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Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever
From the Financial Times's global finance correspondent, the incredible true story of the iconoclastic geeks who defied conventional wisdom and endured Wall Street's scorn to launch the index fund revolution, democratizing investing and saving hundreds of billions of dollars in fees that would have otherwise lined fat cats' pockets.
Fifty years ago, the Manhattan Project of money management was quietly assembled in the financial industry's backwaters, unified by the heretical idea that even many of the world's finest investors couldn't beat the market in the long run.
The motley crew of nerds—including economist wunderkind Gene Fama, humiliated industry executive Jack Bogle, bull-headed and computer-obsessive John McQuown, and avuncular former WWII submariner Nate Most—succeeded beyond their wildest dreams. Passive investing now accounts for more than $20 trillion, equal to the entire gross domestic product of the US, and is today a force reshaping markets, finance and even capitalism itself in myriad subtle but pivotal ways.
Yet even some fans of index funds and ETFs are growing perturbed that their swelling heft is destabilizing markets, wrecking the investment industry and leading to an unwelcome concentration of power in fewer and fewer hands.
In Trillions , Financial Times journalist Robin Wigglesworth unveils the vivid secret history of an invention Wall Street wishes was never created, bringing to life the characters behind its birth, growth, and evolution into a world-conquering phenomenon. This engrossing narrative is essential reading for anyone who wants to understand modern finance—and one of the most pressing financial uncertainties of our time.
Fifty years ago, the Manhattan Project of money management was quietly assembled in the financial industry's backwaters, unified by the heretical idea that even many of the world's finest investors couldn't beat the market in the long run.
The motley crew of nerds—including economist wunderkind Gene Fama, humiliated industry executive Jack Bogle, bull-headed and computer-obsessive John McQuown, and avuncular former WWII submariner Nate Most—succeeded beyond their wildest dreams. Passive investing now accounts for more than $20 trillion, equal to the entire gross domestic product of the US, and is today a force reshaping markets, finance and even capitalism itself in myriad subtle but pivotal ways.
Yet even some fans of index funds and ETFs are growing perturbed that their swelling heft is destabilizing markets, wrecking the investment industry and leading to an unwelcome concentration of power in fewer and fewer hands.
In Trillions , Financial Times journalist Robin Wigglesworth unveils the vivid secret history of an invention Wall Street wishes was never created, bringing to life the characters behind its birth, growth, and evolution into a world-conquering phenomenon. This engrossing narrative is essential reading for anyone who wants to understand modern finance—and one of the most pressing financial uncertainties of our time.
352 pages, Hardcover
Published October 12, 2021
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Displaying 1 - 30 of 103 reviews
February 13, 2022
I suppose it sounds fairly demented to call a book about the invention of passive investing fun, but I found this to be a surprisingly enjoyable book, a well-packaged history about a surprisingly monumental change in finance. I know very little about finance, but I know enough to know that individual suckers like me can’t beat the market by picking individual stocks, so our best bet is to buy into index funds that try to capture the performance of the market as a whole. But I never really understood why before I read this book. The book also is a fair and sober articulation of some of the problems with index funds, in particular how they don’t perform the task of rationally pricing stocks for the market. (If you’re buying everything, after all, you’re not really separating good from bad.) Definitely a surprise pick for me, but one I got a lot out of.
February 5, 2022
A “rollicking great yarn” masquerading as a history of passive index-based investment management
Far too many wannabe fund managers will give this dog of a book five stars without even a cursory reading.
Robin Wigglesworth is a famous FT financial journalist, writing here in the oft-copied, never-replicated style of Michael Lewis. It's a hip new history of the creation of the first index funds that would become available to the mass market (i.e. the 8.5 percenters up through the 1.6 percenters).
The history presented in Trillions was widely available through various biographies and histories and memoirs, from which Wigglesworth has cherry-picked a few bits and generally dumbed it all down considerably to make it into a story. He takes a few concepts from an intro to finance and pretends there is a great controversy that is actually a big nothing burger.
I likely wouldn't have come across the book if a certain great, freshly-retired professor of finance had not personally told me to read it. I went directly from lunch (at Luc's) with that worthy gent to Waterstones at Leadenhall Market and bought a copy. Because, when XXXXXXXX tells you to read something, you read it.
In retrospect, when he told me to read it, he had a somewhat-changed big grin on his face and specifically said he will ask me about my review next time he is in town or when I am in XXXXXXX.
It's now a bit "sus" as the kids say these days (which from this date is a phrase they will no longer use, except ironically). Had he read it, so he knew? Did he punk me?? Did Doctor XXXX XXXX pull a kinda mean but not really hurtful joke on me?!
While at the Waterstones that fateful November afternoon, I discovered with a heart-pausing almost-pleasant shock that David Graeber had written another book before his untimely (suspicious, maybe?) death almost two years ago!
THIS is the book I must read now! was the voice in my head, a voice so vigorous that my temples throbbed and my vision grew a bit dim (maybe I was a bit out of breath from fast-walking 32 steps to the Waterstones. I need to exercise a bit.
As I clutched up the freshest-looking copy of the books laid out on the small table, my rational brain (I'm told there is one) struggled for control. It got a garbled but comprehensible message through: I might talk to Dr. X^8 in about ten days! I could read Trillions before then of course, but can I first luxuriate in this new David Graeber, filling up 8, 10, 15 pages of notes, tracking down many of the citation sources, pouring over the endnotes... pondering each evening the bits I had been able to caress as guilty bits of pleasure before retiring to my bed? No, not nearly enough time for both.
I have to read this likely dry but potentially interesting history of market index products first? It could be worse.
It's written by a financial journalist? MTHRFCK!
[time passes]
It was both better but just as bad as I had expected.
Strong start. The journalist-writers are usually pretty good at starts. Their main product these days is headlines, after all. Catchy headlines, click-bait headlines. So, yeah, the premise IS interesting! This is cool. I plow through the first 80 or so pages that night.
Numerous issues, mostly under the heading of over-simplification. The writer also has this annoying and poorly if-at-all concealed bias. He is a real dick to what he calls "investment professionals." These are the "active" management class. They are jock salesmen, close-minded, arrogant, grossly-over-paid, occasionally-stupid-lucky-but-also-generally-stupid type-A-arseholes. The Actives are pitched in battle with the "brilliant geeks" that developed cheaper and arguably better-performing passive strategies--principally, indices.
I hold the CFA charter, I arrange transactions and advise corporate clients in investments in mostly-private markets, so I'm in the target zone. Or on the edge of the epicenter of the strike.
Not offended, however, because Robin's not wrong. About the stereotype of the financial markets D-bag. And he's actually not that far off from the, I hate to say it, typical "dude" in finance.
But, this is personal with Wigglesworth. Blatantly biased in an exaggerated way that is surprising for a history or a nominally objective exploration a subject.
This is all journalist salescraft. Similarly misleading and simplistic stories could be constructed around many other areas in the finance/investment world, including:
- growth vs. value
- micro beats small-cap?
- concave or convex?
- risk-on or risk-off?
Why write a book that glosses over all nuance to stage a binary argument? It sells, apparently.
Lord knows financial journalism almost universally is crap. Research consists entirely of google searches and interviews of helpful, probably not-biased but suspiciously quite biased in a way that benefits their bottom line tipsters. These poor journos consigned to the financial beat are hollow shells of the once-hopeful young writers and good people they set out to be.
No one will pay for the propaganda they call journalism. Not anymore. They have to sell to make a living.
If it's kinda dry, kick it up a notch! Too many facts? Make it stupid. Or ignore it. Or ask some actor that managed to get a degree in a kinda-adjacent area to tell the audience--in 45 words or less--that it's really important and will gravely affect all life on earth, or, at least, will include people being mean to each other at some point. So it should be interesting.
It's OK if there is a lot of important nuance, unknowns, counter-evidence, conflicting arguments, several valid points of view, a million shades of whatever colour you got. Forget all that stuff. Pick two things. Two of those points of view, or theories, or personalities, or whatever--and take them from the EXTREME far edges on their individual sides.
If there are no sides, or all are effectively on the same side? It's too complicated to summarize with a <20-character catchy title? No problem.
Find a point of disagreement, no matter how minor.
Now, they got a story that will sell. Can’t really blame anyone for hustling for money in a cutthroat capitalist world. For pursuing their own rational self-interest. That’s what we are SUPPOSED to do! It’s what we HAVE to do. Right?
But this book was hard-going. The manufactured battle between Active managers and the early Passive index-based investment product designers, the juiced-but-still-boring-as-hell stories documenting the clash of personalities between Bogle and the arseholes from Boston.
The made-up controversy between strong EMH believers and weak EMH believers. Or that the EMH is just a useful fiction, like the ubiquitous but actually non-existent rational economic actor. Oh, I forgot, even these ideas would add too much nuance to this book.
Odd non-sequitur paragraphs, dropping in, popping up out of nowhere. One after another. Relentlessly. They keep hitting you, kicking you when you’re already down. This is what the Blitz must’ve been like.
I’m quite sure the editor just gave up at around page 154. I hope she is OK.
Far too many wannabe fund managers will give this dog of a book five stars without even a cursory reading.
Robin Wigglesworth is a famous FT financial journalist, writing here in the oft-copied, never-replicated style of Michael Lewis. It's a hip new history of the creation of the first index funds that would become available to the mass market (i.e. the 8.5 percenters up through the 1.6 percenters).
The history presented in Trillions was widely available through various biographies and histories and memoirs, from which Wigglesworth has cherry-picked a few bits and generally dumbed it all down considerably to make it into a story. He takes a few concepts from an intro to finance and pretends there is a great controversy that is actually a big nothing burger.
I likely wouldn't have come across the book if a certain great, freshly-retired professor of finance had not personally told me to read it. I went directly from lunch (at Luc's) with that worthy gent to Waterstones at Leadenhall Market and bought a copy. Because, when XXXXXXXX tells you to read something, you read it.
In retrospect, when he told me to read it, he had a somewhat-changed big grin on his face and specifically said he will ask me about my review next time he is in town or when I am in XXXXXXX.
It's now a bit "sus" as the kids say these days (which from this date is a phrase they will no longer use, except ironically). Had he read it, so he knew? Did he punk me?? Did Doctor XXXX XXXX pull a kinda mean but not really hurtful joke on me?!
While at the Waterstones that fateful November afternoon, I discovered with a heart-pausing almost-pleasant shock that David Graeber had written another book before his untimely (suspicious, maybe?) death almost two years ago!
THIS is the book I must read now! was the voice in my head, a voice so vigorous that my temples throbbed and my vision grew a bit dim (maybe I was a bit out of breath from fast-walking 32 steps to the Waterstones. I need to exercise a bit.
