1 00:00:05,840 --> 00:00:13,520 Speaker 1: Welcome to Trillions. I'm Joel Webber and I'm Eric bel Tunis. Eric. 2 00:00:13,560 --> 00:00:16,160 Speaker 1: How you holding up? Man? Pretty good. I've been getting 3 00:00:16,160 --> 00:00:19,040 Speaker 1: out a little more. Um, I've got a tennis hobby 4 00:00:19,160 --> 00:00:21,400 Speaker 1: going on and that's been great. I mean, you know, 5 00:00:21,560 --> 00:00:25,240 Speaker 1: trying to get out and keep moving as much as possible. 6 00:00:25,320 --> 00:00:27,280 Speaker 1: And I'm going to go in the office actually next 7 00:00:27,280 --> 00:00:29,800 Speaker 1: week for the first time. So my son just started 8 00:00:29,920 --> 00:00:34,280 Speaker 1: remote kindergarten and I will tell you that is an oxymoron. Yeah, 9 00:00:34,400 --> 00:00:37,960 Speaker 1: that's that's crazy. Yeah. So let's let's talk about this 10 00:00:38,000 --> 00:00:42,280 Speaker 1: episode of Trillions. Yeah, this is I can't remember being 11 00:00:42,280 --> 00:00:45,479 Speaker 1: more excited for an episode than this one, especially because 12 00:00:45,520 --> 00:00:49,240 Speaker 1: of some recent news. So everybody knows the sp F 13 00:00:49,840 --> 00:00:52,840 Speaker 1: it is. It's beyond a rock star. It's really kind 14 00:00:52,840 --> 00:00:56,400 Speaker 1: of the sun that the whole thing revolves around. I mean, 15 00:00:56,440 --> 00:01:00,040 Speaker 1: it's got eleven trillion dollars benchmark to it. Everybody knows it. 16 00:01:00,120 --> 00:01:02,920 Speaker 1: The media quotes that constantly. It is the It is 17 00:01:02,960 --> 00:01:06,839 Speaker 1: the biggest thing out there, really definitely the most infellectual 18 00:01:06,840 --> 00:01:09,160 Speaker 1: thing in the passive world, if not the active world. 19 00:01:09,600 --> 00:01:11,760 Speaker 1: Every active manager is trying to beat it, everybody's benchmark 20 00:01:11,840 --> 00:01:14,640 Speaker 1: to it, etcetera. So we're going to be able to 21 00:01:14,680 --> 00:01:17,320 Speaker 1: speak to somebody who basically was the head of the 22 00:01:17,400 --> 00:01:21,360 Speaker 1: quote committee that ran the SMP five hundred. And the 23 00:01:21,360 --> 00:01:25,360 Speaker 1: reason this is so interesting is that most indexes have 24 00:01:25,560 --> 00:01:29,480 Speaker 1: rigid rules and and so does the SMP. But unlike 25 00:01:29,520 --> 00:01:33,160 Speaker 1: other indexes, most of them, the SMP has a committee 26 00:01:33,160 --> 00:01:37,240 Speaker 1: of humans who can override the rules. And recently they 27 00:01:37,640 --> 00:01:40,440 Speaker 1: decided not to add Tesla, which is the top twenty 28 00:01:40,440 --> 00:01:44,080 Speaker 1: biggest stock, and it's they're gonna delay atting it. And 29 00:01:44,200 --> 00:01:47,000 Speaker 1: it just shows you that humans are essentially in control 30 00:01:47,040 --> 00:01:49,400 Speaker 1: of this index. And we're going to talk to the 31 00:01:49,440 --> 00:01:51,080 Speaker 1: man who was the head of the committee for about 32 00:01:51,080 --> 00:01:54,920 Speaker 1: fifteen years, and that uh somebody is David Blitzer. He's 33 00:01:54,960 --> 00:01:58,280 Speaker 1: now retired, but like you mentioned, Derek, he was the 34 00:01:58,280 --> 00:02:04,600 Speaker 1: head of the SMP index committee from n to nineteen, 35 00:02:05,160 --> 00:02:08,160 Speaker 1: which is an incredible stretch. I mean, he's basically seen 36 00:02:08,200 --> 00:02:10,800 Speaker 1: it all and we get to talk to him. Also 37 00:02:10,880 --> 00:02:13,920 Speaker 1: joining us is going to be Katherine greifeld uh et 38 00:02:14,080 --> 00:02:22,520 Speaker 1: F reporter with Bloomberg News, this time on Trilliance, the 39 00:02:22,639 --> 00:02:30,720 Speaker 1: Sun of the stocked Solar system. David Blitzer, thanks for 40 00:02:30,800 --> 00:02:35,519 Speaker 1: joining us on trillians Pleasure So I want to ask 41 00:02:35,880 --> 00:02:38,360 Speaker 1: about the elephant in the room, which Eric mentioned in 42 00:02:38,400 --> 00:02:44,360 Speaker 1: the intro. But S and P obviously hugely important. The 43 00:02:44,400 --> 00:02:48,919 Speaker 1: index is just this, this gigantic thing that we all 44 00:02:49,000 --> 00:02:52,760 Speaker 1: think about and watch constantly. And there was this event 45 00:02:52,800 --> 00:02:58,360 Speaker 1: recently where the index was gonna potentially add some new 46 00:02:58,480 --> 00:03:01,880 Speaker 1: names and one of the big name, Tesla, was excluded, 47 00:03:02,000 --> 00:03:07,079 Speaker 1: even though it checked all the boxes. Why wasn't it included? Well, 48 00:03:08,520 --> 00:03:11,040 Speaker 1: exactly why the committee did something in the last few weeks. 49 00:03:11,040 --> 00:03:14,519 Speaker 1: How to know? It's I think back the past history 50 00:03:14,520 --> 00:03:19,720 Speaker 1: and so on. Um. But first thinking back, there are 51 00:03:19,720 --> 00:03:23,440 Speaker 1: plenty of times when they're big names are popular names, 52 00:03:23,639 --> 00:03:27,400 Speaker 1: well known names that don't get add at the moment 53 00:03:27,480 --> 00:03:31,560 Speaker 1: they're eligible or something like that. In fact, probably cent 54 00:03:31,600 --> 00:03:33,880 Speaker 1: of the time only the committee knows what is and 55 00:03:34,040 --> 00:03:36,960 Speaker 1: is not eligible because in the season have gotten big 56 00:03:36,960 --> 00:03:41,120 Speaker 1: because everybody talks about Tesla. UM at least a thousand 57 00:03:41,160 --> 00:03:44,480 Speaker 1: people went to the website, downloaded the methodology of the 58 00:03:44,520 --> 00:03:49,320 Speaker 1: road book and checked all the boxes at oh my gosh, um. 59 00:03:49,440 --> 00:03:51,880 Speaker 1: Most of the time, you know, they're nine people sitting 60 00:03:52,280 --> 00:03:55,520 Speaker 1: down in Water Street, nobody else. Those are cares. But 61 00:03:55,600 --> 00:03:59,240 Speaker 1: I think the real question is why the rush. Uh. 62 00:03:59,360 --> 00:04:03,520 Speaker 1: Stocks can sit out there. Um, if you had a stock, 63 00:04:03,600 --> 00:04:05,320 Speaker 1: it gets a little bump for a few weeks, and 64 00:04:05,400 --> 00:04:09,760 Speaker 1: the bump goes away. And the committee's goal, at least 65 00:04:09,840 --> 00:04:11,960 Speaker 1: certainly in the past, because well, all I'm saying is 66 00:04:12,000 --> 00:04:14,720 Speaker 1: in the PAD committee's goal is to have an index 67 00:04:14,800 --> 00:04:18,080 Speaker 1: that really is a great measure of the market. The 68 00:04:18,120 --> 00:04:21,440 Speaker 1: market goes up, the index goes up. Any statistic about 69 00:04:21,480 --> 00:04:23,919 Speaker 1: the market, you can do the same calculation on the 70 00:04:23,920 --> 00:04:27,719 Speaker 1: index and you'll be very close. That's the goal, and 71 00:04:27,960 --> 00:04:30,880 Speaker 1: so adding a company is to look at the index, 72 00:04:30,960 --> 00:04:33,679 Speaker 1: look at the market, and say, is there something that's 73 00:04:34,400 --> 00:04:37,200 Speaker 1: we're I lined up quite right with? And then you 74 00:04:37,240 --> 00:04:40,360 Speaker 1: also look at what's happening in the market. What's happening 75 00:04:40,640 --> 00:04:43,640 Speaker 1: in the index, Um is some big company to give 76 00:04:43,680 --> 00:04:46,760 Speaker 1: be acquired six weeks out and we'd rather wait for 77 00:04:46,800 --> 00:04:49,479 Speaker 1: that one than do it now kind of stuff. So 78 00:04:50,240 --> 00:04:53,560 Speaker 1: there's no rush. In fact, there's a rule I think of. 79 00:04:53,640 --> 00:04:55,960 Speaker 1: There used to be a rule anyhow, It said that 80 00:04:56,000 --> 00:04:57,800 Speaker 1: you had to have a stock paid for at least 81 00:04:57,839 --> 00:05:01,440 Speaker 1: twelve months before you even thought about it. That Tasma 82 00:05:01,520 --> 00:05:04,120 Speaker 1: Zombi meets that rule. But there are plenty of other 83 00:05:04,160 --> 00:05:08,080 Speaker 1: hot stacks over the time when you know, we waited, 84 00:05:09,400 --> 00:05:11,680 Speaker 1: I can't do this