Most of an index's returns come from a tiny fraction of its component stocks (e.g., 7% of the Russell 3000). The goal of indexing isn't just diversification; it's a strategy to ensure you own the unpredictable "tail-event" winners, like the next Amazon, that are nearly impossible to identify in advance.

While a strong business model is necessary, it doesn't generate outsized returns. The key to successful growth investing is identifying a Total Addressable Market (TAM) that consensus views as small but which you believe will be massive. This contrarian take on market size is where the real alpha is found.

Unsexy markets like plumbing or law have less competition, higher profit margins, and customers who are more receptive to expertise. This creates an environment for faster growth, akin to driving on an empty road.

Many LPs focus solely on backing the 'best people.' However, a manager's chosen strategy and market (the 'neighborhood') is a more critical determinant of success. A brilliant manager playing a difficult game may underperform a good manager in a structurally advantaged area.

Acknowledging venture capital's power-law returns makes winner-picking nearly impossible. Vested's quantitative model doesn't try. Instead, it identifies the top quintile of all startups to create a high-potential "pond." The strategy is then to achieve broad diversification within this pre-qualified group, ensuring they capture the eventual outliers.

The underperformance of active managers in the last decade wasn't just due to the rise of indexing. The historic run of a few mega-cap tech stocks created a market-cap-weighted index that was statistically almost impossible to beat without owning those specific names, leading to lower active share and alpha dispersion.

Aggregate profitability can mask serious issues. A company's positive bottom line might be propped up by one highly profitable offer while another "bestseller" is actually losing money on every sale. This requires a granular, per-product profitability analysis to uncover.

Anchoring valuation on a company's typical price-to-sales ratio helps identify buying opportunities when margins are temporarily depressed. This avoids the pitfalls of methods like the Magic Formula, which can mistakenly favor companies at their cyclical earnings peaks, leading to underperformance.

Financial models struggle to project sustained high growth rates (>30% YoY). Analysts naturally revert to the mean, causing them to undervalue companies that defy this and maintain high growth for years, creating an opportunity for investors who spot this persistence.