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Mike Green on the Dangers of the Rise of Passive Investing

Excess Returns

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Why Is Passive Investing Driving Higher Valuations?

The world's largest passive index fund, the Vanguard Total Market Index, is about $1.6 trillion in total market cap and it carries no cash. It actually had negative $100 million in cash at one point last year because it utilizes a line of credit to facilitate redemptions. The behavior of passive strategies is what's referred to as perfectly inelastic. If you give them money, they will buy regardless of valuations.

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