Robin Wigglesworth > Quotes

“The best long-term results come from buying a big, well-diversified portfolio of financial securities, and trading as little as possible.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Initially the common ownership theory was dismissed as a loony idea from ivory-tower economists. After all, the airline industry is infamously bankruptcy-prone and looked like poor evidence of anticompetitive behavior, overt or otherwise. Richard Branson, the billionaire entrepreneur, once joked that the best way to become an aviation millionaire was to be a billionaire and invest in an airline. However, the theory gradually started to garner attention. “Are Index Funds Evil?” was the provocative title of one piece examining the subject in The Atlantic in 2017.18”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Its full name meant “United Dutch Chartered East India Company” in English, but in the Netherlands and elsewhere it was often just referred to as the VOC after the letters in its logo, possibly the first case of such corporate branding in history. It would go on to become the first truly global corporate conglomerate.”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“The hope of many traditional investors is that markets will eventually reach a tipping point where they are so inefficient that it opens up a bonanza of lucrative opportunities for them to take advantage of. But so far there are no signs of that point approaching. Some analysts are skeptical that there will ever be a promised land of abundant alpha. Michael Mauboussin, one of Wall Street’s most pedigreed analysts and an adjunct professor at Columbia Business School, has an apt metaphor to show how the hope among many active managers that index funds will eventually become so big that markets become easier to beat is likely in vain: Imagine that investing is akin to a poker game between a bunch of friends of varying skill. In all likelihood, the dimmer players will be the first to be forced out of the game and head home to nurse their losses. But that doesn’t mean that the game then becomes easier for the remaining cardsharps. In fact, it becomes harder, as the players still in the game are the best ones.24”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“For many people, the tradeability of bonds leads to one of their most confusing facets: how their “yield” can differ from their interest rate. This came up in the introduction, but here is a more fulsome explanation. Typically, a bond is issued at face value; in other words, a borrower sells a $1,000 bond for $1,000. If it pays a 4 percent fixed interest rate, then creditors will receive $40 a year—or perhaps two semiannual $20 payments. But if some investors start to fret about the borrower’s solvency, they might start selling the bond, driving its price down to $900. As long as there is no actual default, the bond will then have a running or “current” yield of 4.4 percent, because investors would be buying a $40 annual coupon payment for $900.”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“HISTORY OF INVESTING IS ESSENTIALLY a chronicle of codebreaking.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“The data bears this out. In addition to a “persistence scorecard,” S&P Dow Jones Indices publishes snapshots of how many mutual funds beat their benchmarks. Most years, a majority underperform their indices, whatever the market. Over multiple years, the data becomes progressively grimmer. As of June 2020, only 15 percent of US stock-pickers had cumulatively managed to surpass their benchmark over the last decade. In bond markets, it is a similar tale, albeit varying depending on the flavor of fixed income. The data is more favorable for fund managers in more exotic, less efficient asset classes, such as emerging markets, but on the whole the data is clear that in the longer run most fund managers still underperform their passive rivals after fees.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Of course, as the writer Upton Sinclair once observed, it is difficult to get someone to understand something when their salary depends on them not understanding it. “If people start believing this random-walk garbage and switch to index funds, a lot of $80,000-a-year portfolio managers and analysts will be replaced by $16,000-a-year computer clerks. It just can’t happen,” one anonymous mutual fund manager griped to the Wall Street Journal in 1973.31”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“This may seem shrill, but in the United States, the birthplace of index investing, the trend is now stark, entrenched, and accelerating. Over the past decade, about 80 cents of every dollar that has gone into the US investment industry has ended up at Vanguard, State Street, and BlackRock. As a result, the combined stake in S&P 500 companies held by the Big Three has quadrupled over the past two decades, from about 5 percent in in 1998 to north of 20 percent today.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“RAND proved formative. Some of its employees joked that it stood for “Research And No Development,” and its intellectualism was inspiring to the young economist. The think tank’s ethos was to work on problems so hard that they might actually be unsolvable.9 Four days of the week were dedicated to RAND projects, but the fifth was free for freewheeling personal research. Ken Arrow, a famous economist, and John Nash, the game theorist immortalized in the film A Beautiful Mind, both consulted for RAND around the time Sharpe was there. The eclecticism of RAND’s research community is reflected in his first published works, which were a proposal for a smog tax and a review of aircraft compartment design criteria for Army deployments.