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!"
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?
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.
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.
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.
> 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.
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)
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
"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."
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.
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.
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.
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.
18 comments
[ 3.3 ms ] story [ 34.5 ms ] thread"I used to keep this gate, and now it's all ruined!"
Paper this article is based on (2021): https://www.nber.org/system/files/working_papers/w28967/w289...
Back to the stock market.
Edit:
The Big Short’s Michael Burry Explains Why Index Funds Are Like Subprime CDOs (2019)
https://archive.is/7mOuF
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.
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.
https://www.philosophicaleconomics.com/2016/05/passive/
https://www.philosophicaleconomics.com/2016/05/followup/
https://www.philosophicaleconomics.com/2016/05/indexville/
https://www.philosophicaleconomics.com/2016/05/passiveactive...
Looks like the blog stopped in 2020, unfortunate....
https://www.google.com/finance/beta/quote/ORCL:NYSE?window=1...
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.
It's not a conspiracy.
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.