yes, markets can still be efficient if most investors aren’t even paying attention

 US markets are doing much better than markets everywhere else, but no one seems to know why. 

Yes, there are theories: Perhaps it’s the promise of AI, although it remains to be seen how AI will play out and who will profit. Or maybe valuations are high, and the market will come down. Or … could it be that markets are doing better because no one is really thinking about them all that much?

Markets are supposed to allocate capital to its most productive use.  If money goes to the wrong places, stocks become overvalued and vulnerable to bubbles. 

For markets to be efficient, there needs to be a critical mass of investors who don’t believe in market efficiency — or believe that they are smarter than everyone else.

But how many is enough? Now that passive money is dominant, are there too few?

My next 401(k) contribution may be 5% in Nvidia (its share of the S&P 500), but it is also 0.45% in McDonalds. 

I am not changing relative prices — and that’s what matters.

/RE: Really?/

Allison Schrager Bloomberg 18 april

Index funds keep blowing what looks like a bigger bubble in the giant tech stocks.


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