I just wanted to share some of my weekend reading on the impact private equity markets, index investing and HFT are having on the public equity markets. The net impact of many recent trends are clear - higher correlations across stocks, overvaluation of e.g. S&P 500 stocks due to indexing, the difficulty for active managers to outperform, risk on/risk off trading and so on.
At some point I'll put together a more structured piece on the topic but before I do I just wanted to ask if anyone else had any good reading material on the matter. If you do let me know in the comments below.
The general thesis is that stock markets are increasingly being viewed as 'dumb money' by the smart money on the side... used to 'exit' investments by private equity / VCs (rather than to raise money), or scalped daily by smart hedge funds / high frequency traders. The question is - is there anything left on the table for investors in funds? - and the ultimate question - if you do invest in equities what's the smart way to do it ?
A few links.
IPOs & Equity financing
I wrote about this last week but there are some great articles around the web on the same subject.
- Felix Salmon on How the IPO Market is Broken
- Felix Salmon (Wired) - for high tech companies going public sucks
- Business Insider - The Way Companies are Getting Financed is Completely Changing
- Neil Collins - FT 26th May (offline only?) "Oh no! those greedy banks have done for our IPOs"
Index & ETF Investing
There are lots of fantastic articles at psyfitec.com and alphaville and I could list many but the best on the index investing bubble is here - Hubble, Bubble, Index Trouble
FT Alphaville and Zero Hedge are among the champions of exposing high frequency trading and its impacts. But a brief summary of the implications for the layman can be found at The Reformed Broker.
Any thoughts / links appreciated.Follow edcroft on Twitter