Michael Shell writes:
If you believe that markets are efficient and the best you can do is buy, hold, and rebalance to an allocation of stocks, bond, or passive index funds; I have a secret for you. The paradox of the Efficient Market Hypothesis (EMH) is that if everyone believed the market was efficient it wouldn’t be efficient anymore. It takes trades to buy value or sell bubbles to bring prices closer to efficiency if prices are to reflect “all known information”.
Exchange Traded Funds (ETFs) are primarily passive index funds and are used by asset allocators as well as tactical rotators, trend followers, and traders. Because many so-called “active managers” who are really relative return funds (closet index) failed to protect investors from the same level of losses as the lower cost passive indices, many asset allocators are now turning more to passive indices. Since more and more money is flowing to passive index funds, especially for the “long term” the market will get less and less efficient.
Now, you may consider that those who exploit market inefficiencies would like you to buy and hold index funds. No matter how much they write their propaganda, those who know what you don’t have zero incentive to convince you otherwise, and a whole lot of incentive to gas you up to keep doing what you are doing.
I just want to say “thank you” to those who passively place their hard earned money in stocks, bonds, etc. and keep it there no matter what happens next. We sincerely appreciate you.