Jack Bogle warning on Indexing getting too big

Zola.

https://citywireselector.com/news/vanguard-founder-rings-alarm-bell-over-index-domination/a1181243

Very interesting view point - although I wonder just how long this would take to come to fruition..

eskbanker

Zola. wrote: »

Very interesting view point - although I wonder just how long this would take to come to fruition..

There does seem to be quite a leap from "US index mutual funds have bloomed from 4.5% of the total US stock market in 2002 to 17% at present" to "It seems only a matter of time until index mutual funds cross the 50% threshold"!

Another way of looking at it would be that index fund share has increased by 12.5 percentage points in 16 years, so, if that growth was linear, it would take another 42 years to reach 50%. No particular reason to suspect linearity (he does suggest it's accelerating) but equally there's no particular reason to suspect that demand for such funds is infinite, especially once the bull run ends.

However, I'm sure he's much more attuned to US market conditions than I am!

talexuser

Very interesting. It would be too much power in too few hands, on the one hand a cosy "rich club" where innovation is stifled and average performance rewarded handsomely irrespective of failure, or on the other voting for total focus on only short term gains to the detriment of long term growth and employment?

Thrugelmir

Zola. wrote: »

Very interesting view point - although I wonder just how long this would take to come to fruition..

A viewpoint that's been highlighted for some time. given the holdings that the 3 largest US fund managers hold of certain stocks, i.e. 30% of the free float of Facebook.

Thrugelmir

talexuser wrote: »

Very interesting. It would be too much power in too few hands, on the one hand a cosy "rich club" where innovation is stifled and average performance rewarded handsomely irrespective of failure, or on the other voting for total focus on only short term gains to the detriment of long term growth and employment?

The fund managers ultimately become the market. Who do they sell to for example? That's one of the challenges being posed.

Investors would opt for an alternative fad instead.