- Passive investment is money flowing into the stock market on a regular
basis through employee participation in retirement plans. This inflow
is insensitive to valuation metrics and so as it becomes more popular
it changes the dynamics of the market:
- The market trends higher because there is a steady inflow
- The rich get richer because stocks with higher market caps are
indexed by popular funds which is where passive money tends to flow.
This in turn increases the price of these large cap stocks
- It makes value investing harder because âcheapâ smaller companies
are not likely to see the influx of passive