Warren Buffet was perhaps the most significant instigator of an alarming trend in investing to simply plop one’s retirement money into low-cost index funds. Rather than having to choose between various companies, the retail investor simply chooses to invest in the whole market. This is called “passive investing” and contrasts with actively managed portfolios where investors or portfolio managers choose which companies to buy. Warren Buffet wrote,

 “By periodically investing in an index fund … the know-nothing investor can actually outperform most investment professionals,” he wrote in his 1993 letter to shareholders of his Berkshire Hathaway conglomerate. “Paradoxically, when ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

This recommendation has become so common, including from financial media personalities like Dave Ramsay, that the trend has increased to where about 53% of the current market is controlled by passive investors. Michael Green in a recent interview (shared above) has explained the strong bull market in April with passive flows coming from retirement portfolios of workers, and this despite the war in Iran, rising oil prices which should have been strongly bearish trends. Green warns that once the percentage of passive flows reaches over 60%, we risk a major collapse of the market, particularly if, e.g., AI puts a large number of employees out of work. Michael Green has no current recommendations for how to deal with this issue, such as reverting to cash or buying gold and silver, but he claims that his firm is working on strategies to help investors cope with this problem. So stay tuned.