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Michael Burry’s warning for the index fund bubble

• theCrowing 4y ago
  What I don't get about Burry is that he is so all out talking about the end of capitalism sometimes even the end of the world without doing anything with the money he made in 2008. He just sits there in his mansion shitting on everyone. dream job I guess.
• mercy_dude 4y ago
• bushbaba 4y ago
  Yet the bubble can keep continuing as There Is No Alternative (TINA). That is so long as the fed doesn’t push above their ~5% interest rate target.
  • unboxingelf 4y ago
    Bitcoin appears to be an alternative.
    • mlyle 4y ago
      If your concern is that equities are priced above fundamentals of how much the underlying businesses will return, cryptocurrency is no salve: the underlying fundamentals of cryptocurrency are zero.
      • unboxingelf 4y ago
        Bitcoin is a scarce asset, there will only ever be 21M. So based on the number of people on the planet and Bitcoin’s growing adoption with both individual and institutional investors, I’d say the fundamentals look pretty good.
        • Out_of_Characte 4y ago
          Not really, I could fork bitcoin and mine bitcoins that no one wants. Which you might argue is unfairly representing your particular cryptocurrency but you'll have to admit that any better cryptocurrency at any point can reduce the value of bitcoin by 100%. Just because it has never happend doesn't mean it cant. This differs significantly from real estate or gold, which is backed by a tangible representation. With a virtual currency, there is no floor to the amount of losses. Theres also no dependent economic activity to support it right now and any dependent economic activity could be replaced all the same.
        • wombat-man 4y ago
          It isn't guaranteed at all that it'll be important in the future. Pogs are a scarce asset. Pontiac Azteks are a scarce asset.
        • mlyle 4y ago
          A worthless stock (no underlying fundamentals) can be a scarce asset too. We can all decide that shares of Worthless, Inc. are worth a bunch of money and collect them. But we can't really expect dividends or an acquisition premium in the future.
      • koshnaranek 4y ago
        What would be instead?
        • mlyle 4y ago
          Who knows what's best to buy right now in this environment. I'm just making the point that, if stock A trades for $10, and one is concerned because they believe the "true" net present value of its share of the business of $5... that the situation isn't improved by buying asset B that trades for $10 but has a zero underlying net present value. (Asset B may very well do better, because underlying values are not the only reason we buy assets...)
    • electric_mayhem 4y ago
      DOGE has genuinely been my best investment in the last couple years. Everything else is down a bunch; I’m considerably up on my doge position.
      • foepys 4y ago
        All Terra/LUNA holders were also considerably up until they weren't within 2 hours.
    • Out_of_Characte 4y ago
      From an investment perspective, bitcoin does not have a significant advantage as a store of value as you would think. Its expenditures are in energy+equiment hash rate, which is going up at the rate of value being put in. and its profits are based on transaction costs, which are also going up in tandem with the value put in. Take away the speculation and you'll have a zero-sum game which always leverages power costs trough transaction processing. So the store of value is a benchmark of computational energy. index funds will have better track records than bitcoin, even if all index funds drop 50% tommorrow.
      • unboxingelf 4y ago
        don’t the incentives drive miners to cheaper sources of energy? how does that non linear variable factor into your zero sum argument? re speculation— I don’t think you can remove it from the equation. Equities are highly speculative. The market can remain irrational longer than you can remain solvent. I can’t count the number of times positive earning reports are expressed in negative movements.
