The DQYDJ Weekender, 12/14/2013

The bro-science is strong on both sides of the “does it work?” argument in this article, but I decided that yesterday I would block out some time (read: 9-5:45) to do Charles Poliquin’s One Day Arm Cure.  Shocks to lazy, adapted muscles and a bored CNS causing massive fluid retention?  Uncontrollable swelling that lasts for weeks… just long enough for the measuring tape to pick it up?  Or, possibly, that biggest of miracles – sarcoplasmic hypertrophy?  I promise not to hold my breath for the last one.
Maybe it’s a waste, but after so many years in the gym, gains are fleeting – so what’s the hurt?  Oh – I guess I know the hurt:  here I sit today wondering somewhat whimsically if overworking small muscle groups is enough to cause rhabdomyolisis and cringing every time I extend my arms.  We’ll see which side of the broscience table I’ll come down on once I can, you know, lift 20 lb objects again.

And with that in mind, who’s ready for some football, of the late season and fantasy playoff variety?

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  1. says

    The argument about index funds becoming overinvested is in interesting one and I could certainly see us getting there eventually, though I think we’re a ways off. But the stat about how much money is currently invested in index funds is irrelevant. The real question is how much is required to be active to keep markets relatively efficient? We could have 99% of people in index funds and be fine if the other 1% is enough to keep things efficient. Probably an exaggeration, but you get my point.

    • says

      A few big fish that continue swimming, perhaps? (Big fish are at an advantage in ETF investing too due to their ability to arbitrage with blocks/cretion units).

      I thought this was an interesting idea, though – imagine a world where 100% of money was in index funds. The index ‘pickers’ themselves would then be under tremendous pressure – both to pick the ‘right’ companies (remember, BRK wasn’t part of the S&P 500 until recently, and IBM has been on the Dow multiple times) and to avoid, sad to say, corruption.

      I’m very interested in the new theories about market inefficiencies caused when the daily constant leverage ETFs reinvest… usually around 3:30 every day.

      A brave new world?

      • says

        I don’t really consider those kinds of fancy ETFs to be real indexes. I actually think it’s dangerous when they’re allowed to be labeled as such, as I think it mostly just serves to mislead consumers. But such is the world we live in.

        To be honest with you, I’m not even a huge fan of using sector funds, even one as popular as the S&P 500. I get the concepts behind the slice and dice approach, but that’s never really been what resonated with me. I like total market funds because they actually try to represent the entire market, and they can largely eliminate the selection bias you talk about (not completely, but it’s not quite as prominent). But to me, investing in indexes that track a sector isn’t really indexing, it’s just a different way to pick stocks.

        • says

          Sure, but they affect the indexes, anyway – and it’s not just leveraged ETFs buying the market at the end of every day, you’ve got the straight unlevered funds re-balancing too. A symptom of tons of cash (there’s something like a 4:1 fund to Wilshire 5000 stock ratio) chasing not-too-many fish, and it makes small cap funds hard to run.

          I’m with you on the Dow, but not the S&P. Taking the Wilshire 5000 (Uh, 36XX) versus the S&P 500 you’re still covering 80% of the same territory since both indices are market cap weighted: (Also of interest is the rebalancing section in that document and the effects on indexing)

          Although, I must say I am surprised that you are anti-sector. I had you pegged for a Fama-French efficient market type, or some type of CAPM/Sharpe fan. You know; mean reversion, efficient frontiers and the rest – Fama and French even have a 49 industry(!) model, everything from toys to guns:

          In my non-individual stock portfolio (which is the majority of my portfolio) I’m pretty broad, but now overweight commodities and not-the-US. Commodities and Real Estate are the only sectors I’m currently dabbling in; the foreign funds are massively diversified.

          • says

            Haha, 49 industries? Who needs it? I believe in market efficiency, not sector efficiency. Sectors will come and go but as long as we keep producing value somewhere then the market as a whole will rise.

            As for the ETFs and rebalancing, I think market inefficiencies like that will always exist. I will never argue that everything is efficient all of the time. That’s ridiculous. But the problem that those inefficiencies are only useful if you recognize them before other people do. And even then they’re only useful until other people do, which they will. At which point it’s onto the search for the next inefficiency that no one else knows about yet. The constant need to find the next thing is where the problem lies. It’s always why broad indexes are so powerful. You can ride the ups and downs of those cycles without worrying about having constantly predict them.

            As for the S&P 500, I agree with you that it isn’t worth stressing over. It’s a fine index and I get why it’s so popular, I just personally don’t see the point when there’s a better option out there, unless you’re factor weighting, which I don’t get into.