yet, that's we just kind of 85 00:05:11,680 --> 00:05:14,640 Speaker 1: sit tight. I think that's logical. Most people would agree 86 00:05:14,640 --> 00:05:16,640 Speaker 1: to most of that. But all the other large cap 87 00:05:16,680 --> 00:05:19,919 Speaker 1: indexes do have tesla. And is there a fear that 88 00:05:19,960 --> 00:05:22,840 Speaker 1: there's an assumption that a lot of people just look 89 00:05:22,880 --> 00:05:26,400 Speaker 1: at the spop hundred is trying to capture the stock 90 00:05:26,440 --> 00:05:29,800 Speaker 1: market and the biggest stocks generally, and by not having 91 00:05:29,800 --> 00:05:32,320 Speaker 1: it month after month, you aren't able to do that 92 00:05:32,680 --> 00:05:35,719 Speaker 1: when some of your competing indexes do do that because 93 00:05:35,720 --> 00:05:39,640 Speaker 1: they do have tesla. Well, certainly most people think the 94 00:05:39,640 --> 00:05:44,000 Speaker 1: five hundred, five hundred biggest stocks, and it's not a 95 00:05:44,000 --> 00:05:48,600 Speaker 1: lot of people think that. Um No, I don't when 96 00:05:48,680 --> 00:05:51,160 Speaker 1: it comes to competing and we're doing better, doing worse 97 00:05:51,200 --> 00:05:55,280 Speaker 1: than than the competition. Um it's not been on a 98 00:05:55,360 --> 00:05:58,200 Speaker 1: single stock basis. One case where it has come up 99 00:05:58,240 --> 00:06:01,400 Speaker 1: a lot is between the top six hundred, which is 100 00:06:01,480 --> 00:06:04,680 Speaker 1: run small camps run by the same committee, and the 101 00:06:04,760 --> 00:06:08,799 Speaker 1: Russell Too thousand, and that one of the big differences 102 00:06:08,880 --> 00:06:12,279 Speaker 1: there is that for the six hundred, like the five hundred, 103 00:06:12,680 --> 00:06:15,840 Speaker 1: company has to be profitable before it's put in. Let's 104 00:06:15,839 --> 00:06:19,320 Speaker 1: start losing money later on, it may stay in Russell 105 00:06:19,400 --> 00:06:24,320 Speaker 1: has no profitability rule, and in fact, S ANDPS analysts 106 00:06:24,440 --> 00:06:28,520 Speaker 1: have pranked out reports year after year after year pointing 107 00:06:28,520 --> 00:06:30,440 Speaker 1: out that the six hundred does better because of the 108 00:06:30,440 --> 00:06:35,599 Speaker 1: profits rule, either as a marketing thing, as absolutely correct analysts. So, David, 109 00:06:35,640 --> 00:06:37,719 Speaker 1: I want to ask, you, know, thinking back on your 110 00:06:37,760 --> 00:06:41,159 Speaker 1: time on the committee, have there been other cases where 111 00:06:41,200 --> 00:06:44,440 Speaker 1: maybe you waited a little bit, even though a name 112 00:06:44,800 --> 00:06:48,080 Speaker 1: was eligible going by the rules, you waited to add it. 113 00:06:48,480 --> 00:06:52,719 Speaker 1: And I'm curious how that worked out, whether the shock 114 00:06:52,839 --> 00:06:55,520 Speaker 1: or backlash was to the same level that we've seen 115 00:06:55,600 --> 00:07:02,400 Speaker 1: to Tesla not being included. Yeah. Um, now sitting on 116 00:07:02,440 --> 00:07:07,120 Speaker 1: the outside and maybe prepare comparison. Uh, the amount of 117 00:07:08,279 --> 00:07:13,320 Speaker 1: chatter about Tesco is staggering. I've gotten calls from people 118 00:07:13,360 --> 00:07:15,120 Speaker 1: who know I'm not hadn't been on the committee for 119 00:07:15,120 --> 00:07:17,760 Speaker 1: a year and a half and who barely never called 120 00:07:17,760 --> 00:07:20,240 Speaker 1: me about stocks and they said, why didn't they do it? 121 00:07:20,320 --> 00:07:23,280 Speaker 1: Where's it going in time? So there's a huge amount 122 00:07:23,280 --> 00:07:28,840 Speaker 1: of stuff they closest an think about, UH was Microsoft 123 00:07:29,200 --> 00:07:36,200 Speaker 1: and way back then Microsoft went publican about and up 124 00:07:36,280 --> 00:07:40,040 Speaker 1: until some time in the early nineties, dates and Allen 125 00:07:40,120 --> 00:07:43,840 Speaker 1: together owned about sixty of the two thirds of the stock, 126 00:07:44,400 --> 00:07:46,600 Speaker 1: and then in in fact for most of the town 127 00:07:46,640 --> 00:07:49,920 Speaker 1: of Ireland and committee it you had more than half 128 00:07:49,920 --> 00:07:54,920 Speaker 1: the stock postly controlled was ineligible. And we got pounded 129 00:07:55,360 --> 00:07:58,400 Speaker 1: a whole lot about Microsoft because it was as big 130 00:07:58,440 --> 00:08:02,080 Speaker 1: then as Tesco is now maybe, And after the fact 131 00:08:02,160 --> 00:08:05,840 Speaker 1: we still got they sold some stock, we put it 132 00:08:05,840 --> 00:08:08,640 Speaker 1: in the in deck, everybody figuring to forget it, and 133 00:08:08,680 --> 00:08:11,280 Speaker 1: we still got who played, why did you ad it? 134 00:08:11,440 --> 00:08:16,160 Speaker 1: So on? So there have been other big ones. But um, 135 00:08:16,200 --> 00:08:18,360 Speaker 1: you know, I guess someoneays used to learn to shrug 136 00:08:18,400 --> 00:08:20,760 Speaker 1: and say, you know, wait till next month. It's nothing 137 00:08:20,840 --> 00:08:25,040 Speaker 1: of that. David, Can I ask about the committee because 138 00:08:25,400 --> 00:08:28,200 Speaker 1: there's a question that, Um, I think it's really important. 139 00:08:28,680 --> 00:08:30,800 Speaker 1: Is the first role of the committee not to talk 140 00:08:30,840 --> 00:08:39,040 Speaker 1: about the committee? Well, there's there's an evolution in this. 141 00:08:39,480 --> 00:08:42,959 Speaker 1: And I was on the committee started in nineteen nine 142 00:08:43,280 --> 00:08:47,920 Speaker 1: and then became chairman in n and the fellow who 143 00:08:47,920 --> 00:08:53,480 Speaker 1: preceded me as chair he stayed on the committee and 144 00:08:53,520 --> 00:08:55,800 Speaker 1: he's a great guy, very sharp. Thank you probably do 145 00:08:55,880 --> 00:08:57,880 Speaker 1: more in that end the season. I did at that moment, 146 00:08:58,520 --> 00:09:01,360 Speaker 1: and I went to one of the senior executives, and 147 00:09:01,440 --> 00:09:06,600 Speaker 1: I said, now, now that gave you switched us. What 148 00:09:06,679 --> 00:09:08,920 Speaker 1: am I supposed to do? Elliott didn't do And at 149 00:09:08,920 --> 00:09:12,280 Speaker 1: that time I was chief economisted and they said, look, 150 00:09:12,960 --> 00:09:15,760 Speaker 1: you just like you get to talk about the economy 151 00:09:15,800 --> 00:09:18,600 Speaker 1: and the markets, and the press talk about the Index. 152 00:09:19,160 --> 00:09:22,080 Speaker 1: So my charge was to get out there and they 153 00:09:22,120 --> 00:09:28,120 Speaker 1: act that idea has changed over time and rolled forward 154 00:09:28,200 --> 00:09:33,400 Speaker 1: to early twenty nine UM and for a whole lot 155 00:09:33,440 --> 00:09:38,199 Speaker 1: of reasons, people the anxiety of the lawyers and regulation 156 00:09:38,320 --> 00:09:42,040 Speaker 1: and some other things things that had shifted, and the 157 00:09:42,160 --> 00:09:45,439 Speaker 1: idea was that the chair of the indext comity shouldn't 158 00:09:45,440 --> 00:09:49,199 Speaker 1: be like a front and center spoke first. Between ninety 159 00:09:49,280 --> 00:09:51,839 Speaker 1: five and two thousand, the number of employees probably went 160 00:09:51,920 --> 00:09:56,840 Speaker 1: up like, uh, twenty five people in Index and when 161 00:09:56,880 --> 00:09:59,320 Speaker 1: I left, to have that six hundreds the organization, you're 162 00:09:59,320 --> 00:10:03,679 Speaker 1: gonna go bigger, and instead of one or two spokespeople, 163 00:10:04,320 --> 00:10:07,600 Speaker 1: we probably had fifty two folks people. So the Index 164 00:10:07,600 --> 00:10:10,720 Speaker 1: parent would have gotten lost in the crowd. There was 165 00:10:10,800 --> 00:10:16,000 Speaker 1: a specific decision not to list all the members because 166 00:10:17,000 --> 00:10:21,600 Speaker 1: early on, probably sometime in the late nineties, Forbes magazine 167 00:10:21,600 --> 00:10:25,640 Speaker 1: wrote us up. They had a picture Hagan in his 168 