YouSaid · the spoken record

Mike Green

lines on the record: 79
first: 2024-08-15
most recent: 2024-08-15
sittings or episodes: 1
sources: podcast

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“Okay, you pocket some of your receipts, you sell some beer for cash, you pay me with it, nobody knows anything from the government standpoint. Those rules actually began to change quite significantly. In 2012, we introduced what's called the 1099, I think it's K, that changed the reporting requirements around that type of business. It made it much easier and much more electronic. And then in 2021, we actually substantively changed the rules. We went from being able to treat up to $20,000 in income as independent and not requiring filing taxes to $600. Well, when you go from $20,000 to $600, you catch a whole bunch of new businesses. And that's really what's showing up in the employment numbers.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“We did actually used to call those people unemployed. And so, again, these are revisions that have happened within the data sets. And it's all very similar to this type of discussion that we're having, where it's in the details that ultimately matter. In 2008, we didn't have Uber, right? It's important to recognize that. So if you wanted to go drive New York City taxi, that was an entirely different job. You didn't even have Uber in 2010. What you really had was the Uber X introduced in competition with Lyft in 2012. This is way out of the recession at this point that changes the dynamics. But you used to be able to be unemployed and go get a cash paying job. I could go bartend at your bar, for example. You'd be like, hey, I'm going to help you out. I'll pay you under the table, right?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, so the biggest issue with the BLS model is actually the conversion of those new businesses to jobs, right? So in particular, if you take a job in, let's just say food service, right? Or you create a job for yourself in food service by forming an independent company so that you can deduct some of your expenses for tax purposes for your job as a DoorDash driver, right? Ironically, that falls into a category food service.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Formation, there was an attempt to do that in a statistical framework, and unfortunately, that statistical framework is now broken down. Now, I remember in the two”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“I think in hindsight, we might ultimately declare because we did see a combination of an increase in unemployment. We saw a decrease in industrial production and we saw a broad deterioration in terms of the economy, things like leading economic indicators, et cetera, are all consistent with historical recessions. Now, whether we choose to acknowledge that really boils down to the depth at which it occurred. And so the NBR looks at three separate components. They talk about how broad it is, how long it's occurring, and how deep the drawdown is. And so the debate can be around how deep the drawdown was at that point. I think the bigger issue that most people are struggling with is actually around things like the employment numbers, where there's been a very substantive change in how we calculate that data. What's called the birth death adjustment model, which was designed to reduce the need for periodic reassessments of what the levels of employment were in the economy tied to new business for”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“And I would absolutely agree with you if it could correct it. The problem is, and I'll share this with your audience, right? I presented this type of work to the Fed. I've presented it to the IMF's Financial Stability Group every single time going in and saying, please tell me why I'm wrong. And unfortunately, the answer is you're right. They actually acknowledge that. My reaction to that was fantastic. How can I help? What can we do? And their answer is there's nothing we can do. That's not their job. control the regulatory apparatus if we raise an alarm prior to the event happening all that happens is we get fired”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the quick answer is unfortunately, if I'm right, you'll have an XIV type event for the SP 500. I realize how ridiculous and you want to buy.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Intersect. And therefore, it does in exactly the way that the XIV did. And that's why I chose the XIV for that trade, because it had already gotten to the levels of passive that I could very clearly see it happening almost immediately.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“If I curve that surface and I try to use a linear equation to solve it, it actually mechanically pushes the alphas negative, the intercepts get pushed negative. You can run this experiment with yourself, just draw a positively curved line, and then draw a series of straight lines that bisect it or intersect it, right? Understand how hard this is over. No, by the way.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Now, perversely, what we call alpha in the industry, which is typically how we evaluate individual managers, it turns out is actually over time just the intercept on a y equals mx plus b and linear equation, right? So I know this is hard for people, just like mentally imagine you're back in high school, it's your freshman year, and you're doing a y equals mx plus b graph in algebra, right? What happens, that's the same thing as saying the portfolio return equals the market return x times a beta plus alpha, the residual in that, the intercept in that.