Jack Bogle, Ramen Wigglesworth, Fidelity Famously discussed on Marketplace with Kai Ryssdal


With the caveat that please, you've got to consult your own financial adviser, a not terrible rule to follow when thinking about what to do with your investments is to do the least you possibly can, pick your investments and let them grow over time. It's that pick your investments thing, though, that can get tricky. And that gets us to ramen wigglesworth's new book. It's called trillions. It's about the birth of the index fund and the changes those funds brought to finance, especially the then radical idea of passive investing. People thought it was absolutely insane. I mean, the guy that founded fidelity famously said, who wants to be operated on by the mediocre surgeon, right? Everybody wants to be the best. So the idea of starting a fund that just strives to a mediocrity, this sounded preposterous. And they were either laughed at or figuratively spatter Pong. What was the, what was the disruption? What was the innovation in an index fund? Well, fundamentally, they realized that a lot of human investors active manager says they are often called do a really cruddy job. On average, they actually do worse than the market after the costs of their salaries and all the research they do. And people didn't really kind of understand this until the 60s when you suddenly had computers that could actually crunch the numbers. And that was where the index fund sprung out of. We looked back now and of course we know all this stuff. Did it take a while for the idea of index funds to catch on? Yeah. I mean, this was something that was actually started by big pension funds because they had all the numbers and they could kind of see something was amiss. But for ordering investors, it took people like Jack bogle to really bring what was an open secret in the big investor world into the ordinary investor world. Yeah, boggles the name we all know. I wonder if there's is there someone you can point to and say, this is the father of the next one because of course they were all men. Yes, no, they were all fathers at the time. Yes, there is one guy above all. John Mack mccown, he was a former farmhand from Illinois insanely stubborn and headstrong, ended up a Wall Street, but he was one of the first people that learned how to code. So he ended up giving a speech to the chairman of Wells Fargo at the time and ran some cook, he hired Mac and Mac was the guy that managed to push through eventually the first ever index fund in 1971. If Mac mccown came back today and looked around Wall Street, would he recognize index funds because they've changed? Cornucopia is not an overstatement of the kinds of funds you can invest in in the genre. It's a good point actually. I mean, market has evolved dramatically. I should have stressed that Mac mccrone is still actually with us. A lot of the other early partners of sadly passed away. So I think essentially he just loves innovation, like some of these people for them innovation became they raised on that. Other people, including Jack bogle, certainly were worried about where we were heading as a shuffled off the mortal coil. Well, so since you bring it up, let me talk about financial innovation for a second because as you know, 1213 years ago, the entire global economy almost came a crapper because of innovation on Wall Street. Synthetic CDOs and collateralized debt obligations. Innovation and finance is not always turn out as well as index funds do. No, exactly. And that's a great point. I mean, I make it all the time that, you know, the financial crisis showed that even if finance doesn't care, you don't care about finance, violence does and care about you it affects you profoundly. And index funds is one of those rare examples of an actually beneficial financial innovation. Those saved millions of Americans, hundreds of billions of dollars and trillions indirectly. But because all positive innovation also has negative side effects, we can kind of start seeing the contours of downsides to this revolution than the early 60s and 70s. Well, give a little bit. I mean, what are the not greats about this? Well, one of the things is just that people can shovel any old crap into an index fund and say, oh, So humans were great at taking great ideas and overdoing them. And more broadly speaking, leading to this massive concentration of economic and financial power in just a few hands. And that's the one thing I do think biz monitoring. None of none of my business, but are you an index fund guy in your own life or do you actively trade your stocks? No, I definitely don't trade. I talk to some of the smartest people in the world and they get humbled by the markets all the time. So I think the vast majority of people should stick to boring index funds in you'll actually do way better than your neighbors and day trading payers in the long run. And you read this book, and you know it all came from. Robin wigglesworth. He's a journalist at the Financial Times. Also, he's got a new book out. It's called trillions, how a band of Wall Street renegades invented the index fund and changed finance forever..

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