WEBVTT - The Secretive Committee Behind the S&P 500 0:00:05.840 --> 0:00:13.520 Welcome to Trillions. I'm Joel Webber and I'm Eric bel Tunis. Eric. 0:00:13.560 --> 0:00:16.160 How you holding up? Man? Pretty good. I've been getting 0:00:16.160 --> 0:00:19.040 out a little more. Um, I've got a tennis hobby 0:00:19.160 --> 0:00:21.400 going on and that's been great. I mean, you know, 0:00:21.560 --> 0:00:25.240 trying to get out and keep moving as much as possible. 0:00:25.320 --> 0:00:27.280 And I'm going to go in the office actually next 0:00:27.280 --> 0:00:29.800 week for the first time. So my son just started 0:00:29.920 --> 0:00:34.280 remote kindergarten and I will tell you that is an oxymoron. Yeah, 0:00:34.400 --> 0:00:37.960 that's that's crazy. Yeah. So let's let's talk about this 0:00:38.000 --> 0:00:42.280 episode of Trillions. Yeah, this is I can't remember being 0:00:42.280 --> 0:00:45.479 more excited for an episode than this one, especially because 0:00:45.520 --> 0:00:49.240 of some recent news. So everybody knows the sp F 0:00:49.840 --> 0:00:52.840 it is. It's beyond a rock star. It's really kind 0:00:52.840 --> 0:00:56.400 of the sun that the whole thing revolves around. I mean, 0:00:56.440 --> 0:01:00.040 it's got eleven trillion dollars benchmark to it. Everybody knows it. 0:01:00.120 --> 0:01:02.920 The media quotes that constantly. It is the It is 0:01:02.960 --> 0:01:06.839 the biggest thing out there, really definitely the most infellectual 0:01:06.840 --> 0:01:09.160 thing in the passive world, if not the active world. 0:01:09.600 --> 0:01:11.760 Every active manager is trying to beat it, everybody's benchmark 0:01:11.840 --> 0:01:14.640 to it, etcetera. So we're going to be able to 0:01:14.680 --> 0:01:17.320 speak to somebody who basically was the head of the 0:01:17.400 --> 0:01:21.360 quote committee that ran the SMP five hundred. And the 0:01:21.360 --> 0:01:25.360 reason this is so interesting is that most indexes have 0:01:25.560 --> 0:01:29.480 rigid rules and and so does the SMP. But unlike 0:01:29.520 --> 0:01:33.160 other indexes, most of them, the SMP has a committee 0:01:33.160 --> 0:01:37.240 of humans who can override the rules. And recently they 0:01:37.640 --> 0:01:40.440 decided not to add Tesla, which is the top twenty 0:01:40.440 --> 0:01:44.080 biggest stock, and it's they're gonna delay atting it. And 0:01:44.200 --> 0:01:47.000 it just shows you that humans are essentially in control 0:01:47.040 --> 0:01:49.400 of this index. And we're going to talk to the 0:01:49.440 --> 0:01:51.080 man who was the head of the committee for about 0:01:51.080 --> 0:01:54.920 fifteen years, and that uh somebody is David Blitzer. He's 0:01:54.960 --> 0:01:58.280 now retired, but like you mentioned, Derek, he was the 0:01:58.280 --> 0:02:04.600 head of the SMP index committee from n to nineteen, 0:02:05.160 --> 0:02:08.160 which is an incredible stretch. I mean, he's basically seen 0:02:08.200 --> 0:02:10.800 it all and we get to talk to him. Also 0:02:10.880 --> 0:02:13.920 joining us is going to be Katherine greifeld uh et 0:02:14.080 --> 0:02:22.520 F reporter with Bloomberg News, this time on Trilliance, the 0:02:22.639 --> 0:02:30.720 Sun of the stocked Solar system. David Blitzer, thanks for 0:02:30.800 --> 0:02:35.519 joining us on trillians Pleasure So I want to ask 0:02:35.880 --> 0:02:38.360 about the elephant in the room, which Eric mentioned in 0:02:38.400 --> 0:02:44.360 the intro. But S and P obviously hugely important. The 0:02:44.400 --> 0:02:48.919 index is just this, this gigantic thing that we all 0:02:49.000 --> 0:02:52.760 think about and watch constantly. And there was this event 0:02:52.800 --> 0:02:58.360 recently where the index was gonna potentially add some new 0:02:58.480 --> 0:03:01.880 names and one of the big name, Tesla, was excluded, 0:03:02.000 --> 0:03:07.079 even though it checked all the boxes. Why wasn't it included? Well, 0:03:08.520 --> 0:03:11.040 exactly why the committee did something in the last few weeks. 