Today we're discussing the potential of an Index Fund Bubble, what this means for the market, and how you can use this information to make money - Enjoy! Add me on Instagram: GPStephan
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According to Michael Burry, the investor who predicted the 2008 Subprime Loan Crises, as featured in the movie “The Big Short,”…says that index fund investing is ARTIFICIALLY inflating the price of the stock market, because people are driving up those prices through index funds - and that’s causing an imbalance between what a stock is NOW valued, versus what it’s actually worth. 
From a data-driven standpoint, Michael Burry is right. A LOT of money is pouring into index funds….for example, in 2002, just 2% of the US stock market value was held in an index fund…now, they control 20-30% of the ENTIRE market…and growing. In fact, it’s even said that, “for nine in 10 companies on the S&P 500, their largest single shareholder is one of the Big Three Investment Firms: Vanguard, Blackrock, and State Street.
In terms of any immediate concern: probably not.
As most of you know, price movements are caused by ACTIVE TRADING VOLUME…meaning, how many people are buying, and how many people are selling?
In THIS case…Vanguard took to the data to determine JUST how big of an impact index funds were causing on the market…and the result was: not much. In fact, they found that Index Funds only accounted for 1% of all daily trading volume…and the OTHER 99% was from active traders, hedge funds, and individual investors….meaning….no, index funds are not distorting stock values out of proportion…yet.
Now, of COURSE…if they DID begin to push stock prices in a bubble territory…then one would assume that an ACTIVELY managed fund would be able to spot the inefficiencies…make crazy profits…and, begin to outperform…but, that hasn’t happened…and, who knows if that will EVER happen.
So, given all of this…no, I personally don’t see there being any signs of an index fund bubble - and none of my research points to anything that would confirm its cause for concern. Yes, voting control MIGHT be an issue in the future…but, assuming they have their investors best interest at heart…they should be voting in favor of you…plus, when’s the last time you ever actually cast your vote for a stock?
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What's up you guys, it's graham here, and it's no surprise that everything is expensive. Housing costs more today than it ever has in history. The big shorts michael brewery warns that stocks are heavily overvalued and poised to tumble experienced investors are calling for a stock market sell-off and short sellers are increasing their bets. Well, i'm still out here trying to figure out what's for dinner, i'm thinking chipotle okay, but for real at the heart of all of this lies one topic: that's quietly making an appearance, and arguably this would not only impact all of us, but also the entire market And that would be an index fund bubble and to make matters worse.

The creator of the index fund himself jack bogle, issued a statement about the dangers of index investing right before his passing. So, as a self-proclaimed index fund connoisseur, we should dive deeper to determine whether or not index funds are creating a bubble that could burst into oblivion, discuss why so many experts are suddenly calling for a stock market sell-off and then, most importantly, how you could use this Information to make you money, all of that and more on today's episode of taco bell is finally bringing back the mexican pizza and even though that has nothing to do with index fund investing it's pretty cool and before we start, if you appreciate all the research that Goes into making a video like this, it would help me out tremendously if you tap the like button for the youtube algorithm. That's all i ask and as a thank you for doing that and subscribing here's a picture of the sans sifting gobi. So thank you guys.

So much and now, let's begin alright. So in order to break this down and discuss what's going on, we have to start off at the very beginning. An index fund is basically just a big basket of stocks that you can invest your money into and from there you'll get to own a small piece of everything. For example, you could spend 400 to own a small percentage of the entire top 500 publicly traded stocks.

In the u.s stock exchange that way, you're not buying one stock into one company, because you found it intriguing on wall street bets, but instead you'll get to own a small piece of everything plus index funds cover just about every single investment that you could think of. Like for 31, you could own a small portion of every single international stock out there or for 107. You could own a small portion of the entire u.s equities market. The list just goes on and on and on like an energizer bunny and most likely, if you could think of something, there's an index fund that tracks it no seriously.

