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Is passive investment inflating a stockmarket bubble?

• pm2222 10mo ago
  CNBC had a guest on the show who revealed that passive investment like index etf is destroying price discovery in the market.
• jswelker 10mo ago
  This is like travel agents crying that websites like TripAdvisor destroyed tourism. Not exactly an impartial party, so it's hard to take them seriously even if the point makes sense. "I used to keep this gate, and now it's all ruined!"
• eulgro 10mo ago
  https://archive.is/ppHt0 https://archive.is/ppHt0 Paper this article is based on (2021): https://www.nber.org/system/files/working_papers/w28967/w28967.pdf https://www.nber.org/system/files/working_papers/w28967/w289...
• deadbabe 10mo ago
  Here’s the thing about stock markets: if you think it’s inflated or there’s a bubble, great, you can pull your money out. But then you look around and try to figure out a better place to put your money long term, and where does that bring you? Back to the stock market.
  • Mistletoe 10mo ago
    If we judge it by the lost decade after the 2000 tech bubble definitely not back to stocks. A portfolio of things like gold, small cap value, long term treasuries did 10% a year while stocks did like 0% a year for a decade. https://portfoliocharts.com/2021/12/16/three-secret-ingredients-of-the-most-efficient-portfolios/ https://portfoliocharts.com/2021/12/16/three-secret-ingredie...
    • deadbabe 10mo ago
      you cannot cherry pick, you must judge stocks over multiple decade long trends.
      • therobots927 10mo ago
        What’s no longer outperforming? Gold?
        • Mistletoe 10mo ago
          Bitcoin just had a down year in 2025 when it was supposed to be the bull year. One of the worst performing assets of 2025. Doing well so far in 2026.
      • Imustaskforhelp 10mo ago
        Yes but also nobody's absolutely forcing you to keep your money if you feel like stocks are in turbulence In fact you win even more if you feel like stocks are bubbly and wait in say gold or short term and you buy more stocks when they are cheap Also US stocks have underperformed compared to EU when you take all factors into account and all US stocks have rather been focused on AI hype which once again is a bubble which will fundamentally break the US economy. It's like saying 2008 crisis still made you money long term Sure if you are 20 years deep and even then nobody could've predicted what happened. The sentiments were extremely low I am one of the biggest index funds advisors usually and that's when I read finance books and wanted to go into finance but genuinely felt like index funds are just so great that the need is very low In fact I must admit that I dislike saying Gold but its genuinely one of the best assets (although it may be overvalued now not sure), another investment is specifically globalize your index fund portfolio to extreme/exclude US. In fact if possible bet on index funds on the opposite side of AI which most likely feels gold and yes, I am a little sad about this fact but rules of the game changes at points of extremes so gold is valid option right now
        • andsoitis 10mo ago
          > you buy more stocks when they are cheap but they are unlikely to be cheaper in the future than they are right now (https://www.guggenheiminvestments.com/advisor-resources/interactive-tools/sp-500-historical-trends https://www.guggenheiminvestments.com/advisor-resources/inte...). so if you have the money but defer buying them, you lose out on the time value of money.
  • bee_rider 10mo ago
    These days canned food often seems like a good investment
  • therobots927 10mo ago
    You say that like “stock market” = the US stock market. It doesn’t. And the smart money recognized this a couple years ago. You’ve been presented with a false dichotomy.
    • deadbabe 10mo ago
      Is there a better stock market than the US stock market?
      • therobots927 10mo ago
        VEA. Look it up. Europe, Hong Kong, etc have been outperforming the US for over a year now. Google the ticker and compare to VTI then get back to me. And that’s without even mentioning gold.
        • no_wizard 10mo ago
          My VT shares have risen in bear direct proportion to VTIs relative underperformance. The main difference is the international exposure of VT.
        • deadbabe 10mo ago
          I did, and I see most years it has not beaten VTI… and if you invested 10k in them for the past 10 years VTI is near 2.5x more money. May be worth it for diversification, but you’d be very lucky if it outperformed the next 10 years.
        • andsoitis 10mo ago
          > for over a year now. What if you zoom out to say, 5 years, 10 years? Or are you predicting that from here on out, VEA will outperform say, the S&P500 and the NASDAQ?
          • therobots927 10mo ago
            Yes I think it will outperform. I don’t know if you’ve seen the recent news in the US but things are going downhill very quickly. I don’t expect us to stay out of a recession for long once our government collapses into a dictatorship.
  • achierius 10mo ago
    What is this supposed to mean? Yes, people are unhappy with the choice of "high risk of losing 1/2 of your savings at an inopportune moment" and "watch it all decay away thanks to our inherently inflationary regime".
