Jack Bogle Warns Of Market "Chaos, Catastrophe" If Passive Investing Wins

Tyler Durden's picture

In 2016 investors poured $480 billion into passive funds, a mix of mutual funds and exchange-traded funds, while pulling more than $380 billion from active mutual funds, according to data compiled by Bloomberg. Passive equity investments may become as much as 45 percent of the mutual fund industry within five years as investors move to low-cost funds, Bogle said in an interview on Bloomberg Radio in March. But just how much can the market take?

"If everybody indexed, the only word you could use is chaos, catastrophe," warned Jack Bogle, 88-year-old founder of Vanguard, at the Berkshire Hathaway annual meeting on Saturday.

“There would be no trading,” Bogle told Yahoo Finance editor-in-chief Andy Serwer. “There would be no way to turn a stream of income into a pile of capital or a pile of capital into a stream of income... the markets would fail."


“We have too much trading in the market,” Bogle said. “The index really just neutralizes x-percent of the market… And it just, those stocks don’t get traded. So the other stocks would get traded, the market would go on as ever."


“So [the market] gets a little less efficient, but if it gets less efficient some managers can win by more. And some managers will lose by more. This is the equation. So, I’m not concerned about it. It’s going to take a long, long time [for indexing to get] anywhere near 50% [of the market], and things will change a lot in other ways by then."


“Markets are going to be efficient as long as there are managers, or investors, trying to find little holes in the system... price discovery, as they call it,” Bogle said.

Yahoo's Myles Udland reports that currently, Bogle notes, about one-quarter of the U.S. stock market is currently indexed. In his view, indexing could account for 50% of the market “easily.” Asked by Serwer what level of indexing would concern him, Bogle said he expects indexing could exceed 75% of the market and not have it become dangerous.

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J S Bach's picture

Pooh pooh and tut tut.  Who is this arrogant octogenarian to ruin our fiat party?

johngaltfla's picture

Actually Mr. Bogle has hit a home run here.

It's why I named my website "Shenandoah" in honor of this very subject.

It didn't work in the past and it won't work now.

If you don't believe me, Scripophily is quite a fun hobby, especially for those certificates relating to the era my website references.

johngaltfla's picture

I'm watching the patterns. For some strange, perverse reason, it would appear that we are re-engineering everything that happened in 1929. It's almost as if the Banksters realize they didn't do enough to destroy the world order in 2008 and this time we're all going to pay for daring to challenge them.

AltRight Girl's picture

Can we re-engineer a new Hitler?

The one that wins this time.

MrSteve's picture

No you can not. By definition and history, you
lose. Adolph is a loser. QED, sorry.

Mustafa Kemal's picture

"Can we re-engineer a new Hitler?"

According to Engdahl's The Gods of Money, 

in the effort to move the financial capital of the world from London to NYC

Rockafellar, Dupont, CFR actually encouraged and fueled Hitler, but it was not to to help him, it was to give him enough juice to destroy Germany and weaken Russia and England. it worked marvelously.

SolidAssets's picture

she was a waitress in a cocktail bar now she owns a jet... http://bit.ly/2jdTzrM

yogibear's picture

Stockman been warning of a collapse for years, in the meantime the market keeps going up.

The Fed's manipulatiion and printing press is more powerful.

BeanusCountus's picture

Come on here. The "End" is not nigh. Correction of 20%? Sure, very possible. Even 30%. Or 50%. That's not the "end" of anything.

TeethVillage88s's picture

I wondering if he is worried about Robo Stock Advisors/Financial Advisors.

Or about Robo Traders in general representing big financial firms.

Silverhog's picture

I don't know about you guys, but I have WECE  World Economic Collapse Exahustion. 

4shzl's picture

If you're in the stock market and you're not a computer, you're the fish.

ThanksIwillHaveAnother's picture

What is his familiarity with advanced maths and chaos theory/non-linear systems?  Because that is what the stock market is.  Can we predict the weather more than 0.5 day out?  No.   Can a stock market be predicted beyond 1 hour?  No.

Mustafa Kemal's picture

The people who invented Chaos theory actually developed one of the first autotrading platforms. They were quite successful, despite Chaos.  

hobopants's picture

Something tells me the percentage is much lower than 75%. When you commodify  an entire index you turn it into one big single stock. What usually happens when a single stock gets way over bought? What goes up...

TeethVillage88s's picture

Well Jack is smarter than me, he created more than a dozen index funds.

"Jack Bogle Warns Of Market "Chaos, Catastrophe" If Passive Investing Wins"

I Warn Of Market "Chaos, Catastrophe" If corporate Executives don't own their own stock... $1 Billion already sold.

zzzz88's picture

so most money are in index ETF. and central banks do not allow market fluctuate,

it is dead water now, 

who can tell me what will happen next?

Deep Snorkeler's picture

Chaos, Catastrophe

1. Your tattoos aren't what you think they are.

2. North Korea is meddling with our national bodily fluids.

3. Your stock holdings will vanish over the horizon.

4. Large numbers of bots are all programmed the same way.

5. Our military will never be victorious.

I am a Bohemian in the Weimar Republic

Catullus's picture

Or the real trading money moved into the options on the ETFs. And soon the tail will be wagging the dog.

give me liberty or....'s picture

So when do I buy puts, sell calls and short stock?

Giant Meteor's picture

I thought I'd give you the answer in a song ..

Maestro cue the music !


Mustafa Kemal's picture

Thanks GM, I remember going to the drive in in 63 to see him. 

JLM's picture

Sounds like his business model is broken and about to become worthless.  Why put your money in a mutual fund and have them nickel and dime your returns to zero or negative.  Exactly what value are they adding except being leeches most of the time.  Sorry pal.  Will never buy a mutual fund again!!!!!

Quinvarius's picture

What?  You prefer chaos to giving this guy your money?

divingengineer's picture

Managers can't beat an index for returns.
They can sure charge the fuck out of those fees, though.

pitz's picture

How much gold mining is actually in the ETFs?  Aside from Newmont in the S&P500 index, and the Van Eck ETFs, there's incredibly little exposure of the ETF universe to the gold sector.  You pretty much have to go to Canada to find much exposure in a mainstream index to the sector.

Perhaps the lack of diversification and exposure will be the achilles' heel of the ETF sector. 

michigan independant's picture

88 percent dead says the truth 88 percent of the time. Paper Tigers, year zero. Cede & Company does not have any Key Executives recorded.


Lost in translation's picture

Jack Bogle will make for excellent fertilizer.

moneybots's picture


“Markets are going to be efficient as long as there are managers, or investors, trying to find little holes in the system... price discovery, as they call it,” Bogle said.


What price discovery is there when the central banks buy stock to prop up the market artificially?

assistedliving's picture

basically, we're all ZH fools...and have to admit, i'm one of em.

Either you're a dreamer/fantasist w/ money to burn or you should be Bogling and done w/ it



holdbuysell's picture

“Markets are going to be efficient as long as there are managers, or investors, trying to find little holes in the system... price discovery, as they call it..."


Clearly, he hasn't noticed the equity buying of the SNB and its brethren central banks.


There are no markets. The equity market is the new money market fund. It's coming.

ds's picture

Cheer the Boogle on indexing leading to chaos in deformed markets. Indexing is just one reaction that that his breed of money managers are are still selling the snake oils of price discovery. Price discovery in deformed and oftern rigged market is an oxymoron. Not that indexing is the pancea for risk/return investment but Boogle's golden years of harvesting with sickles are over.