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I don't buy the liquidity argument. Their mere existence creates liquidity. Two sides to every trade. Index fund "sell offs" will likely go to buyers of the sam
by crb002 7y ago
I don't buy the liquidity argument. Their mere existence creates liquidity. Two sides to every trade. Index fund "sell offs" will likely go to buyers of the same index fund shares but at a lower price.
Apple alone has $50 billion in cash that will flow into Vanguard if index funds hit a 50% plunge. Same with Buffet. Index funds may be bubble priced, but they don't suffer from a liquidity issue.
- turk73 7y agoThat is only true in a liquid market. I remember plenty of times in 2008 when some stocks went "no bid" and the price plummeted until circuit breakers cut in. Some very blue chip companies got hammered hard back then. That's the whole concept of why stock traders need to beware the "crowded exit"--if everyone is trying to sell a the same time, the little guy is going to be holding the bag and can't get a fill on his order. Coincidentally, this is when high frequency trading became lucrative.