        • Out_of_Characte 4y ago
          If your source of energy gets cheaper, you would capitalise on that by increasing your hash rate in order to get an advantage in the hash checksum lottery. The profitability of bitcoin mining has always been your hashrate/cost, and your cost has always been the total cost of ownership of your equipment. That includes power. Speculation would be fine if it helped price discovery but it has become clear to me that bitcoin is far too irrational for me to partake in other than keeping the little exposure that I've had so far. I'm sure there is some mathematical hash algorithm/proof of stake/distributed accounting that could serve a better job as a financial tool than relying on government-issued currency with a high risk of inflation as a result of poor debt management. But no crypto can satisfy all factors that investors would like. * Decrease in transaction costs as the new protocol matures This is historically what happened as technology, computing power, bandwidth improved. Bitcoin would require changes in protocol in order to make this happen, like Ethereum did. * significantly better balance between early investors and late investors. A million increase in value between early and late investors just destroys the store of value idea as its a pure speculation instrument. A currency with a very stable inflation rate could outperform the dollar if enough markets used it. * better integration with long-standing agreements like insurance against theft, loss, recalls and other tools everyone expects to be able to use from a functioning society.
    • skookum 4y ago
      "Worried about a bubble? Could I interest you in a ponzi instead?"
• kleiba 4y ago
  Could somebody please explain in layman's terms to someone with no real understanding of the stock market?
  • redmattred 4y ago
    An index fund is an investment you can pick that is a basket of individual stocks. They are an easy way to get diversification in your portfolio and historically have beat out portfolios where people actively picked out their own mix of individual stocks. A lot of the investors in the world are just investing in index funds which has artificially inflated the value of the stocks in each index fund. When an investment has an inflated valuation that does not match the fundamentals of the underlying business behind the stock, there is a bubble.
  • caliwagon 4y ago
    Investing for retirement shifted from a company taking responsibility to employees taking responsibility with the advent of 401k and similar plans instead of defined benefit pensions. Over time it has been noted that picking individual investments tends to do worse than simply buy everything. As workers pour money into these non-discriminating investments, hoards of people are blindly investing and skewing away from efficient markets. Everyone (scare quotes everyone) is just buying large swaths of everything all the time without regard to fundamentals. It's all good as long as this continues, but a shift in enough people no longer believing this, will reduce demand and prices will go back down. In other words, people just buy everything because there is no alternative. If enough stop doing that, prices will readjust downward because too many stocks are overvalued due to the current wisdom of buy regardless of price.
    • sdenton4 4y ago
      Some missing nuance here is that the s+p 500 is not everything! It's a subset which has essentially been selected for long term performance. There may be a couple Enron's hiding in the set, but on average they are good choices, with much lower risk than the average company not in the top 500.
• Raidion 4y ago
  If stocks are so over priced, can anyone show an example of an fund that's making a killing off of these mispricings? Why would active management have failed to find and exploit these mispricings before? Not saying these don't exist but it seems like this is a broad statement that is proven "right" if the market continues to dip and "the market remains irrational" if the market rises. Any claim that can't be disproven should be looked at with a lot of suspicion.
  • andrewmcwatters 4y ago
    If all the homes in your neighborhood are overpriced people will simply not buy them, and others who are less price sensitive will. It’s very difficult to “make a killing” off overpriced equities. Even lay analysts who read financial reports know most marketable securities in the US are overpriced. The ones that aren’t simply aren’t attractive investments. Go peruse a few hundred US companies and read their financials. Tons of unattractive investments available today.
    • kqr 4y ago
      Alternatives for dealing with overpriced stocks are abundant: shorting, options, index futures, etc.
      • cj 4y ago
        In the parent's example, "shorting" the overpriced neighborhood may never produce a return since overpriced houses can remain overpriced for a very long time (decades).
        • kqr 4y ago
          This is basically saying "it's not overpriced if enough people believe it to be the correct price" which yeah, sure. In that case it's impossible to make money on most overpriced asset classes (other than those you can make yourself).
        • jandrese 4y ago
• hahla 4y ago
  One additional thought is as individuals enter the workforce they’re told to invest in a 401k. I’m assuming most people put their contributions into passive investments. Over the long run I wonder if this is significant enough to lead to a cycle where stock prices always go up.
  • kqr 4y ago
    This is what the article is saying. As long as everyone else keeps doing that, it will be a good idea for me to do it too. But when fashion changes and it is hip and cool to do something else, it will be much harder to get out of the top 500 companies because nowhere near as many people will be buying.
