Question

Burry suggests there is a passive investing "bubble". Explain what a price bubble is and how it is linked to passive investing in equity markets. What are the characteristics of equities that are most exposed to a passive investing "bubble"?

Answer 1

Michael burry is the person who predicted subprime mortgage crisis in 2008 and now predicted passive investing bubble.

meaning:- when investor buy stocks and hold for long term where supply of the stock is limites so the price of the stock ultimately go up without considering intrinsic value of the stock , more money flow in to the market and stock will keep going up ,moreover same case with index investing when one buy index then he or she is buying whole market and not single stock , he is buying small portion of every stocks so the price of stock will go up without considering it's fundamental.

Now question come how to determine overvaluation of the stock it can be done by determine P/E ratio which is calculated by market price/ EPS , presently s&p 500 is trading @ 106% premium over 10 years average p/e ratio which shows that market is overvalued.

Moreover there are artificially handled portfolio for etf and others which do not care about micro or macro risk or Donald trup twit or stock fundamental they simply follow the best trading strategy which is fruitful.

- Such as buy and hold, long term investment , more liquidity, increasing market participants as it's easy , more liquidity in the market , marketing buy the fund house, grid to earn more etc are causing passive investing bubble