Wikipedia:Reference desk/Archives/Humanities/2020 August 8

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August 8

Very large index fund investment

There are a bunch of scandals related to CalPERS, the pension fund for California state employees, with around $400 billion in its portfolio. Most recently its CIO abruptly quit[1] for the proverbial "family reasons" after some credible claims of improprieties. My question: what if they just drop the whole pretense of being active investors, (figuratively) call up e-Trade, and say the want to plop $400B into index funds? Could the funds themselves absorb that large a deposit without becoming distorted? Any other issues? According to the ancient A Random Walk Down Wall Street their expected return should be about as good as anything else you can do, so I've never understood the point of doing anything else if that's your investment goal. Thanks. 2602:24A:DE47:BB20:50DE:F402:42A6:A17D (talk) 01:20, 8 August 2020 (UTC)

I know with insurance companies, by regulation they’re required to keep a certain amount in reserve and uninvested in order to maintain solvency. I believe they’re slow limited in the kinds of investments they can make, like how volatile the investments are or perhaps a minimum market cap before investing, just to ensure the bottom is less likely to fall out from under them in a panic and keep them from, say, dumping everything into Bitcoin. The same is certainly true of pension funds. 199.66.69.67 (talk) 02:22, 8 August 2020 (UTC)

Well, ok, but there is a huge CalPERS investment staff and a ton of intrigue about their steering investment money to their money manager cronies etc. Obviously they have to follow the law, but I'm asking whether they can do that in the rather obvious ways that a regular person with some modest savings could also do, e.g. "talk to Chuck" or use a robo advisor. Apparently Jeffrey Epstein did something like that (pitched himself as a wizard, but actually just parked his clients' billions in a basic mix of index funds rather than crazy gambles like Madoff, so they did fine and never suspected). It makes me think that the "hot shots" are trading on either insider info or dumb luck. I'm not especially smart about this stuff myself though. 2602:24A:DE47:BB20:50DE:F402:42A6:A17D (talk) 04:43, 8 August 2020 (UTC)

I really don’t know. I might not be understanding your question entirely. But for me the key research question would be to look into what the regulations on investment are for pension funds—whether just in California or in general. I suspect, but am not certain, that not only the amount the fund may invest is regulated but the kinds of investments probably are, as well as how they must diversify their investments. The key in regulation of funds is almost always geared towards solvency first, then anything else. Because the main thing the state wants to prevent is the fund from bouncing checks to beneficiaries. The amount of social harm and panic that causes is orders of magnitude worse than a run-of-the-mill clout scandal. 199.66.69.67 (talk) 16:01, 8 August 2020 (UTC)

The amount of money CALPERS has to (and, "must") invest would move markets if it were concentrated in one financial product (say, a tech fund), or even just with one financial adviser. More, concentration raises risks very sharply: imagine a COVID-type event in tech, or a financial adviser named Bernie Madoff. People responsible for other people's retirement funds don't like unnecessary risks. DOR (HK) (talk) 17:11, 9 August 2020 (UTC)

CalPERS itself is an investment fund; there's little need to pay other investment companies like Vanguard money to do what CalPERS can do itself. A mutual fund is just a vehicle for people to pool their money (hence the "mutual" part) and invest. Now, if CalPERS management thought, say, Vanguard was really good at efficiently managing their funds, they could hire Vanguard to manage CalPERS's money for them. They wouldn't go open an account on Vanguard's website and wire in $400 billion.

On a slight tangent, CalPERS can invest in many ways that a standard U.S. mutual fund can't. Stock mutual funds are only legally allowed to "buy and hold" stocks listed on public exchanges. Accredited investors can do lots of other things: borrow money and invest it (buying on margin), short stocks, invest in derivatives and less-liquid things like real estate, etc. Pension funds sometimes just buy companies outright, or take large stakes. --47.146.63.87 (talk) 18:49, 10 August 2020 (UTC)

If you're interested in the performance of "index funds" versus "actively managed investments", you may be interested in SPIVA. It attempts to systemically rate the "actively-managed" sector against the passive "benchmarks" they aspire to beat/outperform.

From the little I've read on the topic, it seems that when dealing with the large cap section of the stock market, very few "active managers" consistantly outperform the index. Large-cap stocks are heavily-researched and heavily-traded, so the end result is a reasonably efficient market. The price is generally a reasonable reflection of the stock's value, and its risk/return potential. Significant "mis-pricing" is rare.

However, when it comes to small cap stocks, the picture can be very different. Small-caps are by nature higher-risk - there is often a lot less known about a small company than a large one. Ergo, good research, and smart stock-picking, can potentially significantly improve investment outcomes.

Unfortunately for big mutual funds, investing in small-caps is not always practical. Given that they have billions to invest, they might as well buy the small-cap firm outright. Some do exactly this. This can have negative side effects; at this point, the fund ceases to be an "investor" in the firm, but is now the full-fledged owner, with all the risks (and rewards) that this entails. Eliyohub (talk) 15:55, 11 August 2020 (UTC)

Why do large stonks sometimes overshoot when they crash? Brief inefficiency? Sagittarian Milky Way (talk) 17:11, 11 August 2020 (UTC)

I don't know for sure, but see our article on Flash crashes for a possible explanation. (People have apparently made millions by fooling high-frequency trading bots, for example). Eliyohub (talk) 17:34, 11 August 2020 (UTC)

cheerleaders in the medical field

I saw this video [2] on YouTube. It made me wonder how many former NBA cheerleaders also now work in the medical field. I need help finding some as part of a project for Inside Edition. If anyone out there could help me, I'd really appreciate it, please. Thank you.142.255.72.126 (talk) 05:44, 8 August 2020 (UTC)

Not the NBA, but this list (of unknown reliability) gives NFL cheerleaders who became doctors. Clarityfiend (talk) 06:32, 8 August 2020 (UTC)