In recent years three companies have amassed so many assets
in the public markets that they've
come to eclipse all other investors in terms
of size and market power.
So here's the deal.
People are really bad at picking which
stocks are going to succeed and which stocks are going to fail.
You may have heard the example that a blindfolded monkey
throwing darts at a stock list does better
than a professional.
Well, in a lot of cases, that's actually true.
So a man named Jack Bogle invented something
called the index fund.
And the index fund basically instead
of choosing which stocks you think are going to succeed
and which are going to fail, you just take a basket of stocks
and you track it.
So the S&P 500, for example, is a basket of stocks.
It's the 500 largest companies in the US
and it's weighted by their size.
So this is often referred to as passive investing
because you're not sitting around researching which
companies are going to do well this year, which
ones are going to do poorly.
You're not trading in and out of those.
You're just putting your money in an index fund
and letting it do its thing.
Now, let's switch to something else.
Perhaps, you've heard of a monopoly.
Perhaps, you've also heard of an oligopoly.
An oligopoly is essentially the same thing as a monopoly.
In a monopoly, there is one company
providing all the goods and services
in a particular market.
In an oligopoly there's just a small handful
of companies providing all the goods
or services in a single market.
So one example of this is phone services
in the US, which you're basically limited
to AT&T, Verizon, T-Mobile, or Sprint
if you want phone services in the United States.
So that is an oligopoly.
Well, in the world of index investing
we have what's emerging to be a bit of an oligopoly as well.
The three companies that comprise it
are Vanguard, that one that was started by Jack Bogle.
By the way, that's the largest provider
of mutual funds in the world.
You also have BlackRock and you also have State Street.
Now this chart, which is produced from research
by Backus, Sinkinson, and Conlon,
shows the ownership of an average company.
I'm sorry, the average ownership of a typical company
by these three firms.
So I put the per cent here to remind you
that Vanguard, if you can see it in 2017,
was approaching average ownership of 9 per cent
of a typical company.
Now, 9 per cent may seem on its face like a small number,
but think about this: if you combined these three companies
they would be the single largest shareholder of 9 out
of every 10 public companies.
That is just massive power.
And you can see it's been increasing in the last two
decades.
So shortly before his death, Jack Bogle, the inventor
of index funds, he even admitted that there is a bit of concern
if these three firms continue this path of market dominance.