A Random Walk Down Wall Street: The Best Investment Guide That Money Can Buy

by Burton G. Malkiel

Morningstar.

The Silent Road to Serfdom: Why Passive Investing is Worse than Marxism

The paradox of index investing is that the stock market needs some active traders who analyze and act on new information so that stocks are efficiently priced and sufficiently liquid for investors to be able to buy and sell. Active traders play a positive role in determining security prices and how capital is allocated.

The paradox is that the very activity of active investors makes it highly unlikely that unexploited opportunities for abnormal profits can continue to exist.

If anything, the stock market is becoming more efficient—not less so—despite the growth of indexing.

But free riding on price signals provided by others is hardly a flaw of the capitalist system; it is an essential feature of that system.