  • bthrn 4y ago
    On the other side you have people in retirement drawing from their 401ks. The population imbalance probably works in the market’s favor now, but that might not always be the case.
• hamiltonians 4y ago
  This makes no sense. stock prices are a function of earnings. for passive indexing to fail would imply a major recession, which would be bad for all stocks
  • ameister14 4y ago
    Stock prices aren't simply a function of earnings. Perhaps with complete transparency and a reasoning, logical market they might be closer to that, but that's not what we have. Even in that case you've got more than earnings to concern yourself with, like risk assessments, d/e ratio, dividend rate, and much more.
  • simpsond 4y ago
    Earnings are a fundamental factor. Forward earnings as well. In the last bull run, market caps skyrocketed way beyond sensible forward P/E because rates were 0% and growth equities were worth the risk. Now that rates are going up, the risk profile has changed. In the last year growth stocks that have not shifted to value stocks have been slaughtered. Think meta, snap, etc. At the end of the day there are way more factors than earnings influencing price. The options market even has a big impact on underlying assets. Anyways the risk profile has changed and value will become a stronger factor.
  • kgwgk 4y ago
    What part doesn't "make sense"? If he predicts earnings going down and prices going down even more selling 99% of his portfolio - down to one single stock - seems consistent with that view.
  • anon84873628 4y ago
    IIUC the point is that index funds abstract the price of some stocks even further from earnings. Because a large percentage of the trade volume in those stocks comes purely from the index fund trades, rather than direct trades that would cause proper price discovery. So when the ETF bubble bursts, those stocks will see and even larger correction down than otherwise. Happy to be corrected though.
• kqr 4y ago
  I get that 100 % is never the correct level of exposure to the stock market -- but surely 0 % is just as wrong?
  • fbdab103 4y ago
    If I was advising someone fresh out of college starting their first job, I would suggest they start a 401k and put 100% of it into stocks. They have so much time in the market that anything else seems unwise.
    • kqr 4y ago
      Kelly would like to have a word with you!
      • fbdab103 4y ago
        I am genuinely curious what better alternatives are on the table? Sticking retirement money into other vehicles seems guaranteed to have more tepid (if consistent) returns. For someone at the start of a 40 year career, the additional volatility seems well worth it.
        • kqr 4y ago
          Additional volatility is worth it until you hit a 50 % drawdown where someone who was only partially invested would have a 20 % drawdown and then rebound faster. Remember that investments compound, and it takes as long to go from 10 to 100 as it does from 100 to 1000. Avoiding drawdowns is critical for long-term growth. You want a significant fraction of your wealth in stuff with tepid and consistent returns. In fact, you want this fraction to be constant over time. That will outperform any one asset class as time goes by.
          • fbdab103 4y ago
            Consider me still dubious. A 25 year old to 35 year old, starting from $0 with annual contributions of $12k in a 100% stock vs mixed 50% stock and others, I would bet 9 times out of 10 on the full stock. I would have to see some models to contrast, but I still suspect that given the timeline, the stock heavy portfolio is going to outperform if only because of DCA.
• spamizbad 4y ago
  Its possible index funds become less popular once they stop being the easiest way to get strong market returns without expensive management fees. In a world of higher interest rates and a more stable equity market I could see specialized funds etc becoming more attractive.
• throw0101a 4y ago
  Ben Felix of PWL Capital commented on / counter-argued this when Burry first started rumbling on this… in 2019: * https://www.pwlcapital.com/there-is-no-such-thing-as-an-index-fund-bubble/ https://www.pwlcapital.com/there-is-no-such-thing-as-an-inde... * https://www.youtube.com/watch?v=Wv0pJh8mFk0 https://www.youtube.com/watch?v=Wv0pJh8mFk0 Certainly bubbles may stick around for a while and take a while to pop, but how much time should any particular prediction be given before it is busted? Edit: Pull quote with the central point: > I thought it was important to clear up the prevalence of index funds, but it isn’t actually even relevant to this discussion. Assets under management do not set prices. Only trading sets prices. The relevant question is not how much of the market is indexed, but how much of the trading is being done by index funds. Since index funds are not doing the majority of the trading, active managers are still dominating price discovery.
