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tony

Are Index Funds Evil ?

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If you’re like me, you’ve cheered the decades-long rise of index funds—investment vehicles that seem (these days) to be a rare case of financial innovation that actually helps regular people. By trying merely to match the market, not beat it—investing passively in stocks that mimic a published market index, like the S&P 500—they’re able to offer both low fees and peace of mind for people not inclined to try to pick which stocks to buy and sell.

 

https://www.theatlantic.com/magazine/archive/2017/09/are-index-funds-evil/534183/

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Interesting read. Much better than anti-index folks calling us Nazis.

if investors own a slice of every firm, they will make more money if firms compete less and collectively raise prices, at the expense of consumers. Knowing this, the firms’ managers will de-emphasize competition and behave more cooperatively with one another.


  • The idea that collusion leads to higher profits/prices is nothing new.
  • I'm skeptical that Vanguard, Blackrock, etc would pressure companies to stop competing.
  • I'm skeptical that companies would mutually decide to stop competing because index funds will buy their stock regardless. I have to believe "active" investment would kick in and appeal to greed within those companies. I also wonder what role individual people have, a lot of those guys are hyper competitive and ego-driven.
  • What about the age old advice for diversification? For those who don't buy index funds, were they ignoring this wisdom and going all in on Microsoft while ignoring Apple?
  • What about laws and enforcement of anti-competitive business practices?
  • If we got to some point in the future and knew for a fact index funds were "bad", I wonder what that would mean for active funds. I can imagine a world were investors demand rock bottom costs from active management. I can also imagine a world were investors demand diversified portfolios from their active management and isn't that the same "problem"?

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