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“After all, if the ultimate goal of a central bank is to regulate the temperature of an economy by changing the cost of credit, then the fact that credit is increasingly extended by the bond market rather than banks inevitably has consequences. In fact, it is no understatement to say that the growing ascendance of the bond market, and the legion implications that flow from this phenomenon, is the defining issue for finance and economics today.”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“The result was the emergence of a true British bond market, with remarkable capacity for the day. The government’s spending quadrupled over the course of the Nine Years’ War with France that ended in 1697, swelling its debts from £1 million to almost £17 million—roughly 40 percent of what economists estimate its gross national product was at the time. Although meager by standards of today’s government debt burdens, it was a staggering increase for the era. And yet the British government’s borrowing costs actually fell over the period, to about 6–8 percent by the end of the 1690s and just 3 percent by the 1730s.[8]”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“If your wife is going to have a baby, you’re going to be better off if you call an obstetrician than if you do it yourself. And if your plumbing pipes are clogged, you’re probably better off calling a plumber. Most professions have value added to them above what the laymen can accomplish themselves. In aggregate, the investment profession does not do that,” Buffett had told attendees. “So you have a huge group of people making—I put the estimate as $140 billion a year—that, in aggregate, are and can only accomplish what somebody can do in ten minutes a year by themselves.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“The credibility of the regular and fixed interest payment, coupled with the tradeability of the debt, transformed what was initially an annoying reminder of Venice’s humiliation into a monument to its commercial genius. Now, anyone in Venice could take money they had saved up and convert it into a future cash flow—perhaps to secure some income for when they retired, endow a charity, or give away as a dowry. They could use the prestiti as collateral for other loans, or as surety for goods. And if they needed to get back their money—or were worried about the solvency of Venice—they could head down to the Rialto market and sell their claims to the bankers, speculators, and merchants who had started to actively trade the prestiti there. The Campo San Giacomo di Rialto—a colonnaded courtyard that is today a fresh vegetable market—thus became the world’s first bond market. Around it moneymen and their banci wooden tables would buy and sell prestiti, in addition to their usual business of exchanging currencies, pawning goods, taking deposits, and making loans. Overlooking the square is Venice’s oldest church and its oddly oversized and infamously inaccurate clock, with an inscription urging the merchants who gathered under its portico to treat people fairly. A short walk away Venice set up its Camera degli Imprestiti, the loan office that saw to the management of the city’s debts (since these were not bearer bonds, each trade had to be officially registered with the Camera so that the correct owner could collect the interest).”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“As more and more investable money is managed without regard to research, evaluation, corporate governance, quality of management and an actual assessment of long-term prospects, and instead is delegated to the index-constructors and the purveyors of index products, what does that trend mean for capitalism? Growth? Innovation?” he asked rhetorically.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“The seminal paper in the field was published in 1991 by William Sharpe, whose theories underpinned the original creation of the index fund, and was bluntly titled “The Arithmetic of Active Management.”16 This expanded on Sharpe’s earlier work, and addressed the suggestion that the index investing trend that was starting to gain ground at the time was a mere “fad.” The paper articulated what Sharpe saw as two iron rules that must hold true over time: The return on the average actively managed dollar will equal that of a dollar managed passively before costs, and after costs the return on that actively managed dollar will be less than that of a passively managed dollar. In other words, mathematically the market represents the average returns, and for every investor who outperforms the market someone must do worse. Given that index funds charge far less than traditional funds, over time the average passive investor must do better than the average active one. Other academics have later quibbled with aspects of Sharpe’s 1991 paper, with Lasse Heje Pedersen’s “Sharpening the Arithmetic of Active Management” the most prominent example. In this 2016 paper, Pedersen points out that Sharpe’s assertions rest on some crucial assumptions, such as that the “market portfolio” never actually changes. But in reality, what constitutes “the market” is in constant flux. This means that active managers can at least theoretically on average outperform it, and they perform a valuable service to the health of a markets-based economy by doing so. Nonetheless, Pedersen stresses that this should not necessarily be construed as a full-throated defense of active management. “I think that low-cost index funds is one of the most investor-friendly inventions in finance and this paper should not be used as an excuse by active managers who charge high fees while adding little or no value,” he wrote.17 “My arithmetic shows that active management can add value in aggregate, but whether it actually does, and how much, are empirical questions.