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Is all the Indexing money making opportunities for stock picking?
Old 01-08-2007, 12:16 PM   #1
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Is all the Indexing money making opportunities for stock picking?

I'm just wondering, with all the money flowing into index funds and ETFs, is it creating opportunities to purchase individual stocks before their insertion into the indices?

For example, you think some stock is about to go into the S&P500, and knowing that tons of mutual funds and ETFs will be forced to purchase it, you buy it in advance and wait for all the buying pressure. And as the pressure pushes it up, you sell.

It seems like the current vogue of indexing and more and more cash sloshing into the market, it might make some good opportunities for the smaller more nimble investor.

Just a thought.
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Re: Is all the Indexing money making opportunities for stock picking?
Old 01-08-2007, 12:23 PM   #2
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Re: Is all the Indexing money making opportunities for stock picking?

Quote:
you think some stock is about to go into the S&P500,
If you knew this as a fact and bought the stock one minute before S&P announced that they were making a change to the index (something that they do from time to time) you could probably make a few bucks.

As has been mentioned her many times, market timing is generally a very risky venture.
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Re: Is all the Indexing money making opportunities for stock picking?
Old 01-08-2007, 12:40 PM   #3
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Re: Is all the Indexing money making opportunities for stock picking?

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Originally Posted by Olav23
For example, you think some stock is about to go into the S&P500, and knowing that tons of mutual funds and ETFs will be forced to purchase it, you buy it in advance and wait for all the buying pressure. And as the pressure pushes it up, you sell.
Sure, it's one of the legal versions of frontrunning.

The problem is that not every index fund announces the stocks to be added (or dropped!) sufficiently far in advance for you to beat the arbs. IIRC Russell used to announce their selections months in advance of adding the stock but even their selections jumped a couple percent within microseconds of the press release.

The reality is that the stocks were probably jumping days before the press release as the news inevitably leaked. Your trick would be to join the club that gets the early news, or to make educated guesses from their index criteria.
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