There's an index called cow that tracks livestock prices or the obesity index appropriately with the ticker symbol. Slim, however, the benefit of buying index funds isn't just being able to get a whole bunch of different stocks for one low price, but rather it's extremely profitable. In fact, several studies have shown that 92 to 95 of professional portfolio managers could not outperform the market index over a 15-year period, resulting in more profit for you, just by taking a more passive approach. Warren buffett even went so far to say that attempting to buy and sell individual stocks is a mistake for 99 of the population, and then he put his money to the ultimate test by betting.
A collection of hedge fund managers, a million dollars that they couldn't beat the market over a 10-year period and guess who won warren buffett and the index fund. So, given all this, we can't deny that the excitement of index fund investing has seen a huge mainstream popularity boost over the last few years, especially with a significant portion of new investors having just recently started since the covet shutdown. But the real question still remains: could index fund investing pose a huge threat to the entire market if and when it collapses? Well, according to michael bury the investor who constantly deletes his twitter account and predicted the 2008 subprime loan crisis, as featured in the movie. The big short says that index funds are artificially inflating the price of the stock market, because people are driving up those values through investing in index funds, which creates an imbalance between where a stock is trading at and what it's actually worth.

Now, if that sounds insanely confusing, let me break it down a little further when you're investing in an index fund, what you're really doing is investing into a big basket of stocks. That means anything within the basket. Automatically gets your money and the more money it gets. The higher the price will go or basically, as he suggests, if everyone is just investing their money into these giant stock baskets those companies will constantly see money flowing into them just because they're lucky enough to be in the basket and not because of their actual performance.

Hence it becomes a bubble that people keep buying into only because they believe the price is going to be higher in the future. Some people criticize the arc etf for a similar reason. It's innovation fund held some of the most successful stocks throughout 2020 and, as people saw those gains, they poured money into the fund, which then had to go and buy more of those underlying stocks. However, as demand waned, people began to cash out.

They sold the funds sold off and then prices substantially fell. Second, he also warned of what would happen if everyone wanted to sell their index fund at the exact same time and how that would negatively affect all of these smaller stocks held within the index. His reasoning is that there's a lot of money invested in small companies that don't have a large trading volume, even though they're in the same basket of stocks held within the index. So if we see a sudden and catastrophic sell-off, there's not going to be a lot of buyers for the smaller companies and that would exacerbate a sell-off.
For example, the russell 2000 is an index fund that tracks the top 2 000 small cap stocks in the u.s. Half of those stocks have a trading volume of less than 5 million a day and one-fourth of the stocks have a trading volume of under a million dollars a day. So a large sell-off of index funds would mean that those stocks are hit much harder and that would potentially devastate the overall market. However, we got to ask ourselves: is there actually any truth to this? Well before we go to jack, bogle's warning from a data driven standpoint, michael bury, is right.

A lot of money is pouring into index funds. For example, in 2002, just two percent of the us stock market value was held in an index fund, but now they control 20 to 30 percent of the entire market and growing. In fact, it was even said that for nine out of 10 companies in the s p 500, their largest single shareholder, is one of the three big investment firms. Vanguard, blackrock and state street, however, is michael, bury correct by saying that, once a stock is in an index, it'll automatically have money invested into it, causing the price to go up well.

To find that out, we got ta. Look at the facts, wrong facts, these facts. When a stock is going to be added to an index, it's announced ahead of time before fund managers could actually get around to buying it. This leaves time for the individual investors, speculators and wall street bets to buy in with anticipation of it eventually being added to an index and trying to make a profit.

Now when it was researched, it was found that stocks actually do go up in price. After the announcement to being added to an index, but once they're actually added to the index, the pent-up demand slows down, prices fall and eventually it returns back to a new normal. But surprisingly long term, it was found that adding a stock to an index has no permanent effect on the price. It was even studied that the stock's premium for being added to an index completely wore off after two months, usually returning to the same price before it was ever announced.

