The Unbundling Of Indexes and Markets


I have some very smart friends who have been asking me to further explain what I mean by ‘unbundling of indexes’ when I write about it on my blog and Stocktwits and Twitter. I am sure I have riffed about this on many podcasts, but let me try again in as few a words as possible.

In the first internet bubble, picking stocks was cool. If you did not want to pick them you picked a mutual fund manager with a cool name or hair and you let them do it. Fees be damned. That did not end well.

For reasons that probably don’t matter to my explanation, the idea of indexing really accelerated after the bubble crashed. The mantra of ‘cut your fees’ and ‘you can’t beat the S&P 500‘ was all that mattered.

Over the last 15 plus years, Vanguard, State Street and Blackrock have taken advantage of this movement and herded as many people as possible into what I consider the same product/s.

It has mostly worked for investors as they build a 60/40 or 70/30 portolio of indexes and bond funds/etf’s with their financial advisor. Advisors get to show a pretty smooth return line with lower and lower fees.

At many levels this is great.

The trend just may continue forever.

I have long believed that Blackrock, State Street and Vanguard should have opened up the tools and processes they created to help people own fractional shares of hundreds of stocks so that people could just build their own indexes.

They did not and have not. They won’t.

Along comes software and the iPhone and Etoro and Crypto and Robinhood and free trading and collectibles and collectible investing and trading (Rally Rd) and Stocktwits and Reddit and Twitter and WhatsApp and Discord and Slack and Koyfin and Alpaca. Yes of course I am pimping many of my own investments in that last sentence.

Also, the $QQQ has outperformed the S&P 500 for forever.

This software and free money and technology boom and now COVID have spawned so many new exciting companies and industries that just not available in the S&P 500 and it turns out that people want something new. They also want to play. They also want ridiculous growth because they have seen it. There friends talk about it all freaking day on social media.

Too many choices, too many ways to learn and so the unbundling.

Startups and consumers have used software to unbundle the indexes because it is now simply unbundleable.

We are very early in this trend away from owning 500 stocks.

I have no idea what this will look like five years from now.

Maybe people will own 30 stocks, 20 liquid collectibles, pieces of 10 private software companies that pay them a yearly dividend and some crypto but I doubt they own a simple 60/40 or 70/30 indexed portfolio.

This is what I mean by unbundling.