00:10:25,880 --> 00:10:30,320 Speaker 1: very ornate wood panel dining room. Uh. We used to 169 00:10:30,320 --> 00:10:33,199 Speaker 1: call it the Supreme Court picture because we looked as 170 00:10:33,240 --> 00:10:37,360 Speaker 1: as serious as as the classic pictures of the of 171 00:10:37,400 --> 00:10:41,400 Speaker 1: the Justices. UM. But the day of that story ran, 172 00:10:41,800 --> 00:10:45,560 Speaker 1: everybody on the committee got identical uh FedEx packages from 173 00:10:45,640 --> 00:10:50,839 Speaker 1: various companies that wanted in. So that's why you know 174 00:10:51,720 --> 00:10:54,079 Speaker 1: one day now, but everybody else got to be anonymous 175 00:10:54,120 --> 00:10:56,679 Speaker 1: accept me. So I got all the FedEx packages in 176 00:10:56,720 --> 00:11:00,000 Speaker 1: the phone call. That's that's great. The Supreme Court visual 177 00:11:00,040 --> 00:11:03,079 Speaker 1: will is perfect because I actually had that metaphor in 178 00:11:03,160 --> 00:11:07,000 Speaker 1: my next question, how does it work? Are you guys 179 00:11:07,120 --> 00:11:10,200 Speaker 1: in a persistent chat? Is there an email chain or 180 00:11:10,240 --> 00:11:13,680 Speaker 1: do you physically meet? And what if there's a split vote? 181 00:11:13,679 --> 00:11:17,520 Speaker 1: What if not everybody agrees? How does that get worked out? Uh? 182 00:11:18,320 --> 00:11:21,800 Speaker 1: Obviously the testment meeting they had some time in the 183 00:11:21,880 --> 00:11:24,800 Speaker 1: last month or two was was probably zoom or on 184 00:11:24,880 --> 00:11:29,560 Speaker 1: some other thing. And we've been using for committee meetings. 185 00:11:29,559 --> 00:11:32,800 Speaker 1: We've been using a lot of technology over the last five, six, 186 00:11:32,840 --> 00:11:36,320 Speaker 1: seven years. There are other committees that cover other indicas. 187 00:11:36,400 --> 00:11:38,480 Speaker 1: So we had we had a committee that covered a 188 00:11:38,480 --> 00:11:42,560 Speaker 1: lot of indicase in Europe that by necessity had half 189 00:11:42,600 --> 00:11:46,319 Speaker 1: people in Europe and half in New York. So that 190 00:11:46,440 --> 00:11:52,040 Speaker 1: was clearly electronic. But the Five Committee, um, yeah, up 191 00:11:52,120 --> 00:11:54,640 Speaker 1: until COVID came along or up and certainly until I 192 00:11:54,720 --> 00:11:59,080 Speaker 1: left um with everybody sat down in the same room. 193 00:11:59,240 --> 00:12:01,240 Speaker 1: Every once in a while somebody would be on the 194 00:12:01,280 --> 00:12:03,840 Speaker 1: phone because they happened to be traveling or something, but 195 00:12:04,160 --> 00:12:08,439 Speaker 1: that was was unusual, rare. Um And how many people 196 00:12:08,440 --> 00:12:12,599 Speaker 1: are on it it varied between I don't think it 197 00:12:12,679 --> 00:12:14,880 Speaker 1: was ever less than six and I don't think it's 198 00:12:14,920 --> 00:12:18,000 Speaker 1: ever more than ten. And it was just a question 199 00:12:18,000 --> 00:12:22,520 Speaker 1: of practicality. Um, you know, you had twenty people. You 200 00:12:22,559 --> 00:12:24,760 Speaker 1: can never get everybody together, and he had less than 201 00:12:24,800 --> 00:12:28,920 Speaker 1: six if you lose somebody because they're on vacation, if 202 00:12:29,240 --> 00:12:32,199 Speaker 1: you're really down law. So it was in that range. 203 00:12:32,679 --> 00:12:35,719 Speaker 1: But there was no no fixed number. Remember, and how 204 00:12:35,720 --> 00:12:38,360 Speaker 1: did you decide when you had different which it was? 205 00:12:38,360 --> 00:12:43,320 Speaker 1: It basically a vote, It was at least typically a vote. 206 00:12:43,600 --> 00:12:47,200 Speaker 1: Most of the most of the votes were aunanimous, are 207 00:12:47,280 --> 00:12:51,840 Speaker 1: very close to it, and so on. There was sort 208 00:12:51,840 --> 00:12:54,440 Speaker 1: of a tradition which I may be somewhat responsible for. 209 00:12:55,360 --> 00:12:59,680 Speaker 1: If there was clear disagreement and the discussion was going 210 00:12:59,760 --> 00:13:03,520 Speaker 1: on and on UM, my tendency would be to say 211 00:13:03,520 --> 00:13:05,080 Speaker 1: all I don't want to go around the table, which 212 00:13:05,080 --> 00:13:08,560 Speaker 1: meant everybody everyone had a chance to say that two 213 00:13:08,559 --> 00:13:11,040 Speaker 1: cents for it. If you didn't want to say anything, 214 00:13:11,040 --> 00:13:14,360 Speaker 1: you'd say I passed, or you could say I agree 215 00:13:14,360 --> 00:13:17,360 Speaker 1: with the last guy or something like that. But we 216 00:13:17,400 --> 00:13:20,520 Speaker 1: didn't want to have a situation where the next day 217 00:13:20,800 --> 00:13:22,880 Speaker 1: somebody would start bete me, you didn't hear what I 218 00:13:22,920 --> 00:13:26,880 Speaker 1: had to say. That was a requirement. Um, they go 219 00:13:26,960 --> 00:13:30,240 Speaker 1: around the table usually would end up. Um, it's not 220 00:13:30,280 --> 00:13:33,200 Speaker 1: get animous with a clear majority, it's not, And there 221 00:13:33,320 --> 00:13:36,000 Speaker 1: was some people just had strong opinions. They knew they 222 00:13:36,000 --> 00:13:38,959 Speaker 1: weren't going to carry it, but they liked the like 223 00:13:39,120 --> 00:13:41,120 Speaker 1: the notes to say there was in the sending vote. 224 00:13:41,640 --> 00:13:46,000 Speaker 1: So the fact that there's a committee with people making decisions, 225 00:13:46,800 --> 00:13:49,079 Speaker 1: doesn't that kind of basically make the s and P 226 00:13:49,240 --> 00:13:53,600 Speaker 1: five hundred and active fund. And I'll add that um 227 00:13:53,920 --> 00:13:58,960 Speaker 1: uh Gunlock at double Line recently made that point as 228 00:13:59,080 --> 00:14:02,360 Speaker 1: as well. So it's like it's not been said. Well 229 00:14:02,360 --> 00:14:05,839 Speaker 1: the comment of like that that I like the best 230 00:14:06,000 --> 00:14:09,160 Speaker 1: with the fellow, I think he's still in the game. 231 00:14:09,280 --> 00:14:13,200 Speaker 1: Bill Miller, who ran a big fund for leg Mason 232 00:14:13,840 --> 00:14:16,439 Speaker 1: with great performance, I mean the outperformed the index like 233 00:14:16,600 --> 00:14:19,440 Speaker 1: about a thirteen years or something like that. So and 234 00:14:19,520 --> 00:14:21,800 Speaker 1: he wrote to a shareholders one time that the best 235 00:14:21,840 --> 00:14:26,640 Speaker 1: demonstration of the successive active management was the SPI. But 236 00:14:27,440 --> 00:14:29,760 Speaker 1: who aren't trying to be active managers in the sense 237 00:14:30,480 --> 00:14:34,040 Speaker 1: the committee is not. The goal was not top performance. 238 00:14:34,200 --> 00:14:36,800 Speaker 1: The goal was it is an index that represents the 239 00:14:36,840 --> 00:14:40,240 Speaker 1: market and meets the same statistical rules as the market, 240 00:14:40,280 --> 00:14:43,640 Speaker 1: and and that kind of thing. It's it's not to 241 00:14:43,760 --> 00:14:46,560 Speaker 1: beat the market and not to be a top performer. 242 00:14:46,920 --> 00:14:50,440 Speaker 1: And judging a stock is not do we think the 243 00:14:50,520 --> 00:14:52,560 Speaker 1: stock is gonna go up by at least ex percent 244 00:14:52,640 --> 00:14:56,200 Speaker 1: over the next six months. Judging a stock is first 245 00:14:56,240 --> 00:14:59,880 Speaker 1: does it meet the rules in terms of size and liquidity, 246 00:15:00,120 --> 00:15:04,160 Speaker 1: profitability and this kind of stuff. And second, we'll get 247 00:15:04,200 --> 00:15:07,040 Speaker 1: the index and look at the market. Where where is 248 00:15:07,080 --> 00:15:10,400 Speaker 1: the index not quite online to the market? And will 249 00:15:10,480 --> 00:15:14,240 Speaker 1: this not improvement that alignment? Plus a sort of looking 250 00:15:14,280 --> 00:15:18,440 Speaker 1: at what's happening in the future, because the committee tracks 251 00:15:18,440 --> 00:15:22,840 Speaker 1: announced mergers, so you know, the committee knows most of 252 00:15:22,880 --> 00:15:25,520 Speaker 1: the big corporate actions six months into the future because 253 00:15:25,520 --> 00:15:28,640 Speaker 1: the news is already out there and there's not clairvoyance. 