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the answer is very quickly no. And unfortunately, this brings us back to the question you had asked doesn't it get easier? And ironically, what ends up happening, mathematically what occurs, that constant bid that you're describing perversely changes the return profile of the market and it actually turns it into a, this is difficult for people to see over radio, but I'm drawing a convex upward sloping curve, right? It pushes valuations higher over time.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Determining algorithm is did you give me cash? If so, then why? Did you ask for cash? If so, then sell. That actually can diversify a market. It creates a different mechanism and it can actually lower volatility. And candidly, I think we saw that. Up to a certain point of market share, around 25% market share, it actually turns out perversely that passive is beneficial to the market. It's once you go past that point that it starts contributing to higher volatility, much higher correlations, and the risk of severe left-tail events, which brings us full circle back to the XIV type dynamics.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“The ability to arbitrage your individual tax positions falls way outside the dynamics of market efficiency, right? Every individual is going to have their own components. We could get into tons of conversations around exactly that issue. And that actually almost perfectly fits with what the critical point that I would make is it's not so much that passive itself is a terrible.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“To put it, what it's doing is it's seeking diversification, right? So it really doesn't, what you're doing is you're taking heavily appreciated individual positions and you're then diversifying it into a market exposure. That's exactly right.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, it is a very long question with a lot of different components to it. First, direct indexing is almost by definition always going to be relatively small. It's a tax arbitrage strategy. It requires people to start with a lot and then try to maintain most of it, right? And so the return differentials that you're quoting there are obviously a tax advantaged return differential. It's not the absolute levels of performance. That's right. Understand.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Right, so there's been about $40 billion worth of inflows against a Bitcoin valuation or a market cap of Bitcoin going into it of about $400 billion. And it costs a 65% appreciation. So $40 billion. It's nonlinear. Yeah, that's fair, right? Same thing's true on Tesla, right? Everything happens at the margin. By the way, why did Amazon sell off so firmly over the past couple of years as well?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“It wasn't even just owned the EV space. So, first of all, I actually agree with you, and I think most fundamental managers would agree with you that Tesla was overvalued. But the simple reality is overvaluation doesn't actually affect anything. What affects things is people actually executing trades. So, how much did Elon say?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So why did Tesla go down over that time period in which he was acquiring Twitter? Because he had to sell a ton of Tesla shares.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it actually technically was a very systematic decision, right? And so we actually, Tesla was a fascinating example on this because we actually had received a lot of speculation around it. The rules for inclusion in the S&P 500 are pretty straightforward. You need to be of sufficient size and you need to have at least five consecutive quarters of profitability. So once Tesla began actually reporting profits and then moving towards that fifth quarter, it became very clear that on a pure size basis they were going to be the next player to be included. And the size that they were going to be included in was going to require an insane amount of passive buying.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“They're also an active. Which actually is a decision process as an algorithm? Sure, of course. Right. Right. I did a comment.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“With the offset being that the mutual fund and hedge fund spaces are much smaller. So, what you've actually had is a net decrease in the quantity of active, but it's instructive that everybody points out like, oh, look how robust the space is and how wonderful it is, right? The simple reality is that nobody can actually afford to acknowledge many of the concerns that I'm highlighting. It's really very straightforward. There is no such thing as passive investing.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Not at all. So there's a lot of highlight around the growth of active ETS, for example. They're about 25%. They become huge, right? And they're capturing.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Normalization, et cetera. All of those are done in the facilitation of that end of day market on close imbalance that's tied to the mutual fund, ETF orders, et cetera.