And overall studies have shown that the stocks traded within an index did not see any superior performance and demand over stocks which were not traded within an index. Likewise, it was also found that stocks that were removed or bumped down from an index did not see any large drop in price now that they were no longer being bought by the index, and much of this really has to do with how those index funds are Bought and sold first to be a part of the index you actually have to have the merits to join, including a history of profitability, size, brand recognition, stability and other market attributes to be considered. Second, the way index fund investing works is that the fund is weighted towards the biggest companies that make up the largest volume. This means that only the largest companies get most of the index investments since those make up the biggest portion of the basket and third, once a company is added to an index, it must actually perform well and much of its stock price movement is going to be From its earnings, profitability and growth, otherwise, if it doesn't perform well, demand goes down and the overall index tends to go down right alongside with it.
But what about michael brewery's warning here? Is it actually in a bubble, and is it true that the longer it goes on the worse? The crash is going to be well, like i said, index funds work by weighting the average and buying in direct proportion to how big the company is when compared to the overall index, for instance, within the s p 500, the top 10 companies make up 28 of The overall holdings that means the other 490 companies split their way for that extra 72 and the smallest companies only get a fraction of a percent. When you passively throw your money into an index fund, or in other words, it would be like investing 100 and giving ralph lauren one and a half cents. So michael bury's argument that index funds would cause liquidity. Issues is somewhat of a moot point.

An index fund really just tracks the broad market and even in the event of a sell-off, each stock is only bought in direct proportion to how big it is to the entire index. So everything should in theory, be affected equally, plus, even in the event of a mass sell-off of index funds or a catastrophic crash in the market. That would just end up creating a buying opportunity for investors to swoop in buy up undervalued companies and eventually return them to their normal baseline speaking of which, by the way, if you want to get a head, start, feel free to claim your free stock down below. In the description when you sign up for public.com using the code gram, because that stock could be worth all the way up to a thousand dollars.

But anyway, in terms of what the inventor of the index fund now thinks. Here are his thoughts because he did have some critical things to say about the direction that we're going thousand aware. Jack bogle created the first index fund in 1975 that tracked the s p, 500 and fun fact. That's now known as the vanguard s p 500 index fund, the more you know anyway, even though it was off to a slow start over time.

The passive index fund began to take off and now their holdings make up a significant part of the market, which jack bogle said is becoming a problem see normally when you buy a stock that entitles you to some voting rights in the company and if you own Enough of a stock, you could eventually do a hostile takeover and own twitter, but in this case, when you're buying into an index fund, you're really owning a small piece of the basket with its value based on the contents within it, not the stocks themselves. That means if this trend continues, three fund managers would dominate 81 of the voting content to virtually every large us corporation, not to mention it's nearly impossible for any other fund manager to compete because of a high barrier to entry, and it would be extremely difficult to Replicate so that's absolutely worrisome the harvard law, professor john coates, argued that in the near future, just 12 management professionals meaning a dozen people, not a dozen management committees or firms mind you will likely have practical power over the majority of u.s public companies. In response to this jack, bogle said that i do not believe that such concentration would serve the national interest and, in its place, were several suggestions to ensure that index fund concentration didn't give too much collective power to too few people. But even though index funds do have the collective power to overtake voting control, does that mean that michael brewery is right and we are in an index fund bubble well in terms of any immediate danger? Probably not, as most of you know, price movements are caused by active trading volume, which means how many people are buying and how many people are selling.
In this case, vanguard did the research to find out how much of an impact index funds have on the market, and the result was not much. In fact, they found that index funds only accounted for one percent of all daily trading volume and the other 99 was from active traders, hedge funds and individual investors, meaning that no day-to-day index fund investing was not distorting the market. Of course, if they did start to push stock prices into bubble territory, then one would assume that actively managed funds would be able to spot the inefficiencies, make a wild profit and begin to outperform. But that has not happened and it may not ever happen.

