> O’Neill fears that the result will be a “bubble machine”—a winner-take-all system that inflates already large companies, blind to whether they’re actually selling more widgets or generating bigger profits.
Part of the problem is that if you look at the stellar long-term performance of indexes, they are largely explained by a small number of stocks in the index that perform extremely well… but you don’t know ahead of time which stocks those are. If you want the performance of the S&P500, you need a similarly diversified portfolio, the theory goes. It is hard to get a portfolio with that kind of diversity unless you buy index funds.
https://www.newyorker.com/business/currency/is-passive-inves...
March 9, 2016
> O’Neill fears that the result will be a “bubble machine”—a winner-take-all system that inflates already large companies, blind to whether they’re actually selling more widgets or generating bigger profits.
Part of the problem is that if you look at the stellar long-term performance of indexes, they are largely explained by a small number of stocks in the index that perform extremely well… but you don’t know ahead of time which stocks those are. If you want the performance of the S&P500, you need a similarly diversified portfolio, the theory goes. It is hard to get a portfolio with that kind of diversity unless you buy index funds.