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Discussion Starter #1
Has anyone noticed how all the stocks either go up together or down together? There are a few exceptions when there is really exciting news like drug breakthroughs, companies significantly beating expectations, etc.

It seems all the ETFs that that capture a large grouping of stocks together may be behind this especially if that ETF is traded a lot.

This makes me worry that it is difficult to truly diversify. If all your stocks can be grouped in a single large ETF that some greedy institution has created, then you're not diversified at all.

The only way that i've been able to diversify is by buying Gold (GLD), stocks, bonds, and real estate. Different asset classes

I can't expect to buy a bank stock and a tech stock, or a telecom stock, and resource stock and expect them to move in significantly opposite directions.

Anyone feel the same way?
 

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Buffet said that the stock market is a popularity contest in the short term. In the long term it is a weighing machine. Yes, stocks may seem to move together on any given day, but take a step back. They perform quite differently over longer periods. Compare Empire (EMP.to), the food retailer, to Quandra FNX mining (QUX.to) to see what I mean.
 

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I visualize the stock market as the sea. And stocks as swimmers. If the sea is going out and you had mediocre or poor swimmers, they will be going out with the tide. The strong swimmers will be getting ahead of the tide and get to the shore, albeit at a slower than normal pace. The tide affects how these different swimmers move, they could be propelled forward if the tide suddenly changes or drawn back.

I think the same applies to stocks. There is an underlying tide in the stock market made up of a myriad of inputs - such as emotion, global financial status, war, innovation etc...

Ultimately there will be swimmers that are fundamentally stronger than others regardless of the environment.

I agree with also not having all your eggs in one basket. Such as diversifying with un-related investments:

+ Diversifying at a company level: Such as pepsi and coke - if one goes down the other could go up.
+ Diversifying industries
+ Diversifying countries
+ Diversifying investment type: It could be stocks, bonds, gold, etc...
 

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Discussion Starter #5
I know what everyone is saying and I agree.

However, let's imagine a world where everyone is not trading the individual stock but instead they're just trading the ETF that has grouped a lot of the stocks together, such as all the Canadian banks. We would then expect the value of all the banks to move together regardless of what the news is.

As investors and institutions move to trading the ETF more and more, the grouping effect of the ETF becomes stronger and stronger and could eventually dominate over news from a single company in the ETF.
 

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I can't expect to buy a bank stock and a tech stock, or a telecom stock, and resource stock and expect them to move in significantly opposite directions.

Anyone feel the same way?
Over the short term, stocks may move up or down together. But that's not true over a longer time frame, say 5 years or more. Different stock markets and different market sectors will show different returns. But in times of market turmoil, it is true -- correlations start approaching 1 and there's not much you can do about it.

That's why many investors prefer to hold different asset classes. But even with different asset classes there is no guarantee. In the 2008-09 bear market everything moved in the same direction (down) except Government bonds.
 

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I think volumes of trades might be a factor. QQQQ has a daily turnover of 25% whereas IVV only trades at 2.2%

10 Myths about ETF Investing

Also they are a favorite for day traders so their short term volatility makes them unsuitable for anxious buy-and-hold types.
 

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However, let's imagine a world where everyone is not trading the individual stock but instead they're just trading the ETF that has grouped a lot of the stocks together, such as all the Canadian banks. We would then expect the value of all the banks to move together regardless of what the news is.

As investors and institutions move to trading the ETF more and more, the grouping effect of the ETF becomes stronger and stronger and could eventually dominate over news from a single company in the ETF.
I don't understand how the price movement of an ETF can impact the prices of the underlying securities, unless new units are being issued.
For every ETF unit buyer, there is a corresponding seller and vice versa.
How can the fall in unit price of XIU (for example) cause a fall in the price of BMO?
 

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I know what everyone is saying and I agree.

However, let's imagine a world where everyone is not trading the individual stock but instead they're just trading the ETF that has grouped a lot of the stocks together, such as all the Canadian banks. We would then expect the value of all the banks to move together regardless of what the news is.

As investors and institutions move to trading the ETF more and more, the grouping effect of the ETF becomes stronger and stronger and could eventually dominate over news from a single company in the ETF.
If there is any inefficiency, there are dozens of very large actors looking to pounce on any mispricing. I wouldn't worry too much. Any mispricing is likely to be very transitory.
 

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I don't understand how the price movement of an ETF can impact the prices of the underlying securities, unless new units are being issued.
For every ETF unit buyer, there is a corresponding seller and vice versa.
How can the fall in unit price of XIU (for example) cause a fall in the price of BMO?
The issue, I'd say, is mostly around the adding and removal of individual equities from large indices that ETFs are based on. If a stock is dropped from an index, this can cause its price to drop in the short term.
 
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