We delve into the debate with our take on the downside of passive investing in ETFs, this exacerbates volatility in markets. The main difference is that we had mutual funds and then stock picking, now we have mutual funds, and ETFs, with very little stock picking in financial asset evaluation.
This in and of itself is a very bad practice for many reasons that I will avoid discussing here, but mainly every asset should be independently analyzed thoroughly. This basically means that financial markets have been reduced to fund flow investing, the degree to which this is Ponzi scheme musical chair gambling seems less destructive as long as assets are moving up, but when the worm turns which this very style of investing makes an absolute certainty, it not only destroys capital forever, it destabilizes financial markets in the process, and in essence breaks financial markets.
When the ZIRP Central Bank inspired Stock Market Bubble bursts ETFs will get their fair share of the blame for capital destroying practices, and bad investment decisions made on the behalf of market participants. Investment Capital is going to be destroyed like never before in the history of financial markets when the bubble bursts, and those in ETFs on average will lose far more than active managers, or even average stock pickers.