by Robin Wigglesworth · 11 Oct 2021 · 432pp · 106,612 words
the Leuthold Group Library of Congress Cataloging-in-Publication Data Names: Wigglesworth, Robin, author. Title: Trillions : how a band of Wall Street renegades invented the index fund and changed finance forever / Robin Wigglesworth. Description: New York : Portfolio, 2021. | Includes bibliographical references and index. | Identifiers: LCCN 2021027549 (print) | LCCN 2021027550 (ebook) | ISBN
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Prizes of some of his Chicago contemporaries, his contributions to the intellectual ferment of the university’s economics department—and, ultimately, the invention of the index fund—are undeniable. * * * ♦ BORN IN 1922 IN KANSAS CITY, the horse-loving, backgammon enthusiast21 Lorie combined a genial temperament and a love for jokes—Johnny
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, as it reflects the optimal tradeoff between risks and returns. This laid the intellectual groundwork for the coming invention of the index fund. Sharpe never made explicit mention of any index funds—after all, none had been invented yet, and he was unaware of the radical Renshaw paper proposing an “unmanaged investment company
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Leuthold Group, a Minneapolis-based financial research group, famously distributed a poster where Uncle Sam declared, “Help stamp out index funds. Index funds are un-American!” Copies continue to float around the offices of index fund managers as mementos of the hostility they initially faced. Of course, as the writer Upton Sinclair once observed, it is
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decades and reshaped their industry, and, in some minds, perhaps even capitalism itself. Many acquaintances called Bogle “messianic” over his titanic crusade on behalf of index funds and the cultlike environment he inculcated at Vanguard. Others preferred “iron-willed,” recalling how he would rarely yield in an argument. He preferred “determined,” the
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great-grandfather Philander B. Armstrong, an insurance executive who railed against the industry’s anticonsumer practices in the nineteenth century2—Bogle was not always the index fund zealot he ultimately became. Initially, he was entranced by the professional investing industry that was blossoming as he entered adulthood. At the time of writing
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simple product for the masses undoubtedly resonated. Nonetheless, despite Bogle’s later emergence as the leading champion of passive investing, the birth of the first index fund for ordinary everyday investors—an innovation that would ultimately upend the entire investment industry—was simply a result of Vanguard’s hamstrung circumstances and his
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board accepted this tenuous logic and approved the proposal. The game was on. * * * ♦ TO GET A BETTER UNDERSTANDING of what was needed to run an index fund, Twardowski reached out to John McQuown at Wells Fargo, Rex Sinquefield at American National Bank, and Dean LeBaron at Batterymarch. Sinquefield proved particularly helpful to
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Time Is Coming.” It explored the intellectual underpinnings, detailed the poor performance of most fund managers, explained the initial pioneering efforts, and presciently argued that “index funds now threaten to reshape the entire world of professional money management.”16 In August, Samuelson in Newsweek noted with delight the response to his challenge
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Investment Trust.” However, the initial optimism faded when the brokerages took Bogle and Riepe on a roadshow to talk to their clients around the country. Index funds might have been trendy among the financial cognoscenti of Chicago, but financial advisors and ordinary investors in Buffalo or Minneapolis were noticeably less enthusiastic. By
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tracking nearly everything.” Finally, ordinary savers were following in the footsteps of pension funds and directly benefiting from the cheapness—and better average performance—of index funds. The billions of dollars that had historically flowed into the pockets of Wall Street’s well-heeled denizens were finally staying a little more in
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in 1983. But Sauter set about writing new trading programs in his spare time that reduced trading costs and improved how well the index funds tracked their benchmarks. When index funds finally started to grow dramatically in the early 1990s—accounting for over a tenth of Vanguard’s assets by 199113—Bogle refocused on
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somewhat controversial. Nonetheless, the origin story of index investing is still incomplete. If Wells Fargo’s Management Sciences unit was the original Manhattan Project of index funds, most of the subsequent iterations were important but arguably incremental. They mostly consisted of proliferation, of spreading the approach to new corners of the investment
