WARNING: The Index Fund Bubble

Graham Stephan
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Lets discuss the potential of an index fund bubble, whether or not you should worry, and how to invest long term to build wealth - enjoy! Add me on Instagram: GPStephan
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According to Michael Burry, the investor who predicted the 2008 Subprime Loan Crises and featured in the movie “The Big Short,” says that index fund investing is artificially inflating the prices 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 at, versus what it’s actually worth.
Secondly, he also warns of what would happen in the event that everyone wants to sell their index fund at the same time - and how that would negatively effect the the price of smaller stocks within that index fund basket.
But is there ACTUALLY any truth to this?
First, I looked at stocks that had just been added to an Index to see if its price DID really go up…and then I looked at stocks to see what happens if they’re REMOVED from the index, to see if the price goes down. Here’s what I found.
When a stock is going to be added to an index, it’s announced AHEAD OF TIME - BEFORE index fund managers can actually go ahead and buy it. This leaves time for individual investors and speculators to buy in, anticipating it being added to the index within the coming week - and trying to make a profit.
When it was researched, it was found that stocks DO generally see a rise in price once it’s ANNOUNCED they’re going to be added to an index - but ONCE they’re actually added to the index, the pent up demand slows down - the stock price drops - and then it returns it a new “normal.”
Long term, however, it was found that adding a stock to an index has no permanent effect on the price
First, to be a part of an index, you actually have to have the merits to be included…you have to be a successful company, have brand recognition, and otherwise have the attributes and market cap 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 biggest companies get most of the index investment, since THOSE make up the biggest portion of that “basket.” This also means the smaller companies receive very little “index fund” money, because they make up such a small percentage of the overall index.
Third, once a company is added to an index - it must actually PERFORM well, and much of its stock price movement will be from it’s earnings, performance, and ongoing development. Otherwise, if it doesn’t perform well, it’ll get bumped and the price will go down - causing a small percentage of the overall index to go down, with it.
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 anything to confirm this is a cause for concern.
HOWEVER…as with anything, at ANY time in the market cycle, I WOULD recommend you always:
Have a 3-6 month emergency fund in cash at all times - in a high interest savings account
Invest money you aren’t planning to touch for at least 10-20 years
DO NOT PANIC SELL anytime something drops in price - just stay the course and continue as normal
ALWAYS Diversify your investments - whether it be through index funds, real estate, or bonds
And always…no matter what…smash the like button
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at

Publicado em


30 Out 2019



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Comentários 80
Lyla N
Lyla N 5 dias atrás
why r u so smart
Ali Ahmed
Ali Ahmed 9 dias atrás
bro, is everyone around the world capable of buying vanguard index funds ? I live in the middle east, and I am really interested.
misfit 9 dias atrás
Index funds have declined because the market has declined. I invested in one actively managed fund because this guy seemed to defy logic until he didn’t and I lost everything in his fund therefore for me index funds are less risky. I have never lost 100% of an index fund, yet. Index funds suit lazy investors like me. Also that actively managed fund was frozen so even when you realised it could be a problem you couldn’t sell so I watched that fund lose 5% all the way down to 95% and nothing I could do. That hurts being more diversified helped cushion the blow. Cash is dead now.
Justin Waddy
Justin Waddy 9 dias atrás
Nice to see a different room guy
WrapTonic 13 dias atrás
This video is gold. I will cherish this knowledge 🙏🏽
#alittlesipofwine #alittlesipofwine
Great video of explaining the difference in codes for an etf v index 👊
Kasim Moez
Kasim Moez 16 dias atrás
Why is BRvid recommending me 6 month old videos?
