The Tesla CEO is using his newly acquired toy, Twitter, to criticize passive investing.
Elon Musk joined a conversation on Twitter, which he recently acquired for $44 billion, initiated by venture capitalist Maro Andreessen. On the thread, the latter posited that firms like BlackRock have too much influence over companies given their outsized holdings in passive funds tracking indexes, according to a «Bloomberg» story (behind paywall), on Thursday.
Passive investing has «gone too far», Musk said on the Twitter thread, where he was joined by Ark Investment Management founder Cathie Wood. Those investing in index funds that tracked the S&P 500, for example, would have missed out on the big gains in Tesla before it was included as a component of the index, Wood said.
Misallocation of Capital
Wood made the point that «history will deem the accelerated shift toward passive funds during the last 20 years as a massive misallocation of capital», according to Bloomberg.
Those supporting index funds, however, say that active funds charge high fees and often fail to beat indexes against which they are benchmarked. For their part, the active managers highlight their role in creating efficient markets and their potential to harness higher gains.