0:03:11.040 --> 0:03:14.519 How to know? It's I think back the past history 0:03:14.520 --> 0:03:19.720 and so on. Um. But first thinking back, there are 0:03:19.720 --> 0:03:23.440 plenty of times when they're big names are popular names, 0:03:23.639 --> 0:03:27.400 well known names that don't get add at the moment 0:03:27.480 --> 0:03:31.560 they're eligible or something like that. In fact, probably cent 0:03:31.600 --> 0:03:33.880 of the time only the committee knows what is and 0:03:34.040 --> 0:03:36.960 is not eligible because in the season have gotten big 0:03:36.960 --> 0:03:41.120 because everybody talks about Tesla. UM at least a thousand 0:03:41.160 --> 0:03:44.480 people went to the website, downloaded the methodology of the 0:03:44.520 --> 0:03:49.320 road book and checked all the boxes at oh my gosh, um. 0:03:49.440 --> 0:03:51.880 Most of the time, you know, they're nine people sitting 0:03:52.280 --> 0:03:55.520 down in Water Street, nobody else. Those are cares. But 0:03:55.600 --> 0:03:59.240 I think the real question is why the rush. Uh. 0:03:59.360 --> 0:04:03.520 Stocks can sit out there. Um, if you had a stock, 0:04:03.600 --> 0:04:05.320 it gets a little bump for a few weeks, and 0:04:05.400 --> 0:04:09.760 the bump goes away. And the committee's goal, at least 0:04:09.840 --> 0:04:11.960 certainly in the past, because well, all I'm saying is 0:04:12.000 --> 0:04:14.720 in the PAD committee's goal is to have an index 0:04:14.800 --> 0:04:18.080 that really is a great measure of the market. The 0:04:18.120 --> 0:04:21.440 market goes up, the index goes up. Any statistic about 0:04:21.480 --> 0:04:23.919 the market, you can do the same calculation on the 0:04:23.920 --> 0:04:27.719 index and you'll be very close. That's the goal, and 0:04:27.960 --> 0:04:30.880 so adding a company is to look at the index, 0:04:30.960 --> 0:04:33.679 look at the market, and say, is there something that's 0:04:34.400 --> 0:04:37.200 we're I lined up quite right with? And then you 0:04:37.240 --> 0:04:40.360 also look at what's happening in the market. What's happening 0:04:40.640 --> 0:04:43.640 in the index, Um is some big company to give 0:04:43.680 --> 0:04:46.760 be acquired six weeks out and we'd rather wait for 0:04:46.800 --> 0:04:49.479 that one than do it now kind of stuff. So 0:04:50.240 --> 0:04:53.560 there's no rush. In fact, there's a rule I think of. 0:04:53.640 --> 0:04:55.960 There used to be a rule anyhow, It said that 0:04:56.000 --> 0:04:57.800 you had to have a stock paid for at least 0:04:57.839 --> 0:05:01.440 twelve months before you even thought about it. That Tasma 0:05:01.520 --> 0:05:04.120 Zombi meets that rule. But there are plenty of other 0:05:04.160 --> 0:05:08.080 hot stacks over the time when you know, we waited, 0:05:09.400 --> 0:05:11.680 I can't do this yet, that's we just kind of 0:05:11.680 --> 0:05:14.640 sit tight. I think that's logical. Most people would agree 0:05:14.640 --> 0:05:16.640 to most of that. But all the other large cap 0:05:16.680 --> 0:05:19.919 indexes do have tesla. And is there a fear that 0:05:19.960 --> 0:05:22.840 there's an assumption that a lot of people just look 0:05:22.880 --> 0:05:26.400 at the spop hundred is trying to capture the stock 0:05:26.440 --> 0:05:29.800 market and the biggest stocks generally, and by not having 0:05:29.800 --> 0:05:32.320 it month after month, you aren't able to do that 0:05:32.680 --> 0:05:35.719 when some of your competing indexes do do that because 0:05:35.720 --> 0:05:39.640 they do have tesla. Well, certainly most people think the 0:05:39.640 --> 0:05:44.000 five hundred, five hundred biggest stocks, and it's not a 0:05:44.000 --> 0:05:48.600 lot of people think that. Um No, I don't when 0:05:48.680 --> 0:05:51.160 it comes to competing and we're doing better, doing worse 0:05:51.200 --> 0:05:55.280 than than the competition. Um it's not been on a 0:05:55.360 --> 0:05:58.200 single stock basis. One case where it has come up 0:05:58.240 --> 0:06:01.400 a lot is between the top six hundred, which is 0:06:01.480 --> 0:06:04.680 