Xu Zhe's options course notes (1)

The market distribution is not a standard normal distribution, and pricing is not based on a normal distribution.

Passive investing (buying funds) exceeds 50%, leading to some absurd phenomena.
The premise of passive investing is that the market is efficient and fully competitive, which gives passive investing an advantage.
If passive investing exceeds 50%, the market will no longer be fully competitive because most of the investment money is in passive investing.
It also creates a backlash. With more passive investing, the stocks included in index funds receive far more capital than those not in index funds, leading to self-reinforcement. Stocks in the index perform better than non-index stocks after being passively invested, making stock selection inferior to passive investing. When stock selection consistently underperforms passive investing, more money flows into passive investing.
The reason passive investing outperforms active investing is precisely because you've entered passive investing—not because passive investing is inherently better. Instead, as the proportion of passive investing increases, its efficiency surpasses that of active investing.
This further strengthens passive investing, making the market increasingly inefficient. It self-reinforces until it collapses.