Hey there, it’s Garrett here.
So I'm sitting here watching everyone try to analyze this market with strategies that worked 30 years ago, and honestly, I get why people are confused.
They're fighting a market that no longer exists.
The Numbers That Changed Everything
Thirty years ago, around 70-80% of equity fund assets were actively managed - people analyzing companies, making buy/sell decisions based on fundamentals.
Passive index funds? Maybe 5-10% of assets.
Leveraged hedge funds and prop trading? Around 5-10%.
Today that's completely flipped.
Passive buy-and-hold (ETFs, index funds): 50-55% of U.S. equity fund assets. Traditional active stock pickers: down to 10-15%.
The rest is split between quantitative funds, smart beta strategies, and a small but vocal 5-10% in leveraged/momentum funds.
Here’s Why Your Analysis Keeps Missing
When over half of assets follow indices mechanically, and traditional stock picking is down to 10-15%, fundamentals matter differently now.
Those passive ETFs have to buy whatever's in their index regardless of price. So when momentum builds, it gets amplified because passive money follows mechanically.
It's not whether a company's P/E ratio is attractive.
It's whether it fits the buying criteria of the machines and funds that control most volume.
The Quality Tech Framework
Take Buffett's recent Google purchase. Everyone at CNBC was saying it was unusual. But why? He owns a ton of Apple.
Google fits what I call "quality tech."
Very high F-score, strong return on invested capital, operates as a monopoly. Buffett's always bought companies that are part of monopolies or oligopolies.
But here's why it works in today's structure - Google hits every type of modern investor:
The remaining 10-15% of traditional stock pickers love the fundamentals.
The small but active leveraged/momentum funds love it because it's heavily liquid with tight bid-ask spreads. They can get in and out fast.
The 50%+ passive flows love it because over 1,000 ETFs own Google. Not just S&P 500 replicators - AI ETFs, thematic ETFs, even the Catholic values ETF.
That's value, momentum, AND passive flow buying the same name.
What This Means for Your Trading
If you're trading like it's 1994, you're fighting the mechanical buying power of index funds that now control half the market.
But if you understand this structure, you can position with it. Look for names that satisfy multiple investor types: quality metrics for the remaining stock pickers, momentum characteristics for active funds, broad ETF ownership for passive flows.
There are about 10-15 of these names with tight bid-ask spreads on stock and options. Active funds like them because they can exit quickly when positions unwind.
The Leverage Unwind Risk
We're seeing stress in repo markets right now. When funding gets tight, leveraged positions unwind fast.
It's not earnings that matter - it's the leverage. When these unwind, they unwind violently.
Your Trading Framework
Watch for names that hit: quality metrics (high F-score, strong ROIC, economic moats) + momentum characteristics + broad ETF ownership.
When market structure is accommodative, these get bid by all investor types.
When structure tightens, these hold up best because they satisfy multiple buyers.
Traditional fundamental analysis alone? Fighting the mechanical buying of 50%+ passive flows. Momentum chasing without quality? Riding leverage that can unwind violently.
Positioning where value, momentum, and passive align? Trading the market that exists.
The Bottom Line
Markets fundamentally changed after 2008, but most traders use pre-2008 playbooks.
Stop fighting the mechanical buying power that now controls half the market. Start understanding how to position with it.
Ask yourself: Does this work for active funds? Does it satisfy ETF buying criteria? Does it have quality characteristics?
If it hits all three, you're trading with market structure instead of against it.
Join me tomorrow morning before the opening bell where I break down the latest market insights and trade ideas I’m working on.
Stay Positive,
Garrett Baldwin