254 00:15:28,680 --> 00:15:31,120 Speaker 1: It because we read in the newspaper and we're gonna boom. 255 00:15:31,160 --> 00:15:33,840 Speaker 1: The committee gets a little flak for being a human 256 00:15:34,120 --> 00:15:37,360 Speaker 1: you know, human management on a passive fund, and it 257 00:15:37,400 --> 00:15:40,000 Speaker 1: brings up the nothing is passive, which is a decent argument. 258 00:15:40,040 --> 00:15:42,200 Speaker 1: I mean, there really is nothing truly passive unless you 259 00:15:42,520 --> 00:15:46,280 Speaker 1: market kept wait, the whole entire market. Um that said, 260 00:15:47,000 --> 00:15:49,400 Speaker 1: you know, with a Russell they did a rebalance or 261 00:15:50,360 --> 00:15:54,320 Speaker 1: a reconstitution recently and beyond meat, which was this high 262 00:15:54,360 --> 00:15:58,600 Speaker 1: flying stock, got added to the Russell value and everybody's like, 263 00:15:58,640 --> 00:16:01,640 Speaker 1: how in the heck did that happened? And that's because 264 00:16:01,680 --> 00:16:05,000 Speaker 1: they don't have a committee and the rules rule um, 265 00:16:05,080 --> 00:16:08,680 Speaker 1: and beyond meat was in didn't have enough data to 266 00:16:09,000 --> 00:16:12,840 Speaker 1: use its own PE ratio, so it got put into 267 00:16:13,120 --> 00:16:16,480 Speaker 1: to the package goods average PE ratio. In other words, 268 00:16:16,600 --> 00:16:18,800 Speaker 1: the sector it was in dictated where it got put 269 00:16:18,880 --> 00:16:20,960 Speaker 1: and that's just the rule, and they could not change it, 270 00:16:21,040 --> 00:16:24,080 Speaker 1: and thus beyond meat was a value stock for fire 271 00:16:24,120 --> 00:16:27,560 Speaker 1: Russell standards. Is that why the committee exists? Is that 272 00:16:27,600 --> 00:16:29,800 Speaker 1: why it was developed in the first place, to have 273 00:16:29,960 --> 00:16:36,320 Speaker 1: that ability to avoid the rules doing something where it 274 00:16:36,440 --> 00:16:39,080 Speaker 1: really doesn't make any sense. Yeah, I I don't know 275 00:16:39,120 --> 00:16:42,520 Speaker 1: the full history of the committee. I mean, I know 276 00:16:42,560 --> 00:16:45,080 Speaker 1: who the two or three couple of prior caremen to 277 00:16:45,160 --> 00:16:47,840 Speaker 1: me were, and I that would take me back to 278 00:16:48,080 --> 00:16:52,640 Speaker 1: probably very late sixties. They're only seventies. But how the 279 00:16:52,680 --> 00:16:56,200 Speaker 1: committee came to me and I'm honestly don't know when 280 00:16:56,240 --> 00:16:59,400 Speaker 1: we went this way. I wrote the first rules and 281 00:16:59,440 --> 00:17:01,280 Speaker 1: it was to the years after we wrote him, before 282 00:17:01,680 --> 00:17:07,360 Speaker 1: they were published. Yeah, there was there was tradition when 283 00:17:07,440 --> 00:17:10,719 Speaker 1: there were that rule now the rules, uh, and that 284 00:17:10,800 --> 00:17:12,720 Speaker 1: kind of thing. But I think in the beginning, it 285 00:17:12,760 --> 00:17:15,320 Speaker 1: was just the sense that this was you had a 286 00:17:15,320 --> 00:17:18,400 Speaker 1: bunch of people together for the same group every month 287 00:17:18,840 --> 00:17:21,680 Speaker 1: or whatever, and this is this is what you do. 288 00:17:22,080 --> 00:17:24,119 Speaker 1: And I want to talk a little bit about you 289 00:17:24,160 --> 00:17:29,440 Speaker 1: started as the head of the committee and in I 290 00:17:29,560 --> 00:17:32,480 Speaker 1: don't quote me, but Passive might have had a four 291 00:17:32,520 --> 00:17:36,480 Speaker 1: percent market share. I mean it didn't really be Yeah, 292 00:17:36,560 --> 00:17:38,480 Speaker 1: it was really tiny. I'm in the middle of reading 293 00:17:38,520 --> 00:17:42,239 Speaker 1: Vogel's last book and um, he's talking about he had 294 00:17:42,240 --> 00:17:45,040 Speaker 1: to wait thirty five years really for Passive to get big. 295 00:17:45,640 --> 00:17:48,679 Speaker 1: You saw it go from really a tiny minority player 296 00:17:48,760 --> 00:17:52,280 Speaker 1: to a gigantic force, And I just talk a little 297 00:17:52,280 --> 00:17:56,320 Speaker 1: bit about the from an index perspective, seeing the funds 298 00:17:56,359 --> 00:17:59,960 Speaker 1: tracking you get so big, and how did it? Could 299 00:18:00,080 --> 00:18:03,880 Speaker 1: you feel the power of the index growing? Uh? From 300 00:18:03,880 --> 00:18:08,800 Speaker 1: your perspective during that time, I did one thing in 301 00:18:08,920 --> 00:18:12,359 Speaker 1: terms of the dates, and that is the the first 302 00:18:13,000 --> 00:18:17,160 Speaker 1: U S E t F, the State STREETSTF. The big 303 00:18:17,200 --> 00:18:23,639 Speaker 1: spider I think was UM and aren't of the growth 304 00:18:23,680 --> 00:18:27,359 Speaker 1: of indexing and so on? Uh is E t F 305 00:18:27,400 --> 00:18:30,639 Speaker 1: S and it's et s because before that it was 306 00:18:30,680 --> 00:18:33,560 Speaker 1: all mutual funds. And you know, if you wanted to 307 00:18:33,600 --> 00:18:37,400 Speaker 1: buy the Vanguard five hundred funds, which was big, even 308 00:18:39,800 --> 00:18:42,280 Speaker 1: you had to go to Vanguard. You couldn't call up 309 00:18:42,280 --> 00:18:44,400 Speaker 1: your broke wins I want to do this. He might 310 00:18:44,400 --> 00:18:46,479 Speaker 1: tell you how to I probably wouldn't tell you how 311 00:18:46,480 --> 00:18:48,520 Speaker 1: to go to Vanguard, who is the business, but he 312 00:18:48,560 --> 00:18:52,280 Speaker 1: could see E t F suddenly meant that every broke 313 00:18:52,359 --> 00:18:54,280 Speaker 1: in the United States could put you in it put 314 00:18:54,320 --> 00:18:56,119 Speaker 1: you in an E t F. And I think that 315 00:18:56,320 --> 00:18:59,400 Speaker 1: was part of the change. The other thing that drove 316 00:18:59,480 --> 00:19:03,359 Speaker 1: it was in the late nineties in the tech boom, 317 00:19:03,440 --> 00:19:10,480 Speaker 1: you had a period of months where the outperform of 318 00:19:10,520 --> 00:19:13,520 Speaker 1: the actively managementual funding that I say which should not happen. 319 00:19:13,600 --> 00:19:16,960 Speaker 1: I mean, that's it's just crazy. But what happened is 320 00:19:17,000 --> 00:19:21,480 Speaker 1: the tex not as the tech bubble. It's quoted every month. 321 00:19:21,520 --> 00:19:24,399 Speaker 1: They were the biggest games and eat the month they 322 00:19:24,400 --> 00:19:26,879 Speaker 1: were bigger share of the index than last month because 323 00:19:26,920 --> 00:19:30,560 Speaker 1: it's cap weighted and it's at an acceleration given built 324 00:19:30,600 --> 00:19:34,720 Speaker 1: into the cap waiting, and that's helped put put everybody 325 00:19:34,760 --> 00:19:37,040 Speaker 1: on the month, put the index on the map because 326 00:19:37,040 --> 00:19:41,239 Speaker 1: peopleould say, what's this thing that beatcent of everybody? You know, 327 00:19:41,520 --> 00:19:45,280 Speaker 1: it makes no sense and then they say, oh my gosh, 328 00:19:45,320 --> 00:19:50,199 Speaker 1: it's just an index and it's cheat. Besides, but I 329 00:19:51,560 --> 00:19:56,520 Speaker 1: you can't touch it without really complimenting or Jack bobble 330 00:19:57,040 --> 00:20:02,040 Speaker 1: uh between the marketing they did and the pricing of 331 00:20:02,080 --> 00:20:06,840 Speaker 1: their products, and most of all Jack Bogo himself. He 332 00:20:07,040 --> 00:20:11,760 Speaker 1: was the most incredible pitchman you know, I've ever met. 333 00:20:12,000 --> 00:20:15,520 Speaker 1: And I mean that is a great compliment because he 334 00:20:15,640 --> 00:20:19,560 Speaker 1: was out there all the time beating his drum and 335 00:20:20,000 --> 00:20:22,879 Speaker 1: tell you everybody, you know, buy an index fund and 336 00:20:22,920 --> 00:20:27,720 