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> Imagine 100% is passive. That means any stock in an index will be bought tomorrow and forever regardless of price. I could exploit that in a ton of ways. For
by spywaregorilla 6y ago
> Imagine 100% is passive. That means any stock in an index will be bought tomorrow and forever regardless of price. I could exploit that in a ton of ways. For example, do a "squeeze" (think of the recent GME short squeeze but in reverse.)
With more and more assets going into passive funds, when might we actually see them owning such large fractions of companies that a play like this is possible? Google suggests that 10-15% of the SP500 is owned by mutual funds. Presumably there's going to be an inflection point where this becomes problematic.
- skybrian 6y agoIf you’re holding then you’re neither buying nor selling, and so you don’t participate in setting the price at all, until the day you sell. Only the people (and machines) that are trading have any say. So it seems like it wouldn’t be the percentage of free-riders that’s an issue, but rather that the size of the active market shouldn’t be too small. Index funds need to rebalance so they’re not just holding, but it seems like for passive investors, they approximate holding? Maybe the rebalancing would tend to exaggerate the effects of active trading?