As I clutched up the freshest-looking copy of the books laid out on the small table, my rational brain (I'm told there is one) struggled for control. It got a garbled but comprehensible message through: I might talk to Dr. X^8 in about ten days! I could read Trillions before then of course, but can I first luxuriate in this new David Graeber, filling up 8, 10, 15 pages of notes, tracking down many of the citation sources, pouring over the endnotes... pondering each evening the bits I had been able to caress as guilty bits of pleasure before retiring to my bed? No, not nearly enough time for both.
I have to read this likely dry but potentially interesting history of market index products first? It could be worse.
It's written by a financial journalist? MTHRFCK!
[time passes]
It was both better but just as bad as I had expected.
Strong start. The journalist-writers are usually pretty good at starts. Their main product these days is headlines, after all. Catchy headlines, click-bait headlines. So, yeah, the premise IS interesting! This is cool. I plow through the first 80 or so pages that night.
Numerous issues, mostly under the heading of over-simplification. The writer also has this annoying and poorly if-at-all concealed bias. He is a real dick to what he calls "investment professionals." These are the "active" management class. They are jock salesmen, close-minded, arrogant, grossly-over-paid, occasionally-stupid-lucky-but-also-generally-stupid type-A-arseholes. The Actives are pitched in battle with the "brilliant geeks" that developed cheaper and arguably better-performing passive strategies--principally, indices.
I hold the CFA charter, I arrange transactions and advise corporate clients in investments in mostly-private markets, so I'm in the target zone. Or on the edge of the epicenter of the strike.
Not offended, however, because Robin's not wrong. About the stereotype of the financial markets D-bag. And he's actually not that far off from the, I hate to say it, typical "dude" in finance.
But, this is personal with Wigglesworth. Blatantly biased in an exaggerated way that is surprising for a history or a nominally objective exploration a subject.
This is all journalist salescraft. Similarly misleading and simplistic stories could be constructed around many other areas in the finance/investment world, including:
- growth vs. value
- micro beats small-cap?
- concave or convex?
- risk-on or risk-off?
Why write a book that glosses over all nuance to stage a binary argument? It sells, apparently.
Lord knows financial journalism almost universally is crap. Research consists entirely of google searches and interviews of helpful, probably not-biased but suspiciously quite biased in a way that benefits their bottom line tipsters. These poor journos consigned to the financial beat are hollow shells of the once-hopeful young writers and good people they set out to be.
No one will pay for the propaganda they call journalism. Not anymore. They have to sell to make a living.
If it's kinda dry, kick it up a notch! Too many facts? Make it stupid. Or ignore it. Or ask some actor that managed to get a degree in a kinda-adjacent area to tell the audience--in 45 words or less--that it's really important and will gravely affect all life on earth, or, at least, will include people being mean to each other at some point. So it should be interesting.
It's OK if there is a lot of important nuance, unknowns, counter-evidence, conflicting arguments, several valid points of view, a million shades of whatever colour you got. Forget all that stuff. Pick two things. Two of those points of view, or theories, or personalities, or whatever--and take them from the EXTREME far edges on their individual sides.
If there are no sides, or all are effectively on the same side? It's too complicated to summarize with a <20-character catchy title? No problem.
Find a point of disagreement, no matter how minor.
Now, they got a story that will sell. Can’t really blame anyone for hustling for money in a cutthroat capitalist world. For pursuing their own rational self-interest. That’s what we are SUPPOSED to do! It’s what we HAVE to do. Right?
But this book was hard-going. The manufactured battle between Active managers and the early Passive index-based investment product designers, the juiced-but-still-boring-as-hell stories documenting the clash of personalities between Bogle and the arseholes from Boston.
The made-up controversy between strong EMH believers and weak EMH believers. Or that the EMH is just a useful fiction, like the ubiquitous but actually non-existent rational economic actor. Oh, I forgot, even these ideas would add too much nuance to this book.
Odd non-sequitur paragraphs, dropping in, popping up out of nowhere. One after another. Relentlessly. They keep hitting you, kicking you when you’re already down. This is what the Blitz must’ve been like.
I’m quite sure the editor just gave up at around page 154. I hope she is OK.
March 6, 2022
Great overview of index funds throughout the 20th century and into the 21st. Examining the intellectual underpinnings that came out of Wells Fargo, into specific companies that were based around their construction of ETFs and index funds like Vanguard and Blackrock, where concepts like Alpha and Beta came from, and finally looking at the highly specific and tailored funds we see today.
Ends with a reasonable discussion of criticism and problems facing in the funds. I do wish there had been a little more of an examination here but I’m glad it was presented in general.
I think this book represents a good overview of the topic without seeming to have too much of a slant. Obviously this is pro business so if you’re not into that kind of thing feel free to plug your ears and scream.
And while it’s not the job of the book to cover this, I am interested in the idea that seems to permeate as a base assumption that “index funds are a net positive for society.“ Which is predicated on the idea that all of the companies that index funds invest in are a net positive for society. Which on a personal level I don’t really believe to be true. Index funds own by principal a large chunk of the economy and once we get down there it’s constituent parts the economy is made up of individuals. Individuals can be good or bad based upon their decisions.
The idea that index funds are good seems kind of like saying “the German language is good“ and sure it gave us Albert Einstein but it also gave us that other terrible guy. So I guess by saying that “index funds are good“ are we to understand that all other financial products are negative in comparison? Which leaves me with kind of a weird takeaway from this book. How do I ascribe some sort of positive or negative moral value to something that in reality is just a tool for investment?
Claiming that index funds are a positive thing seems to just kind of blindly absolve responsibility of any negatives that might come from such an idea. Are we diversifying the responsibility as well as our money?
We don’t particularly look at a hammer and say “this is a good tool.” Even if the hammer does its job well, or if that a hammer has constructed houses for shelter or hospitals for healing. The hammer also could be used to develop a building where new forms of chemical gas for warfare are constructed. But the average person would not say that the hammer has some sort of moral dimension. Why would we say this about index funds?
Ends with a reasonable discussion of criticism and problems facing in the funds. I do wish there had been a little more of an examination here but I’m glad it was presented in general.
I think this book represents a good overview of the topic without seeming to have too much of a slant. Obviously this is pro business so if you’re not into that kind of thing feel free to plug your ears and scream.
And while it’s not the job of the book to cover this, I am interested in the idea that seems to permeate as a base assumption that “index funds are a net positive for society.“ Which is predicated on the idea that all of the companies that index funds invest in are a net positive for society. Which on a personal level I don’t really believe to be true. Index funds own by principal a large chunk of the economy and once we get down there it’s constituent parts the economy is made up of individuals. Individuals can be good or bad based upon their decisions.
The idea that index funds are good seems kind of like saying “the German language is good“ and sure it gave us Albert Einstein but it also gave us that other terrible guy. So I guess by saying that “index funds are good“ are we to understand that all other financial products are negative in comparison? Which leaves me with kind of a weird takeaway from this book. How do I ascribe some sort of positive or negative moral value to something that in reality is just a tool for investment?
Claiming that index funds are a positive thing seems to just kind of blindly absolve responsibility of any negatives that might come from such an idea. Are we diversifying the responsibility as well as our money?
We don’t particularly look at a hammer and say “this is a good tool.” Even if the hammer does its job well, or if that a hammer has constructed houses for shelter or hospitals for healing. The hammer also could be used to develop a building where new forms of chemical gas for warfare are constructed. But the average person would not say that the hammer has some sort of moral dimension. Why would we say this about index funds?
May 26, 2022
Trillions is a brilliant book trumpeting the success of index funds. It starts with Bogle, founder of Vanguard and his journey with Investing and everything that led to the fruition of what we now know as Index Fund. Trillions has done an amazing job with its research: the book goes back to Bachelier’s work on probability that “attempted to construct a “probability law” for market fluctuations, using mathematics rather than the gut instinct of traders.”
Basically, Bachelier’s epiphany (albeit riddled with mathematical formula) says, “A clever buyer might think he may be landing a bargain, a presumably similarly intelligent seller must be assuming he is getting a good price. Otherwise no deal would be struck. Therefore, at any given moment in time financial securities are priced at the level that investors as a whole and on average consider fair.” Groundbreaking, right? And this was in the year 1900 which was rediscovered by UChicago guys: Savage and Samuelson many years later.
Trillions delves into academic research as well. Aptly put, “Wall Street stands on the shoulders of Harry Markowitz”. I remember sitting in Fin Econ-I lecture during the second term into my Masters and there was this Prof. who had worked for a huge investment bank (that went bust in 2007, you know which) for years in Japan and Hong Kong, he was assigned Fin Econ-I for my class. The first thing he told us was, Markowitz’s idea is underrated and that Markowitz’s is too humble a guy to represent his significance in Academic Finance.
He made us read his original paper and I found myself groping for words. This would happen again after a few more weeks into the class. Jack Treynor, John Litner, Jan Mossin, William Sharpe. Eugene Fama, Kenneth French. I never thought I’d find my idols in the pages of a scientific magazine called Journal of Finance. The ideas that these scientists propounded are nothing short of genius. In hindsight, they look like minor additions made to the existing literature but to actually make the novel connection, no matter how minor it is, makes all the difference.
There are personal anecdotes regarding these scientists and how each played a part in being Index Fund renegades or not (in the case of Fama and French) is super inspiring. I loved reading this book – it’s dense with new information so I took my sweet time savoring it but there’s a caveat here: maybe I enjoyed this book because I’m familiar with the characters of this book and its setting. Nevertheless the book is aimed at general audience but I’m not sure if it fits the category.
Basically, Bachelier’s epiphany (albeit riddled with mathematical formula) says, “A clever buyer might think he may be landing a bargain, a presumably similarly intelligent seller must be assuming he is getting a good price. Otherwise no deal would be struck. Therefore, at any given moment in time financial securities are priced at the level that investors as a whole and on average consider fair.” Groundbreaking, right? And this was in the year 1900 which was rediscovered by UChicago guys: Savage and Samuelson many years later.
Trillions delves into academic research as well. Aptly put, “Wall Street stands on the shoulders of Harry Markowitz”. I remember sitting in Fin Econ-I lecture during the second term into my Masters and there was this Prof. who had worked for a huge investment bank (that went bust in 2007, you know which) for years in Japan and Hong Kong, he was assigned Fin Econ-I for my class. The first thing he told us was, Markowitz’s idea is underrated and that Markowitz’s is too humble a guy to represent his significance in Academic Finance.
He made us read his original paper and I found myself groping for words. This would happen again after a few more weeks into the class. Jack Treynor, John Litner, Jan Mossin, William Sharpe. Eugene Fama, Kenneth French. I never thought I’d find my idols in the pages of a scientific magazine called Journal of Finance. The ideas that these scientists propounded are nothing short of genius. In hindsight, they look like minor additions made to the existing literature but to actually make the novel connection, no matter how minor it is, makes all the difference.
There are personal anecdotes regarding these scientists and how each played a part in being Index Fund renegades or not (in the case of Fama and French) is super inspiring. I loved reading this book – it’s dense with new information so I took my sweet time savoring it but there’s a caveat here: maybe I enjoyed this book because I’m familiar with the characters of this book and its setting. Nevertheless the book is aimed at general audience but I’m not sure if it fits the category.