Speaker 1: never sell um. And he did more were in the 337 00:20:27,760 --> 00:20:31,320 Speaker 1: average investor into the United States than anybody probably in 338 00:20:31,359 --> 00:20:33,359 Speaker 1: the modern history or something of that sort. So he 339 00:20:33,880 --> 00:20:36,520 Speaker 1: deserves a huge amount of credit, uh for the whole 340 00:20:36,560 --> 00:20:42,120 Speaker 1: index thing. But it did grow, and you know, gradual, 341 00:20:42,200 --> 00:20:46,879 Speaker 1: I think, starting with the tech boom and then coming 342 00:20:46,880 --> 00:20:49,679 Speaker 1: out of the tech bus when everybody thought, oh, you know, 343 00:20:49,760 --> 00:20:51,960 Speaker 1: this is the terrible thing and nobody would buy an 344 00:20:52,000 --> 00:20:56,920 Speaker 1: index fund ever again, and recession of two thousand one 345 00:20:56,960 --> 00:21:02,280 Speaker 1: two thousand two, the indext did very respective and was 346 00:21:02,320 --> 00:21:05,520 Speaker 1: often running at that point, and and so on. There 347 00:21:05,560 --> 00:21:10,399 Speaker 1: was clearly growing news attention and the NBC looved to 348 00:21:10,960 --> 00:21:13,639 Speaker 1: make excitement about it at the same time, and that 349 00:21:13,920 --> 00:21:19,680 Speaker 1: helped down UM and it grew, and then indexing overall grew. 350 00:21:19,960 --> 00:21:23,919 Speaker 1: Not only SMP expanded, and it's the eye expanded. Russell, 351 00:21:24,520 --> 00:21:28,320 Speaker 1: which was somewhat different corporate structure at that time, began 352 00:21:28,400 --> 00:21:33,240 Speaker 1: to expand very rapidly. So, David, it's interesting to hear you, 353 00:21:33,240 --> 00:21:36,600 Speaker 1: you know, harken back to the tech boom in the nineties, 354 00:21:36,640 --> 00:21:40,240 Speaker 1: because the situation that you just described sounds pretty similar 355 00:21:40,280 --> 00:21:43,119 Speaker 1: to what we're seeing today. You know, you have a 356 00:21:43,280 --> 00:21:47,520 Speaker 1: handful of huge tech stocks just leading the SMP higher, 357 00:21:47,840 --> 00:21:50,880 Speaker 1: even without Tesla. And I'm curious whether you know, you 358 00:21:51,000 --> 00:21:55,119 Speaker 1: see parallels between that period and now and whether it 359 00:21:55,119 --> 00:21:59,199 Speaker 1: gives you any pause about market cap weighted indexes because 360 00:21:59,400 --> 00:22:02,240 Speaker 1: again in the situation, it is just you know, five 361 00:22:02,320 --> 00:22:06,639 Speaker 1: to seven stocks powering this index higher. Well, all right, 362 00:22:06,800 --> 00:22:09,679 Speaker 1: one big difference between that and now is that pets 363 00:22:09,720 --> 00:22:13,160 Speaker 1: dot Com certainly never made money. I mean now this 364 00:22:13,280 --> 00:22:18,879 Speaker 1: time around, the companies are hugely profitable and and you 365 00:22:18,960 --> 00:22:22,720 Speaker 1: know they their growth and their stock prices are are 366 00:22:23,000 --> 00:22:26,480 Speaker 1: make more sense now than their equivalents of twenty years ago. 367 00:22:26,560 --> 00:22:29,600 Speaker 1: Do some of them may still be overpriced Oosually the 368 00:22:29,640 --> 00:22:34,080 Speaker 1: b ratios are pretty rich. Um. Well, one looks back 369 00:22:34,160 --> 00:22:37,160 Speaker 1: the index goes through periods of one sector another being 370 00:22:37,960 --> 00:22:41,520 Speaker 1: you know, being hugely taught right before the financial crisis, 371 00:22:41,560 --> 00:22:45,960 Speaker 1: it will completely top eavy and financial stocks and so on. Um. 372 00:22:46,160 --> 00:22:50,399 Speaker 1: I think there is some disconnect internal in the market today. 373 00:22:50,440 --> 00:22:52,560 Speaker 1: And is what you mentioned that you've got a handful 374 00:22:52,600 --> 00:22:57,120 Speaker 1: of stocks that very high pe ratios, very high, dragging 375 00:22:57,119 --> 00:23:01,040 Speaker 1: the index up, and the rest of it doesn't do 376 00:23:01,160 --> 00:23:04,840 Speaker 1: too much. I mean, I think it's nothing like the 377 00:23:04,960 --> 00:23:08,960 Speaker 1: docks in the index. Um. You know, he certainly hadn't 378 00:23:09,000 --> 00:23:13,480 Speaker 1: recovered from the you know, to the February highs or 379 00:23:13,520 --> 00:23:16,679 Speaker 1: something like that. Um. And if you look compare the 380 00:23:16,720 --> 00:23:20,159 Speaker 1: five hundred to the equated version of the five the 381 00:23:20,200 --> 00:23:24,600 Speaker 1: cap weighted version is rather than substantially out performing. Now, 382 00:23:25,280 --> 00:23:28,439 Speaker 1: there were a lot of periods from the time we 383 00:23:28,520 --> 00:23:32,120 Speaker 1: started doing equated version, which about two thousand two, when 384 00:23:32,200 --> 00:23:35,679 Speaker 1: equal weighted version did much better. And the equal equal 385 00:23:35,720 --> 00:23:38,800 Speaker 1: weighted version is a planet value, which is a dirty 386 00:23:38,840 --> 00:23:42,680 Speaker 1: word this this year. Mm hmm. And then I also 387 00:23:42,720 --> 00:23:46,800 Speaker 1: wanted to sort of pickyback off of Eric's last question. Uh, 388 00:23:46,840 --> 00:23:49,359 Speaker 1: you know, like he said in the intro, the SMP 389 00:23:49,520 --> 00:23:52,679 Speaker 1: five hundred is sort of the sun around which we 390 00:23:52,720 --> 00:23:57,040 Speaker 1: all have revolved, and um it obviously is a very 391 00:23:57,080 --> 00:24:01,840 Speaker 1: powerful force. The the sort of speculation that a stock 392 00:24:01,960 --> 00:24:05,840 Speaker 1: might get added or removed causes huge moves in the 393 00:24:05,880 --> 00:24:09,639 Speaker 1: stock price. And just this month we've seen the the 394 00:24:09,880 --> 00:24:15,720 Speaker 1: SEC look into an S ANDP employee for potential insider trading. 395 00:24:15,840 --> 00:24:18,960 Speaker 1: He might have tipped his friend off that maybe he 396 00:24:19,000 --> 00:24:23,080 Speaker 1: should put on some options ahead of the rebalance. I'm curious, 397 00:24:23,119 --> 00:24:26,720 Speaker 1: you know, thinking about the power of indexes and their 398 00:24:26,800 --> 00:24:30,000 Speaker 1: ability to move the stock market. What do you think 399 00:24:30,000 --> 00:24:31,760 Speaker 1: of this trend and where do you see it going? 400 00:24:32,880 --> 00:24:35,600 Speaker 1: I guess it, you know, two or three comments in 401 00:24:35,720 --> 00:24:38,879 Speaker 1: terms of the power of indices and so on, UM 402 00:24:38,920 --> 00:24:42,359 Speaker 1: and moving stocks. What happens that stock is added to 403 00:24:42,440 --> 00:24:47,119 Speaker 1: the What art studies and other studies should constantly show 404 00:24:47,240 --> 00:24:50,159 Speaker 1: is that you know, if it stock gets announced and 405 00:24:50,200 --> 00:24:52,479 Speaker 1: then five days later it actually goes in the index 406 00:24:52,520 --> 00:24:57,119 Speaker 1: to the five days the announcement period. If the stock moved, 407 00:24:57,160 --> 00:24:59,320 Speaker 1: that would take up three or four percent over that 408 00:24:59,520 --> 00:25:02,600 Speaker 1: five day period, and then it would give it back 409 00:25:02,600 --> 00:25:04,359 Speaker 1: in the next two or three weeks. So if you 410 00:25:04,440 --> 00:25:08,320 Speaker 1: looked at in a month, two months later, it had 411 00:25:08,359 --> 00:25:12,119 Speaker 1: given back this this game, there was no sort of 412 00:25:12,160 --> 00:25:15,000 Speaker 1: permanent game or something like that. If you wanted to 413 00:25:15,000 --> 00:25:18,360 Speaker 1: play that, you options were probably the logical thing to do. 414 00:25:20,440 --> 00:25:23,960 Speaker 1: UM we were, or I was always concerned about. It 415 00:25:24,320 --> 00:25:28,719 Speaker 1: was a lasting game where screwing twisting the stock market somehow, 416 00:25:29,240 --> 00:25:33,679 Speaker 1: and I never saw any evidence of that. And the 417 00:25:33,760 --> 00:25:36,800 Speaker 1: other aspect in terms of the you know, the inside 418 00:25:36,800 --> 00:25:40,000 Speaker 