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proves to be the most successful investment idea of the century remains to be seen.” * * * ♦ LIKE MANY OF HIS PREDECESSORS in the history of index funds, Most was an unlikely revolutionary. A cerebral, almost painfully modest former physicist, he stumbled into the finance industry late in life, after a peripatetic career
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ran aground. Moreover, the Amex was not the only struggling exchange desperate for a commercial boost and aware of the immense potential of a tradable index fund. * * * ♦ THE PHILADELPHIA STOCK EXCHANGE WAS America’s oldest, founded in 1790 and instrumental in raising money for the nineteenth-century railroad boom. But New
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financial system, the consequences of passive funds accounting for more and more of the global investment industry, and the narrowing club of titans dominating the index fund business. Chapter 15 PURDEY SHOTGUNS FAITH HAD ALWAYS BEEN CENTRAL to the life of Robert Netzly, sustaining him through a tough childhood and an itinerant
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by its members.7 There are thousands more being maintained by various banks, which construct them to produce bespoke investment products for their clients, and index fund companies making their own to avoid paying the chunky licensing fees to the major index providers—something dubbed “self-indexing.”* In contrast, there are
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”—BlackRock, Vanguard, and State Street—and many of their smaller rivals have eschewed these, concerned that these more niche, complex products may tarnish the entire index fund universe. * * * ♦ IN EARLY 2018, THE STOCK MARKET was basking in the afterglow of President Donald Trump’s corporate tax cut, which had added at
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vehicles, which means that they rarely amass huge assets compared to their plain-vanilla peers. * * * ♦ AFTER A RELENTLESS DECADE, there are signs that the index fund launch bonanza is slowing down. Most major tracts of industry real estate are now utterly and likely permanently controlled by a handful of big players
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but the consequence was that the two stocks fluctuated wildly through January. Yet small, idiosyncratic instances such as these obscure the wider distortive impact of index funds, according to some skeptics. They fret that the undoubted benefits for many investors are increasingly outweighed by the more ephemeral costs to the overall health
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OF THE NEGATIVE side effects are fairly uncontroversial, with only the degree and importance disputed by proponents and detractors of passive investing. Given that most index funds are capitalization-weighted, that means that most of the money they take in goes into the biggest stocks (or the largest debtors). Critically, and
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wrong in almost every market disruption, especially in the weeks of March.” Similarly, despite frequent predictions of financial doom when the supposedly fickle inflows into index funds inevitably go into reverse, investment in them has time and again proven far “stickier” than money in traditional, active funds. “This suggests that the
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. In other words, mathematically the market represents the average returns, and for every investor who outperforms the market someone must do worse. Given that index funds charge far less than traditional funds, over time the average passive investor must do better than the average active one. Other academics have later quibbled
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still better than blindly allocating money according to the vagaries of an arbitrary index. Although the framing was deliberately provocative, it is undeniably true that index funds are free riders on the work done by active managers, which has an aggregate societal value—something even Jack Bogle admitted. If everyone merely
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demanding stricter controls, and conservatives insisting that the immediate aftermath was a time for “thoughts and prayers,” not hasty action. But for the first time, index funds found themselves dragged into the tragedy, after activists pointed out that they were among the biggest owners of the biggest listed gun manufacturers. David Hogg
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for plans on how to mitigate the risks posed by the proliferation of their firearms and prevent more tragedies like Parkland. They would also offer index funds that excluded gunmakers for any investors who wanted this. “For manufacturers and retailers of civilian firearms, we believe that responsible policies and practices are