November 1, 2021
When I 1st impulsively pre-ordered Robin Wigglesworth's "Trillions" I started having second thoughts about how good of a read could a book on the development of index funds be. I had already heard some of this story in books on portfolio theory or how passive investing tends to beat active investing over time. Instead "Trillions" turned out be a really intersting book that goes well beyond the tale of how the 1st index funds got created at Wells Fargo or how Jack Bogle built the index fund powerhouse Vanguard in the face of much opposition. We learn how the AMEX took the idea of the index fund to create one of the 1st ETFs, the SPY and how even Jack Bogle thought it was a dumb idea at first. The SPY and all the 100s of ETFs that came after it would transform the investment management biz and really drive index investing into the mainstream. We also learn how LArry Fink grew Bloackrock into the asset management behemoth it is today.
Trillions is a great read for my fellow finance nerds
Trillions is a great read for my fellow finance nerds
January 5, 2022
Expectations of above-average performance by all pension funds were doomed to disappointment.
Surprise, surprise, everyone can't be above-average. Math and index funds win.
Trillions is an interesting and thorough book about how index funds came to be. I found it to be well-written and easy to read. I also enjoyed that it didn't shy away from discussing the negative side of the index funds. While index funds are seen as a silver bullet by some, as any type of asset, they can be overinvested in.
Surprise, surprise, everyone can't be above-average. Math and index funds win.
Trillions is an interesting and thorough book about how index funds came to be. I found it to be well-written and easy to read. I also enjoyed that it didn't shy away from discussing the negative side of the index funds. While index funds are seen as a silver bullet by some, as any type of asset, they can be overinvested in.
January 19, 2022
Most of the book is of the type "classic 'Little Jack Horner' business memoir" (which is fine if you like that kind of thing - I don't), mixed with extended diatribes on the subject of "How Larry Fink stole my underpants", until the last couple of chapters which recycle some recent op-eds on the supposed evils of indexing.
Banal and forgettable.
Banal and forgettable.
December 16, 2021
A very readable solidly researched book, a reliable history of the development of index funds. I marvelled at the unlikeable personalities and was interested in the interplay between academic research and investment practice.
June 8, 2022
This is Yet Another book that really only had the content of a good magazine article, say in FORBES, and the content is: you're better off putting your investment $$$ in one or more index funds, as opposed to the ones who charge you a stout fee to hire hot-shot stock-pickers. You're familiar with the statistical concept of Regression to the Mean, right? https://en.wikipedia.org/wiki/Regress... Which means the hot hand runs out, be it at the blackjack table, the roulette wheel, or at the stock market. Even Warren Buffett (with some regret) has come to believe, which is good, since his hand ran, if not cold, but lukewarm at the end.
I must have seen a good review of the book, but really, now you know the essence of it. Ah, it was at the WSJ: https://www.wsj.com/articles/trillion... (Paywalled. As always, I'm happy to email a copy to non-subscribers) But really, you can trust me! The book itself: 2.5 stars, courtesy round-up. He does write well.
There are various flavors of index funds around, so you may (or may not) want to mix-and-match. I haven't seen any studies showing a better way to do this, than pick a reputable low-cost one & let her rip. Go for it!
I must have seen a good review of the book, but really, now you know the essence of it. Ah, it was at the WSJ: https://www.wsj.com/articles/trillion... (Paywalled. As always, I'm happy to email a copy to non-subscribers) But really, you can trust me! The book itself: 2.5 stars, courtesy round-up. He does write well.
There are various flavors of index funds around, so you may (or may not) want to mix-and-match. I haven't seen any studies showing a better way to do this, than pick a reputable low-cost one & let her rip. Go for it!
January 27, 2022
It's important today more than ever to understand index funds. Whether it's through your employer's pension plan (if you're lucky enough to have one), or your personal TFSA or RRSP (or international equivalent), grasping index funds and ETFs is crucial to anyone's understanding of personal finance in 2022. This book gives you a pretty good bird's eye view of the history of how index funds came to be the dominant form of investment today.
I enjoyed this book and learned quite a bit but it left me feeling annoyed from the start. For one thing, the first 4/5 of the book are mini-bios of the major players in the development of index funds, and the final 1/5 raises the most important questions and is a bit of a meditation on the state of ETFs/index funds -- that second part should have been a much bigger % of the book. IMO, the allocations should have been inverted. The mini-bios of everyone from the U of Chicago to BGI to Vanguard to BlackRock are not that interesting. My major gripe with this book is the author's inability to hide his massive hard-on for credentialism and prestige. The author does not miss an opportunity to tell you that so and so got his MBA from this Ivy League and his PhD from that Ivy League. DID YOU KNOW HE HAS A PHD? He is obsessed. Also he has Nobel syndrome, i.e. the disease every financial/economics journalist has, which involves reminding readers, every single time, that whichever cited economist is a NOBEL-PRIZE WINNING ECONOMIST. Can you believe it? This person I am name-dropping right now in this story is a NOBEL-PRIZE WINNER. Not one peep though about how the Nobel in economics is a fake Nobel from the Bank of Sweden that trades on the real Nobel prize's prestige. This habit from the author quickly becomes unbearable. He name drops the "Nobel" in economics so many times that whoever compiled his Index wasn't able to keep track and failed to include every "Nobel" mention. The index lists 10 instances of "Nobel" in the book, but I can 100% guarantee it's more than that (anyone with an ebook version of this book can easily confirm).
So not only all this but the author thinks all these U of Chicago orthodox neoliberals are all big-brained geniuses. Anyone with an ebook version of this book should look up the word "brilliant": the number of times it appears will leave you floored. Every U of Chicago guy is some insanely "brilliant" MBA/PhD type, even though his worldview is identical to everyone who came before him, including the Chicago Boys who went to Chile under Pinochet. Milton Friedman is a "towering intellect," and every other Chicago Boy is just as uniquely impressive. Funny too how only one woman (Patricia Dunn) has a prominent role in this story among all the actors cited, but is the one person whose darker moments are gone into in any detail. The Chicago Boys somehow get a pass. They're too uniquely big-brained and brillant.
But yeah, overall still enjoyed a bit. It could have been a lot better. There seems to be little original research in here. The author read a few biographies and made some phone calls to the players and people who know the players. The final fifth of the book where he talks about issues with index funds should have been at the centre of the story. The author, a FT journalist, would have been well-positioned to elaborate longer on issues with ETFs -- one example among many: if BlackRock, Vanguard, State Street combined are the top shareholders of 80% of S&P 500 companies, they probably have an incentive to prevent competition among companies, i.e. if they are all top shareholders of Coke and Pepsi, of JP Morgan and Bank of America, of the big airline companies, etc., they would have an incentive to prevent competition... creating a tendency toward oligopoly. But not necessarily these oligopolies would say: we own all the hotels too! We can't price people out of air travel because we own all the hotels and restaurants. This needed MUCH more attention. And, finally, what to say of the "efficient markets" and "price discovery" models of Economics 101 except they aren't... worth shit? But we only get a few pages about this, at the very end. We did get many pages about it early, about all the big-brained geniuses with PhDs and Nobels who talked a big game about "efficient markets" -- some fantasy-world BS that would be laughed out the room in any other field.
Overall, my impression is ETFs are very useful for average everyday investors but the people who "created" them and marketed them are not geniuses but were just lucky to be at the right place at the right time.
I enjoyed this book and learned quite a bit but it left me feeling annoyed from the start. For one thing, the first 4/5 of the book are mini-bios of the major players in the development of index funds, and the final 1/5 raises the most important questions and is a bit of a meditation on the state of ETFs/index funds -- that second part should have been a much bigger % of the book. IMO, the allocations should have been inverted. The mini-bios of everyone from the U of Chicago to BGI to Vanguard to BlackRock are not that interesting. My major gripe with this book is the author's inability to hide his massive hard-on for credentialism and prestige. The author does not miss an opportunity to tell you that so and so got his MBA from this Ivy League and his PhD from that Ivy League. DID YOU KNOW HE HAS A PHD? He is obsessed. Also he has Nobel syndrome, i.e. the disease every financial/economics journalist has, which involves reminding readers, every single time, that whichever cited economist is a NOBEL-PRIZE WINNING ECONOMIST. Can you believe it? This person I am name-dropping right now in this story is a NOBEL-PRIZE WINNER. Not one peep though about how the Nobel in economics is a fake Nobel from the Bank of Sweden that trades on the real Nobel prize's prestige. This habit from the author quickly becomes unbearable. He name drops the "Nobel" in economics so many times that whoever compiled his Index wasn't able to keep track and failed to include every "Nobel" mention. The index lists 10 instances of "Nobel" in the book, but I can 100% guarantee it's more than that (anyone with an ebook version of this book can easily confirm).
So not only all this but the author thinks all these U of Chicago orthodox neoliberals are all big-brained geniuses. Anyone with an ebook version of this book should look up the word "brilliant": the number of times it appears will leave you floored. Every U of Chicago guy is some insanely "brilliant" MBA/PhD type, even though his worldview is identical to everyone who came before him, including the Chicago Boys who went to Chile under Pinochet. Milton Friedman is a "towering intellect," and every other Chicago Boy is just as uniquely impressive. Funny too how only one woman (Patricia Dunn) has a prominent role in this story among all the actors cited, but is the one person whose darker moments are gone into in any detail. The Chicago Boys somehow get a pass. They're too uniquely big-brained and brillant.
But yeah, overall still enjoyed a bit. It could have been a lot better. There seems to be little original research in here. The author read a few biographies and made some phone calls to the players and people who know the players. The final fifth of the book where he talks about issues with index funds should have been at the centre of the story. The author, a FT journalist, would have been well-positioned to elaborate longer on issues with ETFs -- one example among many: if BlackRock, Vanguard, State Street combined are the top shareholders of 80% of S&P 500 companies, they probably have an incentive to prevent competition among companies, i.e. if they are all top shareholders of Coke and Pepsi, of JP Morgan and Bank of America, of the big airline companies, etc., they would have an incentive to prevent competition... creating a tendency toward oligopoly. But not necessarily these oligopolies would say: we own all the hotels too! We can't price people out of air travel because we own all the hotels and restaurants. This needed MUCH more attention. And, finally, what to say of the "efficient markets" and "price discovery" models of Economics 101 except they aren't... worth shit? But we only get a few pages about this, at the very end. We did get many pages about it early, about all the big-brained geniuses with PhDs and Nobels who talked a big game about "efficient markets" -- some fantasy-world BS that would be laughed out the room in any other field.
Overall, my impression is ETFs are very useful for average everyday investors but the people who "created" them and marketed them are not geniuses but were just lucky to be at the right place at the right time.
May 10, 2024
Does the job. Good, complete, overview of the history of indexing, and by the end of the book summarises the impact of a force that's basically taken over the entire financial industry.
October 27, 2021
For anyone interested in the index fund movement over the past 50 years, this is an incredible read. Certainly anyone in the investment industry must read this book.
December 26, 2021
Trillions - by Robin Wigglesworth - Book Review.
GOLD. DIAMOND. PLATINUM. A MUST MUST READ
This book rocketed to the list of my TOP 4 books (that have influenced and shaped me. Not a small feat!)
Read it NEVER to get influenced by "Investment analysts/ stock pickers",, etc. who have very SLIM chances of beating the Indices and still wanna rob you of your money.
While the book IS about Index funds and most things Finance, it goes WAY beyond investing philosophies and teaches life lessons in starting up entrepreneurship and just getting things done. How to FIGHT REJECTION. Also, how sometimes, things become FAR bigger (and dangerous) than imagined!
My fav quotes / parts:
"Wallace then proceeded to deliver what would become one of the most celebrated commencement speeches ever given.
Two young fish swim along in the sea. They meet an older fish who casually greets them: "Morning, boys. How's the water?" The two young fish then swim on for a bit before one eventually turns to the other and asks, "What the hell is water?" Wallace's point was that the "most obvious, important realities are often the ones that are hardest to see and talk about."
"Do you care who runs Toyota? I just want to know that the car works," observes Wiedman. "Indexing isn't personalized. It's a franchise business."
"The Greek poet Archilochus once observed that the fox knows many things, but the hedgehog knows one important thing. Bogle was the quintessential hedgehog."
- The 1 million Hedge Funds vs Index Fund bet that Warren Buffet made and won.
"The asset management industry was never designed for those things. Instead, it was designed with opaqueness and complexity."
"The net effect of the efforts of thousands upon thousands of investors continually trying to outsmart each other was that the stock market was efficient, and in practice, hard to beat. Therefore, most investors should just sit on their hands and buy the entire market."
BLES—an appropriate ticker for a Bible-inspired ETF—has underperformed the global stock market since its inception. Nonetheless, Inspire has been a success, with its overall stable of biblical ETFs now managing just over $1.3 billion by the end of 2020.
The ANTI Index Fund ad put out by a Rival Bank "Who wants to be operated on by an average surgeon, be advised by an average lawyer, be an average registered representative, or do anything no better or worse than average?" (Basically extorting investors NOT to accept "average returns" as the Index fund promised :))
Read all 480 notes - https://bit.ly/dkb-trillions
GOLD. DIAMOND. PLATINUM. A MUST MUST READ
This book rocketed to the list of my TOP 4 books (that have influenced and shaped me. Not a small feat!)
Read it NEVER to get influenced by "Investment analysts/ stock pickers",, etc. who have very SLIM chances of beating the Indices and still wanna rob you of your money.
While the book IS about Index funds and most things Finance, it goes WAY beyond investing philosophies and teaches life lessons in starting up entrepreneurship and just getting things done. How to FIGHT REJECTION. Also, how sometimes, things become FAR bigger (and dangerous) than imagined!
My fav quotes / parts:
"Wallace then proceeded to deliver what would become one of the most celebrated commencement speeches ever given.
Two young fish swim along in the sea. They meet an older fish who casually greets them: "Morning, boys. How's the water?" The two young fish then swim on for a bit before one eventually turns to the other and asks, "What the hell is water?" Wallace's point was that the "most obvious, important realities are often the ones that are hardest to see and talk about."
"Do you care who runs Toyota? I just want to know that the car works," observes Wiedman. "Indexing isn't personalized. It's a franchise business."
"The Greek poet Archilochus once observed that the fox knows many things, but the hedgehog knows one important thing. Bogle was the quintessential hedgehog."
- The 1 million Hedge Funds vs Index Fund bet that Warren Buffet made and won.
"The asset management industry was never designed for those things. Instead, it was designed with opaqueness and complexity."
"The net effect of the efforts of thousands upon thousands of investors continually trying to outsmart each other was that the stock market was efficient, and in practice, hard to beat. Therefore, most investors should just sit on their hands and buy the entire market."
BLES—an appropriate ticker for a Bible-inspired ETF—has underperformed the global stock market since its inception. Nonetheless, Inspire has been a success, with its overall stable of biblical ETFs now managing just over $1.3 billion by the end of 2020.
The ANTI Index Fund ad put out by a Rival Bank "Who wants to be operated on by an average surgeon, be advised by an average lawyer, be an average registered representative, or do anything no better or worse than average?" (Basically extorting investors NOT to accept "average returns" as the Index fund promised :))
Read all 480 notes - https://bit.ly/dkb-trillions
This entire review has been hidden because of spoilers.
August 1, 2023
Trillions, by Robin Wigglesworth, tells the tedious-sounding but important story of the rise of index funds - the investment vehicles dedicated to matching market indices rather than 'beating the market'. These emerged in the 1970s and rose to prominence in the 1990s, becoming by the 2020s one of the largest vehicles for money under management ($14 trillion in 2020). This represents an astonishing shift out of actively-managed funds in which managers choose stocks, bonds or derivatives directly and instead setup systems to mirror well-known indices (and, increasingly, less well-known baskets of securities).
Why should anyone care about so dry a topic, you may well ask? The shift has saved ordinary people, via their pension funds, billions in fees because passively-managed funds are much cheaper to operate than the actively managed sort. The economies of scale offered in operating index funds, as opposed to more bespoke active offerings, has also led to the enthronement of a handful of firms - BlackRock, State Street and Vanguard - as undisputed titans of money management. Though hardly household names, these leviathans manage more money than most country's economic output and increasingly have the capacity to swing whole markets if they so choose - most notably demonstrated by Larry Fink's Economic, Social and Governance activist pivot beginning around 2018.
So this is what the book is about and this is why it matters (and why I picked it up). But is it a good book on the topic? The short answer is ... almost. Its overly-narrative style and insistence on a ponderous historical survey of indexing lets it down; but when it finally catches up to the state of the market today (roughly the last third) and grapples with what the colossal scale of indexing means today, it really hits its stride.
Taking the bad bits first - and I'll admit this may reflect a bit of a saturation with overly-people focussed non-fiction books - but I am sick of books that insist on spinning stories about all the characters involved. It is, I acknowledge, valuable to understand the genesis of ideas as influential as the index fund. And a book like this could hardly have jumped to the situation in the 2010s without a few chapters of setting the scene.
But did we have to hear about every single person even tangentially involved - like the details of how the Capital Asset Management Pricing model was devised by William Sharpe and co.? Or did we really need such insufferable detail about the major players' early lives, 'character building' details about their idiosyncrasies or weird contextualising devices (a real pet peeve)? Exhibit 1: "It was. 1950: the first Peanuts comic had just been printed, James Dean got his big break by appearing in a Pepsi-Cola ad, and Cold War tensions were on the rise ... Yet the cross-currents of popular culture and geopolitics felt remote at the University of Chicago ...".
Or exhibit 2 about one particular fund employee: "A World War II-era Navy lieutenant, avid outdoorsman, and keen duck hunter with the eyesight of an eagle, [James] Vertin drove a bright red car, occasionally donned a red sports jacket that clashed with the generally staid couture of banking and 'strode the earth like an invincible warrior' according the financial historian Peter Bernstein".
Call me a philistine - but I find this sort of detailing of most of the characters just a bit ridiculous. Does it change anything? Does it make me more engaged? Mostly, it grows the book and seems only appropriate for higher stakes, more Hollywood-bait books on topics like the WeWork scandal or Nick Leeson's escapades. This is not merely a stylistic irritant: it slows the reader down, stopping them getting to the key players like Fink or David Booth or Jack Bogle sooner.
When the book finally reaches exchange-traded funds (ETFs) in the 1990s it really picks up. The warehouse analogy for how such funds are run is extremely helpful while the author quickly steps into insightful discussions of more exotic offerings like volatility index funds (like the famous VIX index) and the risks these pose. Similarly, there are illuminating discussions of bond ETFs and intricacies like whether or not they act as shock absorbers or, in fact, dangerously influence the underlying markets. This will likely broaden the average reader’s understanding of the field and, at last, helps the book step beyond the historical.
It only emphasises how slow the first part of the book is that the pace in these sections is, if anything, a little fast. In particular, too little time is spent on the (to me) extremely salient question of the efficiency of markets when so much of an economy is owned by a handful of index-fund players. Or what about risks to competition from the same investors owning every airline - these are the questions the book would have been better spent exploring in depth.
Overall the book is well-written and engaging enough to be worth a read, particularly given the importance of the topic. The final third is by far and away the most interesting from a current perspective but the opening will perhaps be of interest to those with more passion for economics history than I do. Yet I can't help but feel like a bit less of an attempt to render this topic 'personal' and to dramatise / characterise the players would have produced a punchier, better book. Valuable insight to be sure, but something of a missed opportunity.
Why should anyone care about so dry a topic, you may well ask? The shift has saved ordinary people, via their pension funds, billions in fees because passively-managed funds are much cheaper to operate than the actively managed sort. The economies of scale offered in operating index funds, as opposed to more bespoke active offerings, has also led to the enthronement of a handful of firms - BlackRock, State Street and Vanguard - as undisputed titans of money management. Though hardly household names, these leviathans manage more money than most country's economic output and increasingly have the capacity to swing whole markets if they so choose - most notably demonstrated by Larry Fink's Economic, Social and Governance activist pivot beginning around 2018.
So this is what the book is about and this is why it matters (and why I picked it up). But is it a good book on the topic? The short answer is ... almost. Its overly-narrative style and insistence on a ponderous historical survey of indexing lets it down; but when it finally catches up to the state of the market today (roughly the last third) and grapples with what the colossal scale of indexing means today, it really hits its stride.
Taking the bad bits first - and I'll admit this may reflect a bit of a saturation with overly-people focussed non-fiction books - but I am sick of books that insist on spinning stories about all the characters involved. It is, I acknowledge, valuable to understand the genesis of ideas as influential as the index fund. And a book like this could hardly have jumped to the situation in the 2010s without a few chapters of setting the scene.
But did we have to hear about every single person even tangentially involved - like the details of how the Capital Asset Management Pricing model was devised by William Sharpe and co.? Or did we really need such insufferable detail about the major players' early lives, 'character building' details about their idiosyncrasies or weird contextualising devices (a real pet peeve)? Exhibit 1: "It was. 1950: the first Peanuts comic had just been printed, James Dean got his big break by appearing in a Pepsi-Cola ad, and Cold War tensions were on the rise ... Yet the cross-currents of popular culture and geopolitics felt remote at the University of Chicago ...".
Or exhibit 2 about one particular fund employee: "A World War II-era Navy lieutenant, avid outdoorsman, and keen duck hunter with the eyesight of an eagle, [James] Vertin drove a bright red car, occasionally donned a red sports jacket that clashed with the generally staid couture of banking and 'strode the earth like an invincible warrior' according the financial historian Peter Bernstein".
