17/06/2026
https://danieldekock.substack.com/p/when-passive-investing-stops-being
“Rational markets” were never really about the absence of exuberance—they were about how quickly it got corrected.
That balance shifts when passive flows dominate.
In a system increasingly driven by index rules, rising valuations can lead to inclusion, inclusion drives forced buying, and forced buying can further reinforce valuations. The feedback loop doesn’t require sentiment—it’s mechanical.
That’s where the risk sits.
Passive investing has clear benefits: low cost, diversification, and discipline. But when trillions are allocated without regard to price, fundamentals, or conviction, the system can become less able to absorb narrative-driven excess.
What was once investor behaviour becomes market structure.
And in that structure, exuberance doesn’t just happen—it can persist longer than it should.
The upcoming AI IPO cycle, including companies like OpenAI and Anthropic, will be a real-time test of how strong those passive feedback loops have become.
Active investing isn’t perfect—but it does something passive systems can’t: it prices risk, disagreement, and conviction in real time.
For decades, passive investing has been sold as one of the safest and most rational ways to build wealth.
