I always thought that the role of the stock market is the collective intelligence of a large pool of investors, that allocates resources to the most effective or highest performing businesses. Index investing is a blunt instrument that does not allow investors to resource-allocate on the fine-grained individual business level. In the best case, it's more like the Soviet central planning, where a handful of people selecting which stocks comprise an index do most of the financial planning. In the worst case, it causes bubbles- the only decision power there is buy/sell , the detailed microeconomic information about individual businesses is almost irrelevant to the investors.
This is far more applicable to traditional, actively-managed mutual funds than it is to index investing. In a mutual fund a handful of people select the stocks to invest in and do so arbitrarily. Sometimes there are specific goals or sectors in mind but other times it is just to chase performance.
In an index the goal is to buy everything of a kind: all of the stocks in the S&P500 or all of the stocks listed on the NASDAQ. A handful of people aren't arbitrarily deciding which of the 500 biggest companies are.
The goal of the index investor is to get average performance - active traders can worry about the microeconomics. If too many people index invest then there will be huge market inefficiencies for active traders to make money on, which will attract more traders to the market, which will make the market more efficient.
There's no such thing as collective intelligence, although the Soviet system is the specific system that professed collectivism to be the ideal.
There is only individual intelligence, which can act with other individuals. That is, there are only individual investors - actors - whether we're talking about retail or hedge funds or even AI bots. There's no seven million headed investor automagically sharing a brain and its accumulated wisdom. The point being, each investor that is acting on the market, is acting from different conclusions (even off of exactly the same data), with different intent, and with different capability of deduction and discipline and implementation and so on.
Most of the professional investors that manage money for others are not very good at generating returns. They tend to be horrible at taking advantage of the vast market inefficiencies that made Warren Buffett and dozens of other famous examples possible. To make matters much worse, said mediocre professional investors then make their money by skimming off the capital they manage. When that's your scenario, index investing will always make sense. The only time it doesn't, is if you possess numerous rare attributes that make it possible to take advantage of the inefficient market, or if you can find a rare someone to trust your money to that can do so.
By "collective intelligence" I meant the net vector of each individual investor's decisions. Maybe not the best choice of words. In the case of index funds, those individual decision vectors are pre-alligned by the "central planners" who compose indices from individual stocks.
This fallacy is discussed in detail in the article. Indexing (provided it is below 100%) does not increase the noise of prices, since the universe of active and passive investors are not trading with each other (except for some edge cases which are not significant). This means that increasing in indexing does not necessarily harm the resource allocation service provided by investors, until everything becomes really weird close to 100% passive indexing.
Clearly at 0.0001% indexing is negligible, and at 100% there's no longer an effective stock market allocating resources based on microeconomics indicators. But what is the critical threshold of indexing that interferes with efficient resource allocation? 99%, 50%, 3%?
If you can accurately show it's interfering with resource allocation, you can make a huge huge profit by buying under valued stocks, and rebalance the market.
It never needs to get rational to profit off its irrationality. Any company I can buy on the cheap because the market is irrational is all good by me; I still have voting rights and dividends.
Bogle has gone on record [1] that he's comfortable as long as indexing doesn't account for 75%+ of the market (I suspect he means 75%+ of market-wide AUM, but interpretation of "the market" can vary between people, like total daily trading volume or total daily trading buys, YMMV).
~99%. Critically, prices change as a result of any imbalance in supply and demand for stocks.
Also of note index funds do have feedback loops as they try to retain a balanced portfolio. If company A is worth 1 billion and company B is worth 2 billion yet they have equal dollar investments in both, then they sell some of A to buy some of B. This greatly magnifies the impact of active traders in a 99% ownership situation.
> ~99%. Critically, prices change as a result of any imbalance in supply and demand for stocks.
> If company A is worth 1 billion and company B is worth 2 billion yet they have equal investments in both, then they sell some of A to buy some of B.
This is a paradox -- both of these are examples of market movements which require the percentage of stocks held outside of index funds be equal to or greater than the volume required for the price movement. The critical point is much lower, and as more people buy into index funds, the active traders make more money rebalancing and therefore are able to increase their own positions, providing negative feedback and preventing the index fund ownership from rising more. I don't know what the asymptote is, but I suspect it's closer to or equal to 50%.
Another way to think of it is that markets would be incredibly illiquid with 99% index fund ownership -- that's not much ownership for market makers, but their profits would be tremendous due to the thin order books, driving in more market makers and thereby increasing their market share until it's no longer easy money.
Edit: Put more simply if one fund owned 99% of every stock it would not buy or sell in response to price changes. So, if an active trader wants to buy or sell they would need to find another active trader to act as a counter party. This would then move the stock price.
My point about ownership percentage was simply that passive traders and active traders only interact when the total amount of stock changes. But, passive traders are simply speeking a fixed ownership percentage which means they don't change the final price only the active traders who must end up with that same 1% based on price movements.
That is not generally the case. Most index funds are 'market cap weighted' which means that hold funds in ratio to their market capitalization. If stock A doubles in price, it's market cap also doubles and the index fund will continue to hold the same number of shares.
Stock buyback's are one example, but companies can also issue/aka create new stock from thin air and sell it. Though clearly less extreme than I was describing, the forces are similar.
if indexing ever does make the market inefficient, active trading will become more and more profitable. And in turn more money will go into active management.
For me, the most interesting observation in the article is that poor active returns are a sign of market efficiency.
I've been thinking the same. Are there any consumer-oriented products that lets you pick your own index?
As in: you select the stocks and their proportion and supply the money/demand money out, and stocks are then bought/sold automatically?
Say I want to follow index X, but I don't want stocks in oil or coal companies because I believe they're going to die before I need the money out. There doesn't seem to me to be an easy way to build that customized index.
I guess you need a low-fee stock broker and an algorithm that's aware of the fees for this to not end up drowning in fees.
That doesn't really work very easily. Index funds can operate the way they do because a lot of people buy into the same fund.
When you buy and sell shares in the "real" market, you do so in whole numbers. If you're going to construct an index fund just for you, the smallest amount of any stock you can buy is 1, so you'd need an enormous capital investment: if you want e.g. 1% of your fund to be Google (currently trading at $934), and assuming all the share prices work out just right -- in practice, they won't -- your smallest unit of investment would be $93,400.
In practice, the closest approximation of what you describe is just having a passive portfolio: pick a bunch of stocks, buy them, and then don't look at them again.
1) Buy all the sector ETFs (XLY, XLP, XLF, XLV, XLI, XLB, XLRE, XLK, XLU) except for the energy sector (XLE)
2) Buy the SPY, short sell XLE.
Different tickers apply for iShares, or other indicies / sectors, but you get the idea - it's easy enough to focus on specific sectors using a mixture of ETFs.
How are they sustaining that free trading? If it's on VC money, then I worry what exactly happens to shares if the firm shuts down. Who is actually holding the shares becomes a critical question in that circumstance.
Edit: I see a $110M Series C in April '17 reported for Robinhood.
Except for margin trading, robinhood is a great deal. Many of these regular discount brokers are committing high way robbery in terms of the fees. TC Ameritrade is the worst in this regard. I hope robbinhood puts them out of business or at least takes away a large chunk of their market share.
It does sound fun, but apparently I'm still in the wrong country for Robinhood. And to be honest, in this case I would trade some fun for something with a GUI. :)
Secondary markets have little or nothing to do with resource allocation.
The business actually has little need to get involved at all in its stock market listing if it is just getting on with its business.
It's only when you start using shares as currency to buy other things (whether manpower or other companies) that secondary listings and the ability to swap them into cash starts to matter.
There's a fairly reasonably argument that a stock market in its modern construction is actually more of a hindrance to genuine equity investment and it shouldn't exist. Then those investing in equity have to look at the ability of the company to generate an income rather than sell itself to the greater fool.
Companies don't get the money, so you're not really investing in the company directly unless you on the primary market (e.g., pre-IPO). You buying stock on a secondary market doesn't give the company more capital to work with.
The primary market works in part because there is a secondary market. It would be a lot harder to raise the initial capital if the initial investors wouldn't have the prospect of unloading their shares to the public. That doesn't mean I buy into the myth of the stock market as an efficient allocator of capital, though. For one, it isn't efficient. For another, if you look at e.g. AAPL a huge amount of capital is sunk into the stock, while the company doesn't know what to do with all the money it is generating.
Post-IPO, companies can also raise additional capital by issuing more shares (either to the public or by e.g. issuing RSUs to employees). Only in those cases is the stock price relevant. Otherwise, the market can be mispricing a stock without any bearing on the functioning of the company.