Call me a philistine - but I find this sort of detailing of most of the characters just a bit ridiculous. Does it change anything? Does it make me more engaged? Mostly, it grows the book and seems only appropriate for higher stakes, more Hollywood-bait books on topics like the WeWork scandal or Nick Leeson's escapades. This is not merely a stylistic irritant: it slows the reader down, stopping them getting to the key players like Fink or David Booth or Jack Bogle sooner.
When the book finally reaches exchange-traded funds (ETFs) in the 1990s it really picks up. The warehouse analogy for how such funds are run is extremely helpful while the author quickly steps into insightful discussions of more exotic offerings like volatility index funds (like the famous VIX index) and the risks these pose. Similarly, there are illuminating discussions of bond ETFs and intricacies like whether or not they act as shock absorbers or, in fact, dangerously influence the underlying markets. This will likely broaden the average reader’s understanding of the field and, at last, helps the book step beyond the historical.
It only emphasises how slow the first part of the book is that the pace in these sections is, if anything, a little fast. In particular, too little time is spent on the (to me) extremely salient question of the efficiency of markets when so much of an economy is owned by a handful of index-fund players. Or what about risks to competition from the same investors owning every airline - these are the questions the book would have been better spent exploring in depth.
Overall the book is well-written and engaging enough to be worth a read, particularly given the importance of the topic. The final third is by far and away the most interesting from a current perspective but the opening will perhaps be of interest to those with more passion for economics history than I do. Yet I can't help but feel like a bit less of an attempt to render this topic 'personal' and to dramatise / characterise the players would have produced a punchier, better book. Valuable insight to be sure, but something of a missed opportunity.
Read
December 2, 2022This is a decent book on the history of financial thought in the 20th c. The book is focused, in particular, on the intellectual foundation and the financial innovations that enabled the passive investing revolution. Passive investing is buying funds (such as SPY) that track an index or the broader market; this is opposed to active investing, where an investment manager will select individual securities and charge a fee for his services.
It is my opinion that, on the whole, passive investing is advisable for most people—most investment managers won't outperform the market net of taxes and fees. That said, the fundamental premise that passive investing presupposes—that markets are efficient—is manifestly absurd. To say that markets are efficient is to say that all value-relevant information is fully reflected in a security's price.
To illustrate what it means for a security to be "efficiently priced," consider Meta (formerly Facebook). Its revenues and margins are declining. It's losing market share to TikTok, and it's having difficulty matching ads to users because of Apple's OS update. There is decreasing ad spending because of macro factors. It's having difficulty monetizing reels, and user growth is declining, especially with younger users. Zuck is making huge R&D investments in the metaverse, which is highly uncertain as a future revenue stream. Etc., Etc.
When we say that Meta's stock is efficiently priced, we are saying that the significance of these facts (and innumerable others) has been appropriately considered by (aggregate) investors and "priced in". That is, the market didn't overreact or underreact but perfectly incorporated these data into the price, such that future price movements are random (i.e., cannot be predicted by an analyst). In fact, the claim is even stronger than that: the claim is that this process happens instantaneously—as soon as news is released, it is instantly dispersed to market participants and priced in.
If all that sounds implausible because of the market's propensity to overreact, that's because it is. If it seems incongruent with the hopes-and-fears behavior of market participants, that's because it is. If it seems impossible because it doesn't leave any incentive for price discovery, you guessed it. But at least now you know what suave pundits or bookish academics mean when they say that markets are efficient. And you also know that this is the intellectual groundwork for passive investing. (There are other faulty assumptions, too, like Gaussian distributions.)
Good critics of market efficiency: Taleb's Black Swan, Shiller's Irrational Exuberance, Cassidy's Dot-Con, Fox's The Myth of the Rational Market.
It is my opinion that, on the whole, passive investing is advisable for most people—most investment managers won't outperform the market net of taxes and fees. That said, the fundamental premise that passive investing presupposes—that markets are efficient—is manifestly absurd. To say that markets are efficient is to say that all value-relevant information is fully reflected in a security's price.
To illustrate what it means for a security to be "efficiently priced," consider Meta (formerly Facebook). Its revenues and margins are declining. It's losing market share to TikTok, and it's having difficulty matching ads to users because of Apple's OS update. There is decreasing ad spending because of macro factors. It's having difficulty monetizing reels, and user growth is declining, especially with younger users. Zuck is making huge R&D investments in the metaverse, which is highly uncertain as a future revenue stream. Etc., Etc.
When we say that Meta's stock is efficiently priced, we are saying that the significance of these facts (and innumerable others) has been appropriately considered by (aggregate) investors and "priced in". That is, the market didn't overreact or underreact but perfectly incorporated these data into the price, such that future price movements are random (i.e., cannot be predicted by an analyst). In fact, the claim is even stronger than that: the claim is that this process happens instantaneously—as soon as news is released, it is instantly dispersed to market participants and priced in.
If all that sounds implausible because of the market's propensity to overreact, that's because it is. If it seems incongruent with the hopes-and-fears behavior of market participants, that's because it is. If it seems impossible because it doesn't leave any incentive for price discovery, you guessed it. But at least now you know what suave pundits or bookish academics mean when they say that markets are efficient. And you also know that this is the intellectual groundwork for passive investing. (There are other faulty assumptions, too, like Gaussian distributions.)
Good critics of market efficiency: Taleb's Black Swan, Shiller's Irrational Exuberance, Cassidy's Dot-Con, Fox's The Myth of the Rational Market.
February 7, 2023
I picked up this book because I really enjoyed the interview with the author on the Rational Reminder podcast.
The book was interesting in describing character portraits of the innovators in the finance space; but the people were rather uninteresting, but what they created were (to me). This made me wishing the book described the innovations in a bit more detail. The chapter on the SPDR was the most enjoyable for me because it was one of the few chapters that offered enough details to help me understand how an ETF is actually implemented.
I found a lot of analogs to the computer industry in this book. Investing (like computing) was only accessible to select powerful few. The innovations over time have made it available to all, and now we're asking the questions about the repercussions. 3 ETF providers dominate the market, similar to how 3 cloud providers dominate compute. I also appreciated that these innovations came from the perspective that so much of the financial industry, in their perspective, provided very little value. I got the sense that the rise of index investing is like implementing a form of investment humility.
The chapters on the end were also light on substance in talking about thematic ETFs and their issues and the fact that a handful of corporations hold the collectively the majority of invested equity.
Something that really takes away from the book is the authors seemingly random use of big words that don't add or clarify the statement. I find the author much more engaging in the interview I listened to and would recommend most people listen to that interview instead. Granted, listening to that podcast alrighty primed some familiarity with the topics in the book.
I feel more comfortable with my current investment position after reading this book (primarily in VWCE). Anything that's not a total market index suffers from differing opinions of categorization (e.g.: some categorize South Korea as a developing nation and some as a developed nation).
The most most entertaining fact of the book for me was the Inspire religious themed ETFs like BIBL and BLES that aim to be Biblically responsible. With the wide adoption and availability of ETFs, I can imagine ETF choices becoming a fashion statement the reflect ones identity :-) (there are Whiskey themed ETFs and other niche preference selection bias products out there).
The book was interesting in describing character portraits of the innovators in the finance space; but the people were rather uninteresting, but what they created were (to me). This made me wishing the book described the innovations in a bit more detail. The chapter on the SPDR was the most enjoyable for me because it was one of the few chapters that offered enough details to help me understand how an ETF is actually implemented.
I found a lot of analogs to the computer industry in this book. Investing (like computing) was only accessible to select powerful few. The innovations over time have made it available to all, and now we're asking the questions about the repercussions. 3 ETF providers dominate the market, similar to how 3 cloud providers dominate compute. I also appreciated that these innovations came from the perspective that so much of the financial industry, in their perspective, provided very little value. I got the sense that the rise of index investing is like implementing a form of investment humility.
The chapters on the end were also light on substance in talking about thematic ETFs and their issues and the fact that a handful of corporations hold the collectively the majority of invested equity.
Something that really takes away from the book is the authors seemingly random use of big words that don't add or clarify the statement. I find the author much more engaging in the interview I listened to and would recommend most people listen to that interview instead. Granted, listening to that podcast alrighty primed some familiarity with the topics in the book.
I feel more comfortable with my current investment position after reading this book (primarily in VWCE). Anything that's not a total market index suffers from differing opinions of categorization (e.g.: some categorize South Korea as a developing nation and some as a developed nation).
The most most entertaining fact of the book for me was the Inspire religious themed ETFs like BIBL and BLES that aim to be Biblically responsible. With the wide adoption and availability of ETFs, I can imagine ETF choices becoming a fashion statement the reflect ones identity :-) (there are Whiskey themed ETFs and other niche preference selection bias products out there).
January 12, 2022
This book won’t make you competent in finance. It won’t even help you to understand basic financial concepts. Its goal, instead, is to tell you the story of various people in the financial world that had something to do with the creation of index funds. In that sense I was disappointed, as I’m still looking to understand how finance works.
The stories are told in rigorous biographical style, yet they are very well connected. I found particularly interesting how the author interleaves academic and enterprise characters in the book, showing the role of each on developing a particular idea. On the downside, the book, like this review, is super long. Unless you are a big fan of index funds, I bet you will find this book unnecessarily long.
The book, however, made me think and read a bit more (mostly websites) about the stock market. This is what I have learned.
Why do people invest in first place? Well, duh, to make more money. Yes, but how so? In financial capitalism you can “own” part of a company by buying shares. The value of a share is proportional to the value of the company, which includes assets the company owns, profits, etc. As the company grows, so does the value of the share because other investors may want to buy your share seeing the prospects of the company growing even more. So, there you go: an investor would buy a share under the expectation that the company will grow and that others would want to buy that share for a higher price. But, what if these assumptions break? Let’s analyse each scenario.
Case 1: The company grows but no one is willing to buy its shares for a higher price.
This could happen if you bought an overvalued share, in short, the value of the share was not proportional to the intrinsic value of the company. The advice in this case is to give it more time, just hold the share a bit longer. Inflation and the growth of the company will make your initial purchase looks good.
This case could also happen if suddenly no one is interested on the share market anymore, or a technology blackout is making it infeasible for people to trade, or if you are the last person on earth. All that could happen. But, in those cases, selling shares may be the least of your problems.
Case 2: Neither the company grows, nor people is willing to buy its shares for a higher price.
This happens very often for two reasons. First, because there is typically a co-relation between a share value and the company’s growth. And second, because we are not very good at finding out whether a company will do fine. To deal with this problem investors are advised to diversify the shares they own. That is, buy shares of various companies so that, on average, the conglomerate of companies you own do ok. The problem? Well, owning many shares requires many times more initial capital than owning a single share. So, diversification may be infeasible for the regular investor. Managed funds were created to solve this problem. By pooling together the funds of many investors, you could own pieces of many shares.
Case 3: The company doesn’t grow, but people are still willing to buy its shares for a higher price.
