> She might want Coca-Cola to take big risks to crush Pepsi, and invest capital in new products and markets to do so. An investor who holds both, on the other hand, would prefer that Coke and Pepsi avoid price wars.
> So the way we can solve this problem is to outlaw shares ownership of competing companies? Seems like a fair solution.
Nobody cares about Pepsi and Coca-Cola. Coca-Cola and Apple aren't competing, so if Coca-Cola can somehow be in the same index as Apple, and Apple gets 2x the return as Coca-Cola (which it does), which is what really makes the index look good against an average active picker (who doesn't pick Apple), it's a moot point who's allowed to own which shares in competing companies.
There are two real stories about indices. The first is [1] -- sorting the huge individual winners into different indices so that crappy companies, like Comcast and AT&T, can ride up on the demand for the index they are part of. Then there's [2] -- that most demand for individual stocks is the corporations themselves.
When you buy an individual stock versus an index with that stock, you're really making two bets: (1) a bet that there are an excess of individual stock pickers for this stock than for the indices it is part of, and (2) a bet on how much cash a company can get from consumers (even if it is a B2B company) to spend on buybacks in the long term. When you buy the index, you are betting that an industry or corporate class (e.g. large cap companies) are going to sort winners into the index more favorably and claim large amounts of consumer cash from outside that industry / low camp & mid cap stocks. [3]
There are negative trending industries! See S&P Oil and Gas Exploration. The article is talking about Coca-Cola and Pepsi, which do not create new products, they are marketing companies, it isn't about prices at all for them, it is such an utterly dumb example. She should be talking about two fracking companies, whose stock performance is extremely sensitive to oil prices.
The opposite of what the article thinks is happening: people are exiting common ownership of the companies (e.g. the S&P Oil and Gas Exploration index) that, as common owners, they have the most to gain from anti-trust (e.g. agreeing on a price for gas and oil).
> So the way we can solve this problem is to outlaw shares ownership of competing companies? Seems like a fair solution.
Nobody cares about Pepsi and Coca-Cola. Coca-Cola and Apple aren't competing, so if Coca-Cola can somehow be in the same index as Apple, and Apple gets 2x the return as Coca-Cola (which it does), which is what really makes the index look good against an average active picker (who doesn't pick Apple), it's a moot point who's allowed to own which shares in competing companies.
There are two real stories about indices. The first is [1] -- sorting the huge individual winners into different indices so that crappy companies, like Comcast and AT&T, can ride up on the demand for the index they are part of. Then there's [2] -- that most demand for individual stocks is the corporations themselves.
When you buy an individual stock versus an index with that stock, you're really making two bets: (1) a bet that there are an excess of individual stock pickers for this stock than for the indices it is part of, and (2) a bet on how much cash a company can get from consumers (even if it is a B2B company) to spend on buybacks in the long term. When you buy the index, you are betting that an industry or corporate class (e.g. large cap companies) are going to sort winners into the index more favorably and claim large amounts of consumer cash from outside that industry / low camp & mid cap stocks. [3]
There are negative trending industries! See S&P Oil and Gas Exploration. The article is talking about Coca-Cola and Pepsi, which do not create new products, they are marketing companies, it isn't about prices at all for them, it is such an utterly dumb example. She should be talking about two fracking companies, whose stock performance is extremely sensitive to oil prices.
The opposite of what the article thinks is happening: people are exiting common ownership of the companies (e.g. the S&P Oil and Gas Exploration index) that, as common owners, they have the most to gain from anti-trust (e.g. agreeing on a price for gas and oil).
[1] https://en.wikipedia.org/wiki/Communication_services_sector_... [2] https://thesoundingline.com/sp-500-buybacks-now-outpace-all-... [3] there are low and mid cap indices, but nobody ever talks about those outside of trade journals