Is Passive Feeding The FAANGed Mega-Cap Beast?

Passive investing is in many ways analogous to the modern mature retail market in the U.S. We can confidently walk into Costco or many other retail locations and buy without worrying about getting a bad deal. 100 years ago, we would have needed to be active price hagglers to make sure we put in the effort to discover and negotiate a good price.

In other words, we can be passive shoppers because the market is so efficient, due to easily sourced information and a small efficient group of active shoppers setting prices. That is a great benefit to society. However, in situations when active investors have distorted prices to such an extent that a bubble has formed, it can be a good time to find active managers with long-term discipline to go against the crowd and take advantage of market mispricing.


Source: Anadu, Kenechukwu and Kruttli, Mathias S. and McCabe, Patrick E. and Osambela, Emilio and Shin,
Chaehee, The Shift From Active to Passive Investing: Potential Risks to Financial Stability? (September 17, 2019).
Available at SSRN: https://ssrn.com/abstract=3244467 or http://dx.doi.org/10.2139/ssrn.3244467

Source: Bloomberg, MarketWatch.com, Morningstar, S&P, CRSP

Source: Anadu, Kenechukwu and Kruttli, Mathias S. and McCabe, Patrick E. and Osambela, Emilio and Shin, Chaehee, The Shift From Active to Passive Investing: Potential Risks to Financial Stability? (September 17, 2019). Available at SSRN: https://ssrn.com/abstract=3244467 or http://dx.doi.org/10.2139/ssrn.3244467

Source: Vladyslav Sushko, Grant Turner, BIS Quarterly Review, March 2018, “The implications of passive investing for securities markets” https://www.bis.org/publ/qtrpdf/r_qt1803j.pdf

1 2 3 4
View single page >> |

Disclosures

These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page.

Investing involves risk and ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.
Comments have been disabled on this post.