run small camps run by the same committee, and the 0:06:04.760 --> 0:06:08.799 Russell Too thousand, and that one of the big differences 0:06:08.880 --> 0:06:12.279 there is that for the six hundred, like the five hundred, 0:06:12.680 --> 0:06:15.840 company has to be profitable before it's put in. Let's 0:06:15.839 --> 0:06:19.320 start losing money later on, it may stay in Russell 0:06:19.400 --> 0:06:24.320 has no profitability rule, and in fact, S ANDPS analysts 0:06:24.440 --> 0:06:28.520 have pranked out reports year after year after year pointing 0:06:28.520 --> 0:06:30.440 out that the six hundred does better because of the 0:06:30.440 --> 0:06:35.599 profits rule, either as a marketing thing, as absolutely correct analysts. So, David, 0:06:35.640 --> 0:06:37.719 I want to ask, you, know, thinking back on your 0:06:37.760 --> 0:06:41.159 time on the committee, have there been other cases where 0:06:41.200 --> 0:06:44.440 maybe you waited a little bit, even though a name 0:06:44.800 --> 0:06:48.080 was eligible going by the rules, you waited to add it. 0:06:48.480 --> 0:06:52.719 And I'm curious how that worked out, whether the shock 0:06:52.839 --> 0:06:55.520 or backlash was to the same level that we've seen 0:06:55.600 --> 0:07:02.400 to Tesla not being included. Yeah. Um, now sitting on 0:07:02.440 --> 0:07:07.120 the outside and maybe prepare comparison. Uh, the amount of 0:07:08.279 --> 0:07:13.320 chatter about Tesco is staggering. I've gotten calls from people 0:07:13.360 --> 0:07:15.120 who know I'm not hadn't been on the committee for 0:07:15.120 --> 0:07:17.760 a year and a half and who barely never called 0:07:17.760 --> 0:07:20.240 me about stocks and they said, why didn't they do it? 0:07:20.320 --> 0:07:23.280 Where's it going in time? So there's a huge amount 0:07:23.280 --> 0:07:28.840 of stuff they closest an think about, UH was Microsoft 0:07:29.200 --> 0:07:36.200 and way back then Microsoft went publican about and up 0:07:36.280 --> 0:07:40.040 until some time in the early nineties, dates and Allen 0:07:40.120 --> 0:07:43.840 together owned about sixty of the two thirds of the stock, 0:07:44.400 --> 0:07:46.600 and then in in fact for most of the town 0:07:46.640 --> 0:07:49.920 of Ireland and committee it you had more than half 0:07:49.920 --> 0:07:54.920 the stock postly controlled was ineligible. And we got pounded 0:07:55.360 --> 0:07:58.400 a whole lot about Microsoft because it was as big 0:07:58.440 --> 0:08:02.080 then as Tesco is now maybe, And after the fact 0:08:02.160 --> 0:08:05.840 we still got they sold some stock, we put it 0:08:05.840 --> 0:08:08.640 in the in deck, everybody figuring to forget it, and 0:08:08.680 --> 0:08:11.280 we still got who played, why did you ad it? 0:08:11.440 --> 0:08:16.160 So on? So there have been other big ones. But um, 0:08:16.200 --> 0:08:18.360 you know, I guess someoneays used to learn to shrug 0:08:18.400 --> 0:08:20.760 and say, you know, wait till next month. It's nothing 0:08:20.840 --> 0:08:25.040 of that. David, Can I ask about the committee because 0:08:25.400 --> 0:08:28.200 there's a question that, Um, I think it's really important. 0:08:28.680 --> 0:08:30.800 Is the first role of the committee not to talk 0:08:30.840 --> 0:08:39.040 about the committee? Well, there's there's an evolution in this. 0:08:39.480 --> 0:08:42.959 And I was on the committee started in nineteen nine 0:08:43.280 --> 0:08:47.920 and then became chairman in n and the fellow who 0:08:47.920 --> 0:08:53.480 preceded me as chair he stayed on the committee and 0:08:53.520 --> 0:08:55.800 he's a great guy, very sharp. Thank you probably do 0:08:55.880 --> 0:08:57.880 more in that end the season. I did at that moment, 0:08:58.520 --> 0:09:01.360 and I went to one of the senior executives, and 0:09:01.440 --> 0:09:06.600 I said, now, now that gave you switched us. What 0:09:06.679 --> 0:09:08.920 am I supposed to do? Elliott didn't do And at 0:09:08.920 --> 0:09:12.280 that time I was chief economisted and they said, look, 0:09:12.960 --> 0:09:15.760 you just like you get to talk about the economy 0:09:15.800 --> 0:09:18.600 and the markets, and the press talk about the Index. 