Noel 20 dias atrás
Hey Graham, What's your thoughts on ETFs now?
pierre1050 25 dias atrás
Just always smashing the like button for Graham. I wonder why.... 😊
iChessur 26 dias atrás
In Case of crash will miss the liquidity of the ETF is not correspondent to the liquidity of the underlying asset but by the Maket Cap, the ETF liquidity is relative to the average liquidity adjusted by the share weight withing the ETF. example if you have 1 share ETF valued 25 composed by AMD and Red Hat Inc You compute the sell. the order pass for a Market Maker which bought the ETF when it is low and sold the underlying asset when it is high. Giving liquidity to the market. When the Sale computes the Market Maker will not fulfill your order and liquidity is very hard to find that will move the price of the ETF to the next lower to find a buyer. Which moves whoever has the underlying asset to sell. In small words you may sell at 25 but the order will be fulfilled at 12. that's what Michael Burry tried to say.
Oms A
Oms A 26 dias atrás
what do you think about the current economic situation Graham? i think we are yet to see lower lows than we saw in march 2020. Would you cash out your index fund now ?
Dickson Kwan
Dickson Kwan 27 dias atrás
Burry is fundamentally correct. This video only analyzes the bottom rungs of the S&P but doesn't explore the glut of money that goes blindly to the top 25% of the S&P without any consideration for what those companies are or how they are performing.
a rather small moose
Yeah, most of the videos I’ve seen dismissing Burry don’t actually address the glut of passive investing and how it’s materially changing the dynamics at play... much like ‘08. All I see people say is “here how etf work” and “Warren say etf good”.
Mario DiNicuolo
Mario DiNicuolo 29 dias atrás
WOW, I wish I could read.
Raja Bhattacharjee
Raja Bhattacharjee Mês atrás
the "Fax" 🤣
Samantha Schmidel
Samantha Schmidel Mês atrás
His logo should be a thumbs up
U. Schultz
U. Schultz Mês atrás
Sorry, I’m a newbie... is this investment mentality the same as having a 401k/403b? 🤷🏻‍♀️
Batman Mês atrás
lmao this dude is funny as hell
Malcom x
Malcom x Mês atrás
Great video
Malcom x
Malcom x Mês atrás
Big like
Diego García R.
Diego García R. Mês atrás
That manager is not correct, I recommend you to check the efficient market theory
Kire Djotov
Kire Djotov Mês atrás
Instructions unclear, ended up buying bitcoin instead
Cody Garcia
Cody Garcia Mês atrás
don't ask me to "sMash dA LiKe bUtToN" until the end of the video
Phillip Cann
Phillip Cann Mês atrás
Warren buffet bets on index funds and wins seems like a pretty good ad for index funds? Low cost heaps of investors sounds like big profits
Prometheus617 Mês atrás
ETFs are better
malik khan
malik khan Mês atrás
5 months later...*COVID19 destroys the economy*
Bailey John
Bailey John Mês atrás
Graham, great video as always! What about index funds that are backed by tangible commodities, like farming assets or utilities, etc.? Than with the index prices being driven up due to demand of such index but with the underlying commodities itself remaining equal (or possibly declining at a faster rate in price) than the underlying companies’ equity proportion to the market.. what about such gap? Can you do a part 2 now that we are in a recession? Has your analysis changed? Thanks! 😊
Alpha man
Alpha man Mês atrás
Haha News Corp class B..... That's going to fall off soon!
Robertson Thirdly
Robertson Thirdly Mês atrás
"high interest savings account" *looks around*
tigerarmyrule 28 dias atrás
Exactly. Fact is every approach to investing in a world gone mad carries risk but the biggest risk of all is letting cash stagnate and inexorably fall in value in a "high-interest savings account" which for all intents and purposes nowadays is no more than a checking account.
Miekignation Mês atrás
Thank you
Justin D
Justin D Mês atrás
You, in long form, made the case for efficient market theory.
John Gramer
John Gramer Mês atrás
12:52 when he says "or Smashing the like button" so calmly
Erick Sanchez
Erick Sanchez Mês atrás
So if I wanted to invest in vanguard index funds do I need 3,000 dollars to get started?? I use ameritrade and are a relatively new investor... it does give you options to buy shares for the market price but I am unaware if the 3,000 of initial investment is needed Mês atrás
so index funds all dropped down from then but because coronavirus
cocon Mês atrás
I like the way you teleport :D
Hammer Mês atrás
Index funds are doing well in this bullish market
Pedro Perez
Pedro Perez Mês atrás
Micheal Burry: predicts another bubble* Graham: hold my $0.20 iced coffee
Cerebral Caustic
Cerebral Caustic Mês atrás
wow, this didn't age well did it Graham? during the market meltdown, the exact thing happened that Burry predicted: price discovery was impossible. there were ETFs selling for more than the value of the underlying stocks.
