Are we the baddies?

> If you open a government S&P 500 account for everyone with $1,000 at birth that’ll pay their social security cause it like…goes up…wait who’s creating this value again?

This is a good point. Some VCs were major proponents of this (and tons of other business people I'm sure), but this is of course just a guaranteed inflow into the largest companies and the companies that think they will be large some day. Yet another way to reallocate public cash to private companies.

Another similar example is UBI -- its proof of an economy that is not dynamic. It's a tacit approval and recognition of the fact that "no, you probably won't be able to find a job with dignity that can support you and your family, so the government will pay to make you comfortable while you exist".

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.