Du Charme Wealth Management Podcast
Educating and empowering individuals that want to have more effective engagements with professionals around their financial lives.
DISCLAIMER: Information presented is for your educational purposes only and should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented.
Encompass More Asset Management LLC is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC) and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.
Du Charme Wealth Management Podcast
When Buyers Don't Care About Value: How Passive Money Distorts Everything
The passive investing revolution has fundamentally changed market structure by making markets highly inelastic - small changes in supply and demand create large price movements, especially in the largest stocks.
• Passive strategies like index funds don't evaluate price or value - they simply buy when receiving cash and sell when cash is demanded
• Every dollar flowing into large-cap stocks can create up to $100 in market capitalization through a multiplier effect
• Active managers who sell overvalued securities lose their "voice" in the market, reducing price discovery
• Value investing has struggled partly because passive flows reinforce momentum in the largest stocks
• The system depends on continuous inflows - if people stop contributing due to job loss or retirement, prices could fall dramatically
• The dot-com bubble was partly driven by similar mechanics related to low-float stocks and index futures
• These distortions affect bonds as well as stocks, explaining anomalies in yield curves
• Most investors remain unaware of these structural changes, like "fish unaware of water"
Guest: Michael Green, CFA
Webpage: https://www.simplify.us/leadership
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[00:00:00] Intro/Passive Flows Distort Market Pricing.
[00:05:53] Mike Green's Career Journey.
[00:13:55] The Sharpening of Passive Management.
[00:24:32] Understanding Market Inelasticity.
[00:42:12] How Size Affects Stock Elasticity.
[00:55:52] Value Distortion and Corporate Debt.
[01:11:03] Credit Markets and Bankruptcy Risk.
[01:22:32] The Dot-Com Bubble and Passive 1.0.
DISCLAIMER:
Information presented on this program is believed to be factual and up-to-date, but we do not guarantee its accuracy, and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented. Encompass More Asset Management LLC is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC) and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements.