VALUE: After Hours (S07 E41): The Rise of Passive Investing Is Distorting Markets

During their recent episode, Tobias Carlisle and Jonathan Boyar discussed The Rise of Passive Investing Is Distorting Markets. Here’s an excerpt from the episode:

Jonathan: I think 100%. Listen, passive, for the most part, has been active significantly and I could see why investors would gravitate toward it. But it’s distorted the markets. I’m not saying anything new, but the S&P500 is now a basically technology fund for all intents and purposes. So, I don’t think individual investors know how much risk they’re taking. Someone who’s buying an S&P 500 fund and holding it for the next 20 years, I think it’ll be fine. These things tend to work themselves out, but for people maybe with shorter term time horizons, they could be in for some pain.

One of the things that was interesting, and I was looking at it before, and it was in our latest quarterly letter– This has to do with those top 10 names dominating is J.P. Morgan guide to the market. I don’t know if you ever look at it. It’s a free guide that you can just download from their website. It’s fantastic. They had a graphic that showed for the last by decade. You had 1985, 1990, etc., up until 2025, the top 10 in terms of market cap. So, no company over that period has remained in the top 10 for any of those decades. The most were four and the four that were–

The most were two. Two of them were for four decades. That was Exxon and GE. Not names that I necessarily would want to own now. Of today’s 10 largest companies, only 4 were on the list a decade ago and just 1 appeared two decades ago. So, the S&P 500, there could be significant rotation within it. Who knows, maybe the Mag-7 will continue to outperform. But people need to be careful.

Tobias: I think they quietly switched out Netflix for Nvidia in that they quietly-

Jonathan: Just needed an end.

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VALUE: After Hours (S07 E41): The Rise of Passive Investing Is Distorting Markets

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