But let's take it a step further and just assume that everyone goes and only buys index funds and no one goes and buys individual stocks. Then what would happen? Well, hypothetically, i suppose that those individual stock prices wouldn't drop, even if those companies stopped performing or earning money. That would lead to some really big opportunities for those individual traders to finally go out, buy the individual stocks and make a big profit. So, given all of this, no, i do not personally see any signs of an index fund bubble and nothing that i could find would point to any cause of concern.

Of course, with the s p 500, you do have a high concentration of tech stocks with the top 10 making up almost 30 percent of the overall index. Although an easy way around, this is simply going for an equally weighted fund and calling it a day. The other concern here is that, yes, voting control could be an issue in the future, but assuming they have their investors best interest at heart, they should be voting in your favor, not to mention let's be real here. When is the last time, you've cast a vote for a stock seriously.
Tell me when, anyway, when it comes to all of this companies, still trade on their fundamentals, even when they are added to an index and any efficiencies in the market should eventually be balanced out by active investors who try to make a quick profit and subscribe. If they have not done that already so with that city guys, thank you so much for watching also feel free to add me on instagram and get all the way up to a hundred dollars with the free crypto when you sign up for ftx us down below. In the description with the code, graham seriously, it's all the way up to a hundred dollars. You may as well.

Do it it's pretty much like free money enjoy. Thank you guys so much again, and until next time.

By Stock Chat

where the coffee is hot and so is the chat

36 thoughts on “It’s over: the stock market bubble just popped”
  1. Avataaar/Circle Created with python_avatars Tilted Head says:

    The art of filling up video watching time. Lots of blah blah. Man get to the point.

  2. Avataaar/Circle Created with python_avatars vender1980 says:

    The bubble burst is just beginning…..

  3. Avataaar/Circle Created with python_avatars Rodovaldo Avila Sosa says:

    I think that all your OG subscribers don't like click baits titles. Not cool.

  4. Avataaar/Circle Created with python_avatars Francisco D’Anconia says:

    Exasturbate? Is that when you get annoyed while self pleasuring?

  5. Avataaar/Circle Created with python_avatars bendy.arms says:

    Thank you again Graham for your continued wisdom

  6. Avataaar/Circle Created with python_avatars James H says:

    Wasn't it over 20 videos ago? Did everything already pop many times already??

  7. Avataaar/Circle Created with python_avatars thekiller500099 says:

    Try fuku burger for dinner. Get the pork burger, you won’t regret 💯

  8. Avataaar/Circle Created with python_avatars Apprentic Co says:

    Hey look it’s bubble boy back at it again

  9. Avataaar/Circle Created with python_avatars Zachary Keller says:

    Welp… rip index funds Monday morning 😂 with how uncertain Americans are right now about economy and the fed setting up for another recession… we’re screwed.

  10. Avataaar/Circle Created with python_avatars My Findependence Journey says:

    Index funds / ETF is the way to go. Stay in the market and DCA.

  11. Avataaar/Circle Created with python_avatars Sukanya Iyer says:

    I usually just buy index funds and tech stocks so this video speaks to me🙈
    Does this mean I should start buying more individual stocks now ?

  12. Avataaar/Circle Created with python_avatars Jeff Rounsville says:

    Off work early, just in time for a banger of a video

  13. Avataaar/Circle Created with python_avatars Smith💬LYNNHACK on telegram says:

    🔝No doubt about this service workers like magic and everything is successful with no stress,I’m grateful sir🌎

  14. Avataaar/Circle Created with python_avatars Smith💬LYNNHACK on telegram says:

    🔝No doubt about this service workers like magic and everything is successful with no stress,I’m grateful sir🌎

  15. Avataaar/Circle Created with python_avatars Mary Inumotele says:

    In few months or no time people will definitely start kicking themselves in regret for missing the opportunity to buy or invest in cryptocurrency.

  16. Avataaar/Circle Created with python_avatars Jshart92 says:

    You can never go wrong with Chipotle! What’s your go to meal?

