Is Index Investing Really a Bubble?

Is Index Investing Really a Bubble?

Back in September, Bloomberg published an article about index investing that made a few waves.  If you read the book or watched the movie “The Big Short”, you might remember Michael Burry.  He’s the former doctor turned hedge fund manager who lives in Silicon Valley (and rocks out to death metal in his office while pondering investment strategy).

The article made waves because Burry claims that index investing is a massive bubble.  Comparing index funds to CDOs (collateralized debt obligations), Burry’s perspective stoked fear in the hearts of more than a few investors.  Here’s the guy who correctly identified one of the biggest bubbles and upcoming crashes of all time.  And he’s saying that index investing could be a bubble too?  Maybe the simplicity we’ve enjoyed of investing in index funds was really a big mistake.  What if he’s right?

Don’t run for the hills just yet.  There’s been some great discussion of whether the argument is fair (here, here, and here, for example).  Here’s my take on whether index investing really is a bubble.

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