Index-Investing Critic Takes Aim, Fires, Misses
New arguments against low-cost, passive investing are no better than the old ones.
Bloomberg, December 12, 2018.
Over the past 40 years, low cost indexing has risen from an abstract financial theory with very few takers – just ask Jack Bogle or Jeremy Grantham – to a juggernaut sucking up most of the new dollars flowing into the equity investments. Blackrock, Vanguard and State Street, the top three indexers, collectively own more than 10 percent of every company in America. They own lots of overseas firms as well.
This shift represents an existential threat to numerous parts of the financial services industry: from human traders to newsletter writers to various active strategies, once investors decide to simply “buy the market,” many types of financial jobs are no longer necessary.
I was reminded of this as I read a deeply flawed analysis, titled, “Your love of index funds is terrible for our economy.” It was so filled with misinformed, poor reasoning and just plain wrongness that it cried out for a debunking. (I am legally compelled by statute to correct such things).
There are three reasons why indexing has become so popular . . .