0:09:19.160 --> 0:09:22.080 So my charge was to get out there and they 0:09:22.120 --> 0:09:28.120 act that idea has changed over time and rolled forward 0:09:28.200 --> 0:09:33.400 to early twenty nine UM and for a whole lot 0:09:33.440 --> 0:09:38.199 of reasons, people the anxiety of the lawyers and regulation 0:09:38.320 --> 0:09:42.040 and some other things things that had shifted, and the 0:09:42.160 --> 0:09:45.439 idea was that the chair of the indext comity shouldn't 0:09:45.440 --> 0:09:49.199 be like a front and center spoke first. Between ninety 0:09:49.280 --> 0:09:51.839 five and two thousand, the number of employees probably went 0:09:51.920 --> 0:09:56.840 up like, uh, twenty five people in Index and when 0:09:56.880 --> 0:09:59.320 I left, to have that six hundreds the organization, you're 0:09:59.320 --> 0:10:03.679 gonna go bigger, and instead of one or two spokespeople, 0:10:04.320 --> 0:10:07.600 we probably had fifty two folks people. So the Index 0:10:07.600 --> 0:10:10.720 parent would have gotten lost in the crowd. There was 0:10:10.800 --> 0:10:16.000 a specific decision not to list all the members because 0:10:17.000 --> 0:10:21.600 early on, probably sometime in the late nineties, Forbes magazine 0:10:21.600 --> 0:10:25.640 wrote us up. They had a picture Hagan in his 0:10:25.880 --> 0:10:30.320 very ornate wood panel dining room. Uh. We used to 0:10:30.320 --> 0:10:33.199 call it the Supreme Court picture because we looked as 0:10:33.240 --> 0:10:37.360 as serious as as the classic pictures of the of 0:10:37.400 --> 0:10:41.400 the Justices. UM. But the day of that story ran, 0:10:41.800 --> 0:10:45.560 everybody on the committee got identical uh FedEx packages from 0:10:45.640 --> 0:10:50.839 various companies that wanted in. So that's why you know 0:10:51.720 --> 0:10:54.079 one day now, but everybody else got to be anonymous 0:10:54.120 --> 0:10:56.679 accept me. So I got all the FedEx packages in 0:10:56.720 --> 0:11:00.000 the phone call. That's that's great. The Supreme Court visual 0:11:00.040 --> 0:11:03.079 will is perfect because I actually had that metaphor in 0:11:03.160 --> 0:11:07.000 my next question, how does it work? Are you guys 0:11:07.120 --> 0:11:10.200 in a persistent chat? Is there an email chain or 0:11:10.240 --> 0:11:13.680 do you physically meet? And what if there's a split vote? 0:11:13.679 --> 0:11:17.520 What if not everybody agrees? How does that get worked out? Uh? 0:11:18.320 --> 0:11:21.800 Obviously the testment meeting they had some time in the 0:11:21.880 --> 0:11:24.800 last month or two was was probably zoom or on 0:11:24.880 --> 0:11:29.560 some other thing. And we've been using for committee meetings. 0:11:29.559 --> 0:11:32.800 We've been using a lot of technology over the last five, six, 0:11:32.840 --> 0:11:36.320 seven years. There are other committees that cover other indicas. 0:11:36.400 --> 0:11:38.480 So we had we had a committee that covered a 0:11:38.480 --> 0:11:42.560 lot of indicase in Europe that by necessity had half 0:11:42.600 --> 0:11:46.319 people in Europe and half in New York. So that 0:11:46.440 --> 0:11:52.040 was clearly electronic. But the Five Committee, um, yeah, up 0:11:52.120 --> 0:11:54.640 until COVID came along or up and certainly until I 0:11:54.720 --> 0:11:59.080 left um with everybody sat down in the same room. 0:11:59.240 --> 0:12:01.240 Every once in a while somebody would be on the 0:12:01.280 --> 0:12:03.840 phone because they happened to be traveling or something, but 0:12:04.160 --> 0:12:08.439 that was was unusual, rare. Um And how many people 0:12:08.440 --> 0:12:12.599 are on it it varied between I don't think it 0:12:12.679 --> 0:12:14.880 was ever less than six and I don't think it's 0:12:14.920 --> 0:12:18.000 ever more than ten. And it was just a question 0:12:18.000 --> 0:12:22.520 of practicality. Um, you know, you had twenty people. You 0:12:22.559 --> 0:12:24.760 can never get everybody together, and he had less than 0:12:24.800 --> 0:12:28.920 six if you lose somebody because they're on vacation, if 0:12:29.240 --> 0:12:32.199 you're really down law. So it was in that range. 