This is the part about index investing that gets overlooked.
When you buy SPY or QQQ, you are not choosing individual companies.
The fund chooses for you.
Because these indexes are weighted by market size, the biggest companies automatically become the biggest holdings.
And that creates a strange situation.
The more a stock rises, the larger its weight becomes.
The larger its weight becomes, the more passive money flows into it.
Tesla is one example.
With a market value around $1.3 trillion to $1.5 trillion, it has become one of the biggest names in the market.
But critics point to the valuation.
Tesla’s trailing EBITDA is around $11 billion, putting the company at a valuation well above 100 times EBITDA.
That means investors are not just paying for today’s business.
They are paying heavily for future growth.
And that is the bigger debate happening across the market.
Are investors buying proven cash flow?
Or are they buying the promise of what these companies might become?
Critics also argue that EBITDA can hide important details because it ignores things like capital spending, taxes, debt costs, and the cash required to build the next generation of technology.
For companies spending billions on factories, AI, and expansion, the gap between accounting numbers and real cash generation matters.
The strange part about passive investing is that even if you think a company is overpriced, your index fund may still own it.
You do not get to say:
“That valuation is too high, I will wait.”
If the company keeps growing and becomes a bigger part of the index, passive investors keep getting more exposure.
That is why the market debate is getting louder.
Index funds made investing easier.
But they also created a system where the biggest winners automatically attract more money.
The question is whether that system keeps rewarding real winners.
Or whether it eventually becomes a machine that pushes too much money into whatever is already the biggest.