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Communist Index Funds

tags: [ finance , src:money_stuff ]

src: MS

This is a fascinating and complex issue, that is a hallmark of Levine’s insight.

  1. Capital markets function as capital allocation, but they are also markets, so they serve the dual function of price discovery. If they are anywhere near efficient, this means that it is tending towards some optimal allocation of capital, and prices should reflect that. If things are mispriced,1 This feels almost tautological though, since there is no true price in practice. But the whole point of fundamental analysis is that, just like in statistics, there actually is some true price (parameter). then opportunistic fund managers should be able to make a profit, thereby correcting the price.
  2. Recently, people have moved to index funds, which is a form of passive investment.