This author shows little knowledge of how the stock market actually works:
> A market with more passive investors than active ones will continue to push money into the largest firms, whether these companies are actually performing strongly or not.
When I buy an index fund holding the S&P 500, none of those businesses get my money, My money does not go into any of them. I have bought an already existing asset from another person who is selling it.
At a primary level, you are correct. But the effects of passive investment are more subtle.
1. More investment dollars chasing big companies allows those companies to issue more stock without having to worry about pushing prices down (since there is this extra upward pressure of increased flow.)
2. Increased stock prices from increased flow gives the company more stock value for acquisitions
3. If money keeps flowing into particular stocks, it encourages companies to be lax about dividend growth, since the prices rise regardless.
> A market with more passive investors than active ones will continue to push money into the largest firms, whether these companies are actually performing strongly or not.
When I buy an index fund holding the S&P 500, none of those businesses get my money, My money does not go into any of them. I have bought an already existing asset from another person who is selling it.