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Passive investing may well be in the best interest of each individual when regarded separately and yet when everyone does it, makes the market worse and riskier
by apothegm 2y ago
Passive investing may well be in the best interest of each individual when regarded separately and yet when everyone does it, makes the market worse and riskier for everyone. Which from what I can tell is what TFA is arguing. It’s like a giant society-wide prisoner’s dilemma.
- Ekaros 2y agoOn individual scale it is effective investment tool. When too large part of investment is passive, it distorts the price discovery. Prices move higher, because they move higher... It works until it does not. Essentially more money gets poured in higher the fraction of total market cap is. And same if when something drops in market cap. Which in some scenarios clearly can mean not optimal distribution of value. Albeit it does looks like great "wealth" generation if you get to sell on the way up or at top.
- keernan 2y agoI have seen zero evidence that passive index investing is having any deleterious impacts on market pricing. If people are putting their money into stocks, it really doesn't matter if they buy a small piece of the entire market (at current stock prices) or if they put the money into one stock (which then impacts that stock differently than 'buying the market'). But, at the end of the day, this is only an issue for money managers who are losing customers to passive index funds. For individual investors who want the best return, there is no issue.