Latest / Merryn Talks Money / The Portfolio Reset: Episode 1

Transcript

The Portfolio Reset: Episode 1 · Merryn Talks Money

• 0:02
  Speaker 1: Bloomberg Audio Studios. Podcasts.
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  Speaker 2: Radio.
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  Speaker 1: News. John, we're going to start this episode with some
• 0:10
  Speaker 1: number crunching.
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  Speaker 2: Go for it. All right.
• 0:13
  Speaker 1: So we're going to look at what would have.
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  Speaker 3: Happened if I had taken $ 10, 000 10 years ago. I'm
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  Speaker 3: going to do this in dollars just for the sake
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  Speaker 3: of argument. And I put it into a variety.
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  Speaker 1: Of different asset classes.
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  Speaker 2: Okay? Okay.
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  Speaker 3: Now, I'm going to start with global bonds. Imagine that
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  Speaker 3: I put $ 10, 000 into global bonds 10 years ago. I'd
• 0:32
  Speaker 3: have made in total over 10 years about 2.7%, so $ 266. Pathetic.
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  Speaker 3: That's terrible.
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  Speaker 2: That's actually worse than I expected, and I'm keenly aware
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  Speaker 2: of how badly bonds have done over the last few years.
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  Speaker 4: Yeah.
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  Speaker 1: So awful.
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  Speaker 3: There are things I could have put the money in
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  Speaker 3: which would have done a lot better. Global commercial property,
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  Speaker 3: I would have made about 50%. So now I'd have
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  Speaker 3: not $ 10, 000, but $ 15, 000. I could have gone into a
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  Speaker 3: basket of commodities, in which case I would have doubled
• 1:01
  Speaker 3: my money. I could have gone into emerging markets, the
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  Speaker 3: MXEF index, for example, and I would have made 145%.
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  Speaker 3: And then there is, of course, I know what you're
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  Speaker 3: waiting for.
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  Speaker 1: I know what you're waiting for. What are you waiting for, John?
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  Speaker 2: I'm waiting for gold.
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  Speaker 1: You're waiting for gold.
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  Speaker 3: And of course, gold would have done better than all
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  Speaker 3: of those. My $ 10, 000 would now be $ 32, 000.
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  Speaker 1: So that is very good. And of course, we like
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  Speaker 1: gold and well done gold. But of course, it's not
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  Speaker 1: the winner.
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  Speaker 3: Something did better. I reckon all of our listeners know
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  Speaker 3: exactly what that was. But for the sake of argument, John,
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  Speaker 3: what do you think?
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  Speaker 2: Is US stocks or the S & P 500 to
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  Speaker 2: be specific?
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  Speaker 5: Despite the worries over tariffs and a possible AI bubble,
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  Speaker 5: American markets had a stellar year and we're at new
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  Speaker 5: highs today.
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  Speaker 4: The MEX 7 is the way to go.
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  Speaker 1: It's going strong.
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  Speaker 2: You've got to stay invested in.
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  Speaker 1: The MEX 7.
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  Speaker 6: Chart, this longer term chart going back to 2011, maces
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  Speaker 6: us that there could be more gains ahead.
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  Speaker 3: We see a beautiful uptrend of the bull market.
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  Speaker 7: We're not even halfway through the month. We're already up
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  Speaker 7: over 4% on the S & P 500.
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  Speaker 2: For this month. For this month alone.
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  Speaker 1: That is exactly it.
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  Speaker 3: Now, if I put that same $ 10, 000 into a super
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  Speaker 3: simple S & P 500 tracker fund, middle of August 2016,
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  Speaker 3: I would have $ 41, 000. So I would have made over 310%,
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  Speaker 3: which is an awful lot better than 2.7%.
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  Speaker 2: That is a pretty extraordinary investment.
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  Speaker 3: And when you look at it, you look at that,
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  Speaker 3: you look at those numbers I've just given, and it
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  Speaker 3: totally explains why everybody invests the way they invest today.
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  Speaker 3: Look at that and you think to yourself, well, why
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  Speaker 3: would I do anything except for just buy a cheap
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  Speaker 3: S & P 500 tracker and hold it and get
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  Speaker 3: on with living. Wipe out stocks, wipe out fund manager, well,
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  Speaker 3: worry about which markets are cheap, which are expensive.
