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Theoretically, I think the concern is reasonable. The "concern" here being if everyone switches to passive funds, then the behavior of markets will change. Howe

Theoretically, I think the concern is reasonable. The "concern" here being if everyone switches to passive funds, then the behavior of markets will change. However, when you look at the numbers, it doesn't seem like this concern is actually a reality. > The market capitalization of the S&P 500 is roughly $22 trillion as I write this. The entire ETF market in the U.S. is $3 trillion. That’s 14%. Even the whole industry—about $4 trillion, would only be 18%. https://www.etf.com/sections/blog/no-etfs-dont-own-37-sp-500 https://www.etf.com/sections/blog/no-etfs-dont-own-37-sp-500 This statistic was actually a big wake up call for me about 6 months ago. For a long time I had been investing based on theoretical ideas, like the one mentioned in this Bloomberg article that we're discussing. After I saw this statistic, I realized that I needed to look closer at the numerical reality when making investing decisions. This is probably obvious to many of you. I'm just sharing the moment when this insight really hit home for me.

deleted 8y ago
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pfortuny 8y ago
Right, the concern is true. However, when that happens, arbitrage opportunities arise elsewhere (based on that correlation). As a matter of fact, one can start "betting" on the correlation being high and the only way for the "opponent" to win is to dislodge that correlation. In the end: technical analysis is useless by definition.
- akvadrako 8y ago
  It's useless if other people are doing it too, but if you are ahead of the curve there should be money to be made.
pgwhalen 8y ago
ETFs may be associated with passive investing, but there is passive investing without ETFs, and active investing using ETFs.
- kaycebasques 8y ago
  Right. It’s difficult to get the full picture. We’d have to account for passive mutual funds, and people who have a passive portfolio by buying a lot of individual stocks. But the point is that this “passive investing is changing market behavior” meme is being spread around with few people actually knowing what percentage of the market is active versus passive. The ETF statistic helped me consider that the passive market might still be small compared to the market as a whole.

deleted 8y ago

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pfortuny 8y ago

Right, the concern is true. However, when that happens, arbitrage opportunities arise elsewhere (based on that correlation). As a matter of fact, one can start "betting" on the correlation being high and the only way for the "opponent" to win is to dislodge that correlation. In the end: technical analysis is useless by definition.

akvadrako 8y ago
It's useless if other people are doing it too, but if you are ahead of the curve there should be money to be made.

pgwhalen 8y ago

ETFs may be associated with passive investing, but there is passive investing without ETFs, and active investing using ETFs.

kaycebasques 8y ago
Right. It’s difficult to get the full picture. We’d have to account for passive mutual funds, and people who have a passive portfolio by buying a lot of individual stocks. But the point is that this “passive investing is changing market behavior” meme is being spread around with few people actually knowing what percentage of the market is active versus passive. The ETF statistic helped me consider that the passive market might still be small compared to the market as a whole.