Passive investors own the same proportion of each stock (to a first approximation). Therefore the remaining stocks, which are held by active investors, also consist of the same proportion of every stock. So if stocks go down then this will reduce the value of the stocks held by the average active investor by the same amount as those of passive investors.
If you think stocks will go down across the market then the only way to avoid your investments going down is to not own stocks.
The academic research (e.g. Santa Fe institute work referenced in Jarrod Wilcox’s “Investing by the Numbers”, an excellent book for LessWrong-ish people), suggests that while truly passive indexers do not cause problems directly, they can cause problems in other ways.
They tend to amplify the effects of momentum players and price insensitive growth-oriented traders for example. In sufficient numbers they can therefore indirectly destabilize the market.
When they are not really indexers but picking sectors to “index” in, they certainly can add to the chaos.
Passive investors own the same proportion of each stock (to a first approximation). Therefore the remaining stocks, which are held by active investors, also consist of the same proportion of every stock. So if stocks go down then this will reduce the value of the stocks held by the average active investor by the same amount as those of passive investors.
If you think stocks will go down across the market then the only way to avoid your investments going down is to not own stocks.
The academic research (e.g. Santa Fe institute work referenced in Jarrod Wilcox’s “Investing by the Numbers”, an excellent book for LessWrong-ish people), suggests that while truly passive indexers do not cause problems directly, they can cause problems in other ways.
They tend to amplify the effects of momentum players and price insensitive growth-oriented traders for example. In sufficient numbers they can therefore indirectly destabilize the market.
When they are not really indexers but picking sectors to “index” in, they certainly can add to the chaos.