Index Investing

[HyperionTree]

Here is an interesting article by Cullen Roche about what he considers to be "The Biggest Risk of Passive Investing"

http://www.pragcap.com/the-biggest-risk-...investing/

One other factor is that USD nominal interest rates have been going lower and lower after peaking in 1985. That gives 30+ years of downtrend. This should contribute to ETFs outperforming.

Interestingly, Tree said that when the Fed printed money to buy bonds, the money didn't flow into the economy. Instead the money got clogged up in the stock market and in the property market. This is evident by the low velocity of money observed in US. If money is clogged up, then QE had failed to serve its purpose of revitalizing the economy. Instead, stock market and property market bubbles are created around the world. If money is stuck in stocks, and you exclude stocks and property values in calculating inflatoin, of course inflation won't increase during a period of aggressive money printing.

Hyperion notes that while retail went for ETFs, institutions went for tech via the alternative assets route. Many pension funds funded private equity and venture capital funds to invest in technology companies. From the start-up space, to IPOs like Snapchat and tech giants like Amazon, the tech sector is very overvalued. As such, for the last 5 years, the only active managers that beat the indices around the world are those who bought overvalued publicly listed technology companies like the Facebook, Amazon, Alphabet(Google previously), Netflix, Tencent, Alibaba etc.

However, recently funding for start-ups have started to dry up. There are signs that the credit tide is reversing slowly but surely.

What do you guys think?