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Because when enough of the money is in an index fund, you can predict how a large part of the investors are going to invest (using the same algorithms they're u
by yifanl 7y ago
Because when enough of the money is in an index fund, you can predict how a large part of the investors are going to invest (using the same algorithms they're using) and adjust based on that.
- groundlogic 7y agoKinda makes sense. Still, it sounds like a very fragile system. So instead if active fund managers "knowing the market better", we'll get active fund managers, "knowing the passive investor crowd better". This is madness.
- yifanl 7y agoI mean, if the majority of the market is dumb passive index funds, those are one and the same :)
- jandrese 7y agoThat's it exactly. If the index funds get so big that they basically are the market, then active investors will have to adjust their view of the market to be effectively just whatever the index funds do. It may be possible that although they can't beat other active investors enough to justify their fees, they can beat a big dumb index fund enough to make their services worthwhile. That remains to be seen however.