Exactly, well said. It amazes me how every proponent of index...

Exactly, well said. It amazes me how every proponent of index funds, or passive investments more generally, have absolutely no idea what makes them so efficient.

It is active investors, making sound decisions on fundamentals.

Can you imagine if every investor made decisions purely on market cap... There would be zero price discovery. The mega cap company that just released dire financials - would continue to be bought purely on the fact it is a mega cap.

The whole system collapses without this vital factor. The main himself Jack Bogle knew it - he just assumed the market would never get to a point where passive investments would cause significant harm.

The issue now is... everyone is dropping active managers and going passive. To date, they have laughed all the way to the bank. Amazing performance and cheap fees.

How can the likes of Magellan, failing to beat the benchmark over an extended period, compete with a Vanguard fund which costs a fraction of a percent... and no BS performance fees.

My prediction is this... the likes of Magellan, Platinum, Perpetual... all active managers will continue to suffer until there is one almighty day of reckoning.

Then we will have movies about passive index tracking - when everyone thought it was a good idea to invest purely off market caps... until too much of a good thing... turned into a very bad thing.

Don't get me wrong, passive investment strategies have their purpose. Our problem is at this rate, the next generation will all gravitate towards them. Where does this leave the health of the market?

Who can blame investors though. The stats don't lie... over 90% of active managers fail to beat the benchmark. If your adviser is trying to direct you into an active manager - he is just gambling with your money... and the odds are against you.

So there you have it. Passive investment is killing the market... but you are a fool not to invest in them.

Talk about a dilemma.