Who Should NOT Invest in Total Market Index Funds? Summary

I posted a video on my YouTube channel covering some of the arguments against market cap weighted index investing - basically that all investors are different and while the market portfolio is theoretically optimal for the average investor, investors who are different from average may consider accommodating those differences through their asset allocation decisions.

If an investor is exposed to certain risks outside of their portfolio, like in their job or business, they may want to avoid those risks in their portfolio, while an investor who is not exposed to any risks outside of their portfolio may want to tilt their portfolio toward the risks that most investors want to avoid.

As a supplement to that video, we have put together a handful of clips that reinforce the message. I hope that they are useful.

Timestamps:
0:00 Intro
2:34 John Cochrane on investor heterogeneity (ep 169)
11:48 John Cochrane on value stocks (ep 169)
15:24 Eugene Fama on why the market portfolio is a good starting point, and when investors may deviate from it (ep 200)
19:44 Robert Merton on the ICAPM and deciding which risks matter (ep 234)
30:10 Jonathan Berk on why buying the market hedges against mistakes (ep 220)

[IntegrbyDarts]

The interview with Robert Merton looked like you were using a time machine to talk to someone in the 1990s

[AAkCN]

Love this kind of topic video. Good job and thanks!!!

[paddieland]

I’d like to be an index investor but if you live in Ireland, ETFs are treated differently to shares and taxed at higher rates depending on where the etf is based. So I try to follow a defensive investor strategy that hopefully won’t lag the market to much. So far (3 years) I have out performed but I know this won’t last as I’m an amature against professionals.

[financialchimes]

If the average investor should own the complete market how do I know in what percentages I should own things besides stocks (like bonds, gold, bitcoin). If you just look at the total market caps of bonds, gold & bitcoin compared to the stock market than you and up with a 60% bond allocation. Surely this isn't the optimal portfolio for the average investor. If this truly is the optimal allocation for the average investor, I must have a much higher risk appetite than the average investor.

[Jpsantos]

So 100% VT? how do we make the "market portfolio" ? what weightings?

[NATOnova]

regarding buying total stock market (TSM), it seems as if buying TSM might be a bet against or for certain stocks someone with more information values or devalues. why is this not the case?

[havaneseday]

What kind of headphones do you use for the podcast? Sony?

[jasonjstdr]

I know two guys who invested in their own different companies (UPS & Exxon) and became millionaires.

[jasonjstdr]

I’m a leftist who understands that capitalism can benefit people in general. However, capitalism may also disproportionately benefit some at the expense of others.

[zvxcvxcz]

... this guest has 0 idea about politics, I hope his understanding of economics and finance is better, it does seem like it is. Just goes to show that an expert in one area is not an expert in all. Edit: The first guest that is, John Cochrane, wrote the comment before I knew more people were coming on.