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13-10-2015, 11:05 PM
The ETF debate and its growth reminds me of the growth and popularization of portfolio insurance in the 1980s, which accumulated into 1 of the reasons causing 1987 Black Monday. In those times, i read that portfolio insurance (short sell index futures) was heralded as the tool that would hedge away all the risks in one's portfolio. It works well on paper, but not in reality when all correlations to go 1.
Historically, most financial innovations tend to be one of the triggering mechanism that (on hindsight) contributes to the market getting instable and causing a crash - (1) Portfolio insurance was invented in 1970s and blew up in 1987, (2) Securitization started in the 1980s and accumulated in GFC2008. (3) Even when the first bonds were invented by nations like England/France to fund wars, debtor nations simply defaulted or either print more $ when they couldnt afford to pay up (and creditors couldn't enforce payment)
I am going to bet a dollar that ETF will be 1 of the contributions to a future market instability event. But exactly how and when, i will have to sit tight, watch and learn.
Historically, most financial innovations tend to be one of the triggering mechanism that (on hindsight) contributes to the market getting instable and causing a crash - (1) Portfolio insurance was invented in 1970s and blew up in 1987, (2) Securitization started in the 1980s and accumulated in GFC2008. (3) Even when the first bonds were invented by nations like England/France to fund wars, debtor nations simply defaulted or either print more $ when they couldnt afford to pay up (and creditors couldn't enforce payment)
I am going to bet a dollar that ETF will be 1 of the contributions to a future market instability event. But exactly how and when, i will have to sit tight, watch and learn.
I am not a certified financial advisor and so nothing of what I say should be construed as financial advice. Please consult a certified financial advisor for advice instead.