Correspondingly, public index funds

have doubled their market share in

the last decade – a multi-trillion
dollar transition from active to
passive assets. Public companies
are an obvious thing to index, but
the index mindset manifests in
many domains.
Internet and software companies
are far less risky than they used to
be, even at the early stages: there
hasn’t been a venture vintage since
2002 with negative median returns.
Public macro investor Michael
Green speculates that index funds
weaken mean reversion
characteristics: overvalued things
should be purchased less, but
market cap-weighted index funds
purchase them more.
When capital inflows increase for
private markets, it reinforces the
indexing approach, in the same way
that public
index funds become reflexively
good. Sure, index funds’ fees
were 80-90% lower than those of
active managers, but aiming for
average is un-American. With low
fees and returns that were hard to
beat,

Venture fund indices prioritize

momentum over value, such that
fundamental business
characteristics matter less:
efficiency metrics and company-
level profitability give way to growth.
The retirement savings capital
inflows could revert, but are alive
and well for now.
 This pro-index tendency pervades
the private tech markets, startups,
and even our culture through what I
call the index mindset: a focus on
preservation over creation,
optionality over decisiveness,
general over specific. Yet as active
managers underperformed the
index 80%
of the time in the coming decades,
the argument favoring passive
funds became a no-brainer: why
pay higher fees for worse
performance?
Index funds have come to dominate
public markets. Employee tenure
is short and shortening, with many
employees opting to collect a
portfolio of equity across several
companies, hedging their downside
along the way. And Warren Buffett,
despite preaching index funds,
has 75% portfolio concentration in
five stocks.
Parents encourage the index
mindset, too, disguised as well-
roundedness: a collection of
hobbies and extracurricular
activities that make their children
broadly appealing to academia and
industry. This wealth went parabolic
in the 1960s, and since then, we’ve
become afraid of taking risks:
marriage comes six years later,
schooling lasts 5 years longer.

Even Warren Buffett, famous for his

concentrated portfolio, now tells us
to simply invest in index funds.

 Through the 1980s, gut-driven

active fund managers on Wall Street
dominated money management and
ridiculed index funds as “a sure path
to mediocrity”. Secondary
sales happen earlier and are more
common than ever before.

Growth investors often use a

framework of how quickly an
investment will be “in the money”; in
other words, how quickly another
growth investor will pay more for it.