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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-t

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.

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.