Is passive investment inflating a stockmarket bubble?

In other words, the risk is to miss the winners, not that you will invest in a loser.

The problem is that it is very hard to predict the winners, so it is best to invest in all companies to make sure you have the winners

Trying to beat the market is playing a zero sum game. Someone has to lose for you to win. I understand savvy winners add information, but most winners are just lucky and it still makes me uneasy to play a zero sum game.

When you simply try to match the market, you float on the tide that mostly raises all boats and sometimes lowers them. That sits much better with me.

Either you’re doing the math wrong or you’ve skipped some steps.

Let’s say you have companies X and Y, each with 50% of the market. X is a winner, and the stock price goes from $10 to $45. Y is a loser, and the stock price drops from $10 to $5. The new weight is X=90% and Y=10%.

But this cannot be a self-fulfilling prophecy for index funds, because the index funds do not have to buy or sell any shares of X or Y to keep up (I mean rebalance, specifically). In this scenario, the index funds are just holding. (By “holding” I mean “not rebalancing”.)

This is… an oversimplified scenario. But it illustrates the problem here with the “index funds cause a small number of stocks to be winners” theory. There are alternative theories that make sense, but not this one.

(What makes the scenario more complicated is when you think of buybacks, dividends, delisting, etc.)

I do understand how they can stabilize allocations where they are, which I think is the concern. Zombification rather than a positive feedback loop.

You can find structural problems that should inevitably arise and create a dynamic where say a short seller will make a killing.

However it can take years, sometimes over a decade, for things to bubble up.

The collapse of 2008 was decades in the making for instance

Operative word being moment. The volatility is irrelevant if you wait it out long enough, hence "long term". If you need a shorter term low-risk investment vehicle, that's what treasury bills/notes are for.

> watch it all decay away thanks to our inherently inflationary regime

Any alternative investment strategy is equally affected by inflation.

2.6% above CPI. Investor calculus should include a consideration of how CPI is set vs what their actual personal rate of inflation will be.

I am not kidding but the whole crypto market has bled so much when I have been in like +20% or something. Its crazy.

I highly recommend Paxos gold but I had around 100-200 bucks and hte isuse is of Ethereum 7$ gas fees which I shouldve known (I usually use polygon usdc 0 crypto bs only stablecoins)

I think Paxos,Xaut are some good options and there are probably some neobanking solutions to this as well