I warned investors last year to heed the words of Vanguard founder Jack Bogle when he sounded the alarm on index funds. Now, Michael Burry, whose story was immortalized in The Big Short as one of the first investors to call the subprime mortgage crisis, has echoed Bogle’s warning. CNBC’s Yun Li reports Burry has said of the bubble in index investing “the longer it goes on, the worse the crash will be.” She writes:
Low-cost passive vehicles have gained popularity on Main Street. Passive investments have now taken over nearly half of the stock market as more investors shun stock pickers and flock to index funds, according to Bank of America Merrill Lynch. Equity passive funds alone have ballooned to a more than $3 trillion market in less than 10 years, according to Morningstar. These funds mirror just about anything that can be tracked. They include indexes such as the S&P 500 or the Russell 2000.
“Trillions of dollars in assets globally are indexed to these stocks,” Burry said. “The theater keeps getting more crowded, but the exit door is the same as it always was. All this gets worse as you get into even less liquid equity and bond markets globally.”
Many notable investors have sounded alarms on the proliferation of passive investing. DoubleLine Capital CEO Jeffrey Gundlach previously said it is causing widespread problems in global stock markets. He called it a “herding behavior” and said it has reached “mania status.”
Read more here.
Originally posted on Your Survival Guy.