Jun 3, 2022·edited Jun 3, 2022

A small thought to consider: instead of the "index mindset" or "cheems mindset", what is the barbell strategy (conservative-risky split) against this? https://normielisation.substack.com/p/personal-cheems-mindset https://normielisation.substack.com/p/personal-cheems-mindset/comments?s=r

Also as a side note, "Midwit" can also fall in this general category of behavior of mindless bet-hedging https://alima.substack.com/p/midwits-and-the-office?s=r https://www.dwarkeshpatel.com/p/barbell-strategies https://web.archive.org/web/20210302000146/https://www.mightyknowledge.com/use-the-barbell-strategy-for-risk-taking-in-your-life/

Expand full comment

A final thought from the academic literature that supports your shift in mindset from an entrepreneurial opportunity seeking to a protective mindset. It fits well with Harvard Professor Howard Stevenson's contrast between entrepreneurial behavior with administrative behavior. (Stevenson, 1983; Stevenson & Jarillo, 1990). Stevenson considers entrepreneurship "as the pursuit of opportunities without regard to resources currently controlled" (knowing money flows to good ideas). At the other end of the spectrum is an administrative mindset reflected by protective behaviors and strategies making use of resources currently under control.

Colleagues of mine published a nice operationalization of Stevenson's theoretical paper with the measures covering several dimensions related to: resources, strategy, culture and management (Brown, Davidsson & Wiklund, 2001). The measures are in the paper Appendix. Could be an interest part of a portfolio investment screening process?

I used the measures in one of dissertation papers. My model had the Ent. Management dimensions as mediating effects between slack resources and growth. Several ent management dimensions were sig and positive with growth and financial slack had a direct positive relationship with growth. However, slack resources were negatively associated with the Ent Management Dimensions. I concluded these factors for growth were tradeoffs rather than enhancers together. Resource constraints, within reason, encourage resourcefulness exhibited as entrepreneurial management behaviors (Bradley, Wiklund, Shepherd, 2001).

Bradley, S. W., Wiklund, J., & Shepherd, D. A. (2011). Swinging a double-edged sword: The effect of slack on entrepreneurial management and growth. Journal of Business Venturing, 26(5), 537-554.

Brown, T. E., Davidsson, P., & Wiklund, J. (2001). An operationalization of Stevenson's conceptualization of entrepreneurship as opportunity‐based firm behavior. Strategic ManagementJournal, 22(10), 953-968.

Stevenson, H. H. (1983). A perspective on entrepreneurship (Vol. 13). Cambridge, MA: Harvard Business School.

Stevenson, H. H., & Jarillo, J. C. 1990. A paradigm of entrepreneurship: Entrepreneurial management. Strategic Management Journal, 11: 17-27.

Expand full comment

The Green Index Funds are another momentum trend where performance is misleadingly being driven by 20% of portfolio in the same four big tech stocks. I only reading glowing articles about capital pouring into Green Funds, but never about the portfolio companies doing innovative things that matter. How many green fund portfolio companies are actually creating innovative technologies that address climate issues versus those that have high green rating because they are housed in a high rise and don't manufacture anything?

Expand full comment

Important observations that answer concerns I've had about everyone investing at the mean. Where did the P/E ratios, evaluating products/service potential of companies, and so on go? I've been surprised even my finance professor friends suggest index investing (perhaps for general investors as you note) rather than having some more nuanced decision making on investing. If the advice they give is general knowledge, doesn't it diminish the expertise a finance degree offers? Any legitimate concerns about monopoly of the big tech companies driving public markets have to be weighed against investors pushing them into a "too big to fail" category. The consequences of outside actions that harm performance would have significant spillover to the majority of retirements savings managed by lazy institutional investors - including mine!

Expand full comment

Does your conclusion here translate to avoidance of index-adjacent jobs like consulting/finance?

Expand full comment

Very thorough. Based on the superior results of index funds, can one infer that indexing (in general) increases the average over time? And hence it eventually brings about accelerated progress? Finding one's path, strengths, and area of excellence is not trivial. Some people will get there and will create supernormal success stories. For the rest, indexing may help them discover new avenues that lead to their differentiation.

Expand full comment

I actually think now is the perfect time for someone to create an index if seed-stage companies:

1. The expected value of seed stage companies who reach a certain milestone like $100k/mo revenue has been growing steadily for structural reasons

2. Since most investors don’t yet have access, but probably will soon enough, whoever gets in early is frontrunning most of the index participants

Expand full comment

The advent of AI will force young workers to train in multiple disciplines - or jobs - so they can earn money if and when AI takes over their current job.

I see "indexing" as a societal response to extreme capitalism. It is a communal response to the fact that industry has the absolute right to pull out the floor from under us.

The best response to the mediocrity that indexing often produces does not lie in the opportunism described in your final graph. It lies in raising the ideals of society at large by:

1. teaching ethics starting in pre-school

2. encouraging youth to plan for life-long education, rather than work, work, work, then retire

3. establishing a new economic bill or rights that that does away with the old worker/industry compacts that no longer apply, and clears the way for both capital and workers to achieve whatever it is that they want.

In short, we need a new economic world order: one that tames extreme capitalism and makes room life-long education.

Expand full comment