Comments on: What If The Entire Market Was Indexed?

By: LinkStuff - Monday, April 20

LinkStuff - Monday, April 20 — Mon, 20 Apr 2009 09:02:12 +0000

[...] answer the question which I’ve often wondered – what if the entire market was indexed? Would active investors then have a [...]

By: ioana

ioana — Fri, 17 Apr 2009 21:27:53 +0000

Hmm I don’t think that’s all that would happen.

I’m a newbie to the financial world by all accounts. I only dare to say what I think because of the pants falling off the economists and financial advisors all over the world. If they, who are educated in the field, can be so off, then why can’t I (be off), right?

But I think that would mean that the only stocks getting bought are the ones in the indexes.. giving the index managers undue power over … inviting corruption in this groups etc etc.

By: This and That: “Shoots of Recovery” week edition — Canadian Capitalist

Thu, 16 Apr 2009 22:00:56 +0000

[...] Preet considers what would happen if every investor simply tracked the market indices. [...]

By: Brian

Brian — Tue, 14 Apr 2009 02:16:09 +0000

I don’t think its that far off as you guys make it out to be. 30 years ago, it would have been difficult to find a pension fund that indexed their investments. Now, I would say nearly 90% of pension funds are linked to some sort of index. When the public becomes more educated, we’ll gradually see an increase in its popularity.

By: Silicon Prairie

Silicon Prairie — Mon, 13 Apr 2009 22:59:58 +0000

It will be a sad day when “only” getting the market average no longer beats the average investor :) Since indexes pick up the average opinion of all active investors, it’s right to say that if there were no active investors there couldn’t be an index the way we know them now. Even now when the average opinion can be severely mis-informed.

Regardless of the balance of active and passive investing, picking individual stocks to invest in would always be likely to take a lot of time. An easier way to do it might be to judge the future returns of the index based on what you know about it now (ie, when the P/E is 50 it will never slow down!) and use that to adjust your allocation. I currently find that preferable to indexing the global markets by trying to buy indexes in proportion to their total dollar weight.

Regardless of the current balance a good way to view things is that picking a good manager is similar to picking good stocks – it’s something you can (possibly) do it if you don’t have time but you know how. If you don’t know how to pick a good manager, take them all :)

By: Preet

Preet — Mon, 13 Apr 2009 16:17:49 +0000

@ Traciatim – yeah, pretty much. :)

@ CC – I’d be surprised if we saw 50% passive in our lifetime.

By: Canadian Capitalist

Canadian Capitalist — Mon, 13 Apr 2009 15:23:17 +0000

I don’t think we’ll ever have a situation where everyone is 100% passive either. Just as we’d never have a situation where everyone saves 10% of their income, exercises 30 mins. every day, eats their vegetables, don’t smoke, drink moderately or not at all, don’t do drugs etc.

By: Traciatim

Traciatim — Mon, 13 Apr 2009 12:31:11 +0000

So essentially your applying “Be greedy when others are fearful and fearful when others are greedy” to “Be active when others are passive, and passive when others are active”? Essentially it all boils down to “Figure out what most people are doing . . . don’t do that.”