Two Quants and a Financial Planner The Great Distortion: The Hidden Impact of Passive Investing | Practical Lessons from Mike Green
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May 26, 2025 In this engaging discussion, Mike Green, a provocative thinker on passive investing, unpacks the hidden mechanics behind seemingly passive investment flows. He reveals how these flows actively distort market dynamics and price discovery, raising concerns about systemic risks and the real implications for individual investors. Mike also delves into the gig economy's effect on unemployment data and the challenges international assets face amid prevailing passive trends. With clarity and wit, he offers crucial insights that challenge conventional views on modern market behavior.
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Passive Investing Drives Market Distortion
- Passive investing is not truly passive because investors are actively deciding to put money to work.
- This creates market distortions and systemic risks from flow-driven price changes.
Correlation Breakdown in Value Stocks
- Correlation between value and growth stocks has broken down due to shifts in management styles.
- Passive investing replacing active value managers has driven this negative correlation change.
Invest Where Passive Flows Matter
- Individual investors should maximize gains by focusing on stocks with strong passive inflows.
- Buying broad market indexes like the S&P 500 generally aligns with this strategy.