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onto passive investing instead. The main thrust of his incendiary letter was that corporate accountability has been declining for decades, and that the rise of index funds was exacerbating it.4 Whatever their investment merits, Singer argued that they constitute lazy, inattentive owners, who encourage corporate sloth and waste that in extremis
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and sparked BlackRock’s new crusade. Yet this is not without potential pitfalls. No matter how worthy and important the issue, it will inevitably drag index fund providers into politically controversial territory. The biggest challenge in the coming era of passive investing will be to navigate the balance between being passive and
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active owners, especially at a time of intense political and cultural polarization. For the index fund companies, the multitude of often conflicting attacks is frustrating. Barbara Novick, BlackRock’s steely former public policy supremo, has described their predicament as a
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regulators, and economists on December 8, 2018. But the hearing, arranged by the Federal Trade Commission, tackled one of the most controversial theories dogging the index fund industry: “Common ownership.” The common ownership theory is that companies have fewer incentives to invest in new products or services, or to compete on price
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to send their kids to university, to buy a house, or just for a rainy day indirectly or directly reaps the benefits of the humble index fund. Yes, index funds are subtly rewiring modern finance. But so did mutual funds before them, or the investment trusts before that. Despite legitimate concerns about the concentration
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and Navy engineer who entered finance with an unusual amount of drive and love for computers. The combination proved vital when he launched the inaugural index fund at Wells Fargo. Onetime jock Gene Fama and his revolutionary efficient-markets hypothesis became synonymous with the University of Chicago and gave the intellectual cover
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, Jack Bogle, Jim Norris. When David Booth, Rex Sinquefield, and Larry Klotz teamed up to start Dimensional Fund Advisors and run the next-generation of index funds, they enlisted their mentors John McQuown and Gene Fama to sit on their board. From left to right: McQuown, Klotz, Fama, Booth, Sinquefield. The
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Hill Education, 2016), 7. 36. Charles D. Ellis, “The Loser’s Game,” Financial Analysts Journal, 1975. 37. Ian Liew, “SBBI: The Almanac of Returns Data,” Index Fund Advisors, July 19, 2019, www.ifa.com/articles/draft_dawn_creation_investing_science_bible_returns_data/. 38. Lorie, “Current Controversies on the Stock Market.” 39
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the-King/. 12. Donald MacKenzie, An Engine, Not a Camera: How Financial Models Shape Markets (Cambridge, MA: MIT Press, 2006), 100. 13. Deborah Ziff Soriano, “Index Fund Pioneer Rex Sinquefield,” Chicago Booth Magazine, May 2019, www.chicagobooth.edu/magazine/rex-sinquefield-dimensional. 14. Margaret Towle, “Being First Is Best: An Adventure Capitalist
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, NJ: Wiley, 2011), 105. 8. Mehrling, Fischer Black and the Revolutionary Idea of Finance, 101. 9. James Hagerty, “Bill Fouse Taught Skeptical Investors to Love Index Funds,” Wall Street Journal, October 31, 2019. 10. “William Lewis Fouse,” San Francisco Chronicle (obituary), October 17, 2019. 11. Robin Wigglesworth, “William Fouse, Quantitative Analyst,
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MIT Press, 2006), 85. 19. Frank Fabozzi, Perspectives on Equity Indexing (New York: Wiley, 2000), 44. 20. Bernstein, Capital Ideas, 248. 21. Deborah Ziff Soriano, “Index Fund Pioneer Rex Sinquefield,” Chicago Booth Magazine, May 2019, www.chicagobooth.edu/magazine/rex-sinquefield-dimensional.” 22. Pensions & Investments, June 23, 1975. 23. Dean LeBaron, speech
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Perspectives on Equity Indexing, 43 38. Institutional Investor, June 1977. 39. Institutional Investor, February 1976. 40. Fabozzi, Perspectives on Equity Indexing, 42. 41. Paul Samuelson, “Index-Fund Investing,” Newsweek, August 1976. CHAPTER 6: THE HEDGEHOG 1. Jack Bogle, Stay the Course: The Story of Vanguard and the Index Revolution (Hoboken, NJ: Wiley
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Dan Callahan, and Darius Majd, “Looking for Easy Games. How Passive Investing Shapes Active Management,” Credit Suisse, January 4, 2017. 25. Robin Wigglesworth, “Why the Index Fund ‘Bubble’ Should Be Applauded,” Financial Times, September 23, 2019. 26. Mary Childs, “Gary Shteyngart’s View from Hedge Fund Land,” Barron’s, September 7, 2018
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. BlackRock, “BlackRock’s Approach to Companies That Manufacture and Distribute Civilian Firearms,” press release, March 2, 2018. 3. Jack Bogle, “Bogle Sounds a Warning on Index Funds,” Wall Street Journal, November 29, 2018. 4. Simone Foxman, “Paul Singer Says Passive Investing Is ‘Devouring Capitalism,’ ” Bloomberg, August 3, 2017. 5. Bill McNabb, “
