Just Buy All the Unicorns
Also bank capital errors, Aramco’s pop and holistic surveillance.
One theory of passive investing is that every public company is the same, so there’s no real point in spending time and energy trying to pick the best ones. I am exaggerating, but not all that much. There’s an excellent 2017 research note from Michael Mauboussin et al. (which I wrote about here) finding that “listed companies today are on average larger, older, and more profitable than they were 20 years ago” and speculating that “the maturation of listed companies has also contributed to informational efficiency in the stock market,” which “may be one of the catalysts for the shift that investors are making from active to indexed or rule-based strategies.” When there are dramatic differences between public companies, it pays to pick the good ones and avoid the bad ones. When they are all mature and profitable and probably correctly priced, buying all of them is fine.
On this theory, indexing and algorithmic investing should come to dominate the increasingly efficient public markets, and people who are good at spotting value and profiting from inefficiency should migrate to private markets where that is still possible. Private companies are still different, so spending time picking the good ones is still worthwhile.