  • romanhn 4y ago
    This is fantastic, thanks for sharing. Ben makes an argument that stock values are set by market activity (continuous buying and selling), rather than amount held. While the latter may be large for index funds (though apparently smaller than many believe), their activity represents something like 5% of total, so a minuscule amount overall. At the end of the day, stock prices are set by active investors, regardless of how much buying index funds do.
  • throw0101c 4y ago
    In addition, Felix discussed this in the most recent episode of the Rational Reminder podcasts he co-hosts: > Are index funds a menace to the market? Are pension funds still a wise way to secure your financial future? In this episode, we discuss index funds, the state-sponsored pension plan in Canada, and much more. First, we unpack the nuances of index funds and take a look at the impact that active and passive investors have on the market. We discuss current index fund trends, when to switch from a passive to an active investor, and the dreaded index fund tipping point. […] * https://rationalreminder.ca/podcast/225 https://rationalreminder.ca/podcast/225 Audio, video, and transcript available. Excerpt (~20m00s): > It starts with, of course, a Fama and French paper, "Disagreements, Tastes and Asset Prices", which is a great paper that we've talked about many times, including with Ken French, who is very excited that we asked about it. They have this paper that shows that if misinformed and uninformed active investors who will make prices less efficient by trading, switch to market cap indexing, market efficiency actually improves. That's the comment that you made earlier, Cameron. It gets harder to be an active manager, because there's more competition. That's the relative level of competition as opposed to the absolute level is what matters. > If informed active investors, so the ones that are doing a good job, setting prices that the skilled active managers, if they switch to indexing, then in that case, prices do become less efficient. This is the concern, I guess. If everybody, including the skilled managers go to indexing, then there is a concern about ongoing marketing efficiency. As long as there are some remaining informed active investors, even if there are a few, a small few, as long as they're skilled, and they command a lot of wealth, which they would, and we'll talk more about the empirical side of that in a second. As long as there's a few left and they're competing with each other, theoretically, prices remain efficient, and arguably, even more efficient than they were in the case where there were still some unskilled managers.
• drc500free 4y ago
  I have wondered if the 501st company is systemically undervalued.
• cloudking 4y ago
  Burry had a great play last year of shorting bonds via TLT, unfortunately he was about 6 months too early and his option positions expired before it collapsed. His thesis was based on "hyperinflation" occuring in the USA, and while inflation has increased it's still far from "hyper". Point is, his thesis may be correct, but his time horizon may also be off.
  • IAmGraydon 4y ago
    Being early is the same thing as being wrong.
    • cloudking 4y ago
      Absolutely, that's why it's important to look at his other bets not just his big win in the GFC.
  • ttul 4y ago
    And herein lies the problem with being contrarian. It’s impossible to be both contrarian and correct with sufficient reliability that you beat the market. You will get it right sometimes and wrong other times. But not consistently. Everyone should go and read A Random Walk Down Wall St and Irrational Exuberance. For a retail investor, the first book teaches you that beating the market is a random process, so there is no point in trying. Any advantage you gain from being smart will be paid for in time invested in being smart enough to beat the market. Irrational Exuberance teaches the retail investor that markets go through long, yet unpredictable, periods of irrational behavior. Even experts struggle to explain the movements of the market, so as a lowly retail investor, you’re unlikely to have any chance at winning the game. Ultimately, while each book looks at the world in a contrasting way - one assumes investors are collectively rational and the other assumes the opposite - the lesson is the same for a retail investor: just live your life, invest passively, and give up on trying to get rich quick in the market because it’s random whether you’ll succeed.
