So, until things change, things will stay the same.
Or, the markets will continue to go up, until the markets stop going up.
What insight.
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Profound, right?
Well we can disagree with him , but he is not wrong. We all witness that people blindly pour money across all stocks every month without checking anything. And this is indeed a recent phenomenon. Maybe not more than 20 years old.
With inflows being large, stocks are bound to go up. He is just trying to raise an alarm because he cannot do anything about it. Pension money is also pouring into stocks via target date funds. So this means whenever market fall, Fed need to secure them. Story goes on. Hopefully regulators will do something about it before itâs too late.
personally I think the expected returns from stocks will be low because of this super high sense of safety attached to equity investments these days.
Bonds are boring, cash is trash and stocks are the safest thing to do. This narrative is a problem for returns from equity as there is no risk associated in price anymore. This can be witnessed in earnings yield of S&P 500 being lower than US 10 yr bond.
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Is this really new? People have been paying into pensions and 401ks for a long time now. Perhaps it has increased but hasnât this been happening for a long time.
Sure low cost ETF trackers may be a new things, but before that, there were equity funds.
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As far as I know, index funds became popular in 401k in early 2000s. As of 2006, 16% of 401K assets were index funds as per this article
As per CNBC -: By 2027, target-date funds will capture roughly 66% of all 401(k) contributions, and about 46% of total 401(k) assets will be in TDFs, according to a 2023 estimate by Cerulli Associates, a market research firm.
UK had defined benefit pension back in the 17th century and I think 401ks already existed in the early 80s.
401K existence is not the same thing as they using index funds. I posted some info above.
I know we all want the equity growth story to continue forever but we should also try to plan for a scenario if itâs not the case.
but why are index funds important. if pensions invested in equity and bonds, you still have cash flowing in.
I believe because active managers donât buy everything in index. This means they were not forced to buy unless they believe stock is interesting. They also can have higher cash bucket if they are waiting for an opportunity. You can see this with Buffet, he is not buying anything until he finds something interesting.
Today every USD going into VTI also buys stock of MSTR. Unknowing funding purchases of more bitcoins. I donât think active managers are doing that.
Of course I am talking about history. Now active management is also forced to buy same stocks which index funds buy or else active will have bigger problems
I know all this, as do you, the main question is the âso whatâ as we say in the business. Heâs sounding an alarm without offering an alternative, itâs been beaten into me to âbring solutions, not just problemsâ. My solution is taking high risk (TQQQ) profits and putting them into dividend growth (SCHD). There are other solutions for sure that are suitable for other people.
@PhilMongoose I think the point is not ETFs or mutual funds tracking indices, the first index-tracking mutual fund is from the 70s and first ETF is from 1992, the way I see the point is that inflows have swelled to hell the last 10-15 years because of bull run and TINA. Iâll see the RR podcast and Felixâs old video of passive vs active to get a reminder, I recall him saying (a few years back) that for passive to make inefficiencies thereâs a long way to go, maybe now weâve covered some of it.
Thatâs correct. He actually was on RR podcast and he did say that ironically until the collapse, index funds are the most optimal solution for most because nothing can counter these flows.
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Well, they talk about a âpassive-investment bubbleâ making it sound like the passive part is the problem. If they say it is just an âinvestment bubbleâ and that if people were pouring the same money but stock-picking instead, then that would be a bit different to what I understood they are saying.
I think you are right. We are in a TINA world. Now Buffett thinks there is an alternative and is sitting in T-Bills.
I am putting stuff into pension, gold and other commodities and some other more boring stocks. But pretty much all stocks have been pushed to quite high levels.
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I guess thatâs because there is systematic, regular and YUGE buying into specific funds buying the S&P500 at market cap weight, whereas retail stock picking would be none of the above, so less of an avalanche.
Why would it matter? If an active funds investing in equity gets inflow theyâll have to buy stocks. Maybe capital will be better allocated but theyâre still being forced to buy.
Same for retail, if they have already decided to allocate capital to equity that will flow into the market regardless of passive or active.
Passive just made it easier since thereâs no decision making.
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Dunno, not sure to be honest when you put it that way. We could say âinvestment bubbleâ overall pushing stocks up by constant buying pressure vs selling pressure?