'It would be a lot harder to raise the initial capital if the initial investors wouldn't have the prospect of unloading their shares to the public."
It wouldn't, because there isn't anything else they can do with the capital other than sit on it in a bank and get no return.
The myth that the stock market is relevant is put about by people who work in stock markets. Much like share buy-backs are the same as dividend payments. Exactly how giving the company's money to people who want to stop investing in the company is the same as giving it to those that do is a triumph of using dodgy maths and statistics to fool people.
Yes. But isn't the IPO most often represent the biggest capital inflow of a company's life typically? How would any post-IPO debt issuance or sales of stock compare to the cash generated from the IPO.
That's not directly tied to their stock price though. Apple could suffer a corporate scandal tomorrow and their stock price could fall 20% and revenues could be largely unaffected.
I just don't follow the reasoning that stock price enables resource allocation.
It doesn't; you're exactly right. It's something people who hold for value (i.e. baseball cards or tulips) rather than for income (i.e. dividends, or what people used to hold stocks for for centuries) tell themselves.
Companies can issue bonds if they want to raise large amounts of capital. Those are traded on a different market and are fundamentally different than stocks. They are debt instruments, not ownership.
actually the stock market and other investment markets (and credit markets) serve to offset the effect of money-saving on the cyclical flow of money through the economy. if people saved a lot of money and saved it all in cash, there would be less money available in the product market and would result in a downward spiral of high prices and low employment. the stock market solves this problem by re-injecting saved money as investment into the pockets of companies. please be aware that i am new to economics so i may be mistaken.
It depends on how they saved it. If people put it under their mattress it would be a problem. If they keep it in a bank (which offers an interest rate) the bank can loan that money out again, which massively increases the money supply. The stock market is a far smaller market compared to credit and loan markets.
I agree with this as a principal. There was even some good commentary a while ago when an article about all the money flowing into Vanguard https://news.ycombinator.com/item?id=14145308. A market with no active players defeats the efficient market idea. There should be some sort inflection point where the index fund critical mass is, but I don't think we've had this sort of situation in a modern economy before.
While this is true, there is a lot of value in individual investors investing in index funds, and their performance has borne that out. I don't think that individual investment is going anywhere any time soon. For an investment product that is stable and has more distributed risk, however, index investment can't really be beaten, or rather it hasn't been beaten yet.
It's chicken or egg: index funds are successful because people invest in index funds, therefore index funds are...
There will be an inflection point where stocks in indexes are so overvalued that enough active investors (and passive defectors) cause a rebalancing. If they're overvalued enough, and enough of the general market participates in them, index funds could easily crash.
Apps like Robinhood are making active investing much more feasible for your average Main Street person. I certainly am not counting on the continued blind investment in index funds.
Free riders. And there's good reason to believe that the future of investment will not have a group of corporate governors to free ride off of going forward.
Somewhat tangential - how exactly me buying, let's say, stock of AMZN, puts value where it is most effective way (in the pocket of another AMZN stock seller, and not AMZN itself)?
You buying stock constitutes market liquidity. Market liquidity allows companies to do follow-on offerings, buybacks, and preferential rate debt financing (often with stock option collateral) at their leisure. It also allows companies to compensate their employees in stock options - I don't know the best financial term for this, but it creates employee goodwill. Companies periodically restructure their stock option pools (in almost the same dilutive manner as follow-on offerings) so they can continue to offer employees more stock options.
I think a way to look at it is what earnings multiples companies trade at signals to companies how much money they can raise in an IPO or follow on equity issues.
For example, if Boeing is trading at 5X EBITDA then it signals to other aerospace and defense companies that they can expect to raise capital at a similar multiple.
It's indirect, but it still provides a service: creating a predictable, liquid securities market which firms can use to raise capital.
So if I invest in Facebook now, I'm helping them by making it easier for them to raise money several years ago? In some kind of weird acausal way, because people then anticipated my actions now?
> In some kind of weird acausal way, because people then anticipated my actions now?
They didn't anticipate _your individual_ actions, but it's highly likely that the persons that bought into Facebook's IPO did expect that they would be able to sell the stock to _someone_ at a later date.
