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Oh, index funds have a tale to tell,
Of how they invest and invest quite well.
They’re cheap, they’re easy, they’re widely adored,
But here’s the twist that can’t be ignored:
They lean on the work of those active and wise,
The managers, experts, with sharp, watchful eyes.
While index funds follow the market’s parade,
It’s active decisions that have the path laid.
Active managers toil, they measure, they scheme,
Allocating the dollars, fulfilling the dream.
They price and they prod, they assess and compare,
Without their fine work, the market’s laid bare.
Here’s the irony, folks, as you see it unfold:
Index funds’ success? On active backs, it’s controlled.
Should the actives all vanish, what chaos would come!
Prices askew, the market undone.
The market, you see, has its roles and its parts,
Split into groups with their very own charts.
Institutional giants, so mighty and grand,
Hold most of the stocks in this capitalist land.
A report from twenty twenty-three,
Reveals institutions own seventy,
Percent of the stocks in the U.S. domain,
Their influence vast, their power profane.
Retail investors, the smaller fish fry,
Just twenty percent, by and by.
Though memes and short squeezes gave them a voice,
Their overall clout remains a small choice.
Thus the market depends on the big, active pros,
To guide the whole system, to steer where it goes.
Without their decisions, without their sharp view,
Passive funds falter; they know not what’s true.
And here’s the link to the world we now see,
Where trust in the experts is frail as can be.
From crises in finance to voices online,
Skepticism grows, and the doubt intertwines.
Take crypto, for one, the rebellious new play,
Bypassing elites, or so many say.
But whales with their billions are pulling the strings,
And volatility reigns in this land without kings.
The meme stock events, like a GameStop affair,
Showed retail investors could rise and could dare.
But Robinhood’s ties to the hedge fund elite,
Proved even rebellions aren’t fully complete.
Politics, too, plays this game with great flair,
Where trust in the systems hangs thin in the air.
A leader like Trump, with his outsider shout,
Rose on distrust and casting doubt.
So what’s the takeaway from this big rhyme?
That no strategy works all of the time.
Passive or active, they all intertwine,
One leans on the other to function just fine.
In life and in markets, the experts still play,
A critical role that won’t go away.
But holding them honest, not throwing disdain,
Is how we progress, how we best gain.
So whether it’s stocks or the future you choose,
Remember the balance; don’t rush to refuse.
For experts and systems, when used as they’re meant,
Are key to success, to a life well-spent.
If I understand your poetry, you are (perhaps sneakily) pointing out that passive investments are collecting opinions of the many but especially the very rich and influential, and while there may be a consensus, it is still very much a matter of opinion. This helps to explain why fanciful tech names with more hopes than stability are valued so much more highly than less captivating stories.
Steve, you raise some good questions. Let me try to clarify my thinking behind the poem a bit…
Institutions, i.e., pension funds, sovereign wealth funds, insurance companies, university endowments, mutual funds, commercial banks, etc., own 70%-80% of the U.S. stock market. When we speak of “the market,” we’re actually talking about them. Their decisions on how they choose to allocate capital are the ones that really matter. These institutions are the “active investors” that our passive index funds draft off of. The folks who invest on behalf of these institutions are highly trained specialists who are in charge of a helluva lot of money. Some might call them experts. So, as a passive index fund investor I am really putting my faith in these experts and the decisions they make in their market. If I think the experts are all a bunch of morons, then I should not be invested in an index fund that blindly follows their lead.
Of course, institutions are flawed and history shows that experts make mistakes—in finance, as well as in other aspects of life. This knowledge contributes to America’s healthy skepticism toward authorities. This skepticism arguably fuels innovation and contributes to America’s dynamism as we continually poke and prod the system making adjustments. We’re currently in a moment where the distrust of experts across the board is running very high. Perhaps that distrust is justified, as people see institutions failing them in one way or another. They feel powerless, a loss of control over their lives, etc., and they blame the institutions and the experts.
What sells well in such an environment? Crypto, of course! Zero day options. Meme stocks. Anything perceived as sticking it to the Man. Robinhood is a brilliant brand in this regard because it taps into this populist angst and this sense of rebellion with an easy to use interface that gives would-be rebels a sense of control over their own destiny. (I actually own some shares in my fun-money account.)
Now, what I think is going to be really interesting is if it turns out the experts who invest for the institutions have unknowingly inflated another bubble. When/if they decide to reallocate funds to other assets, start selling, and the bubble pops, it’s going to be interpreted as just more evidence that experts are clueless—“Look what they did this time…”
So, as far as the battle for opinion goes, I think it’s really a question of how much we trust institutions and the experts who run them. They are ultimately the ones who control the market. Our investment opinions as retail investors don’t carry much weight. However, our individual stories of how we have navigated our “money journeys,” as Jonathan has so eloquently put it, are quite valuable. These stories show what we were thinking, offer reasons why we did this or that, explain if it worked, if it did not, and what we may have done differently or what decisions we stand by. There are important lessons in the stories that help others make their own decisions as they travel their own paths. This sharing of opinion backed by personal experience also creates community and community empowers people by providing them with a sense of meaning and collective purpose. Community builds trust—a primary ingredient to civil society.
My two cents…
Thanks, Jamie! Very fun.
That’s a really good description! Thanks for your clever post!
Too long for me to memorize, but share it I will! Great post.
Brilliant! Thanks for posting, Jamie.
Haha, thanks. Glad you enjoyed it. Full disclosure, I asked an AI to take the basic thesis and the examples I provided and to write a short op-ed style piece. I then made some edits and asked it to rewrite the article in the style of Dr. Seuss. 😉
What a clever and creative way to use AI!
Next, we have AI tell us what’s trending visually in the children’s book market. We then use an image generator to create some appealing characters and illustrate the stanzas in whatever consistent whimsical style we choose. Wa-La! HumbleDollar’s first children’s book…
Do it, Jamie!