I recently finished reading Bull! A History of the Boom and Bust, 1982–2004 by Maggie Mahar. The book was published in 2004, not too long after the dot-com bubble burst. I’ve seen the book recommended a few times and noticed that the cover includes an endorsement by Warren Buffett, so I ordered it. Also, the book’s narrow focus on the period when interest rates started what ended up being a forty-year decline through 2004 was intriguing to me.

I enjoyed reading the book. Given the focus on a very specific period, it provides lots of details about the economic environment, who the main figures were who had an impact on the stock market, and the key decisions they made. Mahar does a good job of describing her perspective on the impact those decisions had on inflating and bursting the internet bubble.

One thing that caught my attention was her explanation of the role the inclusion of high-flying technology companies in stock market indexes (e.g., the S&P 500 and NASDAQ Composite) played in valuations reaching levels that were hard to justify. She believes that this, combined with the rise of the 401k and index funds, contributed to a significant amount of capital being allocated to these highfliers even though valuations were hard to justify. The valuations of companies kept rising because capital kept flowing into the index funds until the stock market bubble burst around 2000.

This caught my attention because last month, I listened to an interview of David Einhorn, founder of Greenlight Capital. Einhorn shared his opinion of the impact that passive investing is having on the valuations of certain companies in today’s stock market. Essentially, he believes that valuations of companies continue to rise because they’re part of one or more stock market indexes (e.g., the S&P 500 and NASDAQ Composite). Passive index funds track indexes, which leads to the funds buying more shares in these companies, regardless of the valuation, as more investors allocate capital to the passive index funds. For this section of Einhorn’s interview, listen here.

I found this interesting because there’s a twenty-year gap between this book’s publication date and Einhorn’s interview.