Kevin Duffy on the passive bubble vs. active anti-bubble

Besides bonds, there is plenty of herding into private investments by the wealthy, especially venture capital and private equity.  Away from the top 1%, the obvious crowding is into passive investing. After a decade when U.S. large cap stocks outperformed most active managers, the typical investor is pouring money into funds that mimic an index, like the S&P 500, that charge very little in fees.

While I applaud being frugal and holding active managers’ feet to the fire, the crowd is very likely looking in the rearview mirror at this point. In general, stocks in the S&P 500 have become quite expensive while many across the “index divide” are actually fairly cheap. The latter area is where we need to hunt for bargains.

~ Kevin Duffy, The Coffee Can Portfolio, February 18, 2020