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  Speaker 2: Yeah, and a lot of people have actually thought that way.
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  Speaker 3: And that is why we have seen this massive rise
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  Speaker 3: in passive investing. It's gone from something kind of niche
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  Speaker 3: to something that is actually the default. New investors come in,
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  Speaker 3: they buy the index, they keep their funds low, they
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  Speaker 3: don't fiddle with it.
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  Speaker 1: That's that.
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  Speaker 2: Okay, so what's the catch?
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  Speaker 1: Maybe there isn't one. Maybe, okay, there is.
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  Speaker 3: Those numbers tell you what worked over the last 10 years.
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  Speaker 3: They do not tell you what's going to work over
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  Speaker 3: the next 10. And there is a question to ask
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  Speaker 3: about that. Is the investment strategy that won the last
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  Speaker 3: decade necessarily the one that you want to follow for.
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  Speaker 1: The next decade?
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  Speaker 3: Welcome to our special mini-series, The Portfolio Research, getting your
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  Speaker 3: money to do more. I'm Meryn Somset-Webb, editor-at-large for Bloomberg
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  Speaker 3: UK Money and author of the weekly Meryn Talks Money newsletter.
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  Speaker 2: I'm John Stebbick, senior reporter and author of the daily
• 3:46
  Speaker 2: Money Distilled newsletter.
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  Speaker 3: And over three episodes, we are going to question some
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  Speaker 3: of the assumptions underpinning investment today, how to think about
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  Speaker 3: what that might mean for your own strategy. We'll start
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  Speaker 3: with talking about how lots of investors became convinced that
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  Speaker 3: passive was the smartest, perhaps even the only, way to invest.
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  Speaker 7: It's got to the point where everyone thinks that passive
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  Speaker 7: investing is itself some solution.
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  Speaker 3: And how the rise of passive has combined with a
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  Speaker 3: lengthy period of outperformance by the US stock market to
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  Speaker 3: create risks that many investors may not be entirely aware of.
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  Speaker 2: You end up with what looks like a market concentration
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  Speaker 2: in seven companies.
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  Speaker 1: That's part of the reason.
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  Speaker 2: why everything is so expensive.
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  Speaker 3: There's no guarantee that just because the market has had
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  Speaker 3: an amazing run, the future will be like the past
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  Speaker 3: at all. This means that investors building and reviewing portfolios
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  Speaker 3: today may need to reconsider their assumptions about the recent
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  Speaker 3: past and change their approach accordingly.
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  Speaker 2: You've got to think differently.
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  Speaker 7: You've got to diversify properly and you've got to capture
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  Speaker 7: alternative assets.
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  Speaker 3: And at the end of the series, we are going
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  Speaker 3: to dedicate a whole episode to answering your questions. So
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  Speaker 3: as you listen, be sure to email us at mirrormoney
• 4:58
  Speaker 3: at bloomberg.net. All right, John, before we go any further
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  Speaker 3: into this, we need to take a step back. Let's
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  Speaker 3: have a go at defining what it is that we
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  Speaker 3: mean by passive investing.
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  Speaker 4: Passive investing is when you're simply building buying the market.
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  Speaker 4: And the purest expression of what passive is, is to
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  Speaker 4: buy a market cap weighted tracker.
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  Speaker 3: That's Simon Evan Cook, fund manager at Downing Fund Managers.
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  Speaker 3: And the important bit there is this, you're buying the market.
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  Speaker 3: You are not paying someone to decide that this company
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  Speaker 3: looks cheap, that company looks expensive, this one's going up,
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  Speaker 3: that one's going down, all that stuff.
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  Speaker 1: You own the lot.
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  Speaker 2: Easy. Yeah, but in this particular case, you don't own
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  Speaker 2: equal amounts of the lot.
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  Speaker 3: That's a very important distinction. And he explains this by
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  Speaker 3: looking at the example of the FTSE 100, which is
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  Speaker 3: simply an index of the 100 largest companies listed on
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  Speaker 3: the London Stock Exchange by their market value.
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  Speaker 4: So in the UK, let's say that's the FTSE 100,
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  Speaker 4: you will be buying those 100 companies within your tracker,
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  Speaker 4: but you will have much more exposure to the biggest
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  Speaker 4: companies within the index, the likes of a BP or
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  Speaker 4: a Shell, for example, than you will to company number
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  Speaker 4: 99 or 100.
