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Payne's Perspective: June 10, 2024: Human Nature & The Folly of Experiments

By Charles Payne CEO & Principal Analyst

Passive Isn’t Passive

What is passive investing?

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Powerful & Unstoppable Force

The passive investing trend has become the most powerful force in the market. One might say it's like a caterpillar that morphed into Godzilla but is still marketed as a non-lethal caterpillar.

But even butterflies can be destructive. In New York and New Jersey, the Spongy Moth caterpillar wreaks havoc on trees.

Spongy Moth caterpillars (originally called Gypsy Moths, a name now deemed offensive) were brought to America a hundred years ago to breed with silkworms to produce stronger silk (we have been playing with fire in attempts to alter nature forever).

Instead, they produce destruction.

A friend sent me photos of the destruction these caterpillars applied to a single tree this spring weekend.


There are two schools of thought when it comes to passive investment funds.


Describing passive flows into S&P 500 proxies as “dumb” is gaslighting. These are long-term investments in the U.S. Gross Domestic Product (GDP) made by folks who don’t want to time the market, trade against pros, or pay high fees.


The 401K was a massive Ponzi perpetrated by the working class to prop up share prices for the wealthy.

Massive Cash Horde

Passive assets surpassed active assets a few years ago, and they are poised to pull away even faster. Success is the best kind of marketing, and as the stock market moves higher, we have seen more households participate. Moreover, we are seeing more employees take advantage of company 401K programs, which are a major contributor to passive inflows.

Let's not forget that active managers are also buyers of many names dominating passive inflows.

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Index funds, the heart of passive investing, match the market. If XYZ is 24% of the S&P 500, it aims to be 24% of the index fund.

All that buying means is that hot stocks can remain hot, partly due to index buyers. Call it a virus cycle, but you can see where, at a certain point, it becomes unmoored to underlying fundamentals.

With that in mind, perhaps it's no coincidence that massive inflows into passive funds have matched the parabolic rise in a handful of stocks.

To read the full report, contact your account representative or email Info@wstreet.com.

Charles Payne
Wall Street Strategies


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