systems. More hoseholds are getting exposure, what's not to like? </p> <p>However, I would also argue that this bids equity prices high up, and the price action becomes more an index of population trends rather than fundmentals. Also, as earnings yields go down, this method of welfare becomes less effective, unless the financial industry finds ways to bring even more businesses to the public markets and expands its product base. Then there's the problem of the bias towards the US. I live in Europe, where the welfare system is actually even more exposed to population ageing compared to the US, and ETFs here are a trending topic here too, but people are still investing primarily into US equities. If you look at international stock markets, the US stands out as being the more expensive. I think momentum is playing a massive role in today's invetsing framework, both retail and institutional. Some would say it's justified given growth potential, I say it could be recency bias... It's just the US market that's going through this suppposed commoditization process imo, and that would signal there's a problem.</p> <p>Another interesting topic is that, as more and more people become passive, it could get even more difficult for active investors to outperform.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/bragghy"> /u/bragghy </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/rrxx57/forget_about_meme_stocks_are_massive_fund_inflows/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/rrxx57/forget_about_meme_stocks_are_massive_fund_inflows/">[comments]</a></span>Kind Regards R