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, if it were a stable situation, absolutely the case. The problem is that when you talk about going from 30% to 35% to 40%, what you actually have is the scenario that we have in markets today where more than 100% of the flows, which is actually what determines the majority of transaction activity, is passive in its construction. Again, the active space is losing assets. It's seeing net redemptions. The passive space is actually receiving more than 100% of the inflows. And if you go back and you think about the dynamics of Andrew Lowe stating 90% or John Bogle himself highlighting that between 80 and 90%, markets begin to break down, it's important to recognize that 90% of the trading activity no longer has a fundamental component to it. That's actually research that was done by JPMorgan as of 2017. All the components that you're talking about, the arbitrage,”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“That's the quick answer in terms of how much is passive. But remember, passive actually got started even before Bogle, it got started in the institutional space. It was Wells Fargo that was the first in the passive space. And so it actually turns out that away from the retail space, passive is even larger in the institutional space. And that's the area under the iceberg that you're missing. Right, so Marco Salmon and Alex Cinko's work focused on exactly that they went and they did an actual experiment where they tracked what fraction of shares had to trade in response to an index rebalancing. And the answer is around 40%.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“It is very much overstated. So it actually turns out that the statistics that people are using for that is very quickly the mutual fund or 40-act industry is about 35% of the equity market in total, a little bit more than half of that, as you're pointing out, is passive in its structure. And so we can multiply points. Let's round that up to 20%. 20%, right?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“But they had done their scaling of the impact by looking at it and saying the share of passive is 15%, roughly what Eric was working off of. Right.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's actually exactly the point that I would emphasize, which is that we have allowed the industry to change so dramatically from that thought experiment of Grossman Stiglitz in which everybody was roughly the same size, Merrill was bigger, but it was a whole bunch of individual brokers who were able to do whatever they individually wanted to, right? Now what you've effectively done is you've created an industry that like so many other industries has become remarkably concentrated. And so one of the ironies is when Eric is talking about passive share, the way that that calculation is done is simply by adding up Vanguard, BlackRock, etc. Now that actually was the focus of a research piece that I actually inspired. I challenged two Harvard professors, actually a Harvard professor and a PhD candidate, Alex Cinko was the PhD candidate. Marco Salmon was the Harvard professor.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Are affecting things like the CPI numbers that we see where securities lending is actually what's paying for Vanguard, right? Meaning people want to short.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I know. So there's a whole bunch of different components to what you hit on. The first is this idea of cost savings associated with Vanguard. First of all, I absolutely agree with Eric's analysis that the low cost introduction, the introduction of the mutual structure was absolutely part of the success of Vanguard and the push towards lower fees has been absolutely critical. But remember, the vast majority of the time that Vanguard was actually running, 50 basis points would have been considered really cheap fees. Right, that's right. And initially introduced, I believe the fees on the Vanguard funds were about 75 basis points, 0.75% as compared to most active managers who are between 1.5% and 2%. So that pulling down was absolutely critical. Today you're at a point where the three basis point candidly, it just doesn't mean it's free. It's free. It's a fractally free. And one of the reasons that it's able to be effectively free is because there are hidden subsidies within the industry, which I”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Those actually ironically are the most passively held. And the reason that they're actually the most passively held is precisely this issue of concentration risk. Most active managers can't hold those names in the size that's required. If I'm a small cap manager or I'm a diversified fund manager, I typically have to run with 100 names in my portfolio. 100 names in my portfolio to be equal weight to Apple, for example, in the index, it'd have to far outweigh everything else in my portfolio. I offer as an active manager typically very little value added to the insights on something like Apple. And so the institutional space or most asset selectors, asset allocators, are going to look for managers that are trying to add value. Otherwise, why not just bypassive? Why not go with a low cost solution?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So there's two separate components to it. One is that, again, the issue is how you're defining the passively held. So if by definition I've already gravitated to saying the least passively held are the Microsoft Apples, et cetera, of the world, I'm going to come to that conclusion. But the unfortunate answer”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Pretty close So, just very quickly, that is actually what Eric is picking up. And I would argue that those are not actually what we're talking about when we talk about passive, precisely the definition you and I were talking about. If you're a passive or systematic index investor, you're not saying, well, I'm going to overweight energy. I'm going to allocate to an individual industry. And so to turn around and then say that those stocks that are most passively owned don't exhibit this type of behavior is to confuse those two dynamics.