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“To Bogle—who had years earlier battled with Samuelson’s textbook at Princeton—the column was electrifying. It inspired his future mantra that “strategy follows structure,” and this was a strategy that arguably suited Vanguard’s hamstrung structure perfectly. The few existing index funds were almost solely the preserve of pension funds, and while they were beginning to gain traction, none of Vanguard’s competitors in the mutual fund industry—mostly aimed at ordinary investors—would want to start a low-cost product that might show up its pricier, traditional actively managed funds. Meanwhile, Vanguard’s at-cost structure was the perfect match. Plus, he obviously knew a few gunslingers in Boston whom he wouldn’t mind humbling.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“There is a conundrum at the heart of the efficient-markets hypothesis, often called the Grossman-Stiglitz Paradox after a seminal 1980 paper written by hedge fund manager Sanford Grossman and the Nobel laureate economist Joseph Stiglitz.22 “On the Impossibility of Informationally Efficient Markets” was a frontal assault on Eugene Fama’s theory, pointing out that if market prices truly perfectly reflected all relevant information—such as corporate data, economic news, or industry trends—then no one would be incentivized to collect the information needed to trade. After all, doing so is a costly pursuit. But then markets would no longer be efficient. In other words, someone has to make markets efficient, and somehow they have to be compensated for the work involved. This paradox has hardly held back the growth of passive investing. Many investors gradually realized that whatever academic theory one subscribes to, the cold unforgiving fact is that over time most active managers underperform their benchmarks. Even if they do beat the market, a lot of the “alpha” they produce is then often gobbled up by their fees. With his usual wit, Bogle dubbed this the “Cost Matters Hypothesis.”23 However, the truth of the Grossman-Stiglitz Paradox does raise some pertinent questions around whether markets may become less efficient as more and more investing is done through index funds.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“While stocks represent tiny slivers of ownerships in the likes of Boeing, General Electric, or Apple, bonds are essentially tradable loans.”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“However, inspired by the fund, WFIA in November 1973 launched a simpler fund open to all the bank’s institutional clients—seeded with $5 million from Wells Fargo’s own pension fund and an equal amount from Illinois Bell’s retirement system—that would simply seek to mimic the performance of the S&P 500.* At the time, this accounted for about two-thirds of the entire US stock market anyway,20 and the index was “capitalization-weighted”—in other words, the weighting of each company was according to its overall stock market value, and the fund would just have to buy an equal number of shares in each company. By 1976, Samsonite folded the money in its original vehicle into WFIA’s S&P 500 index fund.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

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― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Most’s eclectic background also provided the spark behind the invention of what would become known as the ETF. During his travels around the Pacific, he had appreciated the efficiency of how traders would buy and sell warehouse receipts of commodities, rather than the more cumbersome physical vats of coconut oil, barrels of crude, or ingots of gold. This opened up a panoply of opportunities for creative financial engineers. “You store a commodity and you get a warehouse receipt and you can finance on that warehouse receipt. You can sell it, do a lot of things with it. Because you don’t want to be moving the merchandise back and forth all the time, so you keep it in place and you simply transfer the warehouse receipt,” he later recalled.19 Most’s ingenious idea was to, after a fashion, mimic this basic structure. The Amex could create a kind of legal warehouse where it could place the S&P 500 stocks, and then create and list shares in the warehouse itself for people to trade. The new warehouse-cum-fund would take advantage of the growth and electronic evolution in portfolio trading—the simultaneous buying and selling of big baskets of stocks first pioneered by Wells Fargo two decades earlier—and a little-known aspect of mutual funds: They can do “in kind” transactions, exchanging shares in a fund for a proportional amount of the stocks it contains, rather than cash. Or an investor can gather the correct proportion of the