Steven Dvorsetz
Steven Dvorsetz Mês atrás
Thank you! Great video
Steven Dvorsetz
Steven Dvorsetz Mês atrás
Webull stopped doing this right?
We are all one
We are all one Mês atrás
Graham's video locations: Garage Kitchen Garage Kitchen Garage Kitchen Garage Kitchen Garage GENIUS!!!
Irvan Mês atrás
It's not make sense, price made by transaction, the one who did transaction are active fund, at least active fund are dominating the transaction, While index fund are pasif. So even if almost every money goes to pasif fund, there will be no such as bubble because price are made by continuous transaction, and guess who did it continuesly, that is active fund So passive fund like indeks fund will not cause bubble
Stevie Mac
Stevie Mac Mês atrás
Hi Graham! Really appreciate your videos! Would you be down for a new video about index funds that have recently been delisted, and why? MRRL, MORL are 2 examples. I hold a similar leveraged mortgage REIT fund and am trying to sort through the "Original Issue Discount" mumbo jumbo in the Prospectus. It's like you need a CPA to understand what could cause a redemption in one of these. THANKS!
Erick Mês atrás
Which would you invest in VOO or VTI ??? and why.
Hugo Acuna
Hugo Acuna Mês atrás
i don't think it's possible to have an index fund bubble because index funds by definition only select and maintain legitimate company stocks based on a certain set of rules. All bubbles in the past were based on speculative, over-inflation of the price, and eventually once it gets to the price where it's too expensive for anyone else to willingly buy, everyone panics and sells. The catch is if the underlying asset is truly worthless, then the bubble will cause it to completely become worthless and never rebound (e.g. useless dot-com bubble companies, 'tronics bubble useless companies, shitty subprime mortgages). But these index funds house companies essentially too big too fail. prices could over inflate and crash down but many of these companies have so much cash on hand and will get bailouts, that you can weather such a crash and eventually the index will rise again.
Stefan Oliver
Stefan Oliver Mês atrás
Doesn't this mean that indexes are buying stocks at substantially higher prices than they should
Mlingani Matiwane
Mlingani Matiwane Mês atrás
I'm gonna like every video in which you deliberately remind me to smash the like button for the algorithm. This comment is deliberately here as positive reinforcement that it works. #BestWishesFromSouthAfrica
Rohit Hinduja
Rohit Hinduja Mês atrás
What if the blind money chasing the stock price of a index component is greater than the money that is pulled out by a smart investor to bring it back to its real value. In other words, what if there is more dumb money that can be invested than smart money that can be pulled out? Wont there be a bubble than? Cos the earnings justification would only be followed by the smart investor, but they have a smaller impact on the market now, so the smaller stocks getting the boost would not be removed from the index despite lower earnings, because their market cap is still higher due to these dynamics...
EXLR8 Mês atrás
Rohit Hinduja I believe that’s exactly the issue which we saw with the beer bug catalyst... now think about all the share buybacks which companies had done in the last 5-6 years... they’re literally the CDO of this crash, this is fucked
theguym Mês atrás
How can Europeans invest in an index fund like VTSAX? I have been googling and couldn't find clear answers about that. Graham could you please make a video about that, I'm one of those subscribers that ALWAYS SMASHES the like button for the zi BRvid algorithm.
John Tousseau
John Tousseau Mês atrás
I'm not sure if index funds are inflating the market, but stock buybacks definitely was.
trevino ortiz
trevino ortiz 2 meses atrás
Where do I go to invest the 217 on index funds?
Amir 2 meses atrás
How much will I see for future growth starting a index fund in your early 20s?
Georgia Hunter
Georgia Hunter 2 meses atrás
I just smashed the like button. What kind of returns can I expect?