    • 10000truths 10mo ago
      > high risk of losing 1/2 of your savings at an inopportune moment Operative word being moment. The volatility is irrelevant if you wait it out long enough, hence "long term". If you need a shorter term low-risk investment vehicle, that's what treasury bills/notes are for. > watch it all decay away thanks to our inherently inflationary regime Any alternative investment strategy is equally affected by inflation.
  • zeroonetwothree 10mo ago
    If you think it will go down you can short the market. If you think it will go up just more slowly well that’s hardly all that bad?
  • koolba 10mo ago
    > Back to the stock market. It’s a very different calculus when nominal bonds are paying 5% and TIPS are paying 2.6% above inflation. The nowhere to go but the stocks holds more water when the ten year was paying 0.55%.
    • greyface- 10mo ago
      > TIPS are paying 2.6% above inflation. 2.6% above CPI. Investor calculus should include a consideration of how CPI is set vs what their actual personal rate of inflation will be.
  • MuffinFlavored 10mo ago
    Is this the answer for citizens of countries other than America? I don't think it is.
• phkahler 10mo ago
  Instead of "passive" one could call it "blind" investing. Just dumping money broadly into the marker via 401k contributions. When retirees pulling out exceeds those putting in it will all be over.
• 22c 10mo ago
  Hasn't Michael Burry been talking about this exact thing for at least 6 years now? Edit: The Big Short’s Michael Burry Explains Why Index Funds Are Like Subprime CDOs (2019) https://archive.is/7mOuF https://archive.is/7mOuF
  • paxys 10mo ago
    Burry has been predicting another bubble every two weeks since the big short.
    • no_wizard 10mo ago
      The problem will always be timing more or less. You can find structural problems that should inevitably arise and create a dynamic where say a short seller will make a killing. However it can take years, sometimes over a decade, for things to bubble up. The collapse of 2008 was decades in the making for instance
• therobots927 10mo ago
  It’s only a matter of time until people start to wake up to the fact that gold’s 5 year return is almost double the US markets and the developed nation index has doubled the US market returns in the last year. Capital has been FLEEING the US for some time now. Passive investments aren’t inflating a bubble. They’re providing exit liquidity to smart money.
  • ungreased0675 10mo ago
    I looked into gold, but couldn’t figure out how to avoid the haircut taken when buying and selling. Any suggestions?
    • therobots927 10mo ago
      GLD etf
    • Imustaskforhelp 10mo ago
      I am a stauch cryptocurrency avoider (most are very scummy) but I once was in part of tournament and got some crypto and so I just converted it into gold stablecoin. (partially because cashing out was/is hard and I am a minor) I am not kidding but the whole crypto market has bled so much when I have been in like +20% or something. Its crazy. I highly recommend Paxos gold but I had around 100-200 bucks and hte isuse is of Ethereum 7$ gas fees which I shouldve known (I usually use polygon usdc 0 crypto bs only stablecoins) I think Paxos,Xaut are some good options and there are probably some neobanking solutions to this as well
      • andsoitis 10mo ago
        > stauch cryptocurrency avoider as a staunch avoider you know and do quite a lot in the space!
        • Imustaskforhelp 10mo ago
          Well I am avoider because I feel like people necessiate that interest in tech or tech being cool === profitable or some thing I have built cryptocurrency related stuff (usually for free) out of just mere curiosity on proving systems and other solutions and that's how I know some things In fact I was just curious about proving something and then I took tournament just to explain that and got some simple but nice money (25$) which made me get to more tournaments and other things haha Moral of the story is to be reasonable with your money and if you still wish to invest, invest in your companies/projects. That being said, stablecoins are still pretty lucrative. I follow only stablecoin news because I find the idea of remittances etc. interesting. I usually follow https://stablecoininsider.org/ https://stablecoininsider.org/ but holy cow they write texts with LLM's and that sucks imo and I am following them less and less. I just like the idea of stablecoins though because it can genuinely open up new possibilities if done properly Even then when I was building my first such project, I actively avoided crypto but I just wanted to prove it lol and actively wanted to look for other projects (The idea is basically using nano zero fees coin with vanity link generators and looped transactions to permanently store very few data (like bytes) free of cost in blocks permanently, useful in proving identity of someone who wrote something while providing a timestamp when it happened, thus nanotimestamps) Nothing is being built on it even though I think the idea did have potential but eh, I am happy lol. I am a stablecoin fan usually/traditional finance fan of index funds because I wanted to go for finance field for so long and read books about it I guess
• kelseyfrog 10mo ago
  Active management funds are more than welcome to beat or keep pace with the market consistently for 45 years. Until then, I'll choose the winning option.
