Are we the baddies?

It is an allocation to the biggest companies at any time.

ETFs need to rebalance, increase, decrease shares of a given stock and even evict them. Buying shares on SPY exposes you to the current companies but also any companies that will join.

If a company gets evicted, then there is massive drop in their stock pricing as most movement is mechanistic and done by ETFs.

Well massive is relative. For example last week we saw quite the drop in pltr after it was removed from russel2000.

FYI this is not true and has been debunked in newer studies; the reason why it seems true is because companies that enter the SP500 tend to enter it because they're doing well which makes its stock go up. If you control for that factor, presence in the SP500 does not significantly affect the stock price. https://www.newyorkfed.org/medialibrary/media/research/staff...

It’s not about SPY per-se, but about ETFs in general. Addition to spy is likely an addition to many other big volume ETFs. Top stocks also join QQQ which is another highly liquid ETF.

Most market volume according to citi is done by ETFs, approximately 80%.

When said ETFs rebalance at start and end of any particular day, we end up with big movements, much wider than the sideways chop we observe during the day when movement is mostly performed MMs that deal with hedging or dropping options value.

So I don’t think it’s the presence to S&P per se, but presence in big ETFs.

Also that paper is from 2012. Market’s a lot different these days.

To be clear, I am not saying that getting in there implies stock go brr. I am saying that in the context of the whole comment chain, buying spy exposes one to all companies that will enter or be evicted from the ETF, which then theoretically funds the companies which then produce value, which returns back as dividends or growth of stock.

If we look deeper though, buying into ETFs likely means the shares that are exchanged are bought and sold by and to MMs, so a whole lot of value is lost to them.

Hedge Funds call ETFs, pension funds, etc. "dumb money". I suspect they also feed the finance media narrative stating how on average they are not good at trading.

There’s money to be made alright, but I don’t think most retail traders are in the position to do that.

Technical analysis might as well be astrology. It treats tickers as isolated when in reality ETFs and growth of any individual stock in an ETF affects the flow in and out of other ETFs. When ETFs purchase stock due to an increase in value, they seek most liquid constituents first, and eventually rebalance. All these create feedback loops. The flow across the ETFs drives 80% of volume.

People would have higher performance if they learned about any particular sector, its movement and long term trends.

Retail has a lot of flexibility but people focus on trading over days instead of understanding trends and events of tomorrow, next year and the next decade.

Retail options “traders” barely understand the mechanics of at all, let alone the disadvantage they are in. They buy overpriced options with absurd premium that tanks during the chop induced by MMs. They don’t understand how MMs move/manipulate(not in the illegal sense)/shape the market to avoid losing money — they wouldn’t be in this position if they lost money. They just copy trades from traders on discord and hope to make some money.

ETFs are a great way to make money in terms of risk exactly of their rebalancing mechanics.

Everyone doesn’t have to beat the market, just beating inflation and leaving it in the bank is an improvement for the average person. Yes it won’t make people rich tomorrow, but they will be in a better situation next year or the one after than today.

That theory would only be true in a market without shorts and derivatives. In the real world, hedge funds and market makers will sell into those pension funds, as the underlying asset value has not actually changed, counterbalancing the effect.

Generally, I'd be wary of doing theoretical stock analyses like that. They can be true, but if they're this simple they're almost never true in practice, and if they are then someone is already working on making it not true.