underlying stocks and exchange them for shares in the fund. Stock exchange “specialists”—the trading firms on the floor of the exchange that match buyers and sellers—would be authorized to be able to create or redeem these shares according to demand. They could take advantage of any differences that might open up between the price of the “warehouse” and the stock it contained, an arbitrage opportunity that should help keep it trading in line with its assets. This elegant creation/redemption process would also get around the logistical challenges of money coming in and out continuously throughout the day—one of Bogle’s main practical concerns. In basic terms, investors can either trade shares of the warehouse between themselves, or go to the warehouse and exchange their shares in it for a slice of the stocks it holds. Or they can turn up at the warehouse with a suitable bundle of stocks and exchange them for shares in the warehouse. Moreover, because no money changes hands when shares in the warehouse are created or redeemed, capital gains tax can be delayed until the investor actually sells their shares—a side effect that has proven vital to the growth of ETFs in the United States. Only when an ETF is actually sold will investors have to pay any capital gains taxes due.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Note that the calculation of the yield changes depending on whether the bond is a “perpetual” one that in theory never matures, as was the case in Venice, or whether it has a firm date when the principal comes due, as is the norm today. That is because the return will obviously be affected by when you get your initial money back. For example, a $1,000 bond that trades at its face value, pays a 4 percent interest rate, and matures in ten years has a “yield to maturity” of 4 percent. But if it trades at 90 or 110 cents on the dollar, the yield to maturity becomes 5.31 percent or 2.84 percent, respectively.”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“But some investors and analysts fret that given the strength of the trend toward greater passive investing, the market’s efficiency will gradually atrophy, with potentially dire consequences. “A given investment in active may or may not be the best decision for an individual particular investor but for the system overall there is a benefit in the efficient allocation of capital,” Fraser-Jenkins argued.21 “Rather than looking at the real economy and seeking to understand its future development, passive allocation self-referentially looks to the financial economy to inform its asset allocation choices.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Yet the best argument for the enduring value of the efficient-markets hypothesis comes from the eminent twentieth-century British statistician George Box, who is said to have quipped that “all models are wrong, but some are useful.” The efficient-markets hypothesis may not be entirely correct. After all, markets are shaped by humans, and humans are prone to all sorts of behavioral biases and irrationality. But the hypothesis is at the very least a decent approximation for how markets work—and helps explain just why they have in practice proven so hard to beat. Even Benjamin Graham, the doyen of many investors, later in his career became a de facto believer in the efficient-markets hypothesis.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“If the price of a bond goes up, yield goes down. And the lower the yield, the better for the borrower.”
― Robin Wigglesworth, A Fabulous Debt: The Epic Story of How Bonds Built the Modern World

“The earth-shattering suggestion of the research conducted in the 1960s and 1970s was that the code might actually be unbreakable, and efforts to decipher it were expensive and futile.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Although financial markets are a wildly more dynamic game, with infinitely more permutations and without the fixed rules of poker, the metaphor is a compelling explanation for why markets actually appear to be becoming harder to beat even as the tide of passive investing continues to rise. Mediocre fund managers are simply being gradually squeezed out of the industry. At the same time, the number of individual investors—the proverbial doctors and dentists getting stock tips on the golf course and taking a bet—has gradually declined, depriving Wall Street of the steady stream of “dumb money” that provided suckers for the “smart money” of professional fund managers to take advantage of.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“It proved a serendipitous meeting, one that would set Markowitz on a path toward a peculiar form of fame—the kind where one can walk undisturbed in public, but the cognoscenti whisper your name with reverence”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Inspired by Sharpe’s work, Fouse in 1969 recommended that Mellon launch a passive fund that would try to replicate only one of the big stock market indices, like the S&P 500 of America’s biggest companies. It got nixed by Mellon’s management. In the spring of 1970, he then proposed a fund that would systematically invest according to a dividend-based model devised by John Burr Williams—who had nearly two decades earlier inspired Markowitz’s work—but that too was summarily squashed. “Goddammit Fouse, you’re trying to turn my business into a science,” his boss told him.14”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever