Have you noticed how wherever you go, everything now looks pretty much the same? As Alex Murrell writes:
“The interiors of our homes, coffee shops and restaurants all look the same. The buildings where we live and work all look the same. The cars we drive, their colours and their logos all look the same. The way we look and the way we dress all looks the same. Our movies, books and video games all look the same. And the brands we buy, their adverts, identities and taglines all look the same.”
A lot of this has to do with the fact that we can now quickly and easily see what everyone else is doing. When it comes to home design Ben Carlson blames HGTV, but a visit to Instagram or Pinterest will quickly show you everyone else is doing design-wise.
The issue isn’t that what we are seeing is bad. In fact, just the opposite. The problem arises when everything is the same. If you are in a coffee shop, not a Starbucks, and you can’t tell where you are in the world, that’s a problem.
In the world of investing being acceptably average is now mainstream in the form of indexing. John Luttig in an essay called it ‘the index mindset’ writes about how this mindset has migrated even into venture capital and beyond. He writes:
The index mindset is comfortable – avoiding decisions requires the least amount of effort. But if you index across every domain, you lose your differentiating features, becoming an average of everyone else.
Online tools undoubtedly make this issue more pervasive. The widespread introduction of a new class of AI tools will only make it worse. The challenge in broad, real life is we don’t necessarily know when indexing works and when it doesn’t. You may be perfectly content to be average in one domain, but would miss out by being average in another. Robert Seawright writes:
Broadly speaking, the index mindset forgets that long tails drive everything and that risk and reward tend to correlate. The index mindset offers no framework for determining when we shouldn’t index … when the juice is worth the squeeze.
There is a reason for the index effect. Indexing works. It’s comfortable. It gets the job done. The challenge is deciding when average is satisfactory, and when it falls short of our hopes, dreams and ambitions.