“Buy and Hold” No More: The Resurgence of Active Trading
I am a hedge fund guy who invests his own $$$$ passively so make of this what you will.<p>There will always be a mix of active and passive.<p>Fundamentally - passive only works when it follows smart active. Actives do expensive research and trade against each other to arrive at the consensus price. Passives trade at that price for &quot;free.&quot; Since both get the same price on average but passives incur no cost, they win on average<p>This breaks down if passives outnumber actives, <i>or</i> if actives are exceptionally stupid.<p>Imagine 100% is passive. That means any stock in an index will be bought tomorrow and forever regardless of price. I could exploit that in a ton of ways. For example, do a &quot;squeeze&quot; (think of the recent GME short squeeze but in reverse.)<p>Or, imagine company X will obviously default but stock keeps going up because passives are obligated to buy. Very easy to exploit by going active!<p>Finally - think about this. Does your index fund have any GME? That part of your portfolio trades at the price set by Reddit apes. The more of that goes on, the more tempting it is to go &quot;active&quot; on the other side.