Index funds keep blowing what looks like a bigger bubble in the giant tech stocks.
Buying at any price simply isn’t good capitalism.
“Passive investors have no opinion about value. They’re going to assume everybody else has done the work.” Meanwhile, Charles Gave of Gavekal Research avers in as many words that “indexation will destroy capitalism.”
This thinking isn’t new. Back in 2016, Alliance Bernstein’s Inigo Fraser Jenkins defined the issue for a generation with a lengthy paper arguing that “passive investing is worse for society than Marxism.” But it’s been given fresh impetus by the continuing levels of concentration in markets, which has grown extreme.
The problem with passive funds is that as long as they’re taking in new money, they’ll accept the prices then available in the market. Thus, the more a company is valued, the more the fund will buy of that company, tending to push the price up further.
John Authers Wall Street Journal 9 February 2024
Einhorn Says Markets ‘Fundamentally Broken’ By Passive, Quant Investing