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The market isn't losing valuable insights from people who are investing in index funds. Even if they were confident enough in an individual stock to buy shares,
by irq-1 11y ago
The market isn't losing valuable insights from people who are investing in index funds. Even if they were confident enough in an individual stock to buy shares, that doesn't mean they have any real insight about the company. For example, thinking RHT is a good buy at 63 doesn't demonstrate any insight about Red Hats business, management or market.
I suspect the opposite is true: the market would be better if people invested in index funds rather than individual stocks when they didn't have any insight about the company. I don't have definitions to separate company "insight" from the more speculative information, but the distinction seems real enough.
- harryh 11y agoI tend to agree with you here, but James Surowiecki's "Wisdom of Crowds" thinking does make me wonder some....
- jlebar 11y ago> The market isn't losing valuable insights from people who are investing in index funds. Even if they were confident enough in an individual stock to buy shares, that doesn't mean they have any real insight about the company. Well, but index funds and individual stocks aren't the only things that retail investors can buy. A lot of money is moving out of actively-managed funds too.