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  Speaker 2: So the bigger a company gets, the more of it
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  Speaker 2: you own.
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  Speaker 3: And take that across the Atlantic to the S &
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  Speaker 3: P 500, and you can immediately see why this matters.
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  Speaker 2: Because what's sitting at the top of the S & P?
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  Speaker 3: It is the enormous American technology companies, the Magnificent Seven.
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  Speaker 3: So that's Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla,
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  Speaker 3: what we call a Mag7. And as these have become
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  Speaker 3: more valuable, they've become a bigger and bigger part of
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  Speaker 3: the index.
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  Speaker 1: But John.
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  Speaker 3: Here is the thing with all this. Passive investing now
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  Speaker 3: feels so obvious, as we said, it's the thing that
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  Speaker 3: everybody does. It's now become quite easy to forget just
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  Speaker 3: how radical, how innovative, how extraordinary the idea once was.
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  Speaker 2: Yeah, because in the old days, you couldn't easily track
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  Speaker 2: an index. You just had to pay money to a
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  Speaker 2: fund manager or a financial advisor and give them a
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  Speaker 2: big commission to find what, in theory, were the best
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  Speaker 2: investments for you.
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  Speaker 1: But then things changed, thanks to John Bogle.
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  Speaker 8: Picking stocks or funds, finding that elusive needle that will
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  Speaker 8: give you what you think you want in the future
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  Speaker 8: is very difficult. We all know the metaphor of finding
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  Speaker 8: a needle in a haystack. It means forget it. It's
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  Speaker 8: not worth trying. And I would argue the same thing here.
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  Speaker 8: Own the haystack means own the entire U.S. stock market
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  Speaker 8: or the entire world stock market. And don't do anything
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  Speaker 8: once you get the haystack. No more looking for needles.
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  Speaker 3: So John, or Jack as he was sometimes called, founded
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  Speaker 3: Vanguard back in the 1970s. It is now one of
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  Speaker 3: the world's largest investment companies.
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  Speaker 5: His two big ideas were really democratizing investment and bringing
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  Speaker 5: it to everyday investors. He really started to realize, based
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  Speaker 5: on a lot of academic work that had been done
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  Speaker 5: while he was at Princeton, that actually, if you bought
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  Speaker 5: the market, you could actually lower costs. You don't have
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  Speaker 5: to spend money in hiring active managers who have to
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  Speaker 5: pick winners, which is actually quite difficult to do.
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  Speaker 1: So the proposition here was wonderfully simple.
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  Speaker 3: Stop trying to find the cleverest person in the room,
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  Speaker 3: buy the market, keep your costs low as possible and
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  Speaker 3: stay invested.
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  Speaker 5: Jack Bogle's vision was investing shouldn't just be for the
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  Speaker 5: rich and the wealthy who can afford to pay high
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  Speaker 5: fees for active management.
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  Speaker 2: And that was actually arguably the most important point in
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  Speaker 2: his favour. If you don't have a human fund manager
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  Speaker 2: to pay, then It's far cheaper to just track these stocks.
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  Speaker 4: What Jack Bogle realized was that actually you could buy
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  Speaker 4: the market and do better than the average fund manager
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  Speaker 4: because the average fund manager in theory will be the market.
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  Speaker 4: And if you're paying lower charges than the average fund manager,
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  Speaker 4: you'll do slightly better than average.
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  Speaker 1: That is Simon Evan Cook again making the killer argument.
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  Speaker 2: Yeah, it's just basic maths.
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  Speaker 3: It is, it is.
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  Speaker 1: But full cost to the average investor.
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  Speaker 2: Is the market.
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  Speaker 3: After costs, the average investor, by definition, has to do
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  Speaker 3: worse than the market, right? So if I can simply
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  Speaker 3: own the market and pay almost nothing to do it.
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  Speaker 2: Then you're already ahead of an awful lot of people
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  Speaker 2: who are paying rather more.
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  Speaker 3: Anyway, the arrival of passive funds then put huge pressure
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  Speaker 3: on the old-fashioned active investing model, which, by the way,
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  Speaker 3: was not a bad thing.
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  Speaker 1: They forced fees.
