The Index Fund Problem Looming in 2024

Michael Burry back in 2022 said that the only difference between now and the dot-com crash is the passive investing bubble that's been forming over the past decade. And now, with the magnificent 7 roaring ahead, that index fund bubble seems larger than ever before. But is this something that investors need to be concerned about?

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★ ★ CONTENTS ★ ★
0:00 The Passive Investing Bubble
2:48 Tech Stocks Over-inflating the Market
5:53 Market Distortion From Blind Buying
9:27 Will the Bubble Burst?

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[Sindibad]

Active managers complaning about passive investing. Nothing new.

[HarryArnold-tqsx]

Transfer of wealth usually occur during inflation and market crash at times like this. So for me, this is time for aggressive investment. The more stocks drop, the more I buy. I'm just focused on making better investments and earning more as recession fear increases.

[PeterParker-wjcr]

Look at it this way. There is no perfect strategy. Bubble or not. Index/ETF investing is still the best option for the average joe. We don't get paid to sit around and analyse balance sheets 8 hours a day. For the common man index investing is still the best option!

[SlowrideHome]

I've got 100k to invest. I want to build a nest egg for when I'm older. I want to know if it's a good idea to add all my savings into a long term ETF, set and forget Come back in 20-30 years, instead of 250-300 DCA every month. Which ETF would you recommend?

[Slamdunka]

If 7 of the biggest companies in the world dropped FIFTY % the index would only go down 16%? Seems like a good result.

[desmondlim]

Your big crash has been looming since 2020, 2021, 2022, 2023,

[rico.worship]

"They are invested into not because of business performance, but simply because they are in an index" Yes, but why are they in the index? Probably because of business performance(checked by the index provider), so there is no problem after all, I guess?

[Shirley_P-cc]

Find quality stocks that have long term potential, and ride with those stocks. I have found it takes someone who is very familiar with the market to make such good picks.

[andrewfeazelle]

It's not a bubble. It's that there is so much debt in the system, central banks have to monetize the debt to keep the system from collapsing. All that's happening is global liquidity is rising like 8-10% per year and it's repricing the price of scarce assets via currency debasement. Basically if you divide SPY or VOO by the Federal Reserve balance sheet, the market has been flat since 2008. I mean you can stop passively investing because you think it's a bubble. But if that bubble bursts then even your cash sitting on some bank's computer system or in a stable value fund in a 401k is going to get confiscated by the banks to back stop a systemic collapse. That happened in Greece over a decade ago. So it's safer to just leave it in the market. You're more at risk of being left behind by currency debasement than you are of a 80% collapse of the SPY.

[dyingpentas]

This is nothing new, I've heard the same thing 5 yrs ago. And now

[ÉtienneLaurent-ql]

The teachings on this channel are always top notch so informative and easy to understand, it's very hard to find good content online these days

[AlthenaDiamond]

*Appreciate your videos! I’m 54 and younger generations should know there’s no shortcut to acquiring wealth, but there are ways to go about it. Fellow millionaires don’t tell the poor/middle class they need the knowledge of finance coaches to help build their wealth. If anyone here needs a good coach, here’s it..*

[Xiison]

If index funds “irrationally” holding up prices, why TSLA, Nvda etc would suddenly drop 5-10 ? And FB dropped 50% after it became META? A humble question looking for answers

[VibronicCow]

Also look at the top S&P companies 20 years ago. Completely different but the index still up the to the right. Next

[HDB]

So Burry is bitching because passive buying and holding helps to maintain a price point but will inflate future prices due to reduced supply of that stock.

Basically, he's complaining that there is less available for him to churn or to short because he can't\won't knock on a gazillion doors asking to borrow your stocks so he can sell them to devalue them and then buy them back and pocket the profit while you "benefit" from a few pennies per share and a devalued portfolio. Tough shit Michael

[davidlin]

Passive investing bubbles arguments can be applied to bank saving accounts: basically everyone who is not a investing guru investing in something “safe” creates a “bubble”

[TreyJam]

The mag 7 may or may not be overvalued. If they are overvalued their valuations may or may not stretch. The market could crash or keep going up. Missing out on the best days of the market, and trying to time out will lead u to having significantly less gains over time. Just dollar cost averaging into the s&p 500 as well as a little in a total international index will greatly increase your returns over time.

[tmer]

I like investing in close-end funds that pay monthly dividends. The trick is to hold long term and reinvest the monthly dividends plus buy more shares on a monthly basis or whenever you can afford to. This can be easily done because close-end funds are bought and sold on the stock market just like regular stock. That’d be enough to create a portfolio that would pay you between $50k to $70k in dividend income

[Simon-irmq]

people have been talking about index fund bubble for years now, but very few people ever get rich by predicting a crash.

[TheBlackMage]

1) The passive investors aren't setting the price. It's the active investors.

2) If there is a passive investing bubble, it's a great opportunity for active investors (such as Burry) to make some cash and get prices back to the proper level. If you are continually buying, then these ebbs and flows are to be expected and totally fine.

3) Most people also diversify into international and small/mid cap so the concentration which diversifies beyond the magnificent 7. Also these companies have incredible profits and have had a long record of great growth despite being continually labeled as too expensive. If you had stayed out of these companies, you would have missed out on a great run over the past 2 decades.

4) This weighting of the top 10 companies is not wildly different than throughout history of the S&P500.