If you read Matt Levine's money stuff: a new favorite thing amongst financial products (currently only available to hedge funds, but on its way to becoming retail) is the following:

The default investment should be "the diversified market portfolio", e.g. S&P500. Then, if you have opinions (especially negative ones) about companies (e.g. if you are a perennial Tesla bear), you want to invest against those companies. A regular way to do that is to short. Shorting is hard and expensive for retail. A better way to do it is to buy everything in the S&P500 except TSLA. The way to do this is to construct a custom index that is identical to S&P500, except that TSLA is removed and all other weights are adjusted accordingly.

To be clear, that is active investment 101. You start by taking a portfolio matching your benchmark, then you apply an "overlay" which expresses your view.

If you have no views, you match the benchmark (a good start- that's what you get judged by!), if your views are good (more x, less y) you make your alpha. Excellent. If your views are bad, said alpha is negative. Sad. But you probably retain a high Beta to the benchmark index.

My view remains that stock picking is bad for the average retail investor. Custom indexes are just stock picking with bells on.

The S&P is stock-picking by that logic.

Rank all the public equities by revenue, select the top 500, then weight them by market cap. Sounds pretty arbitrary doesn't it? Why not rank by profit? Or weight by years in existence?

No, it isn't. Not clear if you don't understand or you are being glib.

Passive investing logic is simple. You want to invest in stocks. Say you want to invest in the US market. You want a portfolio that represents, to some extent, the market. How do you get that? There is a benchmark index that weights by "how large a proportion of the market is". That seems pretty sound and consistent with the ideal?

The issue at hand is an attempt at rebranding a micromanaged portfolio as "index investing" - a term used interchangably with passive investing.

I don't mind stock picking. It is a negative sum game and people can play it if they want. But it is irresponsible imo to pretend you are offering something other than what you actually are

I’m being overly glib, but this just highlights the multiple definitions of active vs passive investing.

By definition, the S&P is a relatively arbitrary arrangement of stocks. These are picked by an arbitrary rules based algorithm. I happen to pick a lot of them, so the end of being well-representative of the total market, but that’s just a fact of me picking a lot of stocks. This is picking stocks - or stock picking - just straightforwardly.

Passive investing to me has nothing to do with the total market except indirectly. The goal with passive investing as I understand it is a portfolio you don’t have to watch, or a portfolio sufficiently uncorrelated between components to be relatively stable.

Even investing in the total market is active investing in a way, because you’re choosing equities as opposed to commodities, derivatives on those base instruments, real estate, and so on. The Dow is only 30 hand picked stocks, but it correlates pretty well with the total market, is that stock picking?

I get what you’re saying though, my point is just that the distinction between passive and active investing isn’t so cut and dry, and shouldn’t be used so dismissively.

A big fan of Matt Levine's thoughts on indexing and how vast amounts of passive investing are impacting the markets.

Thanks for your feedback!

If you want to stick to more traditional indexing approaches, that’s supported. For example, one user has stayed very close to VTI, but made some modifications to customize VTI to her goals and existing portfolio (https://enombic.com/abby/VTI-15).

We also have some users who want an easier way to automate their investments into a classic Vanguard basket (https://enombic.com/aml/lazy).

Everything on the app is DIY. So, alternatively, if you want to be more active, and test a thesis you may have, that’s supported as well.

I think OP's concern (which I don't necessarily share, but which I think is valid) is that indexes are generally considered to be relatively safe investments but if you're personally choosing the securities in the "index" you're essentially just choosing individual stocks, which is generally considered to be a bad idea for most people.

So it could be argued that you're essentially presenting choosing individual stocks, a highly risky investment strategy, as index funds, a different, much more conservative kind of investment.

Who cares? We put warning labels on cigarettes, we even tax them to offset the social cost of the badness of them. But we still have the freedom to consume them if we so choose.

Risky investments are the same. We don't need overbearing protectionist policies other than to ensure people aren't being outright cheated/scammed.

If the kids want to YOLO GME, who are we to say otherwise.

I find that even more disingenous than OP. That first link shows the Top 15 picks of the $VTI, but IIRC the $VTI is an index of 3,000 companies across the whole market. Picking 15 heavy-weight stocks is not even the same realm as an index fund.

She weights APPLE at 18.7% while VTI weights VTI weights the top 10 holdings for a total of 23% of the portfolio.

What's the difference? answer: nothing. Passive investing doesn't exist. Everything is active