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Passive investing: Is it "Too good to be true"?

The narrative of passive investing is anyone can become financially independent, having no knowledge of the markets, making no effort and this has very little risk.

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Is this notion too good to be true?

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Granted, it will do well in a bull market. No one disputes blindly betting on a trend will work out if that trend continues. But what if people rush into a trend too late? There are still people sitting with boxes and boxes of "Fidget spinners" thinking that would last forever. But by the the time they knew about the trend, it was close to the end.

Back tested through history this is a strategy that has usually worked after there's been a strong down market. The rally of the last 50 yrs coming off a 20 yr flat/bear market. But this idea anyone can make money in stocks is usually one that build up slowly and over a long time - and typically becomes publicly popular during the "Mania" phase at the end of a trend.

This idea of easy passive money is a very marketable product. A lot of money is made selling products to this niche. These usually use flashy titles and trashy tag lines. Promoting how simple it is for anyone to succeed in the market. Just don't try. If you think about it, this would also be the way to optimise the size of the target market you have. "It's hard and you have to learn", less so.

There are various different points that can be made about how long market cycles last (For example, how many times did a 50 yr bull market turn into a 80 yr bull market? I can not find any ... what would that suggest for the next 30 yrs, our active investing lifetime?) and aside from these we have different risks these derivative passive investing instruments may bring to the market.

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There've been various different warnings and works looking at this:

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Burry - The passive investing bubble warning

I've wrote a simple version of this here and linked to original. https://www.reddit.com/user/HoleyProfit/comments/m44zmb/why_the_russel_200_index_has_now_become_my_main/

Simple video explanation Michael Burry Predicts: INDEX FUNDS WILL COLLAPSE! (I Explain Why) - YouTube

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Papers supporting the possible risk in ETFs controlling the underlying rather than the underlying controlling the ETF

Do ETFs pose systematic risk? [Research paper] : BeatTheBear (reddit.com)

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The idea of passive investing has grown over the last decade and is widely promoted in groups, blogs and Youtube as the King of the investment strategies. But does a Damocles sword hang over this? Might it be the case that just putting money into a market and "Chilling" is something that only works at certain periods in time - Mainly before it gets too popular?



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