> Individual stock prices would not reflect the true value of a company.
I would argue that this is already the case.
I invest solely in market-wide or top-75%-of-market-caps strategies (in stocks), because they're the only strategies that seem to accurately reflect my opinion of the markets:
1. The game is rigged.
2. People are dumb. (Especially me.)
Analysis of those strategies seems to indicate that they outperform even (traditional) index funds over long periods (likely because they're quicker to respond to risk/opportunity during transitional periods, eg, a new technology coming out). I like to think it's because my premises are true, but there's lots of other premises that lead to the same model of investing, so it's hard to say. (I think of them as a really diverse index fund, so at some level, it's really just the advice that Warren Buffet gave about long term investing.)
If everyone used this strategy the market would... basically do nothing once a company IPO'd, because everyone would hold a portion of every company forever (creating no selling once the initial bidding on IPO was over). That's not necessarily such a bad thing, because it would remove a lot of the noise that boards respond to while still incentivizing (healthy) long-term growth (because the only way the stock increases in value without trading and the current market gambling is from the underlying asset -- the corporation -- increasing in value, and distributing that as payouts or buybacks). There still is a valuation mechanism, however, because the passive funds do need to buy and sell when new stocks appear or someone is looking to change a position (which, is every IPO plus whatever is needed to generate cashflow from the portfolio), and how they negotiate that provides a value on the stock, even if they're just rolling shares they control between pools and clients of their own.
However, we'd still have the whole pipeline of pre-IPO private ownership, which definitely wouldn't settle in to the same kind of lock-in, but already uses the same kind of invest-across-the-board strategies.
So in short, I'm actually very unworried about the effects of main Wall St stock markets settling down due to most money being passively invested in long-term growth strategies, because it actually deincentivizes a lot of bad behavior on the part of trading firms. Much harder to execute your fraud if most people aren't going to react to it in any capacity, and won't be closing out their positions for 20-40 years, if ever. It's also perhaps easier to get a case to stick if you have basically every investor to choose a client from, because they'd all be impacted by those actions.