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

“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

“Perhaps there may be an element of the distortionary effects fingered by the likes of Green. But most fund managers willingly admit that the average skill and training of the industry keeps getting higher, requiring constant reinvention, retraining, and brain-achingly hard work. The old days of “have a hunch, buy a bunch, go to lunch” are long gone. Once upon a time, simply having an MBA or a CFA might be considered an edge in the investment industry. Add in the effort to actually read quarterly financial reports from companies and you had at least a good shot at excelling. Nowadays, MBAs and CFAs are rife in the finance industry, and algorithms can read thousands of quarterly financial reports in the time it takes a human to switch on their computer.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“The Bogle Boys. Vanguard’s founder Jack Bogle always had a young assistant to mentor, and every year all past and present assistants would have a boozy Christmas dinner with their boss. From top left to right: Jeremy Duffield, Jim Riepe, Daniel Butler, Jan Twardowski, Duncan McFarland. From bottom left to right: Jack Brennan, Tim Buckley, Jack Bogle, Jim Norris.”
― 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

“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

“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

“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

“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

“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

“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

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

“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

“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

“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

“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 simplify Markowitz’s model, Sharpe stipulated one fundamental underlying factor—the return of the overall stock market—and instead calculated the variation of individual securities relative to this, rather than each security relative to each other. In his formula, it was given the Greek letter beta. So if Coca-Cola’s shares rise by 0.8 percentage points for every 1 percent the broader stock market climbs, it has a beta of 0.8. If a racier stock gains 2 percent, it has a beta of 2. Higher-beta stocks are more volatile, and should therefore offer greater returns than steadier, lower-beta securities. And thus beta became the lingua franca for the returns of the stock market as a whole, while “alpha” later emerged as the term for the extra returns generated by a skilled investor.”
― 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

“one of the most puzzling aspects of the investment industry—why most professional money managers seemed to do such an abysmal job.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“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

“Not only did this gain Sharpe his PhD, but it eventually evolved into a seminal paper on what he called the “capital asset pricing model” (CAPM), a formula that investors could use to calculate the value of financial securities. The broader, groundbreaking implication of CAPM was introducing the concept of risk-adjusted returns—one had to measure the performance of a stock or a fund manager versus the volatility of its returns—and indicated that the best overall investment for most investors is the entire market, as it reflects the optimal tradeoff between risks and returns.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Can one unearth above-average fund managers, who can consistently or over time beat the market? Once again, the academic research is gloomy for the investment industry. Using the database first started by Jim Lorie’s Center for Research in Security Prices, S&P Dow Jones Indices publishes a semiannual “persistence scorecard” on how often top-performing fund managers keep excelling. The results are grim reading, with less than 3 percent of top-performing equity funds remaining in the top after five years. In fact, being a top performer is more likely to presage a slump than a sustained run.18 As a result, as Fernando’s defenestration highlighted, the hurdle to retain the faith of investors keeps getting higher, even for fund managers who do well.* In the 1990s, the top six deciles of US equities-focused mutual funds enjoyed investor inflows, according to Morgan Stanley.19 In the first decade of the new millennium, only the top three deciles did so, and in the 2010–20 period, only the top 10 percent of funds have managed to avoid outflows, and gathered assets at a far slower pace than they would have in the past.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Whatever the reason, the existence of some persistent investment factors is today accepted by almost every (if not all) financial economist and investor. In an ingenious bit of marketing, factors are often called “smart beta.” Sharpe himself grew to hate the term, as it implies that all other forms of beta are dumb.10 Most financial academics prefer the term “risk premia,” to more accurately reflect the fact that they think these factors primarily yield an investment premium from taking some kind of risk—even if they cannot always agree what the precise risk is. An important milestone was when Fama and his frequent collaborator Ken French—another Chicago finance professor who would later also join DFA—in 1992 published a paper with the oblique title “The Cross-Section of Expected Stock Returns.”11 It was a bombshell. In what would become known as the three-factor model, Fama and French used data on companies listed on the NYSE, the American Stock Exchange, and the Nasdaq from 1963 to 1990 and showed that both value (the tendency of cheap stocks to outperform expensive ones) and size (the tendency of smaller stocks to outperform bigger ones) were distinct factors from the broader market factor—the beta. Although Fama and French’s paper termed these factors as rewards for taking extra risks, coming from the father of the efficient-markets hypothesis, it was a signal event in the history of financial economics.12 Since then academics have identified a panoply of factors, with varying degrees of durability, strength, and acceptance. Of course, factors do not always work. They can go through long fallow stretches where they underperform the market. Value stocks, for example, suffered a miserable bout of performance in the dotcom bubble, when investors wanted to buy only trendy technology stocks. And to DFA’s chagrin, after small caps enjoyed a robust year in DFA’s first year of existence, they would then undergo a long, painful seven-year period of trailing dramatically behind the S&P 500.13 DFA managed to keep growing, losing very few clients, partly because it had always stressed to them that stretches like this could happen. But it was an uncomfortable period that led to many awkward conversations with clients.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“Initially, he was entranced by the professional investing industry that was blossoming as he entered adulthood. At the time of writing the Financial Analysts Journal article, Bogle was a young hotshot executive of Wellington, one of the oldest and largest mutual fund managers in America. But an odd combination of disaster and serendipity in the mid-1970s set him on the path to upending the industry he once venerated. “There’s nobody more religious than a convert,” observes Jim Riepe, one of Bogle’s closest colleagues in the founding of Vanguard, as a way of explaining the remarkable metamorphosis.”
― Robin Wigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

“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

“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