Index fund

And almost nobody has actually looked at this next part.

The money you think is your safe money Your index fund, right? Your 401k, your pension, your Roth is sitting right on top.

The exact thing that's driving all of this because when you own the S&P 500, you think you own 500 companies.

You really have 70% of your money sitting on just 10 of these AI lunatic companies, right? So the guys who are going to borrow $1.3 trillion next year, you know, insanely outspending the treasury, they are the most expensive, most crowded names on the planet.

And they literally are your safe, allegedly safe index fund.

And you don't have to take it from me.

Look at the most trusted investors out there.

Warren Buffett, you know, they sold the index fund.

Today, Vanguard is synonymous with passive investing.

And on August 31st, the company celebrated the 50th anniversary of the first index fund.

But just as the company has reached that milestone, here's the brutal reality.

Its market share has actually plateaued.

I mean, he was different.

And his whole life, in my opinion, was really about addition by subtraction.

And I think that was his life's work more than, say, the index fund.

We're joined by Isabel Lee, a cross-asset reporter with Bloomberg News.

And I thought Eric would be the perfect guest because just last week, Vanguard celebrated the 50th anniversary of the first index investment trust, which would ultimately become Vanguard.

the Vanguard 500 Index Fund, one of the most popular funds in the world.

And of course, a share class of that is the Vanguard S&P 500 ETF, ticker VU, which is the largest ETF in the world with over a trillion dollars in assets.

But Eric authored a book which covered the history of all of this.

It's titled The Bogle Effect.

He wrote this a few years back.

And he dove into the founding of Vanguard, in the creation of this index fund and the impact that it had on investors and the asset management industry overall.

And in writing that book, he obviously talked to the man himself, Jack Bogle.

Do it till it stops working.

Okay, can you beat the market? If I go into Barnes & Noble and I close my eyes and I reach up and I grab a book on a shelf, nine out of 10 shot, it's going to say buckle up and buy an index fund because you can't beat the market.

The other one in 10 is Robert Kiyosaki's Rich Dad, Poor Dad, right? Like everything else is going to be like buckle up, buy the index fund.

And now for 199 pages, I've got to make you this interesting and fun for you.

They all have the same assumption, you can't beat the market.

So index funds all the way, still, all those books and books

and novels.

So here's the problem is I have another controversial essay coming out taking on index funds called The Index Fund Was an American Revolution, When Will It Turn French? And like, when will the guillotine stop chopping off heads? So I have some thoughts on that that probably are not ready for prime time.

Index funds are a popular passive investment used by many beginner investors to gain exposure to the markets.

The S&P 500 ETF and index fund has got to be one of the most popular investment vehicles ever.

And yet in this interview, Michael Burry argued that because these funds are seeing so many inflows from active and passive investors alike, it's obscuring price discovery.

In other words, people are simply buying the stocks that underlie these indices because they're included in the index and not because of fundamental research.

Therefore, the price of these stocks aren't reflecting their intrinsic value.

Michael Burry even went as far as to say that there are parallels between index funds and CDOs, collateralized debt obligations, the investment that helped fuel the 2008 meltdown.

So my friend's question to me was, is this plausible? Could index funds and ETFs truly be in a bubble? And my answer to that is maybe, but this isn't actually a new argument.

This is something that's been discussed quite a bit within the investment community.

This ultra-extended edition will take us on a slow, thorough, almost meditative journey.

From the intellectual origins of indexing in the nineteen fifties and nineteen sixties, through the birth of the first index fund in nineteen seventy-six, and the decades-long battle for acceptance against a hostile Wall Street establishment, through the explosive growth of index funds and ETFs from the nineteen nineties to the twenty tens, through the dominance of passive strategies by the twenty twenties, through the controversies and criticisms that still swirl around indexing in February twenty twenty-six, and finally, through the profound ways this quiet revolution has changed investing forever, for better, and in the eyes of some critics, for worse.

We will linger on the human side, Bogle's personal struggles, the skepticism he faced, the quiet satisfaction of ordinary investors who benefited, and on the broader implications for markets, corporations, and society.

Let's begin by stepping back into the academic halls, trading floors, and investment committee rooms of the nineteen fifties and nineteen sixties, when a small group of economists and mathematicians began to question the very foundation of active investing.

Vanguard entered the ETF space in 2001 with its Vanguard Total Stock Market ETF, VTI.

BlackRock's iShares and Invesco QQQ followed.

By 2026, global ETF assets exceed fifteen trillion dollars, with passive strategies, index funds plus ETFs, accounting for over fifty percent of US equity assets under management and approaching forty percent globally.

The impact has been profound and multifaceted.

Absolutely.

And this is a good moment to remind ourselves of something we've talked about on this show before: Index funds automatically rebalance.

When one sector gets too heavy, like tech did during the AI wave, the index trims it and buys what's lagging.

That's built-in portfolio management, and it works whether the Fed hikes or cuts.

That's a nice segue to something I've been thinking about.

When the Fed starts talking about hiking again, I always wonder about bonds.

Index funds aren't just stocks.

What about bond index funds?