Passive Aggressive

Aug. 2 1997 3:30 AM

Passive Aggressive

Index investing is evil.

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But index investing doesn't just undermine markets. At some level it also undermines economic health--the broader commons, if you will. If traditional investing rewards efficient companies and punishes slack managements, index investing perversely rewards mediocrity, rather like a business that pays lazy workers the same as industrious ones (or an economic system that rewards everyone equally no matter how much they produce). Indexers, after all, will continue to hold a weak-performing stock year after year, and will make no effort to double up on a strong performer. Under such circumstances, why would companies innovate, take risks, or try to grow? By making the economy less efficient and less responsive, index investing actually helps impoverish us all.

Daniel Akst, a former business columnist for the Los Angeles Times, is the author of St. Burl's Obituary, a novel.

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