The financial media is obsessed with the day-to-day goings on in the markets. Today’s it’s the impact of the 2024 January CPI report. Markets move, columns need to be written, TV guests need to be booked. However the most interesting things that happen in markets play out over time. Companies change strategies. People adjust. Prices reflect a new reality.
I came across three very different examples of this at play. The first comes from John Rekenthaler at Morningstar writing about a recent milestone in the fund management industry. At least among mutual funds and ETFs, index funds now are larger than actively managed funds. That is clearly important, but Rekenthaler notes a byproduct of this shift is how financial advisers now do their job.
“The financial-advice industry hasn’t skipped a beat. Today, as then, most older investors who have accumulated substantial assets seek professional help. The industry’s continued success demonstrated that what investors truly needed was not better funds. (Although with low-cost index funds, they usually got them.) They needed better service. They needed advisors who thought more about their needs and less about products. They needed advisors who devoted more time to their goals, risk tolerances, and tax situations.”
Shifting gears, remember back in 2022 when everyone was screaming about rising lithium prices? Alex Tabbarok at Marginal Revolution notes that the 2022 rise in lithium prices reversed in 2023. The rising prices caused a lot of producers to start looking for additional capacity. Scott Patterson in the Wall Street Journal looks at a plan to remove lithium from the water in the Great Salt Lake in Utah. Patterson writes:
“This summer, a California startup plans to start construction on a project to suck up water from the Great Salt Lake to extract one of its many valuable minerals: lithium, a critical ingredient in the rechargeable batteries used in electric vehicles. The water will then be reinjected back into the lake, which Lilac Solutions says addresses concerns about the damaging effects of mineral extraction.”
Moving even farther afield to sports, specifically the NBA. A forthcoming paper by Shane Sanders and Justin Ehrlich at Syracuse University show that the 3-point revolution in the NBA has largely run its course. Players (and teams) now may be taking TOO many three point shots. From phys.org:
“When taking fouled shots and made free throws into consideration, we found that what had long been a premium for the 3-point shot started to become a dispremium in the 2017-18 season and that trend is continuing,” Ehrlich says. “The implication of these findings is enormous in terms of potential impact on roster construction and offensive philosophies.”
Changing prices induce people to take action. Sometimes it takes awhile to change behavior, but it always does. That’s markets at work.