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“They are too concentrated relative to that. They've been given dispensation by regulators because they're index investors. And this is where the analysis that Eric was highlighting is flawed. Because what's actually happening when you see the high levels of index ownership for an individual name, what's happening is that you're picking up a sector fund, for example. This is very notorious in REITs. It's also very clear in things like a technology index, the XLK, for example, or the XLE in the energy space. XLE is, I believe, 40% ExxonMobil, 40% Chevron, right? Nobody can actually run an active portfolio that looks anything remotely like they...”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So 10 to 15 years ago, they changed to market cap weighted to float adjusted weights. I think that's what you were referring to. But actually, interestingly enough, this is part of the dynamic and more regulation plays a role. Entities like the S&P 500 growth fund are far more concentrated than is legally allowed by the 40 Act by which they're governed.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“You are absolutely correct that there is representation of Apple or Microsoft, but that actually hits on a slightly different component, which is if you are going to compete with the S&P 500, Paradoxically, you do have to own those names. You don't have to own Delta Airlines. Nobody cares, right? But you do have to have exposure to the Apple's, Microsofts, et cetera, the world. But almost no active manager can carry them in the size that a passive vehicle can because of concentration.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So it actually turns out that the active managers, and this is almost exactly why we see some of the dynamics we talk about, active managers skew towards smaller stocks simply by definition, right? The Russell 2000 has 2,000 out of the roughly 3,500 stocks available, publicly traded. It's about 4% of the total market cap. So somebody has to actually go out and known that. We know it's not Vanguard. We know it's not BlackRock. They're not owning it in any different proportion or any meaningfully different proportion to what they're owning everything else through a total market type index. There are some wrinkles around that, but in rough terms, that's the case.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So it'd be nice if that was the case. Unfortunately, the analysis was deeply flawed. I pointed this out in response to Eric. What you discover if you actually dig into that analysis is that the least passively owned stocks are the Apples, Microsoft, NVIDIA's, et cetera, of the world, the largest company.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So that's actually exactly what isn't the case. So, what's actually happening is we're giving more and more of a vote to somebody who doesn't care. As a result, Vanguard and BlackRock, because of their daily transactions, the size of those transactions has gotten to the point, even though they're not actively trading on a day-to-day basis, that relentless bid that your partner refers to is actually changing the structure of the market. It's changing that price behavior. It's the same thing as if we went to the county fair and they said everybody guesses, and then the mayor gets to guess 10,000 times. Whose vote's going to count”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“The problem is that model, the wisdom of crowds actually requires everybody to have what's called equal endowment or the same number of votes. And that's actually what Grossman Stiglitz relies on as well, is the idea that the wisdom of crowds is caused by the dynamic of each individual making those choices and the market in its totality being able to guide towards that. And so that incentive where prices get pushed off, if I'm the same size and I have the same number of votes as everybody else, I can guide the market back to that. That's the opportunity set.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“The problem again goes into the details of the assumption of the model. So really what Grossman Stiglitz is all about is the wisdom of crowds. You're familiar with the micro Mobison examples of these or the articulation that we're all familiar with. You go to the county fair. There's a giant jar of jelly beans and you're supposed to guess how many jelly beans there are in there, right? Any individual has a very low probability of success. But when we aggregate all the guesses and we take the mean of that, it tends to be pretty darn close to that answer. And that's composed of Absolute nerds like me who are like, Well, what's the diameter? And how big is a jelly bean and all that sort of stuff, right? And people who are making just total wild guesses, right?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, I'm really glad you asked me that question because this is the traditional model and the way that people think about it. And it's exactly what I focused on with David. The immediate reaction to the idea of the growth of this non-thoughtful entity, passive, right, makes it seem like those who are thoughtful should have an advantage. The problem is in the theories that lead you to that articulation. So what you're referring to is broadly called the Grossman Stiglitz paradox, the dynamic that the more people choose not to put in effort into the market and divining prices, the greater the incentive and the opportunity set is for those who are choosing to put that into the market. It's what they call the impossibility of perfectly efficient markets.