4 ms·

While this has been true in the past, because of this advice, huge amounts of wealth are now in index tracking etfs or similar passive index tracking funds. Thi

While this has been true in the past, because of this advice, huge amounts of wealth are now in index tracking etfs or similar passive index tracking funds. This essentially means that a larger and larger amount of the market is just “betting in the market”. If you want to spot where the next financial crisis will come from a generally good idea is not to ask “what looks crazy right now” (ie VC funding) but “what does essentially nobody question that is also a major change in mainstream investing”. Because everyone is doubling down on investing on the status quo, don’t be surprised if a disruption to the status quo has far more dramatic impact than it would have 20 years ago.

chii 7y ago
the wrong assumption is that the large bets on ETFs are "wrong" for extended periods. If the ETFs are incorrectly pricing assets because of blind buying, then an enterprising managed index fund could bet against it. Or, find some other arbitration mechanism. But of course, this doesn't actually happen, because price discovery _still happens_ even if ETFs account for a large percentage of trades (since price discovery can happen even with small number of trades). And if ETFs is just betting on the market average, then the worst that can happen is they get average results. ETFs don't use leverage or debt.