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There was another RR episode debating this stuff (Randolph Cohen And/VS Michael Green)
Summary of the Rational Reminder episode 332 â âHow Concerned Should We Be About Index Funds?â
In this âgrabâyourâpopcornâ episode, hosts Ben Felix and Cameron Passmore bring together two prominent voices in the passiveâinvesting debate:
| Speaker | Main Position | Key Points |
|---|---|---|
| Michael Green (Simplify Asset Management) | Highly concerned that the rapid growth of marketâcapâweighted index funds and targetâdate funds is distorting market prices and creating systemic risk. | ⢠Passive inflows push up valuations, especially of largeâcap stocks, by reducing volatility and âmaking them seem less risky.â⢠The sheer scale of passive capital could lead to priceâelasticity effects, inflating stocks by as much as 50 % in his view.⢠Targetâdate funds amplify the problem by automatically allocating more money into these indexes, potentially crowding out active strategies and reducing price discovery.⢠He likens the situation to the preâ2008 CDO buildupâlarge pools of capital chasing the same assets. |
| Randy Cohen (Harvard Business School, senior lecturer) | Less alarmed; believes the concerns are overstated and that passive investing brings net benefits. | ⢠Passive funds eliminate âtrendâchasingâ behavior, which can actually improve market efficiency.⢠Many investors would have ended up in 60/40 or similar balanced portfolios anyway; the shift to index funds is more a change in vehicle than a fundamental allocation shift.⢠He stresses that the marketâs forwardâlooking returns and valuations are driven by fundamentals, not merely the flow of passive money.⢠While acknowledging that passive can affect price dynamics, he argues the effect is modest and not enough to cause a bubble. |
| Hostsâ framing | The conversation is framed as a ârealityâcheckâ on whether the rise of passive investing warrants policy or portfolioâconstruction changes. | ⢠Both guests agree that investors should stay diversified and consider a tilt toward smallâcap/value exposure as a hedge against any potential overâweighting of largeâcap stocks.⢠The episode ends with a practical takeaway: for most retail investors, staying in lowâcost broadâmarket index funds remains a sound strategy, but being aware of the macroâlevel debates can inform longerâterm assetâallocation tweaks. |
Overall takeâaway:
- Green warns that massive passive inflows could inflate prices, reduce market elasticity, and create hidden systemic risks, especially via targetâdate funds.
- Cohen counters that passive investing removes behavioral inefficiencies, that the scale of the effect is limited, and that the core drivers of valuation remain fundamentals.
- Listeners are encouraged to maintain diversified, lowâcost exposure while staying mindful of the ongoing debate and considering modest tactical tilts (e.g., smallâcap/value) if they wish to hedge any perceived overâvaluation.
Sources: episode description and transcript excerpts from the Rational Reminder website and related podcast listings.
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I Thought I Knew Silicon Valley. I Was Wrong by Steven Levy in WIRED.
Subtitle: Tech got what it wanted by electing Trump. A year later, it looks more like a suicide pact.
I mostly just marvel at the picture, but for those interested in the content of the article Gemini summarizes it as follows:
In the provided article from WIRED, author Steven Levy reflects on a dramatic and unsettling shift in Silicon Valleyâs political landscape, lamenting that the tech world he knew and chronicled for decades has changed in a surprising and disturbing way. Levyâs tone is one of disappointment and surprise, as he grapples with the new reality of techâs elite aligning with a political power whose values clash with the industryâs historical egalitarian and counterculture roots. He frames this alliance as a âsuicide pactâ for tech, and describes the leadersâ actions as a âdangerous dance with a capricious administrationâ.
Levy contrasts the current state of Silicon Valley with its origins, recalling a time when the burgeoning PC industry was a ânerdy successor to the political and cultural activism of the late 1960sâ. He recounts how the original tech visionaries were rebels, from Steve Wozniak and Steve Jobs selling âblue boxesâ to Mitch Kapor, a former meditation teacher, who valued people over profits. Levy had a âlove affair with Silicon Valley,â believing its âwizardsâ were using technology to empower the common person and speak truth to power.
The New Reality
The author points to several examples to illustrate the change he perceives. He notes that powerful figures like Mark Zuckerberg have become âMAGA-friendlyâ and a cohort of billionaires have prioritized their companiesâ fortunes over social well-being. Levy highlights the political pressures on tech leaders, citing Apple CEO Tim Cookâs decision to present a âdubious, most obsequious productâ to the president, a move he believes the late Steve Jobs would never have made.
A Culture of Fear
Levy explains that this political alignment is driven by fear, with venture capitalist David Hornik stating that the administration is âvindictiveâ and that business leaders fear ârepercussionsâ. He observes that many tech executives are now reluctant to speak on politics, with some even considering âexit strategiesâ and citizenship in other countries should things get worse. This contrasts sharply with the past when employees could pressure executives to maintain corporate values by threatening to leave. However, following Elon Muskâs mass layoffs at X (formerly Twitter) without the app collapsing, internal activism has waned, and the environment at companies like Meta now feels like the '90s, where employees donât bring their politics to the office.
The Unfamiliar Terrain
The author ends with a sense of personal bewilderment and disappointment, asking how he âmissedâ the signs of this transformation. He notes that a small number of billionaires now control the information ecosystem and have formed an alliance with âthe most consequential and fearsome political power in the world,â a combination he says is unprecedented in history. The Silicon Valley he once knew and loved has become âsuddenly unfamiliarâ.
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Nice articles, but who cares nowadays? Isnât WIRED a boomer thing?
No one has asked AI yet? Câmon.
The Orange Has Spoken.
Letâs see if f he can brake the mag7 with a bit of a neanderthal insights that he has 
