Bill Sharp's 1991 'arithmetic of active management' framework defined a passive investor as one who always holds every security at market-average prices, with transactions hypothesized to occur magically outside market hours—a construction that powered passive's growth from 2% to ~50% of the market but is logically flawed.

factualpending

Speaker

Mike Green

Evidence Quote

the answer unfortunately is magic, right? Um, literally there's a footnote that hypothesizes that any transactions from passive investors happen in the liinal hours in which the markets aren't open

Source

The Trillion Dollar Trap | Mike Green on Passive Investing's Fatal Design FlawExcess Returns
Created: 6/18/2026, 1:59:25 PM

My Notes

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