FYI: This stuff scares people because it’s coming from an intelligent investor who made a name for himself during one of the biggest market crashes of all-time.
Sometimes even the best investors are too smart for their own good when it comes to understanding the simpler parts of the investing world. Here’s legendary hedge fund investor Seth Klarman’s take on index funds:
I believe that indexing will turn out to be just another Wall Street fad. When it passes, the prices of securities included in popular indexes will almost certainly decline relative to those that have been excluded. More significantly, as Barron’s has pointed out, “A self-reinforcing feedback loop has been created, where the success of indexing has bolstered the performance of the index itself, which, in turn promotes more indexing.” When the market trend reverses, matching the market will not seem so attractive, the selling will then adversely affect the performance of the indexers and further exacerbate the rush for the exits.
This too sounds scary. The problem is Klarman wrote this in his book, Margin of Safety, published in 1991.1
I get questions about the potential for a passive bubble on a regular basis so I figured it was time to put all my thoughts on the topic in one place.
Regards,
Ted
https://awealthofcommonsense.com/2019/09/debunking-the-silly-passive-is-a-bubble-myth/