1: information aspect, which I think is what you're hinting at. 419 00:25:40,560 --> 00:25:42,240 Speaker 1: I don't know anything other than one I might have 420 00:25:42,240 --> 00:25:45,600 Speaker 1: read in the newspaper about the current events. I passed 421 00:25:45,600 --> 00:25:47,160 Speaker 1: on that because I don't have anything about to say 422 00:25:47,160 --> 00:25:52,840 Speaker 1: about it. What I will say is that, uh, everybody 423 00:25:52,880 --> 00:25:58,600 Speaker 1: involved in the indsease and SNP is an organization very 424 00:25:59,359 --> 00:26:02,280 Speaker 1: very aware of the sensitivity of the data when it 425 00:26:02,359 --> 00:26:06,200 Speaker 1: was still confidential, when it hadn't been announced. There were 426 00:26:07,359 --> 00:26:11,280 Speaker 1: procedures really to protect that in the sense that announcements 427 00:26:11,280 --> 00:26:13,800 Speaker 1: were made only after the market clothes that they were 428 00:26:13,840 --> 00:26:16,760 Speaker 1: gonna be made. It was always the same time of day, 429 00:26:17,240 --> 00:26:20,520 Speaker 1: There was no there was no pre announcement or hint 430 00:26:20,600 --> 00:26:23,760 Speaker 1: or anything like that. All the people involved in working 431 00:26:23,760 --> 00:26:27,240 Speaker 1: in the enduites were subject to compliance rules and restrictions. 432 00:26:27,840 --> 00:26:32,119 Speaker 1: None of us were permitted the own single stocks. In 433 00:26:32,119 --> 00:26:36,000 Speaker 1: the fact, that was one point when UM I unloaded 434 00:26:36,000 --> 00:26:38,919 Speaker 1: a whole bunch a number of stocks, and some of 435 00:26:38,960 --> 00:26:41,520 Speaker 1: which had probably helped for fifteen twenty years and had 436 00:26:41,560 --> 00:26:44,800 Speaker 1: inherited or something like that. My wife had to do 437 00:26:44,880 --> 00:26:48,040 Speaker 1: the same thing with a portfolio. Um they left me, 438 00:26:48,440 --> 00:26:50,800 Speaker 1: they gave me SMP stock. They didn't make me self 439 00:26:50,840 --> 00:26:55,720 Speaker 1: had But other than that, there were restrictions and brokerage 440 00:26:55,720 --> 00:27:01,200 Speaker 1: accounts alsent duplicant statements to SMP and and you guys 441 00:27:01,240 --> 00:27:03,480 Speaker 1: are off familiar with those rules. And that's truly every 442 00:27:03,520 --> 00:27:08,520 Speaker 1: every bank and and probably every journalist organization. And I 443 00:27:08,600 --> 00:27:11,280 Speaker 1: just want to comment real quick on a lot of 444 00:27:11,280 --> 00:27:14,359 Speaker 1: the attacks on passive. One of them is, you know, 445 00:27:14,400 --> 00:27:16,760 Speaker 1: once you get into the SMPF under you can relax. 446 00:27:16,840 --> 00:27:19,480 Speaker 1: But I think to your point, yeah, there might be 447 00:27:19,520 --> 00:27:23,480 Speaker 1: some buying ahead of it, but stocks get killed after 448 00:27:23,520 --> 00:27:25,920 Speaker 1: they're in there, like g and Macy's got sold off 449 00:27:26,480 --> 00:27:29,320 Speaker 1: and then they got kicked out. So I think just 450 00:27:29,440 --> 00:27:32,520 Speaker 1: looking at some of those cases, active players are in control. 451 00:27:32,880 --> 00:27:44,399 Speaker 1: If anything, the indexes is reacting to that. One of 452 00:27:44,440 --> 00:27:47,040 Speaker 1: the hardest things on how to when to get rid 453 00:27:47,040 --> 00:27:49,720 Speaker 1: of a stock, when to drop it. From the committee 454 00:27:49,720 --> 00:27:53,080 Speaker 1: point of view, maybe I'm told that active managers have 455 00:27:53,080 --> 00:27:55,080 Speaker 1: a bigger problem. They fall in love with the stocks. 456 00:27:55,200 --> 00:27:58,240 Speaker 1: I don't think it falls in love with them, but 457 00:27:58,760 --> 00:28:03,520 Speaker 1: it is very difficult. Um, you know, if it just 458 00:28:03,720 --> 00:28:06,240 Speaker 1: missed the rule to get in by a little, you're 459 00:28:06,240 --> 00:28:09,359 Speaker 1: gonna keep it for a while. Or how big is 460 00:28:09,359 --> 00:28:13,800 Speaker 1: too big or something like that. And some of them 461 00:28:13,880 --> 00:28:18,400 Speaker 1: come along for other reasons. Um, you've got a big 462 00:28:18,400 --> 00:28:21,800 Speaker 1: company index doing a spinoff, and you look at the spinoff, 463 00:28:22,640 --> 00:28:25,600 Speaker 1: what's gonna be spun and you say that the spin 464 00:28:25,640 --> 00:28:28,639 Speaker 1: it's gonna be an SMP You know that both the 465 00:28:28,680 --> 00:28:31,399 Speaker 1: parent and spin should be in the index. So here's 466 00:28:31,480 --> 00:28:36,240 Speaker 1: the choice. Um we announced that we're not adding the spin, 467 00:28:36,520 --> 00:28:39,000 Speaker 1: and then we come back a couple of months later 468 00:28:39,080 --> 00:28:41,080 Speaker 1: and say, oh, we changed my and put it in, 469 00:28:41,680 --> 00:28:44,960 Speaker 1: but we turned everybody's account, which is not a nice 470 00:28:45,000 --> 00:28:48,360 Speaker 1: thing to do, or we had to spend the same time. 471 00:28:48,400 --> 00:28:52,720 Speaker 1: It's it's been happens right away, it goes in, but 472 00:28:52,800 --> 00:28:55,040 Speaker 1: we don't want to have five companies in the index. 473 00:28:55,120 --> 00:28:58,120 Speaker 1: That's not the name, So we got to chuck somebody out. 474 00:28:58,400 --> 00:29:00,120 Speaker 1: So at that point, we're gonna go and book at 475 00:29:00,160 --> 00:29:05,840 Speaker 1: the the bottom fifteen twenty names and see who's consistently 476 00:29:05,880 --> 00:29:09,959 Speaker 1: sinking and and there's our guy in and so um 477 00:29:10,000 --> 00:29:12,200 Speaker 1: so some of the some of the eggs are sort 478 00:29:12,200 --> 00:29:15,560 Speaker 1: of easy. Some of the eggs are very difficult. You know, 479 00:29:15,680 --> 00:29:20,120 Speaker 1: he was once. He was once bigger than any of 480 00:29:20,120 --> 00:29:23,240 Speaker 1: the texts in the United States are than today's text 481 00:29:23,800 --> 00:29:29,200 Speaker 1: and you know, when do you they are? That's so 482 00:29:29,360 --> 00:29:33,200 Speaker 1: how do you uh, you sit there and you agonize 483 00:29:33,200 --> 00:29:37,840 Speaker 1: over the you know, the dowb the Committee for the Dow, 484 00:29:38,680 --> 00:29:42,480 Speaker 1: which I also chared, which SMP now runs, has run 485 00:29:42,520 --> 00:29:46,920 Speaker 1: since twelve. It's harder in the Dow. You know, sometimes 486 00:29:46,960 --> 00:29:49,000 Speaker 1: that five hundred you throw out a sock, everybody forgot 487 00:29:49,000 --> 00:29:52,000 Speaker 1: it was still around. Don't get that opportunity in the Dow. 488 00:29:52,120 --> 00:29:55,120 Speaker 1: You're dropping the stock. Everybody knows it right away. I 489 00:29:55,120 --> 00:29:58,520 Speaker 1: mean some people can recite all thirty dames in the Dow. Uh, 490 00:29:58,640 --> 00:30:03,360 Speaker 1: nobody can recite all five undred days. And speaking of 491 00:30:03,400 --> 00:30:07,760 Speaker 1: things not really being passive, the Dow uses price waiting. Um, 492 00:30:07,840 --> 00:30:09,920 Speaker 1: you know, I get it. The index was designed, you know, 493 00:30:09,960 --> 00:30:12,680 Speaker 1: back when Grover Cleveland was president, and it wasn't really 494 00:30:12,680 --> 00:30:15,280 Speaker 1: thought to be an investment tool. But the d i 495 00:30:15,360 --> 00:30:17,640 Speaker 1: A has I don't know, a fifty billion in it. 496 00:30:18,000 --> 00:30:21,440 Speaker 1: The media keeps quoting it. But price waiting just seems 497 00:30:21,480 --> 00:30:24,040 Speaker 1: so absurd. You're just waiting it based on the price 498 00:30:24,080 --> 00:30:26,680 Speaker 1: it is, so Apple has a stock split goes from 499 00:30:26,680 --> 00:30:29,920 Speaker 1: the biggest waiting by far to like number seventeen. Nothing 500 00:30:29,960 --> 00:30:33,320 Speaker 1: really changed about the value. So I mean, when you 501 00:30:33,320 --> 00:30:36,600 Speaker 1: were running the doubt, it just sort of marvel at 502 00:30:36,680 --> 