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re: Michael Burry calls passive investments/index funds a bubble
Posted on 9/6/19 at 11:41 am to lsu13lsu
Posted on 9/6/19 at 11:41 am to lsu13lsu
quote:
The average person doesn't realize that an S&P 500 mutual fund/ETF doesn't really own the underlying stock. There isn't enough stock to go around because of how many funds/etfs there are that want to match the S&P 500 etc. What these funds/etfs own is derivatives of said stock that "mimic" the stock.
That's false.
The crux of the issue is that it works well if limited amount of people invest in these funds, because you still need people to regulate the market and sell off shitty companies and buy up good ones. If the spread ever gets too wide, the shorts and active managers will take care of that in theory. Unless the amount of passive investors grows to critical mass and you can't overcome this large amount of "dumb" money holding onto a stock. I don't think we are anywhere near this level of passive investing.
3
Posted on 9/6/19 at 11:46 am to barry
quote:
The crux of the issue is that it works well if limited amount of people invest in these funds, because you still need people to regulate the market and sell off shitty companies and buy up good ones. If the spread ever gets too wide, the shorts and active managers will take care of that in theory. Unless the amount of passive investors grows to critical mass and you can't overcome this large amount of "dumb" money holding onto a stock. I don't think we are anywhere near this level of passive investing.
Can you give a ballpark on current percentages versus percentages that you would deem might would be approaching "critical mass"?
Posted on 9/6/19 at 12:32 pm to barry
Would another way to say it be that these potentially overvalued, low price/volume stocks are being marked to an inefficient market? And, once the market becomes more efficient, their true, lower values will suddenly be recognized in the total value of these funds.
Posted on 9/9/19 at 11:08 am to barry
quote:I read an article last week stating that we have passed that point (more passively managed money). Can't remember how they backed up their claim, I'll try to find it and link it.
Unless the amount of passive investors grows to critical mass and you can't overcome this large amount of "dumb" money holding onto a stock. I don't think we are anywhere near this level of passive investing.
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