• IAmGraydon 4y ago
  Burry is wrong far, far more than he's right (this is the guy who held a short position on TSLA through the entire rally), but he gets a lot of credit because of his big trade back in 2008 and the movie that was subsequently created about him. Also, as a crash approaches the final capitulation wave, you will see more and more people saying things like this. It's necessary, because the final capitulation of a crash requires people to believe that the system is permanently broken. This is the type of thinking that led to traders on Wall Street throwing themselves out of windows during the 2008 crash. If you want to take advantage of a crash, you have to have the clarity to understand that the masses are going through a bout of mass panic. If you join the crowd, you'll be too scared to do what you have to when everyone is selling. All of this said, these things do take time. This kind of rhetoric will slowly spread until it reaches a fever pitch, likely sometime in the second half of 2023.
  • peteradio 4y ago
    > guy who held a short position on TSLA through the entire rally TSLA is Wiley Coyote waaaaaaaaaaaaaaaaaaaaaaay over the ledge. "Investors" also created a rally for GME out of thin air.
    • leobg 4y ago
      If you’re so confident, why don’t you short the stock? And if you don’t dare to short, then what value does your confidence have? I’m sure that Burry, too, still thinks he is right and the market is just being irrational longer than he can stay solvent. But that doesn’t change the outcome, which is that his bet went terribly wrong for him.
      • WastingMyTime89 4y ago
        Well, I mean there is always the good old: “The market can stay irrational longer than you can stay solvent.” But there definitely is something strange with Tesla valuation. It’s above their 5 biggest competitors combined. Plus their multiples are way off compared to the other players in their market. It doesn’t look particularly sustainable to me.
• lr4444lr 4y ago
  Michael Burry believes that passive and blind investing into index funds is destroying the proper functioning of a market based on valuations, earnings, and future cash flow. True value is no longer priced in based on fundamentals. Another signal of a bubble. Here's my issue: indexing isn't a single stock or bond - it's compromised of companies who got large because other more active investors already analyzed their fundamentals and found them worth investing in. Passive investing provides inertia to markets, but it isn't totally divorced from them. Companies that have a dramatic fall cough Meta cough will get punted, and the passive investors will only get their feathers singed. It's kinda parasitic I guess of the average indexer like me, but I'm giving up wild gains for a long term commitment to perhaps being a little later to the party than guys like Burry. If the entire index crashes, like, 95%+, we are gonna have MUCH bigger problems globally than people losing their retirement accounts. You're talking about enough companies failing because of the interlocking economy.
  • TedDoesntTalk 4y ago
    Ok, but what about the point in the article about the underlying not being traded in 96% of the index trades? Isn’t this hiding valuation, liquidity, or some other aspect of the underlyings?
    • lr4444lr 4y ago
      The premise to this section strikes me as begging the questiom: All stock prices move based on supply and demand not theories and strategies. Well, why do people demand a given stock? One word: dividends. This may seem obvious (or not!) But Robert Schiller in a MOOC some years back made this basic truth clear to me: if a company would hypothetically never pay a dividend, no investor would ever want it. Stocks do not need to trade in large volumes to bring people profit and be desirable. They just need to bring dividends, either now or in the future.
      • WastingMyTime89 4y ago
        You can buy to hold thinking the business will grow. People buy to make money. They don’t care if it comes as dividends or raise in the share price.
• fny 4y ago
  Burry is subtly wrong, and I'll tell you why. The biggest bubble for the past 20 years has been in bonds. Stocks went along for the ride. When you can't get a reasonable return on debt, you'll be fine paying for a zero coupon stock that has the chance of 10xing (Tesla.) The script has now normalized and may soon flip. Say the Fed unloads it's QE balance sheet from even as far back as '08. Debt will become extremely attractive and there will be a massive allocation out of relatively low yielding index funds into debt. Right now yields are eye poppingly good, and we're not even quite to the long term historical average of 4.5%+. Also, there's a lot of fear of certain forms of debt that are actually safer than they've ever been. Mortgage REITs for example are incredibly attractive especially after the post '08 regulations. The shift back towards debt and classical savings is what will drain the market, not some index fund issue--although I do agree index funds will probably underperform some active managers until they rebalance towards businesses with nearer term cash flows. For everyone screaming about a depression, go out on a Sunday to a restaurant. Everything is packed. Working people are making a better wage, inflation has slowed, and they get better savings at their bank. Finally, I know there's this narrative that governments will "inflate their way out of debt" which makes debt more risky. Sure this is a possibility. It's just as possible as a company issuing more stock, but it's not guaranteed. There's a political question that needs to be answered. Maybe we solve the debt issue by taxing those who benefited disproportionately from ZIRP more. Maybe we just slow government spending and let the economy continue to expand on its own. We as a country get to decide whether we inflate it away or we do something else along with who benefits and loses from that process.