0:12:32.679 --> 0:12:35.719 But there was no no fixed number. Remember, and how 0:12:35.720 --> 0:12:38.360 did you decide when you had different which it was? 0:12:38.360 --> 0:12:43.320 It basically a vote, It was at least typically a vote. 0:12:43.600 --> 0:12:47.200 Most of the most of the votes were aunanimous, are 0:12:47.280 --> 0:12:51.840 very close to it, and so on. There was sort 0:12:51.840 --> 0:12:54.440 of a tradition which I may be somewhat responsible for. 0:12:55.360 --> 0:12:59.680 If there was clear disagreement and the discussion was going 0:12:59.760 --> 0:13:03.520 on and on UM, my tendency would be to say 0:13:03.520 --> 0:13:05.080 all I don't want to go around the table, which 0:13:05.080 --> 0:13:08.560 meant everybody everyone had a chance to say that two 0:13:08.559 --> 0:13:11.040 cents for it. If you didn't want to say anything, 0:13:11.040 --> 0:13:14.360 you'd say I passed, or you could say I agree 0:13:14.360 --> 0:13:17.360 with the last guy or something like that. But we 0:13:17.400 --> 0:13:20.520 didn't want to have a situation where the next day 0:13:20.800 --> 0:13:22.880 somebody would start bete me, you didn't hear what I 0:13:22.920 --> 0:13:26.880 had to say. That was a requirement. Um, they go 0:13:26.960 --> 0:13:30.240 around the table usually would end up. Um, it's not 0:13:30.280 --> 0:13:33.200 get animous with a clear majority, it's not, And there 0:13:33.320 --> 0:13:36.000 was some people just had strong opinions. They knew they 0:13:36.000 --> 0:13:38.959 weren't going to carry it, but they liked the like 0:13:39.120 --> 0:13:41.120 the notes to say there was in the sending vote. 0:13:41.640 --> 0:13:46.000 So the fact that there's a committee with people making decisions, 0:13:46.800 --> 0:13:49.079 doesn't that kind of basically make the s and P 0:13:49.240 --> 0:13:53.600 five hundred and active fund. And I'll add that um 0:13:53.920 --> 0:13:58.960 uh Gunlock at double Line recently made that point as 0:13:59.080 --> 0:14:02.360 as well. So it's like it's not been said. Well 0:14:02.360 --> 0:14:05.839 the comment of like that that I like the best 0:14:06.000 --> 0:14:09.160 with the fellow, I think he's still in the game. 0:14:09.280 --> 0:14:13.200 Bill Miller, who ran a big fund for leg Mason 0:14:13.840 --> 0:14:16.439 with great performance, I mean the outperformed the index like 0:14:16.600 --> 0:14:19.440 about a thirteen years or something like that. So and 0:14:19.520 --> 0:14:21.800 he wrote to a shareholders one time that the best 0:14:21.840 --> 0:14:26.640 demonstration of the successive active management was the SPI. But 0:14:27.440 --> 0:14:29.760 who aren't trying to be active managers in the sense 0:14:30.480 --> 0:14:34.040 the committee is not. The goal was not top performance. 0:14:34.200 --> 0:14:36.800 The goal was it is an index that represents the 0:14:36.840 --> 0:14:40.240 market and meets the same statistical rules as the market, 0:14:40.280 --> 0:14:43.640 and and that kind of thing. It's it's not to 0:14:43.760 --> 0:14:46.560 beat the market and not to be a top performer. 0:14:46.920 --> 0:14:50.440 And judging a stock is not do we think the 0:14:50.520 --> 0:14:52.560 stock is gonna go up by at least ex percent 0:14:52.640 --> 0:14:56.200 over the next six months. Judging a stock is first 0:14:56.240 --> 0:14:59.880 does it meet the rules in terms of size and liquidity, 0:15:00.120 --> 0:15:04.160 profitability and this kind of stuff. And second, we'll get 0:15:04.200 --> 0:15:07.040 the index and look at the market. Where where is 0:15:07.080 --> 0:15:10.400 the index not quite online to the market? And will 0:15:10.480 --> 0:15:14.240 this not improvement that alignment? Plus a sort of looking 0:15:14.280 --> 0:15:18.440 at what's happening in the future, because the committee tracks 0:15:18.440 --> 0:15:22.840 announced mergers, so you know, the committee knows most of 0:15:22.880 --> 0:15:25.520 the big corporate actions six months into the future because 0:15:25.520 --> 0:15:28.640 the news is already out there and there's not clairvoyance. 