Case 1 can be mitigated by holding your investment a bit longer, Case 2 by diversifying the shares you own. Case 3 is a funny one. Like Case 1, it shows a dysfunctional market, where share prices differ from the underlying performance of the company. However, unlike Case 1, Case 3 benefits the seller. The question then is, for how long can the market remain more profitable that the economy itself? The answer seems to be: for as much as people believe so.
If everybody decides to spend their savings on X, be either gold, shares or bitcoins, then the price of X would skyrocket, because price is based on offer and demand. Bringing more people to invest has been and is the goal of financial companies. More investors benefit financial companies in two ways. First, they can charge more fees. Second, by injecting more money into the stock market, they achieve the goal of increasing the share prices, showing to current investors that past investors are profiting and that they could do the same. So, as long as people believe in the stock market, you should be content with tracking its value. That’s precisely what index funds do.
An index fund consists of a collection of companies that a group of experts find attractive overall, such as the 500S&P. In that sense index funds are very similar to managed funds. However, rather than buying shares based on the manager’s opinion, index funds buy shares depending on their price, fully neglecting what a so-called market expert could say. This makes index funds attractive since there is no need to pay expensive manager fees. Moreover, research has shown, as the book thoroughly review, that managed funds don’t really beat index funds in the long-term. Therefore, for the general investor, whose goal is to increase at the same rate as the stock market, index funds are very appealing, in particular considering that the stock market has been increasing at a rate higher than inflation, at least in the US is about 8%.
Now, for how long can we keep convincing people to invest in the stock market? It seems that for a bit longer. If the stock market goes busted, so does the economy, and governments don’t like that. Governments usually attempt to correct for any downturn of the stock market, by injecting money in different forms. Case in point. During the Covid pandemic we have seen the stock market flourishing, not because the economy is flourishing, but because governments have injected trillions of dollars. This is a vicious cycle, since defeating inflation is one the reasons people invest in first place. Saving the stock market is important for rich people, who own most of the shares; is important for politicians, who are rich themselves; and is important for the increasing number of passive investors. Hence governments have felt and will continue to feel the pressure of keeping the stock market afloat.
My potentially flawed conclusions:
Index funds do not contribute to a functional market, because they use shares price as a proxy to estimate shares value. On the contrary, they may contribute to a dysfunctional market by allowing people to invest blindly, without valuing the shares the invest in. For the moment, they rely on the valuation made by others. How long can this last is unclear, though. On the positive side, index funds have opened the door to regular investors to the profitable business of investing at a low cost. That’s a major achievement. So, if you would like to invest and don’t have the time to think about it, index funds look reasonable for the time being (I guess?).
The stories are told in rigorous biographical style, yet they are very well connected. I found particularly interesting how the author interleaves academic and enterprise characters in the book, showing the role of each on developing a particular idea. On the downside, the book, like this review, is super long. Unless you are a big fan of index funds, I bet you will find this book unnecessarily long.
The book, however, made me think and read a bit more (mostly websites) about the stock market. This is what I have learned.
Why do people invest in first place? Well, duh, to make more money. Yes, but how so? In financial capitalism you can “own” part of a company by buying shares. The value of a share is proportional to the value of the company, which includes assets the company owns, profits, etc. As the company grows, so does the value of the share because other investors may want to buy your share seeing the prospects of the company growing even more. So, there you go: an investor would buy a share under the expectation that the company will grow and that others would want to buy that share for a higher price. But, what if these assumptions break? Let’s analyse each scenario.
Case 1: The company grows but no one is willing to buy its shares for a higher price.
This could happen if you bought an overvalued share, in short, the value of the share was not proportional to the intrinsic value of the company. The advice in this case is to give it more time, just hold the share a bit longer. Inflation and the growth of the company will make your initial purchase looks good.
This case could also happen if suddenly no one is interested on the share market anymore, or a technology blackout is making it infeasible for people to trade, or if you are the last person on earth. All that could happen. But, in those cases, selling shares may be the least of your problems.
Case 2: Neither the company grows, nor people is willing to buy its shares for a higher price.
This happens very often for two reasons. First, because there is typically a co-relation between a share value and the company’s growth. And second, because we are not very good at finding out whether a company will do fine. To deal with this problem investors are advised to diversify the shares they own. That is, buy shares of various companies so that, on average, the conglomerate of companies you own do ok. The problem? Well, owning many shares requires many times more initial capital than owning a single share. So, diversification may be infeasible for the regular investor. Managed funds were created to solve this problem. By pooling together the funds of many investors, you could own pieces of many shares.
Case 3: The company doesn’t grow, but people are still willing to buy its shares for a higher price.
Case 1 can be mitigated by holding your investment a bit longer, Case 2 by diversifying the shares you own. Case 3 is a funny one. Like Case 1, it shows a dysfunctional market, where share prices differ from the underlying performance of the company. However, unlike Case 1, Case 3 benefits the seller. The question then is, for how long can the market remain more profitable that the economy itself? The answer seems to be: for as much as people believe so.
If everybody decides to spend their savings on X, be either gold, shares or bitcoins, then the price of X would skyrocket, because price is based on offer and demand. Bringing more people to invest has been and is the goal of financial companies. More investors benefit financial companies in two ways. First, they can charge more fees. Second, by injecting more money into the stock market, they achieve the goal of increasing the share prices, showing to current investors that past investors are profiting and that they could do the same. So, as long as people believe in the stock market, you should be content with tracking its value. That’s precisely what index funds do.
An index fund consists of a collection of companies that a group of experts find attractive overall, such as the 500S&P. In that sense index funds are very similar to managed funds. However, rather than buying shares based on the manager’s opinion, index funds buy shares depending on their price, fully neglecting what a so-called market expert could say. This makes index funds attractive since there is no need to pay expensive manager fees. Moreover, research has shown, as the book thoroughly review, that managed funds don’t really beat index funds in the long-term. Therefore, for the general investor, whose goal is to increase at the same rate as the stock market, index funds are very appealing, in particular considering that the stock market has been increasing at a rate higher than inflation, at least in the US is about 8%.
Now, for how long can we keep convincing people to invest in the stock market? It seems that for a bit longer. If the stock market goes busted, so does the economy, and governments don’t like that. Governments usually attempt to correct for any downturn of the stock market, by injecting money in different forms. Case in point. During the Covid pandemic we have seen the stock market flourishing, not because the economy is flourishing, but because governments have injected trillions of dollars. This is a vicious cycle, since defeating inflation is one the reasons people invest in first place. Saving the stock market is important for rich people, who own most of the shares; is important for politicians, who are rich themselves; and is important for the increasing number of passive investors. Hence governments have felt and will continue to feel the pressure of keeping the stock market afloat.
My potentially flawed conclusions:
Index funds do not contribute to a functional market, because they use shares price as a proxy to estimate shares value. On the contrary, they may contribute to a dysfunctional market by allowing people to invest blindly, without valuing the shares the invest in. For the moment, they rely on the valuation made by others. How long can this last is unclear, though. On the positive side, index funds have opened the door to regular investors to the profitable business of investing at a low cost. That’s a major achievement. So, if you would like to invest and don’t have the time to think about it, index funds look reasonable for the time being (I guess?).
August 6, 2022
Great storytelling about how index funds were created; index funds being investment vehicles (you can buy shares of them on the market) which copy the market's general structure.
It's the reverse of the know-it-all maverick independent investor aiming to time the market.
It's somewhat like smoking - there is scientific consensus for decades that cigarettes kill, but the message is not even now plain for the public. The same with the stock market - it's been proven by research that "markets are close to random, therefore impossible to predict", for decades, but the average Joe investing his money doesn't know and couldn't act on it; until index funds, that is.
A great read for anyone interested in the stock market, doing financial business in America, and how to lift a bit the hood on investing.
It's the reverse of the know-it-all maverick independent investor aiming to time the market.
It's somewhat like smoking - there is scientific consensus for decades that cigarettes kill, but the message is not even now plain for the public. The same with the stock market - it's been proven by research that "markets are close to random, therefore impossible to predict", for decades, but the average Joe investing his money doesn't know and couldn't act on it; until index funds, that is.
A great read for anyone interested in the stock market, doing financial business in America, and how to lift a bit the hood on investing.
July 21, 2022
Excellent account of the origins and evolution of the indexing revolution, from its academic beginnings with the work of Markowitz, Fama and Sharpe to its implementation by pioneers such as Jack Bogle and Larry Fink. An engaging and lively book, with portraits of all the main players, and the corporate manoeuvres that led to the juggernauts that dominates index investing.
January 19, 2024
eliz “i found this book to be a bit dry but nevertheless worth reading the first few chapters”
mimics my thoughts exactly. skipped 150 pages in the middle. clearing for the library haul tomorrow
mimics my thoughts exactly. skipped 150 pages in the middle. clearing for the library haul tomorrow
December 1, 2021
A delightful chronicle on the index-fund/ETF revolution. Great read on the silent road to serfdom (or not) through passive investing. As a thought experiment, suppose everybody did index and individual stocks did not reflect new information? What happens then ? Food for thought - How do we solve the issues posed by the greatest invention in the history of finance without destroying it?
August 24, 2023
This book provides a popular account of the history of the index fund. Robin Wigglesworth, a superb financial journalist, defines index funds as “investment vehicles that simply try to mimic an index of financial securities.” If you’ve ever heard of the Dow Jones Industrial Average or the Standard and Poor's 500 or the S&P 500, that’s an index. Invented by journalists to give a flavour of the behaviour of the whole market, they weren’t originally something you could invest in, just a kind of cross-section of the economy that, when added all up together, provides a snapshot look at the performance of the market over the course of a day or a year or longer.
Whigglesworth describes the whole intellectual history behind the development of the ideas and the academic research that lead to the proven notion that no professional manager and no money management technique or stock picking strategy can successfully over longer periods of time exceed the financial returns of a broad stock market index. And that if that broad stock market index could be invested in by an investor with a low fee, this passive investment would beat the returns of any professional money manager.
Whigglesworth frames his story with a fantastic account of a bet Warren Buffet offered: he bet $1 million dollars that a fund tracking the US stock market would beat any group of highly paid hedge fund managers over 10 years. A hedge fund manager took him up on it. The hedge fund managers had 10 years to make more money than the Vanguard 500 Index Fund - an investment that anyone who cared to open a brokerage account could get for the low low price of 0.04 percent of their investment per year. They couldn’t do it. And this book shows you why. The revered, highly paid “experts” in money management have failed time and time again to produce greater returns than passive investments based on broad stock market indexes.
Beginning with a French professor who studied the Paris stock exchange in the early twentieth century and published pioneering research about the “random character of stock prices”, the hunt was on to figure out the most rational way to invest money.
After WWII a variety of economists and bankers contributed further research into money management and stock price performance and they came up with some fascinating concepts, all backed by research, unlike the sales pitches made to investors by money managers. Among the new ideas that would revolutionize investing:
Modern Portfolio Theory - the idea that “diversification across a large number of independently moving securities-a ‘portfolio,’ as the finance industry calls a collection of securities-did indeed reduce the risks for investors.”