So, yes, people anticipated your actions now (if you look at _your_ actions as the general actions of the crowd, instead of your individual actions)
If you invest in a stock with the intention of selling it later, rather than holding it forever to earn the dividends, your decision was motivated by the expectation that there will be a market for it in the future.
By buying Facebook stock now, you're fulfilling that expectation of earlier investors, which motivated them to provide Facebook's initial funds.
Not quite. At the bare minimum, the existence of markets and liquidity they provide is of tremendous value. Otherwise, how would those large corporations be able to acquire capital in the first place?
There's always the bond market - loans, effectively. They could also sell non-transferable ownership; effectively a stock that couldn't be sold on. You get dividends and a say in how the company is run. That would drive stockholders to seek long-term sustainable profits rather than share price spikes, which sounds like a pretty good thing.
Yes and no, you buying the stock on the stock market does not give your money to the business.
Liquidity along with higher prices along with improved business metrics, which provide perception and confidence to the market to promote higher prices, are used by the business to obtain cheaper financing and the employees of the business to also obtain access to credit based on their holdings of the stock.
These are colloquially called resources to businesses.
This could not be more wrong and it's discouraging to see it on the front page of HN -- index investing exerts a normalizing pressure on the prices of assets, which is rarely supported by the underlying values of the companies.
This is unlikely to be a popular opinion amongst passive investors, but day traders and market makers are responsible for making economies for efficient and providing price discovery (if they make profits) by reducing the spread and reducing volatility. Traders who lose money have the opposite effect -- they make assets more volatile by pushing up tops and pushing down bottoms.
Active long term value investors also contribute to positive price discovery and reduce volatility (if they make money) for the same reasons, but on a different time scale.
Passive investors were not going to make the market more efficient anyway since they are not informative. They carry only one piece of information which is that they have some money to invest into the economy and would be okay to take some risk, and they express that well enough through a passive financial product reproducing what the financial industry itself calls the "market returns." They of course do care to make some money; nobody is in it to lose money, so how are they making the market less efficient? It's not that different from saving the money in a bank for the bank to allocate.
Now, if the passive investment flow comes to dominate volume on any given day, then the "marginal" trade becomes a passive, uninformative one; then we have a problem.
They aren't making the market less efficient, because index funds create value for many people for the reasons you described. The market inefficiency is easily corrected by day traders and market makers.
I'm just saying that index funds do not make markets and economies more efficient, as the article claims, so if we had a 99% ownership tied up in index funds scenario, markets would indeed be far less liquid and more volatile.
> I'm not surprised everybody is missing the biggest advantage of index investing
This isn't about whether index investing is a good strategy for many people, especially those with low-moderate risk appetites and no time/expertise for active investing or trading.
It's about whether or not index investing makes markets and economies more efficient (which the article erroneously claims). I claim they have the opposite effect, but they create value in and of themselves that counteracts that distortion to the benefit of index fund users (and to the benefit of traders who arbitrage the distortion).
For one thing: as soon as the price of an asset drops far enough in the active market, all those people in the passive market holding the stock are going transition from "passive" to "active" in a hurry. So that breaks the assumption set right there: passive stocks are never truly passive.
What do you mean? An ETF tracking the S&P 500, for example, is not going to sell a stock no matter how much does it drop (until it gets excluded from the index, of course).
That's just not true. If I see that one of my stocks has just dropped by a huge amount that doesn't mean that it's going to carry on dropping. There's no "momentum" (at least on a short timescale).
fallingfrog: I'm downvoting you because you clearly read only the very beginning of the OP, which goes on to address all these points head-on later on in the text. Please refrain from criticizing OP's without fully reading them!
How far did you read? The author is starting from a basic state and working up from that with simple examples. Approximately halfway down the article starts considering "The Impact of Net Fund Flows".
Such a blanket statement. I could be selling people's thumbs and toes out of my basement as part of an index fund. Not that I know anything about what it requires to become an indexed fund, but I am fairly certain there is no ethical or moral obligation to benefit the world or humanity.
The OP defines an "efficient" market as one in which active investors cannot consistently outperform the average by selectively picking individual securities. In this regard, the OP is absolutely right that index investing is making markets "efficient," because active and passive managers, when considered as two distinct aggregate groups, must necessarily earn the same average return before fees, expenses, and frictional costs.
HOWEVER, that doesn't necessarily mean the growth of index investing makes markets more accurate at pricing securities.