0:15:28.680 --> 0:15:31.120 It because we read in the newspaper and we're gonna boom. 0:15:31.160 --> 0:15:33.840 The committee gets a little flak for being a human 0:15:34.120 --> 0:15:37.360 you know, human management on a passive fund, and it 0:15:37.400 --> 0:15:40.000 brings up the nothing is passive, which is a decent argument. 0:15:40.040 --> 0:15:42.200 I mean, there really is nothing truly passive unless you 0:15:42.520 --> 0:15:46.280 market kept wait, the whole entire market. Um that said, 0:15:47.000 --> 0:15:49.400 you know, with a Russell they did a rebalance or 0:15:50.360 --> 0:15:54.320 a reconstitution recently and beyond meat, which was this high 0:15:54.360 --> 0:15:58.600 flying stock, got added to the Russell value and everybody's like, 0:15:58.640 --> 0:16:01.640 how in the heck did that happened? And that's because 0:16:01.680 --> 0:16:05.000 they don't have a committee and the rules rule um, 0:16:05.080 --> 0:16:08.680 and beyond meat was in didn't have enough data to 0:16:09.000 --> 0:16:12.840 use its own PE ratio, so it got put into 0:16:13.120 --> 0:16:16.480 to the package goods average PE ratio. In other words, 0:16:16.600 --> 0:16:18.800 the sector it was in dictated where it got put 0:16:18.880 --> 0:16:20.960 and that's just the rule, and they could not change it, 0:16:21.040 --> 0:16:24.080 and thus beyond meat was a value stock for fire 0:16:24.120 --> 0:16:27.560 Russell standards. Is that why the committee exists? Is that 0:16:27.600 --> 0:16:29.800 why it was developed in the first place, to have 0:16:29.960 --> 0:16:36.320 that ability to avoid the rules doing something where it 0:16:36.440 --> 0:16:39.080 really doesn't make any sense. Yeah, I I don't know 0:16:39.120 --> 0:16:42.520 the full history of the committee. I mean, I know 0:16:42.560 --> 0:16:45.080 who the two or three couple of prior caremen to 0:16:45.160 --> 0:16:47.840 me were, and I that would take me back to 0:16:48.080 --> 0:16:52.640 probably very late sixties. They're only seventies. But how the 0:16:52.680 --> 0:16:56.200 committee came to me and I'm honestly don't know when 0:16:56.240 --> 0:16:59.400 we went this way. I wrote the first rules and 0:16:59.440 --> 0:17:01.280 it was to the years after we wrote him, before 0:17:01.680 --> 0:17:07.360 they were published. Yeah, there was there was tradition when 0:17:07.440 --> 0:17:10.719 there were that rule now the rules, uh, and that 0:17:10.800 --> 0:17:12.720 kind of thing. But I think in the beginning, it 0:17:12.760 --> 0:17:15.320 was just the sense that this was you had a 0:17:15.320 --> 0:17:18.400 bunch of people together for the same group every month 0:17:18.840 --> 0:17:21.680 or whatever, and this is this is what you do. 0:17:22.080 --> 0:17:24.119 And I want to talk a little bit about you 0:17:24.160 --> 0:17:29.440 started as the head of the committee and in I 0:17:29.560 --> 0:17:32.480 don't quote me, but Passive might have had a four 0:17:32.520 --> 0:17:36.480 percent market share. I mean it didn't really be Yeah, 0:17:36.560 --> 0:17:38.480 it was really tiny. I'm in the middle of reading 0:17:38.520 --> 0:17:42.239 Vogel's last book and um, he's talking about he had 0:17:42.240 --> 0:17:45.040 to wait thirty five years really for Passive to get big. 0:17:45.640 --> 0:17:48.679 You saw it go from really a tiny minority player 0:17:48.760 --> 0:17:52.280 to a gigantic force, And I just talk a little 0:17:52.280 --> 0:17:56.320 bit about the from an index perspective, seeing the funds 0:17:56.359 --> 0:17:59.960 tracking you get so big, and how did it? Could 0:18:00.080 --> 0:18:03.880 you feel the power of the index growing? Uh? From 0:18:03.880 --> 0:18:08.800 your perspective during that time, I did one thing in 0:18:08.920 --> 0:18:12.359 terms of the dates, and