Index providers should do case-by-case studies of stocks? Look, if you said to me that investors should do careful case-by-case analyses of the stocks they want to buy in order to make sure that their valuations were justified, I’d be like, sure, yeah, that sounds like investing all right. But if you told me that the indexes used by passive investors should do careful case-by-case studies of all the stocks they include in order to make sure that their valuations were justified, I’d be like, no, wait, that doesn’t sound like indexing at all. That is fundamental analysis; it is subjective and controversial; the whole business of stock markets is to adjudicate disputes over whether valuations are justified. The general idea of indexing is that you stay neutral in those disputes, and just buy stuff at whatever valuation the market gives to it.

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