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> So, to whatever extent the market conforms to the Efficient Market Hypothesis, it's not doing so because of the index fund investors. I don't disagree. I als
by justin66 1y ago
> So, to whatever extent the market conforms to the Efficient Market Hypothesis, it's not doing so because of the index fund investors.
I don't disagree. I also don't believe this observation in isolation supports the assertion "too many index fund investors really inhibit price discovery." Remember, that statement was made in the context of today, not in a hypothetical world where only a few lone traders at home trade individual shares and high frequency traders, hedge funds, and pension plans are for some reason no longer willing to place their own bets.
I'd rather not let some of the anti-index investing tropes gain traction, since they're insanely stupid and, to the extent that index investing is good for people who aren't very skilled at investing, quite damaging.
- kragen 1y agoI'm skeptical of the thesis myself, and even if it is correct, I don't think it makes a good argument for sacrificing your own wealth in the service of improving price discovery. One slight quibble, though: high frequency traders make their money by providing liquidity, not (as far as possible) betting on the future profits of companies.
- justin66 1y agoOh, that's an interesting point about high frequency trading. I think the question of what percentage of the market could be invested in index funds before things got weird is an interesting one. It really is hypothetical, though. Independent investors have more sway, not less, as an increasing number of people put money in index funds. There will always be a lot of people who are very rationally (and also depending on the investor... less rationally) unwilling to give that up.
- kragen 1y agoYeah, I agree.