that is the the first 0:18:13.000 --> 0:18:17.160 U S E t F, the State STREETSTF. The big 0:18:17.200 --> 0:18:23.639 spider I think was UM and aren't of the growth 0:18:23.680 --> 0:18:27.359 of indexing and so on? Uh is E t F 0:18:27.400 --> 0:18:30.639 S and it's et s because before that it was 0:18:30.680 --> 0:18:33.560 all mutual funds. And you know, if you wanted to 0:18:33.600 --> 0:18:37.400 buy the Vanguard five hundred funds, which was big, even 0:18:39.800 --> 0:18:42.280 you had to go to Vanguard. You couldn't call up 0:18:42.280 --> 0:18:44.400 your broke wins I want to do this. He might 0:18:44.400 --> 0:18:46.479 tell you how to I probably wouldn't tell you how 0:18:46.480 --> 0:18:48.520 to go to Vanguard, who is the business, but he 0:18:48.560 --> 0:18:52.280 could see E t F suddenly meant that every broke 0:18:52.359 --> 0:18:54.280 in the United States could put you in it put 0:18:54.320 --> 0:18:56.119 you in an E t F. And I think that 0:18:56.320 --> 0:18:59.400 was part of the change. The other thing that drove 0:18:59.480 --> 0:19:03.359 it was in the late nineties in the tech boom, 0:19:03.440 --> 0:19:10.480 you had a period of months where the outperform of 0:19:10.520 --> 0:19:13.520 the actively managementual funding that I say which should not happen. 0:19:13.600 --> 0:19:16.960 I mean, that's it's just crazy. But what happened is 0:19:17.000 --> 0:19:21.480 the tex not as the tech bubble. It's quoted every month. 0:19:21.520 --> 0:19:24.399 They were the biggest games and eat the month they 0:19:24.400 --> 0:19:26.879 were bigger share of the index than last month because 0:19:26.920 --> 0:19:30.560 it's cap weighted and it's at an acceleration given built 0:19:30.600 --> 0:19:34.720 into the cap waiting, and that's helped put put everybody 0:19:34.760 --> 0:19:37.040 on the month, put the index on the map because 0:19:37.040 --> 0:19:41.239 peopleould say, what's this thing that beatcent of everybody? You know, 0:19:41.520 --> 0:19:45.280 it makes no sense and then they say, oh my gosh, 0:19:45.320 --> 0:19:50.199 it's just an index and it's cheat. Besides, but I 0:19:51.560 --> 0:19:56.520 you can't touch it without really complimenting or Jack bobble 0:19:57.040 --> 0:20:02.040 uh between the marketing they did and the pricing of 0:20:02.080 --> 0:20:06.840 their products, and most of all Jack Bogo himself. He 0:20:07.040 --> 0:20:11.760 was the most incredible pitchman you know, I've ever met. 0:20:12.000 --> 0:20:15.520 And I mean that is a great compliment because he 0:20:15.640 --> 0:20:19.560 was out there all the time beating his drum and 0:20:20.000 --> 0:20:22.879 tell you everybody, you know, buy an index fund and 0:20:22.920 --> 0:20:27.720 never sell um. And he did more were in the 0:20:27.760 --> 0:20:31.320 average investor into the United States than anybody probably in 0:20:31.359 --> 0:20:33.359 the modern history or something of that sort. So he 0:20:33.880 --> 0:20:36.520 deserves a huge amount of credit, uh for the whole 0:20:36.560 --> 0:20:42.120 index thing. But it did grow, and you know, gradual, 0:20:42.200 --> 0:20:46.879 I think, starting with the tech boom and then coming 0:20:46.880 --> 0:20:49.679 out of the tech bus when everybody thought, oh, you know, 0:20:49.760 --> 0:20:51.960 this is the terrible thing and nobody would buy an 0:20:52.000 --> 0:20:56.920 index fund ever again, and recession of two thousand one 0:20:56.960 --> 0:21:02.280 two thousand two, the indext did very respective and was 0:21:02.320 --> 0:21:05.520 often running at that point, and and so on. There 0:21:05.560 --> 0:21:10.399 was clearly growing news attention and the NBC looved to 0:21:10.960 --> 0:21:13.639 make excitement about it at the same time, and that 0:21:13.920 --> 0:21:19.680 helped down UM and it grew, and then indexing overall grew. 0:21:19.960 --> 0:21:23.919 Not only SMP expanded, and it's the eye expanded. Russell, 0:21:24.520 --> 0:21:28.320 which was somewhat different corporate structure at that time, began 0:21:28.400 --> 0:21:33.240 to expand