  • MuffinFlavored 4y ago
    > Debt will become extremely attractive How attractive? 10y yield at 5% attractive?
    • fny 4y ago
      That's the risk free rate. Go look at other debt instruments. You can find yields on corporate bonds from solid companies in the 10+ range (Citrix), mortgage baskets go even as high as 16%.
    • 4y ago
• bilsbie 4y ago
  Man personally I’d love an S&P 497 index fund where they remove three dumb companies. I hate being forced to hold doomed companies.
  • cj 4y ago
    Is anyone aware of a tool to produce graphs of the S&P 500 with specific companies added or removed? I would be really curious to see a graph of the S&P 500 with and without TSLA (was added to the index in December 2020). Side note: I wonder if owning a S&P 497 index could be achieved through any currently available Direct Indexing passive investment providers.
    • whitej125 4y ago
      Actually I’ve been doing just this for just over a year. Took TSLA, FB/META and a few others over time out of the S&P 500. https://pebble.finance/p/f7dc6d732363464487ca5a84a00ce24a https://pebble.finance/p/f7dc6d732363464487ca5a84a00ce24a Note: I’m one of the founders in the above. Basically built Pebble to for passive index investors (like us!) who want to be safely/easily diversified but in a manner where we can still express individual ideas/needs. New launch coming soon :) Outside of Pebble - Fidelity Managed FidFolios will get you close. Not the S&P 500 exactly but their own US Large Cap portfolio which you can customize.
      • glofish 4y ago
        Why would random user be smarter than the active traders? now consider that historically, the overwhelming majority of active managers perform worse than SP500 ... so there, it is always easy to be smart retroactively, if you cashed out last year you would have wanted TSLA in your portfolio
        • cj 4y ago
          If you look at it through a different lens. Imagine an investor who owns $100,000 of SPY. Therefore, they own roughly $12,000 of Apple and Microsoft (together, they account for 12% of SPY) If that same investor thinks Microsoft and Apple are at their long-term peak, the investor is forced to hedge against their own positions in those stocks because they can't exclude them from their SPY holdings. I held a lot of PUT options and was shorting TSLA stock in 2021/2022... meanwhile I also owned a lot of TSLA through my index fund holdings (I would have much preferred an ETF that excluded TSLA, rather than owning TSLA via SPY and actively shorting the TSLA position simultaneously). This is something I did in the past, and my gains would have been higher had I had a way to remove TSLA from my index fund holdings without spending money on PUTs or shorting.
• stephc_int13 4y ago
  The underlying reasoning is that any system that is too uniform is fragile. In this case, the common belief that S&P500 is safe is valid up to a point, if too many people rely on this assumption this can turn into a big problem. For most humans 99% == 100% but this is not true.
• vsareto 4y ago
  >Passive investing has removed price discovery from the equity markets. The simple theses and the models that get people into sectors, factors, indexes, or ETFs and mutual funds mimicking those strategies — these do not require the security-level analysis that is required for true price discovery. Maybe with enough blog posts and Bloomberg interviews, we convince everyone to go back to a culture which prefers more complicated, specific investing strategies. But after you completely destroy peoples' wealth by crashing the index fund plane, how exactly are you then going to convince them to buy into your focused strategies (and importantly, with what wealth)?
  • Out_of_Characte 4y ago
    Its the stock market. The only certainty you have is that it will always remain chaotic. Specific investment strategies are what helps build index funds. Without that you'll increase risk acossiated with index funds. There IS too much reliance on index funds right now and once the S&P drops significantly you'll run the risk of losing far more than if you hadn't relied completely on its basket.
