Mike Green on the Dangers of the Rise of Passive Investing
Excess Returns
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The Dot Com Cycle Perversely Was Kicked Off by Indexing 1.0
The dot com cycle perversely was kicked off by what I call indexing 1.0. In the mid 1990s, companies like Microsoft and Cisco had relatively high market caps but only about half the shares were actually publicly traded. So when Vanguard went out to try to buy the market cap weight of Microsoft, they were actually buying twice as many shares as were actually available to trade. That causes those who are allocated to Microsoft to outperform. And so their outperformance attracted additional flows and facilitated the dynamics of the dot com cycle where that became clear to me in 2015.
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