Re:A critique of the claim that passive investing is a bubble
by throw0101a on Thursday September 05, 2019 @04:18PM
(#20890308)
> I think they claim is that their is a lot of "dumb money" holding indexed products that are likely to sell all at once when things turn south.
There is no evidence for this. During the 2000-2002 and 2008-2009 index funds actually saw higher inflows:
* https://www.etfstrategy.com/three-reasons-why-indexing-and-e...
Re:A critique of the claim that passive investing is a bubble
by fyz on Thursday September 05, 2019 @05:31PM
(#20890812)
What would said dumb money be holding if not index funds? Single name blue chips? What would the blue chip holders do in the counterfactual world where there is a big downturn?
Perhaps there will be greater correlation between names in a downturn, but then again, factor-based investing might offset some of that.
I think they claim is that their is a lot of "dumb money" holding indexed products that are likely to sell all at once when things turn south. By the structure of these funds, their will be large selling pressure on the underlying stocks and a good chunk of them don't have the liquidity to support that pressure. That doesn't mean their will be a metldown, just that prices will tank very hard and a lot of people will lose a lot of money + the economic effects that has I don't understand.
I was hoping the original article would tear that reasoning down, and while it did touch on various mechanisms it didn't give a cohesive thesis as to why that is wrong.