Keeping it Simple with Simplify Asset Management Keeping it Simple | Ep. 50: And Yet It Moves!
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Jul 16, 2025 
Davidson Heath, a finance professor at the University of Utah and former derivatives quant, dives into the world of passive investing. He discusses how index inclusion reshapes the information landscape around stocks and the tug-of-war between passive and active strategies. Heath also examines the implications of corporate behavior in response to index fund flows, the risks of high passive market shares, and Japan's investment dynamics. With humor sprinkled throughout, the conversation provides engaging insights into today's market complexities.
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Passive Reduces Info, Not Efficiency
- Passive investing reduces traditional information production on stocks but does not impair price efficiency.
- Index inclusion leads to less fundamental analysis even as prices remain informative about returns.
Aggressive Trading Balances Info Drop
- Active traders trade more aggressively per unit of information but gather less due to lower stakes.
- These effects balance perfectly in a fully competitive market, preserving price efficiency.
Flows Trump Fundamentals Now
- Fundamental information becomes less relevant as flow-based data from passive investing dominates.
- Market participants focus more on ownership, flows, and positioning than discounted cash flow models.