• danielovichdk 4y ago
  Hah! Economy is going to explode. If you cannot see that you need to find a set of glasses. Shit can't peak forever and it can't follow an upward trend towards growing yoy either. It has to go down at some point. Of course it has. Please. Cash out and sell all excess things you don't need. Don't trap yourself by not being able to maneuver. Buckle up. I truly believe it will be a wicked ride.
  • karaterobot 4y ago
    It's easy to predict a crash is coming: there's always a crash coming at some point in the future. Harder to get specific about when and what magnitude it will be, with dates, metrics, and numbers. Since you ask people to cash out and sell their positions, are you confident enough to be specific?
• FooBarBizBazz 4y ago
  Wow, is he an optimist: > Michael Burry has exited all his positions which as of March 31st, 2022 had a value of +$200 million. Private jail operator GEO Group was the only stock he held as of the end of the second quarter of 2022.
• machina_ex_deus 4y ago
  I heard this argument before 2020s crash. I exited early before it because I feared his prediction. Did it hold up during 2020 crash? In March 2020 everything crashed very fast but also rebounded extremely fast when the fed turned on the printing press. My personal opinion is that what matters is just the Fed. Index bubble, everything bubble, crypto bubble. It all doesn't matter, what matters is just what the Fed is doing. And the Fed is a few mistake prone officials who could forget to turn on interest rate for an entire year, so whatever Jerome Powell had for breakfast might end up being more important than what an experienced economist says.
  • bombcar 4y ago
    That’s the problem. You can be exactly right about something and without perfect timing you still lose out overall. Missing out on normie appreciation and getting the big drop can still be losing overall, too.
• WastingMyTime89 4y ago
  I mean from the fundamental Burry warning makes sense. At its heart, a stock market is a way to exchange ownership in companies. The point is for people who want to be owner to buy from others. If you are buying blindly, pricing doesn’t work anymore. Same with speculation which is tolerated because it brings liquidity and helps prices converge but is very much a by-product.
  • MuffinFlavored 4y ago
    > I mean from the fundamental Burry warning makes sense. Does it? He's not "wrong" to call out the side effect of millions of people "blindly + consistently" pumping their extra cash (savings) into index funds in hopes of return. Sure, this means the market is "crowded" compared to historical times (we're probably at all time high for market participants from a retail/average investor perspective I would guess?) But... what's the alternative? How are you going to tell millions of people "we'd like you to stop investing in the market/deny you access to the chance for 6-10% index-fund-level returns because you're driving valuations up"?
    • WastingMyTime89 4y ago
      > But... what's the alternative? How are you going to tell millions of people "we'd like you to stop investing in the market/deny you access to the chance for 6-10% index-fund-level returns because you're driving valuations up"? You don’t need to tell them to stop. If the sole thing pumping these stocks up is excess savings as soon as the economy slows down it’s not going to be sustainable. Some of these stocks will go down as people remove their money from the market and people will lose money. That’s the heart of Burry warning.
      • MuffinFlavored 4y ago
        > If the sole thing pumping these stocks up is excess savings as soon as the economy slows down it’s not going to be sustainable. Doesn't that assume "as soon as the economy slows down, the same people who invested money into equities will pull that money because they need it?"
• glofish 4y ago
  I feel like this same topic is being revisited on a regular basis. Most likely ever since index funds existed active traders hated them. Here is an article from 2010: "Index Funds are distorting the markets" https://www.wealthmanagement.com/news/are-index-funds-distorting-markets https://www.wealthmanagement.com/news/are-index-funds-distor... > With money pouring into index funds and ETFs, passive portfolios are distorting markets, harming many investors. > Index funds are creating disturbing conditions in a variety of asset classes, including emerging markets, small stocks, and commodities.
• RickJWagner 4y ago
  I like Jack Bogle's take on this: Stay the Course.