As I came out of college, I applied for a wide variety of investing jobs. I thought: What better place to find like-minded individuals willing to confront conventional wisdom than a hardcore investment firm?

In the first weeks of my career, I was sent out to an investors’ gathering, organized by one of the major investment banks. Before long, I found myself in a conversation with another attendee who introduced himself as an experienced investor, holding a senior position at a large family office (a company that manages money for one or more wealthy families).

This investor seemed particularly confident that his worldview aligned with absolute reality. Just starting out in my own career, I was eager to hear his perspective. After some small talk about real estate and the current macroeconomic environment, he made an offhand comment that caught my attention.

He suggested that soon, private markets would become just as efficient as public ones and that the best approach would be to diversify across as many private funds as possible to spread out company-specific risks. Much like public markets, private markets were inherently efficient, after all.

I couldn’t help but raise my right eyebrow for a split second after his comment, which he must have noticed, as he went on to ask, “Do you think otherwise?”

At that moment, I took a brief pause. The thought crossed my mind: Would it be worth it to share my view of reality with him? The topic was clearly sensitive to the people at the networking event that day. After a moment of consideration, I made the decision to speak my mind openly.

“So, what is your approach to public market investing? Do you just buy index funds?” I asked.

He nodded.

“Do you know how the positions in those index funds are determined?” I followed up.

He thought for a second and then said, “Well, index funds follow the whole market, so they make sure you are fully diversified across that market. Surely, I don’t have to tell you this.”

I looked at him thoughtfully and asked what he meant by market.

This must have sounded like a silly remark to him, as he replied, “Well, Europe, the US, you know…” and looked away, as though he thought it was a good moment to shift to another topic.

“Let me give you an example of an index fund, and then you’ll understand where I’m going with this,” I told him.

Now, it was he who seemed to raise his eyebrow—though his facial expression wasn’t quite flexible enough to fully lift it in a subtle manner.

I continued, “The Russell 3,000 basically looks at all the companies on the largest US exchanges and then, once a year, ranks them based on their market capitalization and picks the top 3,000.”  

Again, he nodded, understanding what I was saying but still unsure where I was headed with this.

“So, essentially, that’s just an algorithm to pick stocks—definitely not the best one out there, I’d say. When you invest in an index fund, you’re actually investing actively.”

At this point, another investor from the same company—who must have overheard part of our conversation—decided to join in. After introducing himself, he added:

“Excuse me, I heard you mention that index investing is actually a form of active management, but I disagree. We, as investors, have chosen to invest passively, and our process is completely passive. We don’t pick stocks.”

Now, I started to feel some pressure. I was in the minority in this discussion, and both gentlemen seemed eager to emphasize that their viewpoint was the only correct one.

“I think you two are right that you are not investing actively, but the index fund sure is. It actively chooses the stocks it invests in—once a year, based on market capitalization, selecting 3,000 stocks. That’s an active decision.”

Our new discussion partner shook his head.

“It has been shown multiple times that active investing doesn’t work. Most active managers lag the index over periods longer than ten years. That’s why we don’t do it,” he argued.

As he cited well-known research on active management, his body language radiated confidence.

I responded, “Well, most active managers use rules that are even worse than simply choosing to buy the largest 3,000 stocks once a year and weighting them by size. That’s why they underperform. But that doesn’t mean index rules aren’t active—regardless of what the word active means.”

Both men now looked at me as though they had just seen water catch fire.

To cool things down a bit, I followed up with: “But yes, after the index fund has actively chosen its investment rules, the process from then on is passive. So, there is some passiveness to it—if that makes you feel better.”

I saw some relief on their faces after this comment.

We moved on to small talk, shared a coffee and a sandwich, and eventually went our separate ways. Before leaving, however, the original investor smiled and said to his colleague with a chuckle, “Well, good to know that we’re still passive investors!”

Pausing for a moment, I commented, “It’s passive in a way, alright—but that doesn’t mean the rules are any good!”

I could see the total confusion on their faces as we parted ways.

And I was confused too.

How could this be? These were experienced investment professionals—people with years in the field. I was motivated to understand markets and had done my own research on how index funds worked. I thought others would be open-minded and eager to learn more too.

How could this be? These were experienced investment professionals—people with years in the field. I was motivated to understand markets and had done my own research on how index funds worked. I thought others would be open-minded and eager to learn more too.

Instead, it seemed like the investors I spoke to were more interested in enforcing their reality onto the world. Any deviation from their worldview caused them visible discomfort. They preferred to hold onto their beliefs, rather than challenge them—even when evidence suggested otherwise.

I found that unsustainable.

Right at the start of my career, I knew I didn’t want to end up like that. Even if these people seemed comfortable climbing the corporate ladder, I didn’t want to follow the herd. I didn’t want to become someone who conformed without thinking.

Each time I experienced cognitive dissonance, I wanted to stay open-minded, investigate, learn, and process.

And so, I started my own investment practice—taking bets against the norm.

Profitably so.

I learned what works in markets.

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