00:30:41,720 Speaker 1: how I don't know, weird that system is and why 503 00:30:41,760 --> 00:30:45,360 Speaker 1: the media still is like obsessed with the Dow. I't 504 00:30:45,360 --> 00:30:49,440 Speaker 1: we gonna ask you the next question that I don't 505 00:30:51,120 --> 00:30:55,440 Speaker 1: have a good answer, so don't ask we We talked 506 00:30:55,440 --> 00:30:58,240 Speaker 1: a lot about other versions. You know, well, we took 507 00:30:58,240 --> 00:31:01,760 Speaker 1: it on two. We took for a lot about all 508 00:31:01,840 --> 00:31:04,560 Speaker 1: kinds of changes it was. Now. I think a dividend 509 00:31:04,640 --> 00:31:07,280 Speaker 1: based index is based on the down, which is probably 510 00:31:07,280 --> 00:31:12,520 Speaker 1: waited by dividend dividend yield. I think that we created, 511 00:31:13,600 --> 00:31:16,760 Speaker 1: we used it. Wait and it's an analyst at SMP 512 00:31:17,040 --> 00:31:19,520 Speaker 1: was very much still there. In fact, you probably don't 513 00:31:19,560 --> 00:31:23,080 Speaker 1: talk to him all the time about data. Uh he 514 00:31:23,200 --> 00:31:25,280 Speaker 1: set up and runs the cap weighted version that the 515 00:31:25,360 --> 00:31:28,000 Speaker 1: DOW was sort of under the table or something like that. 516 00:31:28,240 --> 00:31:31,560 Speaker 1: And but all of us, including myself, you know, we 517 00:31:31,680 --> 00:31:33,280 Speaker 1: used to call up say, you know we sent me 518 00:31:33,320 --> 00:31:34,959 Speaker 1: that day. I want to do some stuff with it, 519 00:31:35,960 --> 00:31:38,040 Speaker 1: the way around with it and that kind of thing. 520 00:31:38,200 --> 00:31:41,920 Speaker 1: But um, I don't think it's gonna change. There's one 521 00:31:41,920 --> 00:31:44,000 Speaker 1: other price weighted index I know of, and that's the 522 00:31:44,080 --> 00:31:47,920 Speaker 1: deck to to five. And I'm sure there a lot 523 00:31:47,960 --> 00:31:49,880 Speaker 1: of people in Tokyo who love it, but mostly they 524 00:31:49,960 --> 00:31:52,400 Speaker 1: love the topics which is cap weighted and done right. 525 00:31:53,120 --> 00:31:56,520 Speaker 1: You're such an index guy, and I'm wondering do you 526 00:31:56,600 --> 00:31:59,760 Speaker 1: look at other indices q q Q for example, and 527 00:31:59,760 --> 00:32:02,800 Speaker 1: the and NASAC one hundred and how how does that 528 00:32:02,960 --> 00:32:06,440 Speaker 1: compete and complement. Uh SNP five hundred's sort of a 529 00:32:06,440 --> 00:32:11,960 Speaker 1: measure of American companies. The point that or the I 530 00:32:11,960 --> 00:32:14,240 Speaker 1: guess the cues more than even though the cues is 531 00:32:14,320 --> 00:32:18,320 Speaker 1: the the e T s detectively. That's really a sector 532 00:32:18,360 --> 00:32:22,000 Speaker 1: oriented index or a sector focused index. You know, we 533 00:32:22,120 --> 00:32:24,560 Speaker 1: slice the five hundred into eleven sectors and do in 534 00:32:24,600 --> 00:32:27,000 Speaker 1: the season all eleven and all this kind of stuff too. 535 00:32:27,800 --> 00:32:31,320 Speaker 1: And the only thing I would say is that if 536 00:32:31,360 --> 00:32:34,080 Speaker 1: somebody came to me and said, I'm um, have a 537 00:32:34,080 --> 00:32:36,880 Speaker 1: one Indeck portfolio. I'm in the cues, I'd say, you know, 538 00:32:36,920 --> 00:32:38,960 Speaker 1: I don't think you really have the market. You've got 539 00:32:39,000 --> 00:32:42,560 Speaker 1: something else that's got to be good. One inde portfolio, 540 00:32:42,680 --> 00:32:44,360 Speaker 1: the five hundred, I think you have the market. You've 541 00:32:44,400 --> 00:32:47,400 Speaker 1: done so, David, I want to quickly ask you one 542 00:32:47,400 --> 00:32:51,280 Speaker 1: more question on self indexing. UH. You know e t 543 00:32:51,560 --> 00:32:55,000 Speaker 1: f s under huge price pressure. We've seen some of 544 00:32:55,040 --> 00:32:57,280 Speaker 1: them come out. It hasn't really taken off yet, but 545 00:32:57,360 --> 00:33:01,800 Speaker 1: we have seen some success stories such as GSLC. It's huge. 546 00:33:01,880 --> 00:33:04,920 Speaker 1: We featured it on Trillions a few weeks ago. UM. 547 00:33:05,000 --> 00:33:07,800 Speaker 1: But other than that, you know, you're still seeing big 548 00:33:07,840 --> 00:33:11,920 Speaker 1: brand index makers really dominating in the E T F world. 549 00:33:12,120 --> 00:33:15,440 Speaker 1: But I'm curious, on a longer term time frame, do 550 00:33:15,480 --> 00:33:18,000 Speaker 1: you think the SMP and the M s c I, 551 00:33:18,160 --> 00:33:23,840 Speaker 1: for example, could eventually lose business to self indexing. Well, 552 00:33:25,360 --> 00:33:27,960 Speaker 1: I think there are two or three things that show 553 00:33:28,040 --> 00:33:33,160 Speaker 1: up that really get somewhat restricted limits self indexing and 554 00:33:33,240 --> 00:33:36,200 Speaker 1: that kind of thing. One thing, it's a huge amount 555 00:33:36,200 --> 00:33:38,880 Speaker 1: of brand management. It's in the in all of this. 556 00:33:39,800 --> 00:33:42,200 Speaker 1: You know, I'd love to say that five hundred is 557 00:33:42,240 --> 00:33:45,600 Speaker 1: so out there and so widely because you know, they 558 00:33:45,640 --> 00:33:48,600 Speaker 1: think they think we're all geniuses, we were all geniuses 559 00:33:48,680 --> 00:33:52,560 Speaker 1: or something like that. But it's supporting the brand, managing 560 00:33:52,600 --> 00:33:56,040 Speaker 1: the brand, keeping the brand out there, making sure people 561 00:33:56,440 --> 00:33:58,360 Speaker 1: have a lot of respect and faith in the brand. 562 00:33:58,400 --> 00:34:02,000 Speaker 1: And that's the same thing with any other products. So 563 00:34:02,560 --> 00:34:06,920 Speaker 1: somebody comes along, Vanguard has an incredible brand name, and 564 00:34:07,080 --> 00:34:10,840 Speaker 1: Vanguard has other than the Vanguard five hundred. You gotta 565 00:34:10,920 --> 00:34:13,360 Speaker 1: really dig to find out who's doing the index or 566 00:34:13,400 --> 00:34:16,560 Speaker 1: where the index came from. And you know, and they 567 00:34:16,640 --> 00:34:20,279 Speaker 1: have a brand that has the power equivalent to you know, 568 00:34:20,520 --> 00:34:24,960 Speaker 1: SNP or mc ir or foot see or somebody else. Uh, 569 00:34:25,000 --> 00:34:26,920 Speaker 1: But there are very few of those who's got a 570 00:34:26,960 --> 00:34:30,840 Speaker 1: brand that that kind of that kind of recognition and 571 00:34:31,000 --> 00:34:35,239 Speaker 1: that kind of crown. So so if you're, um, you know, 572 00:34:35,400 --> 00:34:37,640 Speaker 1: three guys in a garage or whatever it is, putting 573 00:34:37,640 --> 00:34:41,719 Speaker 1: together in an E T f UM, you're gonna have 574 00:34:41,760 --> 00:34:43,720 Speaker 1: a you gotta have a brand if you wanna get noticed. 575 00:34:43,760 --> 00:34:46,240 Speaker 1: You call it the you know, west Side Garage Index, 576 00:34:46,480 --> 00:34:50,320 Speaker 1: and uh, it's not gonna fly, so right away that 577 00:34:50,560 --> 00:34:56,040 Speaker 1: the brand barrier. The second thing is scale economies. You know, 578 00:34:56,239 --> 00:35:00,160 Speaker 1: if you're gonna camplate one index and trying it's day 579 00:35:00,200 --> 00:35:03,680 Speaker 1: I have five socks in it. It's somebody overhead, you know, 580 00:35:03,719 --> 00:35:05,919 Speaker 1: a two or four guys tracking stocks, and a couple 581 00:35:05,960 --> 00:35:09,440 Speaker 1: of guys running the computer and the hardware and software 582 00:35:09,480 --> 00:35:14,240 Speaker 1: and everything. Advertize that of course one index you're operating 583 00:35:14,239 --> 00:35:17,680 Speaker 1: expense is gonna be you know, two percent, which you're 584 00:35:17,680 --> 00:35:20,839 Speaker 1: out of the market at that point. Yeah, S ANDP. 585 00:35:21,800 --> 00:35:23,719 Speaker 1: I don't know how many industries we calculate. I don't 586 00:35:23,760 --> 00:35:26,080 Speaker 1: think anybody could figure it out, but it was clearly 587 00:35:26,120 --> 00:35:30,920 Speaker 1: a six figure something every Yeah, every market marketing in 588 00:35:31,320 --> 00:35:34,120 Speaker 1: the world, that every equity market the U S would 589 00:35:34,200 --> 00:35:37,760 Speaker 1: let you do business in. We were in, uh, every 590 00:35:37,800 --> 00:35:41,680 Speaker 1: stock with a market cap over about ten ten, fifteen, 591 00:35:41,719 --> 00:35:45,759 Speaker 1: twenty million dollars we were tracking, so that scanal economies 592 00:35:45,800 --> 00:35:50,120 Speaker 1: were mind blowing. You know, we calculated more indusseries every 593 00:35:50,200 --> 00:35:54,920 Speaker 1: night than almost anybody else. So obviously the scanal economy 594 00:35:55,000 --> 00:35:58,680 Speaker 1: is were great. So that's gonna mean that self indexing. 