The End of Indexing

"The dumbest reason in the world to buy a stock is because it’s going up." -Warren Buffett

My ‘little’ project

It took me a long, long time to write The End of Indexing. From A to Z, including the research I conducted before writing a single line, the project took well over two years. I was in fact so absorbed in the project that I had to promise my wife never to write another book, and she still reminds me of that promise every now and then! That said, the book was, and continues to be, very close to my heart. I still don’t see the logic in investing in all yesterday’s winners, which is essentially what you do when you index your portfolio.

The passive brigade will probably argue that yesterday’s winners are more often than not also tomorrow’s winners, but that is not correct. As you can see in Exhibit 1 below, yesterday’s winners are actually not that often tomorrow’s winners. Only because Information Technology has come out on top in three of the last five years, and because the average investor suffers from recency bias, has that become a widely held view.

Exhibit 1: Annual S&P 500 performance by sector, 2007-21

Sources: Novel Investor