  17. Avataaar/Circle Created with python_avatars Train To Be A Freak says:

    Thats actually not true at all. Most companies in the S&P are very fairly priced. Just pull eaxh company up on their own.

  18. Avataaar/Circle Created with python_avatars vakuzar says:

    darn was hoping it would be the housing bubble

  19. Avataaar/Circle Created with python_avatars Dolph says:

    All of this on todays episode of, the same title for the 20th video in a row😂

  20. Avataaar/Circle Created with python_avatars mr cat says:

    Graham… I used to love your channel for good advice. Lately it just seems as you’ve sold out for clickbait titles and easy views. I understand a lot has been happening but you can still put realistic titles on your videos. This is like the 50th market crash is happening now video that you’ve put up this year… we love you but not more then our hate for clickbait.

    Please bring the old graham back….

  21. Avataaar/Circle Created with python_avatars Thienji says:

    Before watching a graham video about the market burning, I just buy another vtsax.

  22. Avataaar/Circle Created with python_avatars Eliot Ness says:

    I always thought index funds are stupid and a recipe for disaster….

  23. Avataaar/Circle Created with python_avatars Ecommbulldog says:

    way to be you Graham. Amazing, i am growing my channel thanks to you.

  24. Avataaar/Circle Created with python_avatars stephiekov says:

    Graham, can you make a video on your opinion on repaying student loans?

    Like discussing your view on diff repayment options? Like how the diff repayment strategies would benefit or hurt someone who owes $30,000 vs someone who owes $200,000. Or even your thoughts on the public service forgiveness program, which forgives the remaining balance after 10 years but then you are taxed on it.

    Maybe you could also address your thoughts on investing while repaying the student loans? Like if we should also invest or if we should throw all our money into repaying the student loans?

    I think many of us would be interested on your opinion on this from an investment/financial stability standpoint!!

  25. Avataaar/Circle Created with python_avatars U2F keys says:

    Thumbs down for the clickbait title.

  26. Avataaar/Circle Created with python_avatars Nathan Hoskins says:

    Dang, I just opened up a ROTH IRA and pushed money into VTSAX; should I pull and wait till it sinks??

  27. Avataaar/Circle Created with python_avatars Bradley Garzon says:

    I love the information that he gave that Taco Bell is bringing back the Mexican Pizza.

  28. Avataaar/Circle Created with python_avatars Profitglutton says:

    I didn’t even know Taco Bell got rid of its Mexican Pizza. They must really be allergic to money.

  29. Avataaar/Circle Created with python_avatars sxyzjym says:

    Woooo Mexican pizza!!!! Thats a thumbs up.

  30. Avataaar/Circle Created with python_avatars Jinky Bean says:

    Gusss what the biggest dip is about to happen less go

  31. Avataaar/Circle Created with python_avatars Eric. DaMAJ says:

    As a Vanguard Index Fund investor, I found it concerning Vanguard bought the "poison pill" stock that was meant to prevent Elon Musk from launching a hostile take over of Twitter. There may be rational reasons for it but that part of me who wears a tinfoil hat says different.

  32. Avataaar/Circle Created with python_avatars Donnie Perez says:

    Let’s get back to real estate videos!

  33. Avataaar/Circle Created with python_avatars Beastly Garage says:

    These "Sky is Falling , the world is doomed" type of thumbnails and titles are getting old. If you over do it, viewers will get numb to it and click less.

  34. Avataaar/Circle Created with python_avatars Robert Grant says:

    Last time I casted a vote for a stock was this week

  35. Avataaar/Circle Created with python_avatars Riickshaw says:

    well, im doubling my gme position lmao. moon, boys!

  36. Avataaar/Circle Created with python_avatars Risk On says:

    Disclaimer for Graham: The term – "Index funds" being used in this video is a substitute for the term "mutual funds" , in general.. There are managed mutual funds that have the same basket of equities and "issues" as with index mutual funds..

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