Passive investing bubble?

Brains trust,

Bit of a curious post more than anything. I’ve heard a bit over the last year or so about this supposed “passive investing bubble”.

Most of what I have found has originated from an interview Michael Burry (the big short) gave in 2019 where he basically says the flood of money into these top stocks through the rise in popularity of ETF’s, LIC’s etc is creating inflated prices and leading to neglect of smaller cap stocks.

Just curious as to everyone’s thoughts on this?

This also got me thinking, I’m assuming it’s remotely possibly but, how would an AFIC or Vanguard manage to go broke?

Cheers
Blue

 

Even if a parent company went broke for some reason, the funds would be independent and just change managers.

 

There's a big gap between over valued and going bust. The underlying assets are still running profits (hopefully).

There's always small cap ETFs if the bubble is at the big end of town.

 

Good point. Burry went on to say the “bubble” might burst if and when people start pulling their money out of all these passive investing models, I can’t see how it’s different to the normal market panic when dealing with individual stocks?

 

I found this a good read on the topic...

The Real Bubble Has Always Been in Active Management - The Reformed Broker

 

From the Bogleheads

What if Vanguard went broke?

also

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Link

 

That’s perfect, cheers!

Would a LIC be slightly different with a company structure? Or would you think they would operate similar to vanguard in this way...

 

Very old LICs like AFIC etc typically have no debt so for them to go broke would require their entire portfolio to go to zero or some type of fraud.

Which I would think is extremely unlikely where there is a long history, management having some skin in the game and the ongoing disclosure requirements to the ASX.

 

Michael Burry (from the Big Short) has bet against Elon Musk and against Tesla

https://www.businessinsider.com/tesla-stock-big-short-michael-burry-elon-musk-share-issuance-2020-12

 

A gutsy move:

Tesla Short Sellers Lost More Than The US Airline Industry This Year

I was actually wondering what contemporaries thought of Henry Ford when he was changing the world and came across this:

Get A Horse! America’s Skepticism Toward the First Automobiles | The Saturday Evening Post

“To advocate replacing the horse, which had served man through centuries, marked one as an imbecile.”

 

I’m not usually interested in car history, but that was a really interesting read. Thanks.

 

Tesla short-sellers lost $38 billion throughout the automaker's colossal 2020 rally

Investors betting against Tesla lost billions last year, as the automaker's shares leaped above nearly all estimates.

Short sellers saw $38 billion in mark-to-market losses throughout 2020, Bloomberg reported Thursday, citing data from S3 Partners. Short interest in the shares fell to less than 6% of Tesla's float from nearly 20% as the company's rally led investors to close out their bearish positions.

 

Speaking of bubbles

 

'Big Short' investor Burry says he's no longer betting against Tesla - CNBC

 

Index Investing Isn’t As Popular As Headlines Suggest

Cont.....

 

Interesting read. Only 15% of total US market sits in index. So means 85% of the US market holding is likely to underperform the the ones holding that 15%. I like that. Even more reason to keep investing in index funds.

 

Not to mention most managed funds seem to hug the index anyway!

 

Or whatever 'index' they choose to benchmark against.

 

The Empty Wine Bottle index would be an excellent benchmark for some. In my case it is now the Empty Coffee Cup index.