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The gripe with index funds is that they wouldn't work if everyone used them.
by dehrmann 4y ago
The gripe with index funds is that they wouldn't work if everyone used them.
- mensetmanusman 4y agoWith a strong rule of law, they probably would.
- ghaff 4y agoWhat does a strong rule of law have to do with it? The issue is that index funds depend on there being a price discovery mechanism on the underlying equities. If no one were buying and selling individual equities there would be no price discovery.
- ape4 4y agoThe DOW 30 has 30 successful companies in it. If one of these companies falters it will be removed from the index and replaced by an up-and-coming company. It would be there even if people invested or not.
- scarmig 4y agoHow does a company faltering or succeeding end up being reflected in its membership of the Dow? If relative shifts in stock price are the main causal mechanism, then that's exactly the issue: universal passive index investing (roughly) means that there won't be relative shifts in price.
- skybrian 4y agoGood thing everyone doesn't do it then! Why would professional traders stop trading? It's a common fallacy that things need to work for everyone or they're no good. We can do different things. Specialization is useful.