There's NO evidence of that.
Maybe the growth of index investing is doing the opposite: making markets LESS ACCURATE at pricing securities.
Indeed, by many measures, US stock prices are looking positively FROTHY these days.[1][2][3]
Pricing is more accurate when it's closer to the net present value of the profits that could be taken out of the business by a person "who buys it for keeps," to paraphrase J. M. Keynes.
The more accurate a market is at pricing securities, the less severe the magnitude of bubbles and subsequent crashes. Bubbles are extreme examples of overoptimistic pricing.
To be clear, I do NOT know if index funds are causing pricing to be less, or more, accurate. I don't think anyone else knows either.
That said, it seems to me that (1) the ongoing mass-scale removal of intelligence from the investment process is unlikely to make pricing more accurate, and (2) these days, stock prices are looking frothy by many measures (e.g., Shiller CAPE).
I'm still missing something here. A stock is an instrument of potential income and control, but I've never seen a price that was anywhere close to correlated with that. In fact, if anything there seems to be a discount given to high-dividend stocks (for which I, as an income investor, am grateful to all you baseball card traders that I don't understand).
To put it another way: the actual value of a no-dividend no-vote stock is precisely zero. The price is whatever the buyer and seller agree on, right? So how can one price be more "accurate" than another?
In the event of liquidation, shareholders are on the list of those owed a portion of the proceeds. In fact they are last on the list, after creditors (those who have loaned the company money directly), bondholders (bonds are a form of debt), and holders of preferred stock.
That right is the ultimate determinant of the value of a no-dividend no-vote stock: fractional ownership of the right to proceeds in the event of liquidation, after those above have had theirs.
As a higher-risk asset, it produces greater returns, since otherwise there is an arbitrage: buy bonds issued by the same company instead. This arbitrage lasts until the bond becomes "expensive", and therefore produces worse returns (since its payout is independent of its price).
Economists are always right within their own narrowly-defined models! Yes, if you pre-define a set of securities that you will forever be limited to exclusively trading, and divide two groups into passive (never makes another trade again) and active (makes trades), the two groups will perform equally (excluding fees).
Now, in the real world, there are several significant reasons why that model model offers nothing but a fun little thought experiment.
This does look too contrived to be meaningful, but the author claims that it is an example of a general rule identified by Fama and Sharpe:
"The aggregate performance of the active segment of a market will always equal the aggregate performance of the passive segment." (before frictions like trading costs and taxes are taken out.)
I hope those economists have a more sound basis for this claim than the author gives here - assuming, of course, that the author of this article is not misrepresenting or misinterpreting them. To take an extreme case, if all the passive investment is in a single asset, I don't see how this could be, and an issue with passive index investing is that it is in a limited set of assets.
Ownership seems to get mixed up with efficient capital allocation in a lot of discussions about this (referring to likely comments, not the article). For index investing to work you only need a market that's "efficient enough in aggregate". What you're actually purchasing is ownership of future economic growth.
In principle, the theory behind indexation is very much like the theory of perfect
competition. In perfect competition, the idea is that no participant is sufficiently powerful
or sufficiently large to influence the price of the product. The product is assumed to be
homogeneous, and shares are designed to be homogeneous. In the theory of market
efficiency, no one has an information advantage over anyone else, and there is always
enough liquidity. It seems reasonable to make those assumptions. Yet, it is worth making
some observations about them.
I think the main reason someone chooses to invest money into index funds is either they just want stable returns without too much hassle, or they believe in efficient market theory that basically states that you can't beat the market, so no point in even trying(and that's true for most of the mutual funds). But looking at value investors, it seems you can consistently beat the market.
Also, what bothers me about indexing, is that a lot of money is going into same companies(S&P500). Look at any S&P500 companies Top Institutional Holders and without a doubt Vanguard is on top(wild guess). Not sure what happens with the price, when company is excluded from S&P500.
In conclusion, indexing is fun in the bull market, it's just you can't retire in the recession years.
This assumption that passive investors have no cash inflows / outflows totally breaks his model. As soon as passive investors start buying or selling the index -- a real world necessity -- they are playing a zero sum game against a counterparty. Specifically, active investors could sell overpriced stocks to indexers and buy underpriced stocks from indexers, which in turn drives the price discovery. This churn allows for active investors, as a group, to gain alpha at the expense of indexers.
