8. The History of Passive Investing With Robin Wigglesworth [FourWeekMBA Podcast]

What this episode covers

In this session, I interview Robin Wigglesworth, FT’s global finance correspondent, based in Oslo, Norway. He focuses on the biggest trends reshaping markets, investing, and finance with a particular emphasis on technological disruption and quantitative investing. Robin is the author of incredible research into the story (https://fourweekmba.com/business-storytelling/) of the Index Fund, but also the story of how passive investing evolved. That is the topic of our discussion. Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever(https://lh4.googleusercontent.com/hd89lkeLaxiEY-AVG7QAt26V0lpid-ASM8GMbBQVxfJDJM6VOQWvKvVWISTRpvwDToBtkz1Qtcjw2To9Xa1xXE7E30JHOmp94b5EYiHqcUOIdtdD2MnQHcGGiUp2E1AHNwB7RXp_?is-pending-load=1)How did you get to write a book about this topic?Robin Wigglesworth:I’m a journalist at the Financial Times. That’s my day job. Between 2015 and 2019, I was the US markets editor at the FT New York. The way the FT is set up, we can’t cover everything that happens around the world all the time, so we have to be a bit more like special forces. We have to be very focused on where we spend our efforts.For me, the rise of passive investing was just such an incredible story that was under-told because it doesn’t have many of the other personalities that we know in banking. There is no Jamie Dimon of index funds, there’s no Ken Griffin of index funds because we’re essentially just algorithms that buy all the stocks or bonds in an index.But it was huge. Now it’s $20 trillion. $20 trillion in index funds. That’s more than the combined hedge fund, private equity, and venture capital industries. Twice that, actually. If you take all the venture capital, hedge fund, and private equity industries, double the size of them, and they still wouldn’t be as big as index funds. The more I realized the enormity of this, and saw the many ways it was changing the wiring of financial (https://fourweekmba.com/financial-accounting/) markets, I felt it deserved a book to explain how this revolution happened and what it means.Gennaro [FourWeekMBA]:Yeah. For a little bit of context, 20 trillion is actually larger than the US GDP. Probably the US GDP is 17, 18 trillion, or something. Something like that. It’s a huge industry.You also found a way to tell the story, and, as you said, passive investing is about algorithms more than people. You instead manage to tell the story in your book, Trillions, in a way that makes it very, very compelling. Can we go a little bit through the early days of index passive investing? How was the index fund born?Robin Wigglesworth:Yeah. No, I wanted to write it almost as if it was a movie script. I think people are interesting, anyway. I think narratives help us understand complex developments that otherwise would be hard to grasp, and doing it through the prism of people just makes it more digestible.I start the story with Louis Bachelier, a 19th-century French mathematician, who died in obscurity, that is arguably today the father of financial (https://fourweekmba.com/financial-accounting/) economics. The entire field of financial (https://fourweekmba.com/financial-accounting/) economics starts with Louis Bachelier.

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