Masters in Business · Friday, September 4, 2026
Bill McNabb explained that the surge in indexing was driven by both psychological factors, like distrust following market scandals, and undeniable mathematical advantages. He noted that over any rolling 10-year period, index funds mathematically outperform 90% of active equities after taxes, a compelling argument for long-term investors.
“My theory is the late 90s, the scandals, the crashes, the analyst scandal, the accounting scandal, the IPO scandal, one after another. I think a lot of people just threw their hands up and said, you know what? Just buy me the whole market. Let me know when it's time to retire. Let me know when I have enough to retire. Is that oversimplifying what happened or is that a real effect?”
“I would say that's the psychological part of it. There was also the math part of it, which is on an after-tax basis, index funds beat 90% of active equities over any rolling 10-year period.”
“Anything more than a decade. So if you were a long-term investor and you wanted to win, you indexed. And so it was interesting to me as a participant in the market I've listened to our competitors and they talk, well, you know, indexing is having its moment, but it's going to cycle out and, you know, stock will be back any day. And the math was just overwhelming that when you, and the real reason, and this was Jack Bogle's, again, oversimplified discussion, but essentially if you have two big parts of the market, one that's actively managed and one that's passively managed, they have to add up to the market.”