595 00:35:59,000 --> 00:36:03,360 Speaker 1: Unless you're biggest Vanguard or something like that, it's cheaper 596 00:36:03,360 --> 00:36:05,360 Speaker 1: to come to SMP or m s c I or 597 00:36:05,400 --> 00:36:08,719 Speaker 1: Russell and say will you run this for it? And 598 00:36:08,760 --> 00:36:11,960 Speaker 1: there's a big custom index business. The third reason Nick 599 00:36:12,040 --> 00:36:15,960 Speaker 1: stands out is UM and it's really because of in 600 00:36:16,040 --> 00:36:19,680 Speaker 1: mixed business. And they really started with investment banks where 601 00:36:19,719 --> 00:36:24,600 Speaker 1: they took up some kind of rage index and they 602 00:36:24,719 --> 00:36:28,680 Speaker 1: write options on it and they'd sell the options. And 603 00:36:28,719 --> 00:36:31,400 Speaker 1: so here you've got a product that you know the 604 00:36:31,440 --> 00:36:35,040 Speaker 1: index is more than six, your option pays off. You're 605 00:36:35,080 --> 00:36:37,719 Speaker 1: gonna trust your friendly investment banker to tell you it 606 00:36:37,760 --> 00:36:41,360 Speaker 1: was only five point nine too at the settlement day 607 00:36:41,640 --> 00:36:45,440 Speaker 1: or not. Well, they're all honest, but I wouldn't trust 608 00:36:45,440 --> 00:36:47,799 Speaker 1: to me either. If you go to an independent group, 609 00:36:47,840 --> 00:36:50,560 Speaker 1: my guest MP or or or the rest of us 610 00:36:50,600 --> 00:36:54,880 Speaker 1: and say, um, you know calculated and so we do, 611 00:36:55,000 --> 00:36:58,920 Speaker 1: and they'll say calculation by standard fors and that's it, 612 00:36:59,120 --> 00:37:03,439 Speaker 1: you know all that I think it limits self indexing. Um. 613 00:37:03,520 --> 00:37:07,319 Speaker 1: You know, the big guys like Vanguard are still gonna 614 00:37:07,680 --> 00:37:13,520 Speaker 1: be interested in it. And um, Vanguard, black Rock, State 615 00:37:13,600 --> 00:37:17,840 Speaker 1: Street maybe in bastcumb maybe if you want. It created 616 00:37:17,880 --> 00:37:21,160 Speaker 1: a price war in this business a few years ago. Um, 617 00:37:21,280 --> 00:37:25,600 Speaker 1: driving down et F fees. You know, self indexing isn't 618 00:37:25,600 --> 00:37:31,240 Speaker 1: worth that much because they've driven down everybody else's fees. Um. Okay, 619 00:37:31,320 --> 00:37:34,200 Speaker 1: next question, um, which is one that I often ask 620 00:37:34,480 --> 00:37:36,680 Speaker 1: on trillions to close this out, but I have a 621 00:37:36,680 --> 00:37:40,120 Speaker 1: better kicker today. But what is your favorite et F tkicker? 622 00:37:43,000 --> 00:37:47,359 Speaker 1: My favorite et F ticker probably then by the big 623 00:37:47,360 --> 00:37:52,040 Speaker 1: Spider because the first of course it would be okay. 624 00:37:52,040 --> 00:37:54,320 Speaker 1: So now now I have to ask a new kicker 625 00:37:54,400 --> 00:37:57,640 Speaker 1: on behalf of my friend Eric. How does Eric get 626 00:37:57,640 --> 00:38:01,840 Speaker 1: on the committee? Well, first of all, you have to 627 00:38:01,840 --> 00:38:05,320 Speaker 1: remember you had to be employed by SMP Global. You 628 00:38:05,440 --> 00:38:09,600 Speaker 1: had to work work in the index in the index business, 629 00:38:09,680 --> 00:38:14,960 Speaker 1: you know, SMP Dow Jones indusease the division. Um. But 630 00:38:15,040 --> 00:38:17,680 Speaker 1: more than that, you probably have to have been doing 631 00:38:17,719 --> 00:38:19,880 Speaker 1: it for at least five, six, seven, eight years or 632 00:38:19,920 --> 00:38:25,240 Speaker 1: something of that sort. And I don't remember the exact details, 633 00:38:25,320 --> 00:38:30,200 Speaker 1: but like any organization, there were standard titles and managing director, 634 00:38:30,320 --> 00:38:35,000 Speaker 1: director so on and some way, and there was there 635 00:38:35,040 --> 00:38:38,759 Speaker 1: was a minimum title that that probably takes another ten years. 636 00:38:39,360 --> 00:38:41,399 Speaker 1: Committee you had to have that title. That was a rule. 637 00:38:42,120 --> 00:38:43,799 Speaker 1: And then you come to work one day and open 638 00:38:43,800 --> 00:38:46,439 Speaker 1: your open your locker and there's like a little pink 639 00:38:46,480 --> 00:38:51,799 Speaker 1: slip waiting for you, and that's when you know you're in. No, 640 00:38:52,080 --> 00:38:55,239 Speaker 1: it's it's not like the movies, is it. You get 641 00:38:56,160 --> 00:38:59,560 Speaker 1: you get probably you get a phone call from the 642 00:38:59,640 --> 00:39:02,040 Speaker 1: chairman and then then you and then an email that's 643 00:39:02,040 --> 00:39:07,360 Speaker 1: sent around to the group that works for the index 644 00:39:08,040 --> 00:39:12,200 Speaker 1: calculation group. I grew a better term, um wopen doing 645 00:39:12,200 --> 00:39:14,560 Speaker 1: this all the time, and all who were restricted in 646 00:39:15,440 --> 00:39:17,680 Speaker 1: in a separate point wing in the office and selling 647 00:39:17,680 --> 00:39:20,120 Speaker 1: its so forth, an email will go around to all 648 00:39:20,120 --> 00:39:23,520 Speaker 1: of them saying, um, Joe Smith has been added to 649 00:39:23,520 --> 00:39:27,279 Speaker 1: the five committee and and then everybody starts kissing your 650 00:39:27,280 --> 00:39:29,200 Speaker 1: butter on the office. Or no, actually, I would say 651 00:39:29,200 --> 00:39:33,799 Speaker 1: all of the CEOs of the three thousand stocks that 652 00:39:33,840 --> 00:39:39,400 Speaker 1: aren't in the SMP five hundreds start being a lot nicer. Yeah, well, 653 00:39:39,880 --> 00:39:42,200 Speaker 1: there's a rule not to release the names other than 654 00:39:42,239 --> 00:39:44,680 Speaker 1: the chare person's name. And I think today, if I 655 00:39:44,760 --> 00:39:47,800 Speaker 1: understand it, there's a rule that not even to release 656 00:39:47,840 --> 00:39:52,919 Speaker 1: the name of the care It's fascinating anyway, I really 657 00:39:52,960 --> 00:39:56,680 Speaker 1: appreciate the insight. Um, we're definitely I don't know. I 658 00:39:56,680 --> 00:39:59,760 Speaker 1: mean the fact that I live, eat, and breathe this stuff. 659 00:39:59,760 --> 00:40:02,320 Speaker 1: And I couldn't tell you one member it's this weird. 660 00:40:02,880 --> 00:40:08,920 Speaker 1: It's just the most important were David Blitzer. Thanks so 661 00:40:08,960 --> 00:40:16,480 Speaker 1: much for joining us on Trillions, High pleasures. Thanks for 662 00:40:16,560 --> 00:40:19,160 Speaker 1: listening to Trillions until next time. You can find us 663 00:40:19,200 --> 00:40:23,480 Speaker 1: on the Bloomberg terminal, Bloomberg dot com, Apple Podcast, Spotify, 664 00:40:23,880 --> 00:40:26,279 Speaker 1: and wherever else you'd like to listen. We'd love to 665 00:40:26,280 --> 00:40:29,719 Speaker 1: hear from you. We're on Twitter, I'm at Joel Webber Show, 666 00:40:30,160 --> 00:40:33,400 Speaker 1: He's at Eric fall Tunas, and you can find Katie 667 00:40:33,680 --> 00:40:37,960 Speaker 1: at kay Grifles. This episode of Trillions was produced by 668 00:40:38,000 --> 00:40:41,840 Speaker 1: Magnus and Rickson. Francesca Levy is the head of Bloomberg Podcast. 669 00:40:42,360 --> 00:40:44,760 Speaker 1: Bye