Two young fish swim through the ocean, passing an older fish, who says: “Hey boys, how’s the water?” The two younger fish swim on, until one turns to the other and asks: “What the hell is water?”
The late writer David Foster Wallace used this parable to illustrate how “the most obvious, ubiquitous, important realities are often the ones that are the hardest to see and talk about”. For some analysts, it is also the perfect way to describe the pervasive, under-appreciated effect that passive investing is having on markets.
Quantitative-orientated investors seeing their models fizzle? Equity valuations at illogical highs? Imperious stockpickers reduced to impotent dunces? Odd movements in the bowels of markets? Supposedly idiosyncratic securities moving together like they are doing a tango? The weird phenomenon of most stock market gains happening overnight rather than during the trading day?
All this and…