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, this is actually the core of the issue, and it's part of the reason why I spend so much time talking about it. It's part of what I made David aware of in that conversation to go back to it, is there's very little, the individual or the individual RIA can do to change this. This is a regulatory framework, and it is controlled by the Vanguards and BlackRocks who are spending far more on lobbying than the rest of the industry combined. So part of what's really happening is the political choice to push you into these vehicles, the political choice to make it the only acceptable alternative under the rubric of offering safe, low-cost investments to people is totally understandable. We all want that desire. Certainly that's your desire as well. I mean, is it?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“Quick answer is you shouldn't. And that's actually a part of the problem, is that the individual choice should be to bypassive. The problem is when all of the individuals bypassive, we actually change the structure of the market. And so it no longer represents what it historically did.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“100%. And that actually is exactly what we see. So it's also a very bifurcated experience where those who were older and who already defaulted into 401k plans and made the choice to go into those 401k plans, they typically would choose from a universe of active managers, right? That's the world that largely existed prior to 2006. The passive share at that point was still quite low. When I entered the industry when I first started cutting my teeth on this stuff, it's hard for people to remember, but Passive was still roughly 1% market share in 1992.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the qualified default investment alternative, if you're going to default somebody into participating, you no longer leave it up to them to say, hey, what do you want to buy? You actually have to select something that you're going to put them into. And so the pension protection act also introduced this idea of qualified default investment alternatives that provided a liability protected mechanism for HR managers or CFOs to declare this is where we're going to default people into. Initially, those were balanced funds, so this is part of the key growth of PIMCO, which had skill set in both equities and fixed income. So the growth of balanced funds was a really key characteristic of that 2006 to 2012 market. And then in 2012, they changed the QDIA to what's called a target date fund, which is what about 85% of Americans now default into in their retirement assets.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“100% the nudge dynamics and trying to create the ownership economy and those have been on net quite positive components to them but they have meaningfully changed the structure of how flows enter the market”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“The second tool that was introduced was the 401k, which refers to a specific provision of the tax code. That created the defined contribution, right? If you launch yourself all the way back to 1981 and the start of the bull market, 1982, the start of the bull market in U.S. equities following the election of Reagan, the total assets in those two were about $100 billion in each, right? Today, IRAs, I believe, are around $17 trillion and 401ks are somewhere in the neighborhood of $8 to $9 trillion. These are the single largest pools of assets on the planet is the American retirement system. There is a subsequent change in 2006 called the Pension Protection Act that one tried to push more and more people into 401ks by making it what's called an opt-out framework as compared to an opt-in.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“It kind of came to grips with that. Yeah, I mean, so just very quickly, IRAs were actually created in 1972 to facilitate a key risk that nobody had ever imagined before, which is if you were a union employee who was fired in the 1971 recession and you received a lump sum settlement of your pension, you suddenly that was treated as earned income in that year, you were subject to the 75% marginal tax rate. It was absolutely insane and devastating to many individuals. And so the IRA was created to facilitate the rollover of those on a tax-deferred basis so that you could maintain those assets even if you lost your job, right?”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source
“So, the key risk ultimately lies in that very simple language, right? Did you give me cash if so, then buy? Did you ask for cash if so, then sell? And I just want to pause for a second and go through a little bit of financial history here, because I think it's really important for people to understand this. Things that we think of as having always been there, things like 401ks and IRAs, are actually very recent inventions, and there have been dramatic changes around their implementation within your investment career and my investment career, which are roughly similar in duration.”
2024-08-15 · Masters in Business · Mike Green on Why Passive Investing Is Hurting Market Structure · IDENTIFIED FROM THE TRANSCRIPT · source