Melroy van den Berg
Melroy van den Berg 2 meses atrás
Corona.. yea..
Jing Hua
Jing Hua 2 meses atrás
Clearly the index goes up and down. In case of downward index, a sell off may happen and that will trigger a crisis. People want to cash the winning at some point, because the index will not pay their anything they want to buy.
Gloria 2 meses atrás
I am from Portugal, I want to invest but the only option here is Vanguard Ireland. Paying 41% taxes !! Somebody know what to do to pay less?
MrBlackspoon Mês atrás
@Gloria you have to check how the law is in Portugal
Gloria Mês atrás
@MrBlackspoon But still I will have to pay 41% taxes when I withdraw the money. I don't know what to do about that
MrBlackspoon Mês atrás
Use degiro and buy vanguard ETF's
Matthew Liaw
Matthew Liaw 2 meses atrás
It has been some time but it seems like Michael Burry is somewhat right. The Bond indexes seem to have a discrepancy developing due to the recession and increased illiquidity. However, the stock indexes don't seem to have as much of a problem.
EXLR8 Mês atrás
Matthew Liaw that’s just bc the fed has been abusing unlimited QE & hedging against truly dying sectors imo
Ohayō 2 meses atrás
This is basically the Bogleheads approach to investing. Good stuff.
steeleyes 2 meses atrás
SoPosh 2 meses atrás
Thank you !
asap spacecraft
asap spacecraft 2 meses atrás
This video didn't age well lol!!!
A P 2 meses atrás
If Michael Bury says it’s a bubble. It’s a bubble
Xavier Lasee
Xavier Lasee 2 meses atrás
Hey Graham, they were right the bubble popped.
EXLR8 Mês atrás
grim789 Beer virus is just the catalyst... Fed has deployed unlimited QE to try and combat the bubbles deflation.. share buybacks were the CDO of this inflation & they have yet to even reek their havoc
Xavier Lasee
Xavier Lasee Mês atrás
@grim789 It still popped theres always a reason behind every bear market and they were right that it was coming soon.
grim789 Mês atrás
Nope not at all related to index funds it's related the the covid virus and panic.
Overlord Galvatron
Overlord Galvatron 2 meses atrás
No. The entire econ is in a recession
gloriousholy 2 meses atrás
What bubble? :p
Think Righter With Ben Mirer
Looks like Ray Dalio was right. As a former wealth manager and financial advisor, the writing was on the wall. More people in the party (ETF's) exit door didn't get any bigger (Buyers on the other end of the sellers.) Smart people got the last laugh at the people who went to index funds due to low expense ratios. The pennies saved were paltry compared to that people lost this past month. You get what you pay for.
San Diego
San Diego 2 meses atrás
i have watched at least 50 Graham videos in past. i always found much accuracy in most all of them.... but Graham is badly mistaken here, there WAS a huge ETF bubble building for years when he made this vid 5 months ago.... & it was inevitable to pop at some time.... & that time is just starting to pop now, triggered by the covid/oil war market collapse & many people cashing out of their ETF's. this bubble will be fully popped by the time this current market crash is complete sometime in the next several months. we are not close to the bottom of the overall market crash yet, or the simultaneous Index Funds crash.
