<instructions>Your goal is to analyze the following comment and estimate how highly it will be upvoted by the Hacker News community.</instructions><comment><author>thanatropism</author><text>The title is terrible.&lt;p&gt;The fundamental problem he seems to be pointing at is that notional replicating portfolios can work like an engineering marvel in good times and become inoperable in bad (liquidity) times.&lt;p&gt;There were many elements to the CDO crisis -- including bad faith by the rating agencies and a prolonged asset-price mania much beyond this stock-market rally. The simpler metaphor is the emission of vanilla stock options. In principle, a bank is only able to offer options because he has the ability to replicate it and neutralize his risk. But if market conditions diverge from the asset replication model, then &lt;i&gt;boom&lt;/i&gt; you get LTCM.</text><parent_chain><item><author>perspective1</author><text>Exactly. The article, starting with the title, is pompous and overconfident. Burry made the unanswered point that in a sell-off large index funds will have to dump their smaller holdings at large discounts. We have never had a market crash with passive holdings this large (and consolidated in a small handful of funds)-- we&amp;#x27;re in unprecedented times. Burry&amp;#x27;s point is entirely plausible. And although that it wouldn&amp;#x27;t immediately cause a problem for investors who don&amp;#x27;t sell (price is not value), the newly discount-price firms may struggle immensely in terms of raising new capital and financing.</text></item><item><author>talolard</author><text>I think this article really misses the point that Burry was making, which is that if the indexs see a sell off they won&amp;#x27;t find the liquidity in the market to cash out their positions and will drive the market down.&lt;p&gt;This article seems to focus on all of the upsides of indexing, which are all true. However, those upsides don&amp;#x27;t negate the risk that is being pointed to.</text></item></parent_chain></comment><story><title>A critique of the claim that passive investing is a bubble</title><url>https://awealthofcommonsense.com/2019/09/debunking-the-silly-passive-is-a-bubble-myth/</url></story>
<instructions>Your goal is to analyze the following comment and estimate how highly it will be upvoted by the Hacker News community.</instructions><comment><author>doubleunplussed</author><text>By symmetry, shouldn&amp;#x27;t the rapid growth of index funds imply the funds have paid inflated premiums to buy illiquid stocks? I suppose the &amp;#x27;bubble&amp;#x27; claim is that they have, but that this is invisible because it has inflated the price of the underlying stocks as well so we still see the index funds priced the same as the underlying stocks.&lt;p&gt;At least for exchange-traded funds, it would seem that you don&amp;#x27;t have to actually destroy units of the ETF in the case of a sell-off. The ETF units would just sell at lower prices, just like when there is a &amp;#x27;sell off&amp;#x27; of any stock - there are always equal numbers of buyers and sellers, you don&amp;#x27;t destroy units, you just move the price lower.&lt;p&gt;With index funds where you have an account directly with vanguard or whoever instead of buying units on an exchange, I&amp;#x27;m not sure how it works in a sell-off. Perhaps they sell shares in the individual stocks, or perhaps they just try to sell off your shares bundled together by issuing more ETF units. I don&amp;#x27;t know what they do, but it seems like there are a bunch of options that should mean they don&amp;#x27;t have to sell off illiquid stocks on command.&lt;p&gt;I&amp;#x27;m not sure. Happy to be enlightened. As much as I think about it, my intuition seems to consistently say that it&amp;#x27;s impossible for index funds to be broken in any meaningful way that&amp;#x27;s any different from the market itself or some sector thereof being in a bubble.</text><parent_chain><item><author>perspective1</author><text>Exactly. The article, starting with the title, is pompous and overconfident. Burry made the unanswered point that in a sell-off large index funds will have to dump their smaller holdings at large discounts. We have never had a market crash with passive holdings this large (and consolidated in a small handful of funds)-- we&amp;#x27;re in unprecedented times. Burry&amp;#x27;s point is entirely plausible. And although that it wouldn&amp;#x27;t immediately cause a problem for investors who don&amp;#x27;t sell (price is not value), the newly discount-price firms may struggle immensely in terms of raising new capital and financing.</text></item><item><author>talolard</author><text>I think this article really misses the point that Burry was making, which is that if the indexs see a sell off they won&amp;#x27;t find the liquidity in the market to cash out their positions and will drive the market down.&lt;p&gt;This article seems to focus on all of the upsides of indexing, which are all true. However, those upsides don&amp;#x27;t negate the risk that is being pointed to.</text></item></parent_chain></comment><story><title>A critique of the claim that passive investing is a bubble</title><url>https://awealthofcommonsense.com/2019/09/debunking-the-silly-passive-is-a-bubble-myth/</url></story>