[chii]

> that generation generally viewed the stock market as gambling and thus didn't tend to invest

which, i reckon, might've been what made returns high as that cohort didn't invest as much while prices were down, and thus made more returns as prices grew in the future.

The recent growth in people (esp. young people) investing (from it being easier than ever, to availability of information about investing) would make prices grow higher faster. This, i predict, means future returns are actually going to be lower for this generation.

[bad_haircut72]

Since everyone "knows" index funds are the way to go, thats what everyone does, which IMHO is one of the reasons why stocks are so overvalued

[no_wizard]

>Since everyone "knows" index funds are the way to go, thats what everyone does, which IMHO is one of the reasons why stocks are so overvalued

Its been general knowledge for a long time. Even more so now, yes, but even before the internet. Famously Warren Buffett has proclaimed that the average person should be investing in index funds for many decades, for example. Bogle published his methodologies like 40 years ago. Value investing was also well understood (and is what made Warren Buffett a billionaire).

Neither of which of these strategies have seemed to overtake the public en masse, even as investing has become easier. There seems to be some disconnect in the human brain that most people can't seem to get their act together with investing[0].

Anecdotally I have been a big Boglehead for quite some time, and long talked people's ear off about it, which inevitably means I'm talking about investing in index funds (the 'holy bogle trinity'[1]). Yet, while I continue to build wealth this way, nobody I know has followed this sound advice, even as I have openly shown that its reasonably sound and likely better than most other forms of investing.

Instead, people buy stock in specific companies, or still trade crypto, or see themselves as day traders etc. with all kinds of predictable (and mixed) results.

There seems to be some allure in the human mind that drives it. I'm not entirely sure what it is, but passive index fund investing while sound, and certainly well known, isn't as 'hot' as it should be.

All this is to say, I don't think its overvalued at all. I think its still undervalued relative to performance

[0]: even when given all the knowledge and tools, though financial literacy isn't great in the US, its not the only reason behind this.

[1]: The three fund portfolio: https://www.bogleheads.org/wiki/Three-fund_portfolio

[chii]

> I'm not entirely sure what it is, but passive index fund investing while sound, and certainly well known, isn't as 'hot' as it should be.

and i'm glad for it, since i am still accumulating, and i'd prefer it if the prices aren't too high. If other people fail to heed good advice when they here it, they also deserve to get whatever they get in the future.

[UncleOxidant]

And companies getting onto an index seems potentially fraught with corruption when so much money is at stake. Is there a publicized algorithm that determines which companies get into an index or are palms greased?

That said, I mostly invest in indexes even though I have concerns. I've just done much better over the years with index investing than investing in single stocks. Diversification is maximized in index investing.

[chii]

> getting onto an index

the S&P 500 index is hand picked (by some committee iirc) at S&P.

But there's only 1 type of index fund - the total market, cap-weighted index fund - that's worth investing in as a passive investor. Not any specific index that excludes some stocks while including others.