• klodolph 10mo ago
  Worth noting that articles about how passive investing destroys the market date back to, maybe, 2016 or earlier... https://www.newyorker.com/business/currency/is-passive-investment-actively-hurting-the-economy https://www.newyorker.com/business/currency/is-passive-inves... March 9, 2016 > O’Neill fears that the result will be a “bubble machine”—a winner-take-all system that inflates already large companies, blind to whether they’re actually selling more widgets or generating bigger profits. Part of the problem is that if you look at the stellar long-term performance of indexes, they are largely explained by a small number of stocks in the index that perform extremely well… but you don’t know ahead of time which stocks those are. If you want the performance of the S&P500, you need a similarly diversified portfolio, the theory goes. It is hard to get a portfolio with that kind of diversity unless you buy index funds.
  • greyw 10mo ago
    IIRC a huge chunk of the returns comes from roughly 4% of all stocks while the rest is basically (very simplified) just earning their cost of capital.
    • cortesoft 10mo ago
      Yes, my understanding is that the cost of missing out on those companies that are providing the returns is much more costly than investing in a company that is NOT generating those returns. In other words, the risk is to miss the winners, not that you will invest in a loser. The problem is that it is very hard to predict the winners, so it is best to invest in all companies to make sure you have the winners
    • jackcosgrove 10mo ago
      And anyone who thinks they can consistently predict who will be among the 4% is... mistaken. Diversification is how one manages risk when a system has a power law distribution of outcomes. Trying to beat the market is playing a zero sum game. Someone has to lose for you to win. I understand savvy winners add information, but most winners are just lucky and it still makes me uneasy to play a zero sum game. When you simply try to match the market, you float on the tide that mostly raises all boats and sometimes lowers them. That sits much better with me.
• zahlman 10mo ago
  I saw the underlying theory discussed years ago, in a series of articles on a very serious economics blog, coming to very different conclusions: https://www.philosophicaleconomics.com/2016/05/passive/ https://www.philosophicaleconomics.com/2016/05/passive/ https://www.philosophicaleconomics.com/2016/05/followup/ https://www.philosophicaleconomics.com/2016/05/followup/ https://www.philosophicaleconomics.com/2016/05/indexville/ https://www.philosophicaleconomics.com/2016/05/indexville/ https://www.philosophicaleconomics.com/2016/05/passiveactive/ https://www.philosophicaleconomics.com/2016/05/passiveactive... Looks like the blog stopped in 2020, unfortunate....
• TuringNYC 10mo ago
  The giant rise and fall of Oracle in 2025 would suggest that price discovery is alive and well for megacaps, and there is money to be made by being smart about (if you have sufficient scale for research) https://www.google.com/finance/beta/quote/ORCL:NYSE?window=1Y https://www.google.com/finance/beta/quote/ORCL:NYSE?window=1...
• sakopov 10mo ago
  Calling everything a "bubble" without identifying where capital would rationally go instead is lazy analysis. I've been an investor for 15 years and every single year someone screams we're in a bubble. It never ends
  • rich_sasha 10mo ago
    I guess the weird thing about being in a bubble is keeps going up, until it pops and you find out you were in a bubble. Us equity P/E ratios are astronomical.
• andsoitis 10mo ago
  "Their indiscriminate buying could therefore pull share prices out of whack with underlying earnings. Pulling in the opposite direction are the arbitrageurs, such as hedge funds, which can take the other side of tracker funds’ trades and profit from bringing prices back into line with fundamentals."
• paxys 10mo ago
  Remember the 2008 subprime mortgage crisis, famously caused by passive investors buying CDOs through their Vanguard funds? Or the dotcom bubble? The great depression? Remember when passive investors were buying tulip ETFs in the 1600s? You don't, because every single financial bubble in history has been caused by active investors speculating and gambling, in most cases with other people's money. And now that people want to stop giving them money (and the associated fees) they turn around and go "you don't know what you are doing, you'll totally cause a bubble". Give me a break.
• the_solenoid 10mo ago
  Tax breaks for people who already have more money then they can spend fuel bubbles. It makes number go up even when the economic fundamentals are in the toilet.
  • nh23423fefe 10mo ago
    Yes. If I have more money than I can spend I take a risk and invest that money in a company that has a productive use for that money. They hire people, do research, produce products and return the profits to me, the person who took a risk. It's not a conspiracy.
• dade_ 10mo ago
  Is printing money inflating stockmarket and every other price?
• incomingpain 10mo ago
  The traditional historical PE ratio of ~17 was before it was so easy to invest in the stock market. PAssive or not. The current SP500 pe ratio is ~31 It's not unreasonable to expect that this might even be below the new average whatever that might be. In fact, the antistock market like gold/silver/bitcoin is also probably low; not high. Even if 17 is still the correct number, 31 isnt even a bubble by definition.
  • etyhhgfff 10mo ago
    The long term ratio of 17 is basically the pre-ETF era average. Now that everyone and his best friend's mom is invested in ETF it is fair to assume that we will establish a much higher ratio.