The Risks of The Rise of Passive Investing with Mike Green

David Einhorn said in a recent podcast interview that he feels that the market is broken. He has made significant changes to his investment approach as a result. Much of the basis for his assertion is based on the work of Simplify's Mike Green, who has been warning investors about the dangers of passive investing for many years. In this episode, we are fortunate to have Mike back for his third appearance on the podcast. We discuss the impact that the rise of passive investing has had on the market, how that impacts the success of fundamental investing strategies and the risks it poses to the market as a whole. We also get Mike's take on inflation, the economy, Fed policy and a lot more.

00:00 - Intro
02:03 - The history of research on the impact of passive investing
06:42 - The rise of passive's share of the market
13:30 - The vicious cycle of passive for fundamental investors
19:30 - Rational individual decisions creating collective risk
21:25 - What the rise of passive means for fundamental investors
25:35 - Addressing some of the criticisms of Mike's arguments
26:55 - Can a factor be created based on passive flows?
31:00 - The impact of the rise of passive on corporate governance
32:27 - Mike's view of the current macro landscape
36:19 - Is the real level of inflation lower than what is being reported?
41:10 - Is the market underestimating recession risk?
43:09 - Is the Fed too tight?
46:27 - How Mike would position a portfolio for the current environment?
52:47 - Is there still an opportunity in short-term bonds?
54:12 - Mike's biggest reason for worry and optimism over the next 5 years

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