very rapidly. So, David, it's interesting to hear you, 0:21:33.240 --> 0:21:36.600 you know, harken back to the tech boom in the nineties, 0:21:36.640 --> 0:21:40.240 because the situation that you just described sounds pretty similar 0:21:40.280 --> 0:21:43.119 to what we're seeing today. You know, you have a 0:21:43.280 --> 0:21:47.520 handful of huge tech stocks just leading the SMP higher, 0:21:47.840 --> 0:21:50.880 even without Tesla. And I'm curious whether you know, you 0:21:51.000 --> 0:21:55.119 see parallels between that period and now and whether it 0:21:55.119 --> 0:21:59.199 gives you any pause about market cap weighted indexes because 0:21:59.400 --> 0:22:02.240 again in the situation, it is just you know, five 0:22:02.320 --> 0:22:06.639 to seven stocks powering this index higher. Well, all right, 0:22:06.800 --> 0:22:09.679 one big difference between that and now is that pets 0:22:09.720 --> 0:22:13.160 dot Com certainly never made money. I mean now this 0:22:13.280 --> 0:22:18.879 time around, the companies are hugely profitable and and you 0:22:18.960 --> 0:22:22.720 know they their growth and their stock prices are are 0:22:23.000 --> 0:22:26.480 make more sense now than their equivalents of twenty years ago. 0:22:26.560 --> 0:22:29.600 Do some of them may still be overpriced Oosually the 0:22:29.640 --> 0:22:34.080 b ratios are pretty rich. Um. Well, one looks back 0:22:34.160 --> 0:22:37.160 the index goes through periods of one sector another being 0:22:37.960 --> 0:22:41.520 you know, being hugely taught right before the financial crisis, 0:22:41.560 --> 0:22:45.960 it will completely top eavy and financial stocks and so on. Um. 0:22:46.160 --> 0:22:50.399 I think there is some disconnect internal in the market today. 0:22:50.440 --> 0:22:52.560 And is what you mentioned that you've got a handful 0:22:52.600 --> 0:22:57.120 of stocks that very high pe ratios, very high, dragging 0:22:57.119 --> 0:23:01.040 the index up, and the rest of it doesn't do 0:23:01.160 --> 0:23:04.840 too much. I mean, I think it's nothing like the 0:23:04.960 --> 0:23:08.960 docks in the index. Um. You know, he certainly hadn't 0:23:09.000 --> 0:23:13.480 recovered from the you know, to the February highs or 0:23:13.520 --> 0:23:16.679 something like that. Um. And if you look compare the 0:23:16.720 --> 0:23:20.159 five hundred to the equated version of the five the 0:23:20.200 --> 0:23:24.600 cap weighted version is rather than substantially out performing. Now, 0:23:25.280 --> 0:23:28.439 there were a lot of periods from the time we 0:23:28.520 --> 0:23:32.120 started doing equated version, which about two thousand two, when 0:23:32.200 --> 0:23:35.679 equal weighted version did much better. And the equal equal 0:23:35.720 --> 0:23:38.800 weighted version is a planet value, which is a dirty 0:23:38.840 --> 0:23:42.680 word this this year. Mm hmm. And then I also 0:23:42.720 --> 0:23:46.800 wanted to sort of pickyback off of Eric's last question. Uh, 0:23:46.840 --> 0:23:49.359 you know, like he said in the intro, the SMP 0:23:49.520 --> 0:23:52.679 five hundred is sort of the sun around which we 0:23:52.720 --> 0:23:57.040 all have revolved, and um it obviously is a very 0:23:57.080 --> 0:24:01.840 powerful force. The the sort of speculation that a stock 0:24:01.960 --> 0:24:05.840 might get added or removed causes huge moves in the 0:24:05.880 --> 0:24:09.639 stock price. And just this month we've seen the the 0:24:09.880 --> 0:24:15.720 SEC look into an S ANDP employee for potential insider trading. 0:24:15.840 --> 0:24:18.960 He might have tipped his friend off that maybe he 0:24:19.000 --> 0:24:23.080 should put on some options ahead of the rebalance. I'm curious, 0:24:23.119 --> 0:24:26.720 you know, thinking about the power of indexes and their 0:24:26.800 --> 0:24:30.000 ability to move the stock market. What do you think 0:24:30.000 --> 0:24:31.760 of this trend and where do you see it going? 0:24:32.880 --> 0:24:35.600 I guess it, you know, two or three comments in 0:24:35.720 --> 0:24:38.879