[Week 24 of 2026] Hype and Hold

Welcome back to Price and Prejudice with a few musings from Week 24 of 2026.

Demand for Viral Advice

This essay catalogs the world of "finfluencers," which refers to YouTubers and X accounts who tell retail traders which assets are about to go moon, followed by a ritual phrase "this is not financial advice." The easy explanation is a supply story – social media made it nearly free to produce and distribute hype, and the whole apparatus lives on engagement rather than on the realized outcome. And it probably doesn't help that it takes at least months and years to figure out ex post whether the advice was correct or not.

But the supply story doesn't explain why these people have an audience in the first place. It seems difficult to argue that traditional financial advice has gotten worse: "buy the index, diversify, and hold" is the same boring but broadly correct product it always was. Instead, what changed is also the demand – conventional advice optimizes for steady accumulation, with the assumption that steady accumulation eventually buys a decent life. For a growing number of people, that assumption no longer holds. If the gap between what a life costs and what your savings can plausibly become is too wide to close by being prudent, then prudence stops being the rational strategy. So the finfluencers are not selling a worse version of index funds, but they are simply selling a different product – a lottery ticket – that conventional advisors will probably eschew.

For this reason, it's unlikely that these finfluencers will go away anytime soon. The demand is what makes it so durable, and this matters because the usual policy reflex targets supply (e.g. disclosure rules or gamification limits). While these might help at the margin, it does not change the fact that the underlying demand is for a high-variance escape that conventional finance cannot provide. And this means that the right discussion we should be having is what kind of economy generates a standing demand for financial Hail Marys in the first place.

Active by Accident

This report makes an under-appreciated point that index funds are not as passive as they look. For example, a cap-weighted index like the S&P 500 adds stocks after they have soared and drops them after they have crashed, so at the margin it is buying high and selling low. The authors estimate this reconstitution churn costs index investors roughly 25 basis points a year, and they show that recent S&P 500 additions beat the market by about 65% in the year before joining, then trailed it by 11% in the year after. All of this is true and genuinely useful to know, but typically when we say active versus passive, we usually refer to the decision rule, i.e. discretion and forecasting versus a fixed mechanical rule applied without a view. By that standard, cap-weighting is about as passive as investing gets.

Nonetheless, it is worth a thought experiment: what would a truly passive passive portfolio actually look like? A clean test is whether a change in price, on its own, ever forces you to trade. Cap-weighting a fixed basket passes this test, because when prices move, your holdings move in exact proportion to each company's market cap and your weights take care of themselves. With this criteria, the S&P500 fails the test only around the boundary: a stock rallying across the top-500 cutoff and you're forced to buy it high (after some internal discussions, of course), while another falls out and you have to sell it low. In other words, the activeness inherently lives in the membership rule, and no curated subset of the market can be truly passive.

The part I find most amusing is that the report's own fix is, by this same definition, the more active option. Its main suggestion is to weight stocks by fundamentals like sales or cash flow instead of by price. But weighting by fundamentals only works if you assume price eventually reverts to value, and acting on that assumption means trading against every price move, i.e. selling whatever has risen and buying whatever has fallen. That is a contrarian bet, i.e. a decision rule, i.e. the very definition of active management. So the report is right that the S&P 500 is not perfectly passive, but the cure it offers seems at least as active as the disease it diagnoses.