“Efficient-markets hypothesis” - Eugene Fama’s idea “that in an efficient market, the competition among so many smart traders, analysts, and investors meant that at any given time, all known, relevant information was already reflected in stock prices. And new information would continually be baked into the price virtually instantaneously.”
It wasn’t until the 1960s that researchers actually started to look into whether investments in stocks actually made money and if so how much, and a lot of that research took place at the University of Chicago and inspired new innovations in finance, often involving computers and running parallel to the spread of computer technology.
With the intellectual groundwork laid, bankers had learned that stock prices moved randomly, diversification across a portfolio was essential, and the market was priced efficiently, so no good trying to pick stocks that were worth more than their price, and they then set out to offer products that would offer investors the benefits of serious, credible academic research into investing. That product was a passively managed investment which tracked a broad index and it was first made available in 1971 by Wells Fargo to Samsonite’s pension fund. This and a few other index funds launched in the 1970s were surprisingly slow to catch on but things picked up in the decades to come.
The next innovation was the Exchange Traded Fund (ETF) - this was like a mutual fund that traded like a stock and it evolved out of a suggestion made by the SEC for a product that would represent an index like the mutual funds that had been based on the S&P 500 but trade like a stock on an exchange throughout the day. The SEC made the suggestion after the 1987 Black Monday stock market crash, a crash caused by algorithmic trading and not reflecting any problems in the economy.
‘Trillions’ goes on to describe the corporate histories of Vanguard and BlackRock - two financial institutions that have played the biggest roles in the evolution of index investing and ETF creation. At times it gets a little digressive with personal profiles of finance titans but their stories are a part of the index investing revolution and do fit into the narrative, it’s just that they’re not quite as captivating as the intellectual groundwork and some of the early financial product creation that happens earlier in the narrative.
Burton G. Malkiel’s book ‘A Random Walk Down Wall Street’ is an investing classic which summarizes many of the same important academic ideas presented in ‘Trillions’ and uses them to show that the best method of investing, based on credible academic research, is low-cost passive index investments. ‘Trillions’ is a fine companion volume to Malkiel's book which was first published in 1973 because it gives not just the history of the ideas behind index funds but also the history behind the invention of the index fund investment products that brought these ideas first to pension funds and asset managers and then to individual investors. It’s a fascinating tale full of interesting people laboring in Universities and banks to discover through research the best investment methods for maximizing returns and then to offer products to investors that will represent those proven investment methods so investors can take advantage of that research to get the best investments possible and not be led astray by over-priced money managers.
Whigglesworth describes the whole intellectual history behind the development of the ideas and the academic research that lead to the proven notion that no professional manager and no money management technique or stock picking strategy can successfully over longer periods of time exceed the financial returns of a broad stock market index. And that if that broad stock market index could be invested in by an investor with a low fee, this passive investment would beat the returns of any professional money manager.
Whigglesworth frames his story with a fantastic account of a bet Warren Buffet offered: he bet $1 million dollars that a fund tracking the US stock market would beat any group of highly paid hedge fund managers over 10 years. A hedge fund manager took him up on it. The hedge fund managers had 10 years to make more money than the Vanguard 500 Index Fund - an investment that anyone who cared to open a brokerage account could get for the low low price of 0.04 percent of their investment per year. They couldn’t do it. And this book shows you why. The revered, highly paid “experts” in money management have failed time and time again to produce greater returns than passive investments based on broad stock market indexes.
Beginning with a French professor who studied the Paris stock exchange in the early twentieth century and published pioneering research about the “random character of stock prices”, the hunt was on to figure out the most rational way to invest money.
After WWII a variety of economists and bankers contributed further research into money management and stock price performance and they came up with some fascinating concepts, all backed by research, unlike the sales pitches made to investors by money managers. Among the new ideas that would revolutionize investing:
Modern Portfolio Theory - the idea that “diversification across a large number of independently moving securities-a ‘portfolio,’ as the finance industry calls a collection of securities-did indeed reduce the risks for investors.”
“Efficient-markets hypothesis” - Eugene Fama’s idea “that in an efficient market, the competition among so many smart traders, analysts, and investors meant that at any given time, all known, relevant information was already reflected in stock prices. And new information would continually be baked into the price virtually instantaneously.”
It wasn’t until the 1960s that researchers actually started to look into whether investments in stocks actually made money and if so how much, and a lot of that research took place at the University of Chicago and inspired new innovations in finance, often involving computers and running parallel to the spread of computer technology.
With the intellectual groundwork laid, bankers had learned that stock prices moved randomly, diversification across a portfolio was essential, and the market was priced efficiently, so no good trying to pick stocks that were worth more than their price, and they then set out to offer products that would offer investors the benefits of serious, credible academic research into investing. That product was a passively managed investment which tracked a broad index and it was first made available in 1971 by Wells Fargo to Samsonite’s pension fund. This and a few other index funds launched in the 1970s were surprisingly slow to catch on but things picked up in the decades to come.
The next innovation was the Exchange Traded Fund (ETF) - this was like a mutual fund that traded like a stock and it evolved out of a suggestion made by the SEC for a product that would represent an index like the mutual funds that had been based on the S&P 500 but trade like a stock on an exchange throughout the day. The SEC made the suggestion after the 1987 Black Monday stock market crash, a crash caused by algorithmic trading and not reflecting any problems in the economy.
‘Trillions’ goes on to describe the corporate histories of Vanguard and BlackRock - two financial institutions that have played the biggest roles in the evolution of index investing and ETF creation. At times it gets a little digressive with personal profiles of finance titans but their stories are a part of the index investing revolution and do fit into the narrative, it’s just that they’re not quite as captivating as the intellectual groundwork and some of the early financial product creation that happens earlier in the narrative.
Burton G. Malkiel’s book ‘A Random Walk Down Wall Street’ is an investing classic which summarizes many of the same important academic ideas presented in ‘Trillions’ and uses them to show that the best method of investing, based on credible academic research, is low-cost passive index investments. ‘Trillions’ is a fine companion volume to Malkiel's book which was first published in 1973 because it gives not just the history of the ideas behind index funds but also the history behind the invention of the index fund investment products that brought these ideas first to pension funds and asset managers and then to individual investors. It’s a fascinating tale full of interesting people laboring in Universities and banks to discover through research the best investment methods for maximizing returns and then to offer products to investors that will represent those proven investment methods so investors can take advantage of that research to get the best investments possible and not be led astray by over-priced money managers.
July 13, 2022
Part investment history, part paean to the godfathers of index tracking, Robin Wigglesworth's Trillions is a fascinating account of a little-known investment revolution which is saving ordinary investors a fortune in active-management fees - though it is not without its risks, since so-called passive or index tracking funds are undiscriminating and therefore potentially reward incompetent, useless or corrupt managements. The book should be read not just by millionaires, billionaires and trillionaires, but by anyone with a pension plan, ISA or money invested, directly or indirectly, in the stock market.
August 22, 2022
Listened to it on Audible..Excellent history lesson on the genesis and growth of Index funds
May 11, 2022
The story format does not work for me - too long, too many personal details and narrative that doesn’t (for me) add to the learning I was hoping to get from this book.
January 19, 2022
Index funds arguably have done a lot of good for the general public, increasing the accessibility of investing and enabling stratification for individual investors, allowing them to take a basket approach to passive investment. In essense, an index fund seeks to track specific components in financial markets. The coverage of an index fund can vary - some cover the major indices tracking the US financial markets, others cover niche areas like the carbon credit market.
The book mainly deals with the former, thinking about how betting on the market as a whole moving up has consistently worked out in the past, and likely will continue to do so (also covered in The Psychology of Money and this excellent NYT article). This suggests that selective stock picking may not necessarily be the optimal investment strategy for retail investors - perhaps index funds tracking the market as a whole are the way to go. After all, only a handful of fund managers consistently beat the market, and even so, the margin of victory over the market is usually swallowed by fees, meaning little of that is actually realised by the pension funds and individuals who entrust their money to hedge funds.Enter the index fund’s unique structure, which involves nearly negligible, or in some cases zero, fees, further enhancing potential investor profits.
The primary focus of the book is on the history of index funds - I’m not particularly interested in the history of financial markets, but this is quite an interesting story. The saga charts the rise of Vanguard and Blackrock, explaining how we got to where we are now with index funds. I liked the final two chapters, which dealt with some of the caveats to index funds, such as the potential problems with incremental buying.
It’s probably fair to say that index funds ride off the success of successful fund managers, but the overall societal contribution of the index funds potentially overcomes this - their accessibility and low costs have made investing more accessible to everyone around the world. If you’re interested in how index funds work, I would stick to the first 3 and last 2 chapters of this book, the rest of it is largely a historical treatise.
The book mainly deals with the former, thinking about how betting on the market as a whole moving up has consistently worked out in the past, and likely will continue to do so (also covered in The Psychology of Money and this excellent NYT article). This suggests that selective stock picking may not necessarily be the optimal investment strategy for retail investors - perhaps index funds tracking the market as a whole are the way to go. After all, only a handful of fund managers consistently beat the market, and even so, the margin of victory over the market is usually swallowed by fees, meaning little of that is actually realised by the pension funds and individuals who entrust their money to hedge funds.Enter the index fund’s unique structure, which involves nearly negligible, or in some cases zero, fees, further enhancing potential investor profits.
The primary focus of the book is on the history of index funds - I’m not particularly interested in the history of financial markets, but this is quite an interesting story. The saga charts the rise of Vanguard and Blackrock, explaining how we got to where we are now with index funds. I liked the final two chapters, which dealt with some of the caveats to index funds, such as the potential problems with incremental buying.
It’s probably fair to say that index funds ride off the success of successful fund managers, but the overall societal contribution of the index funds potentially overcomes this - their accessibility and low costs have made investing more accessible to everyone around the world. If you’re interested in how index funds work, I would stick to the first 3 and last 2 chapters of this book, the rest of it is largely a historical treatise.
April 30, 2023
This book has the classic pop science problem of not really being for anyone. It doesn’t seem like it’s for hardcore finance people, since the author regularly spends a paragraph or two on a particular innovation and then says that it’s simply too complex for him to go into deeper. But it’s also not totally accessible for finance novices (like me). There are lots of unexplained claims that strike me as totally counterintuitive, like that small cap stocks can be more profitable in the long run because small cap companies are more likely to go bankrupt. I guess my feeling is, either explain the really complicated things or explain the really simple things, but if you’re not explaining either, who’s the audience? My other issue with this book is that it’s really heavy on narrative and the narrative is just not that interesting. I’m here because I want to demystify finance to myself, not because I want to read 100 pages on a bunch of different indistinguishable guys competing over who will run a company, complete with absolutely riveting sentences like “Jim Riepe paced anxiously around the billiard room of the Union League Club on the corner of Park Avenue and 37th Street in New York, a venerable gentleman’s club once frequented by the likes of John Pierpont Morgan and Teddy Roosevelt” and “Luckily, Princeton proved a good environment for the driven young man.” This makes it a bit of a chore to read but there is good stuff in here. I have heard of the efficient market hypothesis in many different contexts, and now I finally understand why it's important! The last chapter, on possible negative side effects of the rise of index investing, is also informative and interesting and strikes the simple/complex balance a lot better than the rest of the book.
