13 Investing Rules You Should Break During the Pandemic

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“The trend of investing solely in passive index funds is misguided, bad advice,” said Saul Cohen, CEO of investment firm Round.

Michael Burry, the well-known investor featured in “The Big Short,” has expressed his concerns about passive fund investing, warning, “The theater keeps getting more crowded but the exit door is the same (size) as it always was.” Meanwhile, billionaire investor and CEO of DoubleLine Capital, Jeffrey Gundlach, warns against this herding behavior, stating passive investing has reached “mania status.”

Cohen added that when investors “start selling out of their passive ETFs during a recession (or pandemic), there can be serious implications for not only the markets but also these ETF providers. ETFs may fire-sell securities, resulting in sharp price declines. ETF providers may get squeezed with an inability to meet investor redemptions in a timely manner. This may even create a scenario where the Federal Reserve has to get involved and provide liquidity. Given this notable risk facing the markets and these large passive ETF providers, it may be time to rethink our commitment to these products.”