Risks of index funds when everyone is buying them.

Recently listened to a podcast where David Collum expressed his concerns about index funds.

Basically when everyone is blindly throwing money into an index without looking at the valuation of the company it can cause companies to become overvalued. It can also lead to management making poor decisions that are not in the best interest of the shareholders since no one is holding them accountable because none of the index funds will sell due to poor decisions. The indexes only sell to rebalance.

I definitely see where he’s coming from since the risk of the largest share holders (the index funds) significantly cutting a position for poor direction is essentially zero.

A significant portion of my investments are indexes since I do feel they are safe but this has made me think a little more about that. Do any of you have thoughts on this?