June 7, 2023
Many years from now when we look back at the non-fiction books that were published over the past 10 to 15 years, I think it’s likely this will be referred to as “the era of hyperbolic subtitles.” There has been a constant parade of books with subtitles claiming that some esoteric or seemingly trivial event “changed the course of world history,” or “created the modern world.” Since discussion of the events that truly did have a significant impact has been mostly exhausted, non-fiction authors apparently have no choice but to sift through the debris and try to make mountains out of whatever molehills they discover.
If you, like me, have become desensitized to this trend, you may be somewhat dismissive of Robin Wigglesworth’s subtitle in Trilions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever. However, in this case, the subtitle lives up to the hype. While it remains to be seen if finance has been “forever” changed, there is little doubt that index funds have had a seismic impact on modern finance and investing, and Mr. Wigglesworth does an outstanding job of explaining how that happened.
Despite its length, the subtitle is actually incomplete, and inaccurate. According to Mr. Wigglesworth himself, the index fund wasn’t invented on Wall Street. It was invented on college campuses, most notably on the campus at the University of Chicago.
The author traces the origin of index funds all the way back to an early 20th-century French mathematician named Louis Jean-Baptiste Alphonse Bachelier. Unknown in his own time, and little known outside of the finance industry today, Bachelier’s doctoral thesis, Theory of Speculation, became a seminal work in the history of finance when it was rescued from obscurity by a University of Chicago statistics professor in 1954. Through a process of intense statistical analysis, Bachelier makes the argument that movements in the market are random to an extent that defies prediction.
With Bachelier’s work as their foundation, a number of academics, mostly at the University of Chicago, went on to perform increasingly rigorous statistical studies that reached the same conclusion: it was nearly impossible to consistently predict the performance of individual stocks. Very few money managers were able to successfully outperform the market for any significant period of time, and those that did charged such a dear price for their services that the fees ultimately offset the gains. All the while, the overall market continued a steady, inexorable rise. Thus, if only there were a way to do so, the wise investor would simply invest in the overall market.
For many years the concept of creating an investment fund that mirrored the overall market remained nothing more than an academic theory. But students who had been exposed to these concepts eventually made fledgling efforts to launch market-tracking investment funds at Wells Fargo, American National Bank and Batterymarch; but the idea didn’t really catch on until it came to the attention of a brash finance company executive named John Bogle.
Bogle was hamstrung by the conditions imposed on him after he found himself in the middle of a soured merger. Relegated to an administrative role that prohibited him from actively managing investor money, he used the passive nature of an index fund to circumvent that restriction. In 1974 he created the Vanguard company and an investment fund that tracked the S&P 500. The Vanguard family of funds are now among the largest investment funds in the world.
In the decades that followed Bogle’s first S&P 500 fund, the industry slowly gained traction, and then it began to grow dramatically in the new century. Along with Vanguard, the industry is now dominated by heavyweights such as BlackRock and State Street, and the industry now controls approximately $11 trillion in assets, a figure that dwarfs actively managed funds.
There has also been a proliferation of niche funds that track small corners of the stock and bond markets, an ironic twist on a product that was initially intended to provide steady returns by tracking a broad swath of the stock market.
Index funds have been a windfall for ordinary investors. With their low management fees, low trading costs and consistent returns, they have added billions of dollars to the retirement accounts and college savings of everyday Americans. But this windfall has created some unintended consequences. As the size of their assets have grown exponentially, index funds have evolved to the point that they no longer merely track the market. Because of their size, these funds now have the potential to distort and pervert their markets.
This mostly comes from the funds’ imperative to maintain investments in companies based on their size and significance in the major indices. For example, the addition of Tesla to the S&P 500 index in 2020 resulted in the purchase of $51 billion of Tesla stock by the major index funds. This large investment in the company had nothing to do with Tesla’s prospects. The investment was based merely on the fact that the company had been added to the S&P index, which triggered a massive buying spree by the index funds. Simultaneously, the major index funds dump equally large shares of stock from companies that are removed from the indices, which can pose an existential crisis for those companies, their investors and their employees.
Mr. Wigglesworth does a good job of explaining the history and significance of index funds, but he ultimately provides more information than the discerning reader or at least this reader, requires. I suspect the author could have provided sufficient material for the reader to understand the gist of his story with a long essay on his subject. Long discussions about office politics and bureaucratic procedures at both the schools and businesses that played a role in the development of index funds seem like filler, and with each new wrinkle in the story, the reader is subjected to another round of this tedium.
But ultimately the book is a godsend for those who want to better understand index funds and the role they play in modern-day finance. This book offers a critical and balanced view of both the potential and the perils of index funds, and it is a must-read for investors.
If you, like me, have become desensitized to this trend, you may be somewhat dismissive of Robin Wigglesworth’s subtitle in Trilions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever. However, in this case, the subtitle lives up to the hype. While it remains to be seen if finance has been “forever” changed, there is little doubt that index funds have had a seismic impact on modern finance and investing, and Mr. Wigglesworth does an outstanding job of explaining how that happened.
Despite its length, the subtitle is actually incomplete, and inaccurate. According to Mr. Wigglesworth himself, the index fund wasn’t invented on Wall Street. It was invented on college campuses, most notably on the campus at the University of Chicago.
The author traces the origin of index funds all the way back to an early 20th-century French mathematician named Louis Jean-Baptiste Alphonse Bachelier. Unknown in his own time, and little known outside of the finance industry today, Bachelier’s doctoral thesis, Theory of Speculation, became a seminal work in the history of finance when it was rescued from obscurity by a University of Chicago statistics professor in 1954. Through a process of intense statistical analysis, Bachelier makes the argument that movements in the market are random to an extent that defies prediction.
With Bachelier’s work as their foundation, a number of academics, mostly at the University of Chicago, went on to perform increasingly rigorous statistical studies that reached the same conclusion: it was nearly impossible to consistently predict the performance of individual stocks. Very few money managers were able to successfully outperform the market for any significant period of time, and those that did charged such a dear price for their services that the fees ultimately offset the gains. All the while, the overall market continued a steady, inexorable rise. Thus, if only there were a way to do so, the wise investor would simply invest in the overall market.
For many years the concept of creating an investment fund that mirrored the overall market remained nothing more than an academic theory. But students who had been exposed to these concepts eventually made fledgling efforts to launch market-tracking investment funds at Wells Fargo, American National Bank and Batterymarch; but the idea didn’t really catch on until it came to the attention of a brash finance company executive named John Bogle.
Bogle was hamstrung by the conditions imposed on him after he found himself in the middle of a soured merger. Relegated to an administrative role that prohibited him from actively managing investor money, he used the passive nature of an index fund to circumvent that restriction. In 1974 he created the Vanguard company and an investment fund that tracked the S&P 500. The Vanguard family of funds are now among the largest investment funds in the world.
In the decades that followed Bogle’s first S&P 500 fund, the industry slowly gained traction, and then it began to grow dramatically in the new century. Along with Vanguard, the industry is now dominated by heavyweights such as BlackRock and State Street, and the industry now controls approximately $11 trillion in assets, a figure that dwarfs actively managed funds.
There has also been a proliferation of niche funds that track small corners of the stock and bond markets, an ironic twist on a product that was initially intended to provide steady returns by tracking a broad swath of the stock market.
Index funds have been a windfall for ordinary investors. With their low management fees, low trading costs and consistent returns, they have added billions of dollars to the retirement accounts and college savings of everyday Americans. But this windfall has created some unintended consequences. As the size of their assets have grown exponentially, index funds have evolved to the point that they no longer merely track the market. Because of their size, these funds now have the potential to distort and pervert their markets.
This mostly comes from the funds’ imperative to maintain investments in companies based on their size and significance in the major indices. For example, the addition of Tesla to the S&P 500 index in 2020 resulted in the purchase of $51 billion of Tesla stock by the major index funds. This large investment in the company had nothing to do with Tesla’s prospects. The investment was based merely on the fact that the company had been added to the S&P index, which triggered a massive buying spree by the index funds. Simultaneously, the major index funds dump equally large shares of stock from companies that are removed from the indices, which can pose an existential crisis for those companies, their investors and their employees.
Mr. Wigglesworth does a good job of explaining the history and significance of index funds, but he ultimately provides more information than the discerning reader or at least this reader, requires. I suspect the author could have provided sufficient material for the reader to understand the gist of his story with a long essay on his subject. Long discussions about office politics and bureaucratic procedures at both the schools and businesses that played a role in the development of index funds seem like filler, and with each new wrinkle in the story, the reader is subjected to another round of this tedium.
But ultimately the book is a godsend for those who want to better understand index funds and the role they play in modern-day finance. This book offers a critical and balanced view of both the potential and the perils of index funds, and it is a must-read for investors.
July 25, 2022
The theme of book leaves little room for being creative. Engaging it is but only for those who are interested in subject and does not does much to create interest in someone who just starts reading it and then keeps him hooked despite the subject not being one of his "interested in" area.
This is definitely the book one needs to read if they need to know A-Z of Index funds and why they have grown so massively over past 2 decades in terms of wealth being managed via them and their exponential growth. The book not only stresses why Index funds made sense time and again and through various data and most importantly through average returns, but also makes one walk through complete history of how it came to bring, how it was resisted, hurdles it faced and then massive explosion in adaptation.
One can look through contribution by all finance greats such Bogle, Buffet, Blackrock, Wells Fargo etc when it comes to pushing Index funds understand among masses
This is definitely the book one needs to read if they need to know A-Z of Index funds and why they have grown so massively over past 2 decades in terms of wealth being managed via them and their exponential growth. The book not only stresses why Index funds made sense time and again and through various data and most importantly through average returns, but also makes one walk through complete history of how it came to bring, how it was resisted, hurdles it faced and then massive explosion in adaptation.
One can look through contribution by all finance greats such Bogle, Buffet, Blackrock, Wells Fargo etc when it comes to pushing Index funds understand among masses
April 30, 2022
For me it's an exciting story and not a non-fiction history. Brings in personalities of players and gives character to the rather obtuse discoveries. I am a big fan of index funds and worked in a financial firm, so I am familiar with the over-all context. Without some background in financial markets, some of the concepts may seem a bit remote. I had to read some passages more than once to gain full understanding or understand I wasn't going to. However, this is not a technical work by any means. It was also an eye-opener for me to see someone layout detail on the fact that index funds cannot grow indefinitely. That is, index funds mimic the markets and cannot exist when they subsume the entire market. I have toyed with this fate but not really focused on the fact that at 20 % of the value of the entire US stock markets today, complications may be sooner than we think.
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