Something unusual is happening beneath the surface of the stock market.
More money keeps flowing into passive funds that simply track an index.
Those funds do not ask whether a company is wonderful or mediocre. They do not study management, competitive advantages, cash flow, or valuation. They simply buy stocks according to their weight inside an index.
About $13 trillion is tracked or tied to the S&P 500 index. Every new dollar flowing into those funds is invested according to index weight, not a judgment about whether a stock is cheap or expensive.
For millions of investors, that approach has worked extremely well.
Index funds offer low costs, broad diversification, and impressive long-term results. But their enormous growth may be creating something else for thoughtful investors.
It may be creating more mispriced stocks.
That is exactly where the American Prosperity Report can have an advantage.
The Pressure Facing Active Managers
The Wall Street Journal recently highlighted fascinating research from Hannah Unterberg at the University of California.
Her work examines what happens as investors move money from active funds into passive funds.
When investors withdraw money from an active fund, managers often must sell stocks. Those managers may own companies that look very different from the S&P 500.
Meanwhile, money entering index funds automatically flows toward companies already inside the benchmark.
Unterberg found that this can create asymmetric price pressure against active managers. Stocks favored by active managers face selling pressure during withdrawals. Stocks heavily represented inside indexes receive automatic buying from incoming passive money.
That can make being different increasingly painful.
The numbers show how difficult the environment has become.
In 2025, 79% of active large-cap funds underperformed the S&P 500. That creates a powerful incentive for managers to resemble the index.
Stray too far from the benchmark and temporary underperformance can cost clients. Lose enough clients and managers become forced sellers at exactly the wrong time.
That creates opportunity for investors who do not face those pressures.
Our Greatest Advantage Is Patience
The American Prosperity Report operates with a completely different mindset. We are not trying to match an index every quarter. We are not forced to own companies simply because their market values increased.
We can study businesses individually and decide what they are actually worth. That freedom becomes especially valuable when market prices temporarily disconnect from business fundamentals.
Our Alpha-4 Approach begins with the business itself.
We want powerful economic tailwinds supporting years of future demand.
We want outstanding management teams allocating shareholder capital intelligently.
We want financially strong businesses capable of surviving difficult periods.
Most importantly, we want to buy those businesses at attractive prices.
Passive investing does none of that analysis.
An index cannot recognize an exceptional CEO before Wall Street appreciates that leader. It cannot distinguish temporary problems from permanent damage. It cannot patiently wait for an overlooked company to reach an attractive valuation.
That is where research still matters.
The rise of passive investing does not eliminate stock picking. I believe it makes disciplined stock picking potentially more valuable.
Wall Street’s Problem Can Become Our Opportunity
Consider what happens when a great company falls out of favor. An active manager may understand the business perfectly. But investors begin withdrawing money because the fund temporarily trails its benchmark.
The manager now faces a difficult choice. Hold the unpopular stock and risk further withdrawals. Or sell the stock and move closer toward the index.
Individual investors have no such requirement.
We can hold a great business through temporary weakness. We can buy more when our research tells us the value has increased. We can wait years while management executes its strategy.
That patience is incredibly difficult for institutional money. For American Prosperity members, patience can become a competitive advantage.
America continues producing extraordinary businesses across technology, healthcare, finance, manufacturing, energy, and countless other industries.
Our capital markets give entrepreneurs access to enormous amounts of growth capital. Our culture rewards innovation, risk-taking, and solving difficult problems.
Those forces have created American prosperity for generations.
Passive investing cannot stop that engine. But passive flows may occasionally distort where investors place their money. That creates openings for people willing to turn every page.
We are searching for businesses whose long-term value exceeds today’s stock price. Sometimes, Wall Street recognizes that value immediately. Sometimes, it takes several years.
That difference does not bother us.
We are not competing against an index this quarter. We are building wealth by owning exceptional American businesses for years.
As passive investing grows, patient research may become even more valuable.
That is exactly the advantage the American Prosperity Report was built to pursue.
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If you have questions, you can send them to me at [email protected].
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Regards,
Charles Mizrahi
Prosperity Insider