Piggybacking off the article's example: Suppose news breaks that Facebook has made a catastrophic legal error which will result in them losing 50% of their revenue over the next year. This is obvious to the active investors who collectively decide to sell their Facebook shares, resulting in a fall in the total value of the index equal to the drop in value for Facebook. In the time it takes the old pre-news price to drop to the new post-news price, active investors have, on net, sold Facebook and gone to cash and will have shared in a relatively small portion of the crash, and passive investors will have bought Facebook due to churn, or held Facebook as part of the index, resulting in them absorbing a larger portion of the crash than active investors.
So how does this all fit into the "active managers don't earn their keep" narrative? I think what we've seen is a long term drop in the alpha available to the active share due to things like narrowing spreads, faster response to new news, etc. So effectively active management is in a secular decline, which allows for (1) bad results for active managers on net, and (2) failure of poor performers and their removal from the market, and (3) continued real value generation by the better and remaining active managers. So this idea of conservation of alpha is also silliness because the market will always be slightly oversaturated (net negative value for money managers) or undersaturated (net positive value for money managers).
If you doubt this, read Ben Graham's the "Intelligent Investor" -- In 1949 he thought it was quite easy (EASY!) for an average Joe to earn outsized returns with a little stock research (and I think history proved him right until at least the late '70s).
It’s important to remember, here, that secondary market trading and investing is a zero-sum game for the participants. For a given market participant to outperform, some other market participant has to underperform. Obviously, for a market participant with a given level of skill, the ease at which that participant will outperform will be a function of the quantity of unskilled participants that are there for the skilled participant to exploit. To the extent that the prevalence of indexing preferentially reduces that quantity, it makes outperformance more difficult.
That is a myth that refuses to die.
Market makers and liquidity providers enter into neutral trades so it doesn't matter which way the market goes..they make money from the spread and churn. Just because you made $40k from being long Google doesn't mean some schmuck lost $40k.
Eventually, indexing comes around to disrupt the industry. Of the 500,000 individuals that were previously managing funds, 499,500 go out of business, with their customers choosing the passive option instead. The remaining 500–which are the absolute cream of the crop–continue to compete with each other for profit, setting prices for the overall market.
Indexing has been around for a long time now, but active mgmt has had a terrible time and is actually getting worse in recent years, against the author's thesis that passive investing is supposed to create a small pool of 'superstars'.
Some schmuck sort of did. The market makers and liquidity providers are not the source of the sold stock, simply intermediaries.
"is actually getting worse in recent years, against the author's thesis that passive investing is supposed to create a small pool of 'superstars'."
This is a huge point of contention. Capital takes a long time to flow out of mutual and hedge funds which have been underperforming. It could be many years yet before any "superstars" emerge.
I mean as in a P&L statement. If I sold a bitcoin at $1 in 2010 did I lose $4000? no but I may regret it. If someone short sold it, then it would be a $4000 loss.
The core social benefit of financial markets is to get capital to where it can be used most productively. This is why Google could get funding in 1998 and why Venezuela can't today.
The angels / VCs that funded it did so with the knowledge that they'd be able to go public later and get their money back out. If there's no market for selling equity in mature companies, there's less incentive for starting or investing in small / growing companies.
That's a good point. I think efficiency is desired because it usually provides fairness. In an inefficient market, trades are at the "wrong" price, and so that seems unfair. When there is a trade-off between inefficiency and fairness, we seem to prefer fairness (e.g. insider trading laws make the market less efficient but more "fair").
Matt Levine of Bloomberg writes a lot about how insider trading laws seem to be about fairness, but are really about theft of information from the rightful owner. It's hard to square a market centered around fairness with the vast informational and technological advantages that professional traders use legally.
This is dumb, the point of the stock market is the return the stocks give you in dividends etc. Here, he treats those returns as not being a factor, and as stocks having no intrinsic value.
If they have no intrinsic value of course passive management makes sense!
This article is concerned with the average skill of investors, an entirely meaningless metric that determines nothing. The marginal investor determines prices not the mean one.
Investing in index is like subscribing for slavery. It only benefits people with tons of money. Sure, it's less risky. But along with preventing massive downside, it prevents massive upside too. I've just got 1 life, limited time and I want to risk everything for a massive upside, not efficient market.
