Passive Investors: About to Get Cooked?

Published on
November 19th, 2018
6 minutes

Passive Investors: About to Get Cooked?

The One Thing ·
Featuring AK

Published on: November 19th, 2018 • Duration: 6 minutes

AK takes on passive investors and warns against the risks they pose to the market.


  • KS
    Kathleen S.
    20 December 2018 @ 01:02
    I guess I like to learn about finance in a more academic way -- I really find these videos ANNOYING. The music and the comedy is awful, Real Vision does not need to lower itself.
  • AK
    Anthony K.
    13 December 2018 @ 19:15
    It's really hard for me to get past the "cheese" factor of these videos. It reminds me of something on Yahoo. I thought the point of real vision was to get away from that dreck.. Seems like this is sailing towards the mud instead of away from it.
  • ND
    Noel D.
    19 November 2018 @ 23:06
    AK. Please provide your evidence that actively managed mutual funds beat passive index ETFs (or better yet fundamental weighted ETFs) in a declining / crashing market. I don't think you have any such evidence. Also, provide that actively managed mutual funds over a range of ups and downs, beat passive index ETFs. I don't think you can find any such evidence. The low cost passive index ETFs will be 70th, 80th or 90th percentile performers in any 10 year period, particularly if you correct for survivorship bias but I'm open to see your analysis of 10 year results dominated by market downturns. Maybe I missed something but it sounded like you, AK, were saying that an equities downturn is nigh (I agree) and that anyone in passive funds is going to get metaphorically slaughtered compared to anyone in active funds (I don't agree). In an equity crash, everyone's equities are going to get hurt badly - active and passive investors alike. You can time the market and decide how much in equity, bonds, cash/CDs, gold, etc. and that is your right. But if I have x% in passive equity ETFs and you have the same x% in actively managed equity ETFs, that percent of our portfolio is going to get similarly slaughtered for both of us. I don't think the evidence shows that I get slaughtered significantly more than you so show me the data otherwise.
    • NA
      N A.
      21 November 2018 @ 04:11
      I think he's addressing investor behaviour, not whether if you hold a passive ETF all the way through the cycle it performs better or worse. The reality is, most people buy passive when the going is good, and get out when it's tough, this is market timing and will kill them. If you hold a passive investment over 2-3 cycles you'll probably beat most active guys, mainly due to fees, but who do you know that can really do that? When they are down -10%, -20%, -35%, -50% and still hold? Down 3 months, underwater for 1 year, below the high for 2 years, heck how long did it take to get back to your high water mark after 2007? And everyone around you tells you the financial system is doomed. I guarantee close to 0% of retail passive money holds through the cycle and that's the flaw.
  • NA
    N A.
    21 November 2018 @ 04:06
    Rather than becoming active when markets turn sour, the real issue with the majority/large part of passive investors is that they are not actually passive investors but market timers. They buy passive on the way up, but almost every one of them I know will try to get out "before the others" on the way down. If you do passive like this, good luck, you're a market timer, and you're toast. Passive can work, if and only if you hold through up and down cycles and given you have a long enough investment horizon to stick out another down and up cycle. If you think you can do better than the active guys on the way up and then get out to avoid that almost certain -40% year you will be bitterly disappointed.
  • KC
    Kenneth C.
    20 November 2018 @ 18:27
    AK is creating content for the "millenials" they're wanting to bring on board. He does a good job at a 5 minute discussion on passive vs active mgmt. The music in the background sends my ADD into overload though.
  • JL
    J L.
    19 November 2018 @ 17:06
    If you can't listen to a video from someone with a normal attitude and no sound effects perhaps it'd be a good thing u lost your money. just saying
    • rj
      rodolfo j.
      20 November 2018 @ 14:14
      You sir, are hilarious!!!
  • PB
    Pieter B.
    20 November 2018 @ 04:40
    This was fun! Thank you AK
  • GF
    Gordon F.
    19 November 2018 @ 17:32
    Guys, this ties in with Raoul's video about the expansion of RV. There are a lot of investors out there who really have no idea of the risks of passive investing, or even that investing can be risky at all. Educational pieces like this are probably not especially helpful to those of us who signed on early with RV, but there are a LOT of people out there who need this type of education. If you don't like it, or don't find it useful, then simply block videos from AK in your feed. If RV follows through on Raoul's promises, we won't have time to watch everything.
    • GT
      Guillaume T.
      20 November 2018 @ 01:36
      I agree, but for a new listener of real vision. I think it may be loaded with too many sound effects and graphics. Witch disturb me from the main subject. To start, following realvision is a choice of being more serious, more informed, and to compare with other ideas. So I don't really feel the need of being too fancy. Fun introduction otherwise. Well done!
  • AC
    Annag C.
    19 November 2018 @ 20:29
    So, is the point that passive investing is a mug's game? Or that saying that you're passive but then selling when there's volatility is the worst of both worlds? The world [and my inbox/mailbox] is full of active managers who think that they're worth 140 bps whether we're in a rising bull market or the dreaded bear market. However, trying to find the active manager for retail clients who actually beats his index, after fees, year after year after year, is the real mug's game.
  • RS
    Rajesh S.
    19 November 2018 @ 17:38
    I thought Real Vision had already covered this topic in depth over the last year or so; starting with Grant Williams interview “Dark Side of passive investing “ in August 2017. The content here is superfluous at best.
  • MC
    M C.
    19 November 2018 @ 15:27
    Guys - seriously? Worst thing i can say: this is something i would expect from CNBC (ouch). So much wrong with the content of this video, but not the first time you have gone the fear mongering route on passive investing. so where do i begin... Here's the overall issue. Low cost passive ETFs or mutual funds when part of a well diversified portfolio controls for the MOST important element - COST. The data is conclusive and compelling. The issue is not active or passive, its COST, whether in a passive portfolio or active portfolio. Over the long run, the number of high cost active managers that can consistently add alpha is exceedingly small vs. low cost active managers - check the data but please make sure you adjust for survivor ship bias. So this idea that passive investors are going to get "cooked" during the next downturn and active investors are better positioned to do better is false - they may, but it is entirely dependent on the fees being charged.
  • SJ
    Stefan J.
    19 November 2018 @ 13:42
    Good job AK .
    • ns
      niall s.
      19 November 2018 @ 14:27
      Agreed , OK with AK
  • OT
    Omar T.
    19 November 2018 @ 13:28
    This format and content combination doesn't work well in my opinion. AK Fallible seems to be trying to talk to highschool or college age individuals about the potential downside of too much passive investment. If there is an audience for this format, then the content should be geared to the kind of content that audience would be interested in / needs to hear. For example, iif real vision wants to have content for that age group, does that audience even know what an etf is? or are they more interested in the problem of student loans?
    • RP
      Ryan P.
      19 November 2018 @ 13:51
      I thought it was great...