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29, 2019. 17. José Azar, Martin Schmalz, and Isabel Tecu, “Anti-competitive Effects of Common Ownership,” Journal of Finance, May 2018. 18. Frank Partnoy, “Are Index Funds Evil?,” Atlantic, September 2017. 19. Brooke Fox and Robin Wigglesworth, “Common Ownership of Shares Faces Regulatory Scrutiny,” Financial Times, January 22, 2019. 20. McLaughlin and
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Massa, “The Hidden Dangers of the Great Index Fund Takeover.” 21. Marc Israel, “Renewed Focus on Common Ownership,” White & Case LLP, May 18, 2018. 22. Einer Elhauge, “How Horizontal Shareholding Harms Our Economy—
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American Express Asset Management, 68, 79–80 American Import Company, 169–70 American National Bank, 53, 63–65, 78–81, 144 first S&P 500 index fund, 64–65, 78–79 American Savings and Loan, 211 American Statistical Society, 31 American Stock Exchange (Amex) acquisition by NYSE, 182–83 derivatives and,
by Ben Casnocha and Marc Benioff · 7 May 2007 · 207pp · 63,071 words
excite you. Online: Find out about charities that are changing the world. Day 13. Build a smart “personal finance infrastructure.” Start saving money. Invest in index funds. Keep and track a budget. Get wealthy. Online: Personal finance 101. Day 14. Write a blog. Put yourself out there. Share your ideas. Disclose yourself
by Jim Collins · 26 Feb 2019 · 44pp · 12,675 words
mindlessly repeating what you’ve done before. It means evolving, expanding, extending. It doesn’t mean just offering Jack Bogle’s revolutionary S&P 500 index fund; it means creating a plethora of low-cost funds in a wide range of asset categories that fit within the Vanguard flywheel. It doesn’t
by David G. W. Birch and Victoria Richardson · 28 Apr 2024 · 249pp · 74,201 words
2023). Over the last five years, it provided a return of 4.9%, trailing the five-year return of Vanguard’s benchmark S&P 500 index fund (11.78%) and, for further comparison, two large actively managed funds (the American Funds Growth Fund of America, at 9.81%, and Fidelity’s Contrafund
by Thomas Stanley and William Danko · 15 Nov 2010 · 273pp · 78,850 words
over time. Small amounts invested periodically also become large investments over time. What if the Friends had invested their cigarette money in the stock market (index fund) during their lifetimes? How much would it have been worth? Nearly $100,000. And what if they had used their cigarette money to purchase shares
by Shane Parrish · 22 Nov 2019 · 147pp · 39,910 words
words, our advisor made more money by giving us one set of advice than another, regardless of its wisdom. Fortunately, the rise of things like index funds of the stock and bond markets has mostly alleviated the issue. In cases like financial advisory, we’re not on solid ground until we know
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through the achievement of a positive outcome, we could ask ourselves how we might achieve a terrible outcome, and let that guide our decision-making. Index funds are a great example of stock market inversion promoted and brought to bear by Vanguard’s John Bogle.9 Instead of asking how to beat
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help investors minimize losses to fees and poor money manager selection? The results were one of the greatest ideas—index funds—and one of the greatest powerhouse firms in the history of finance. The index fund operates on the idea that accruing wealth has a lot to do with minimizing loss. Think about your
by Jordan Ellenberg · 14 May 2021 · 665pp · 159,350 words
’s endless flitting. Don’t waste your time trying to time the market’s ups and downs; instead, Malkiel says, park your money in an index fund and forget about it. No amount of thought can predict the mosquito’s next move and provide you an advantage. Or, as Bachelier wrote in
by Reeves Wiedeman · 19 Oct 2020 · 303pp · 100,516 words
career. Low interest rates enabled speculative investors to fund risky bets that could produce outsize returns. Individual investors were putting more of their money into index funds, which broadly tracked the economy, leaving mutual fund managers seeking alternatives to prove they could beat a market that was already booming. At the end
by Cal Newport · 5 Feb 2019 · 279pp · 71,542 words
meet are lower. If you need only $30,000 take-home pay to live comfortably, for example, then saving $750,000 in a low-cost index fund will likely cover these expenses (with inflation adjustments) for decades. Now imagine that you’re a young couple with two good salaries that generate $100
by Patrick Dillon and Carl M. Cannon · 2 Mar 2010 · 613pp · 181,605 words
the office of the treasurer of the 180,000-member University of California Retirement Fund electronically purchased 200,000 shares of Enron stock through an index fund at an average price of $73 per share. This was just months after a portfolio manager in the same office, alerted by Enron’s ebullient
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