Investing in the S&P 500 Index is called passive investing.
A big part of what makes the S&P 500 difficult to beat is the fact that it’s passive.*
It doesn’t think anything. It doesn’t feel anything. It doesn’t feel compelled to act. It’s not worried about what’s going to happen next. It’s not overly excited about what’s happening right now.
It removes all the silly human bias. That’s partly why it does so well. If you want to do well, you have to emulate it somewhat. And probably more than you think.
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*Why does passive investing work? Because it’s passive only at the investor level. The underlying companies in the index and all their employees are active. If they’re doing their job of growing value, the investors should get out of the way. Coattail riding as Buffett would say.
– Evan
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