Earlier quoted context omitted.
The S&P is stock-picking by that logic. Rank all the public equities by revenue, select the top 500, then weight them by market cap. Sounds pretty arbitrary doesn't it? Why not rank by profit? Or weight by years in existence?
No, it isn't. Not clear if you don't understand or you are being glib. Passive investing logic is simple. You want to invest in stocks. Say you want to invest in the US market. You want a portfolio that represents, to some extent, the market. How do you get that? There is a benchmark index that weights by "how large a proportion of the market is". That seems pretty sound and consistent with the ideal? The issue at ha…
By definition, the S&P is a relatively arbitrary arrangement of stocks. These are picked by an arbitrary rules based algorithm. I happen to pick a lot of them, so the end of being well-representative of the total market, but that’s just a fact of me picking a lot of stocks. This is picking stocks - or stock picking - just straightforwardly.
Passive investing to me has nothing to do with the total market except indirectly. The goal with passive investing as I understand it is a portfolio you don’t have to watch, or a portfolio sufficiently uncorrelated between components to be relatively stable.
Even investing in the total market is active investing in a way, because you’re choosing equities as opposed to commodities, derivatives on those base instruments, real estate, and so on. The Dow is only 30 hand picked stocks, but it correlates pretty well with the total market, is that stock picking?
I get what you’re saying though, my point is just that the distinction between passive and active investing isn’t so cut and dry, and shouldn’t be used so dismissively.