San Diego
San Diego Mês atrás
​@Sean I see now, that you replied to my prior 2 comments above, just a few minutes after i posted them. although i did go back and edit both those comments yesterday, after about an hour of researching those topics a bit more. so not sure if you saw my final version & input in those 2 comments. after further research today into which stocks i plan to put more of my current money into, I found some more enlightening info about some of the prior stocks i suggested here: Netflix is very high priced now do to recent boom during lockdown & more subscribers buying their service while sitting at home. but it will drop back some after lockdowns end, and will not grow as rapidly in future as some of the other stocks i listed. Netflix still a very solid stock & good future, but some of the other stocks i suggested likely have even a brighter future. Apple, FaceBook, and Google are similar cases to Netflix, although for different reasons. Very solid companies in the long run, but their future growth will be hampered for next few years, due to economic recovery.... Apple's main income is selling phones, and this will not be as lucrative in next year or two, while so many people are struggling financially. FaceBook makes almost all of their money from companies BUYING ADS on their online platforms. Google makes a good portion of their money from companies BUYING ADS on their various online platforms. All commercial companies will be buying far less ads in the next year or two, until consumers have more money again, to start buying more items. These are also still very solid stocks & good future, but some of the other stocks i suggested likely have a brighter future. The 4 best stocks IMO, for the highest amount of long term success, are Amazon, Shopify, Tesla, & Microsoft. Tesla has ALWAYS been a roller coaster stock (goes up & down far more than these other top company stocks listed here), partly because it is a newer company than these others listed here. But it most likely has the best future potential of all, for VERY LARGE growth in next 5 to 10 years & forever. Tesla dominates Electric Vehicle technology, Self-Driving Car technology, and is one of dominant players in Artificial Intelligence. these 3 technologies will be huge across many aspects of society all around the entire globe in another decade, and absolutely giant technologies in 20 or 30 years. anyone wanting to invest money for a decade or longer.... then i think Tesla stock is the very best option of all. *One final note, reiterating my prior warning.* keep a very close eye on anything you buy. the ENTIRE MARKET MAY FALL AGAIN BADLY IN COMING WEEKS OR MONTHS, depending on how things go with virus infections and the recession recovery. I continue to see more warnings for various reasons, that this could still be a big issue and hurtle for the stock market to fully overcome, until a point in which the world is completely past the pandemic and all economies around the globe are definitely stable again, & solidly on their way to rebuilding their economy. I think the odds of another LARGE market drop sometime in the coming months, is probably more likely, than it is less likely. but no one really knows for certain. I am still putting money into markets now, because many stocks are currently going up fairly rapidly (so i am making profit rapidly). but if markets start falling a large amount again, i will pull my money back out until the dust settles.
Sean Mês atrás
San Diego thanks boss. I stayed out of the buying today. I wanted to put my money somewhere so now I will have the weekend to go over some things and make a decision. Shoot me an email if you don’t mind @ It would be nice to converse with like-minded people. Have a great weekend!
San Diego
San Diego Mês atrás
@Sean I just researched the VOO ETF design parameters.... it is not maintained by human mngrs that pick which stocks it includes each quarter, as is done with many ETF's of all types. the VOO is computer controlled & just always includes ALL 500 of the S&P stocks, plus 5 Treasury bonds, plus 2 Vanguard Liquidity funds (whatever that is).... so it is just an EXACT tracking of the ENTIRE S&P market, then stabilized a bit from huge swings up or down, by including the Treasury Bonds. thus, the VOO has no option but to include ALL of the crushed stocks in the S&P, into its overall ETF index. that will be bad news for the performance of that index for a while.
San Diego
San Diego Mês atrás
@Sean ETF portfolio mngrs do analyze & adjust the included stocks in their portfolio quarterly, the best they can to maximize returns. but all ETFs typically include at least 100 stocks or more, and many have up to 200 to 300 or more total stocks included in their portfolio. this is predetermined number for each separate ETF, & will be outlined in the specs & guidelines for the specific ETF, and it will list what specific companies the ETF currently holds that quarter. this is all public info as required by the FEC for any equity listed on any registered stock markets. but the ETF's like VOO, that are based on the S&P 500, can ONLY pick stocks in the S&P 500 listing.... and there are currently only around several dozen or so truly GOOD stocks currently in the S&P, all the others there are doing either mediocre now, or many have been crushed by the pandemic. i do not know how many stocks the VOO holds, but they would have to include MANY bad ones currently, in addition to the good ones they could pick out of the S&P. THAT is the entire reason why the ETFs from S&P 500 will NOT perform very good until this lockdown is over & we get 6 to 12 months into the economic recovery, where a larger portion of the S&P stocks, will become profitable again. For example, over the past 3 full weeks, respectively, while the overall stock market has been gaining again: the total value increase for VOO during each of those 3 separate week-long periods (Friday market close, to following Friday market close), were -2.1% (drop) 3 weeks ago.... then +12% gain two weeks ago..... then a +3.1% gain this week ending today Friday Apr 17, at market close. all the other main S&P ETFs will also have similar increases over the past 3 weeks. but if you go look at the individuals stocks i listed before, you will see that most ALL of them, had MUCH HIGHER weekly increases in their price level, during the past 3 weeks of overall market gains. if you keep following this same weekly change, (or monthly change, etc) in value for each equity going forward, you will likely see this same trend for 6 to 12 months from now, before the overall US economy recovery has become strong enough, that a large portion of the S&P 500 companies are doing well enough financially again, to make that entire overall index ETF start producing growth anywhere close to as high as the current top individual stocks are growing during their individual recovery.
