Originally Posted by clifp
My understanding is that more and more people that rely on indexing the less number of people will be around to keep the indexes honest and the less stable the market will be.
As thought experiment, imagine if stock market consisted of exactly three people, indexers, Warren Buffett, and Bill Gross. Now as long as Buffett and Bill Gross disagree about a stock the market works but what happens both Buffett and Bill Gross decide the Apple is overpriced and sell it short.
Yes. This is my worry. There's potential that all us retirees are in indexes being controlled by a small group of traders. It isn't that way right now, of course. I'm just carrying it to the logical conclusion if everyone were forced to indexes.
We kind of need those active managers, among others, and we need them to have diverse viewpoints to help drive the market. Look at facebook. The market spoke and spanked the investment bankers.