Why Passive Investing Might Be Distorting The Market (Podcast)

“Over the last decade or so, we’ve seen an incredible rise in so-called passive investing. While definitions differ over what this means, we’ve seen more and more money poured into index funds (which own every stock in a given basket). Meanwhile, money has been yanked away from money managers who attempt to select individual stocks. One school of thought argues that this is a positive, in part due to lower fees. But is there a dark side? On this week’s episode, we speak to Mike Green of hedge fund Logica Capital, who argues that the trend is causing major market distortions that will eventually unwind with ugly consequences.”


Alternative view - it’s not that critical really.

I could share a couple of other podcasts / posts to state (according to Morningstar & Vanguard - sure, you could argue that the latter are biased):

  • 30% of global fund assets (mutual and ETF) are indexed (i.e. assets being held)
  • however only 5% of all the trading activities are executed by funds that do indexing – i.e. active price discovery is still very strong
  • and only 10% of all investable securities (stocks, bonds, REIT etc.) in the world are in those index-tracking funds

And Mr. Fama said that no need to worry about price discovery before it reaches 90%. :slight_smile:

So, keep calm and index. :smiley:


And HODL please! Don’t pay too much attention to the whales who are selling (like this one)!

Out of curiosity, can those videos but summarized in 1-2 sentences? (I find the signal/noise ratio pretty bad personally, I guess it’s more lucrative for them than text because ads on video are more expensive…).

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Index funds don’t drive price discovery.


If there is a distortion in the market, perhaps the “TikTok traders” might be contributing to it…

I expect that some companies are playing with the index found in order to support the price of the shares. One example for me is KTM (The motobike company) which entered the SIX exchange but was already on the austrian stock exchange before. Automatically an index found following the SPI will buy some KTM and support the price. However I doubt that the traders within an index found are dumb people and if the price wants to go down in such an introduction on the market they have the freedom to let it go down in order to buy at a better price.
One positive aspect with index founds is that Vanguard or Blackrock have more power than myself to represent my interest at the shareholder meeting. If I buy directly US or european shares I am unable to vote and my voice will be used according to the recomemndation of the board.
Quantitative easing is bringing the price up with money that nobody had to give nether sweat nor blood to get it. The Swiss National Bank is a good example of such institution pushing the price up.

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Funny advice: “Do not panic sell”. Is it still OK to sell quietly :wink: ?