Sean Mês atrás
San Diego thanks a lot for taking the time to explain your take on it and for offering your opinion on other companies to invest in currently. Question: Wouldn’t the managers of VOO shuffle their allocations of stocks around to the more sustainable performers during a time like this? That in unprecedented times they would see the top companies within the S & P that are hurting and diversify accordingly to minimize risk on companies that will take longer to recover? Just a beginner asking questions, thank you for the dialogue!
Nick X
Nick X 2 meses atrás
Was hearing alot about this supposed bubble. Thanks for this info 👍🏾!
Aimilios Per
Aimilios Per 2 meses atrás
How can I invest in index funds from Europe? Vanguard isn't available in my country
MrBlackspoon Mês atrás
Use degiro and buy vanguard ETF's
Aimilios Per
Aimilios Per 2 meses atrás
@Max Do I did, but I don't know where to start. Maybe someone can recommend a good and reliable platform like Vanguard for Europe
Max Do
Max Do 2 meses atrás
Aimilios Per Search for your index fund in your own region
Pablo Clavo
Pablo Clavo 2 meses atrás
6.57 stonks
Cam McLean
Cam McLean 2 meses atrás
Piling up poor performing and risky stocks in to an index fund that is considered high rated and diversified? Sounds exactly like the subprime CDO debacle. They do great until the bubble bursts. It is destined to burst at some point. Not if but when. Am I missing something? If so I would love to be educated.
Delles Simon
Delles Simon 2 meses atrás
Joel Bavidge
Joel Bavidge 2 meses atrás
Imagine an index fund that is comprised of all the index funds put together
Ben Gerow
Ben Gerow Mês atrás
@Fluff Head then you don't understand why an index fund is initially created.
Fluff Head
Fluff Head 2 meses atrás
Yes it does.. An "index" index fund. What's so hard to understand? That's the ultimate in diversification.
Benny Gbutter
Benny Gbutter 2 meses atrás
That doesn't even make sense
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What are the Benefits of Investing in Real Estate Index Funds?
mick cv
mick cv 2 meses atrás
Good video man, I was pretty skeptical of you trying to combat michael berry, but that all made sense actually
M D 2 meses atrás
If active investing was "better" than why didn't these dumbasses see the dips before they happened
67buzzo 2 meses atrás
Yeah I agree , like if every living thing on the planet were to fart at the same time we would choke from methane!
Seth Jones
Seth Jones 2 meses atrás
Hi Graham. I have $130,000 sitting in a high yield savings account. I've been considering trying to offset the drop in my 401k by buying a market index, now that prices are lower. I reason that when the market revives itself, the index will reflect that increase more profitably, than if I were to buy some great company, that really wasn't hit too hard by the crash. Do you think this sounds reasonable, and if so, do you have an idea of what index might by the most responsive? Thanks for any thoughts you care to share. Peace.
peruzfinest07 2 meses atrás
You would have had a new subscriber but you are the type that likes to place to ads at the start of the video - 2 of them none-the-less.
Luis 3 meses atrás
Everything in the market will crash if "everyone decides to do it at the same time", it's a known phenomenon like the one called "bank run". There should be regulations in place to prevent that, otherwise the bubble will burst.
yukonfox3 3 meses atrás
Good info, but strike all the "actually's"
The_Sport_ Of_Fort
The_Sport_ Of_Fort 3 meses atrás
Hello 👋
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