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  Speaker 3: Down, they gave ordinary investors cheap diversification, they made investing simpler,
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  Speaker 3: and they made it accessible... So we need to be
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  Speaker 3: absolutely clear, John, before we move on to complaining about this,
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  Speaker 3: that passive investing was an absolutely brilliant invention. But there's
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  Speaker 3: another reason passive investing has become so widespread. It's been
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  Speaker 3: perfectly suited to the market investors found themselves in.
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  Speaker 1: We'll explain more on that. after the break.
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  Speaker 2: So Meryn, passive really took off in the 1990s and
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  Speaker 2: especially the 2000s because the market looked very different then.
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  Speaker 1: Very different. There were thousands of listed companies back then.
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  Speaker 3: Successful companies tended to come to the stock market pretty
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  Speaker 3: early in their lives. So if you wanted exposure to
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  Speaker 3: the growth of the economy across the board, a pretty
• 10:30
  Speaker 3: good place to find it was the public markets.
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  Speaker 2: By the market really actually did get you quite a
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  Speaker 2: lot of the market. You also had ETFs or exchange-traded funds.
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  Speaker 1: The exchange-traded fund.
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  Speaker 3: The ability to package an index into something that you
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  Speaker 3: could buy and sell on an exchange as if it
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  Speaker 3: were actually a share itself.
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  Speaker 2: Now, these were introduced in the early 1990s, but at
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  Speaker 2: that point, they were mostly used by institutional investors. It
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  Speaker 2: wasn't until the 2000s they really became big with retail investors.
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  Speaker 2: But when they did, they really did become big. They
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  Speaker 2: turned passive investment into a mass market product. and also
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  Speaker 2: meant that unlike the original tracker funds, you could buy
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  Speaker 2: and sell during the day if you wanted to. And
• 11:14
  Speaker 2: also online broking was becoming a much bigger thing then,
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  Speaker 2: so you could just sign up for them through your
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  Speaker 2: ordinary online account, you know, R. Graves Lansdowne, Charles Schwab, E-Trade,
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  Speaker 2: depending where you are. And obviously this took the essential
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  Speaker 2: idea of an index fund, but it made it even
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  Speaker 2: more accessible, even more flexible, and even cheaper for the
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  Speaker 2: everyday investor.
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  Speaker 1: ETFs made the whole thing even more convenient.
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  Speaker 3: You know, you didn't have to do anything except for
• 11:41
  Speaker 3: go into your account and buy and sell. And at
• 11:43
  Speaker 3: the same time, benchmarking became much more important. Investors increasingly
• 11:49
  Speaker 3: knew exactly what the market itself had returned. And there's
• 11:53
  Speaker 3: widespread information available to ordinary investors. You can see what
• 11:56
  Speaker 3: the market as a whole has made people. And then
• 11:59
  Speaker 3: you can see how much your expensive active fund had
• 12:02
  Speaker 3: failed to keep up with the market. And that created
• 12:06
  Speaker 3: rather a powerful feedback loop. Active managers underperform.
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  Speaker 1: Which they mostly do.
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  Speaker 3: Investors move their money into index funds and ETFs. Passive
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  Speaker 3: funds gets bigger and bigger and bigger and cheaper and
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  Speaker 3: cheaper and cheaper. More money flows in and the evidence
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  Speaker 3: for going passive over active becomes more and more compelling.
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  Speaker 4: But then into the financial crisis and the rise of
• 12:28
  Speaker 4: the MAG7, which you're starting to see from the 2009, 10, 11,
• 12:30
  Speaker 4: 12 onwards, you've seen passive take another massive leg up
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  Speaker 4: to the point now where we've passed the point by
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  Speaker 4: many measures where it's more than half the market.
• 12:43
  Speaker 1: Now, we should be careful with that half the market figure, right?
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  Speaker 3: Because people bandy these numbers around, but actually measuring precisely
• 12:50
  Speaker 3: how much of the market is passive is really surprisingly difficult.
• 12:54
  Speaker 1: It's not that easy.
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  Speaker 2: Yeah, but the direction of travel isn't very hard to spot.
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  Speaker 1: No, that's fair.
• 12:59
  Speaker 3: Definitely getting bigger and bigger, gone from insurgent strategy to
• 13:03
  Speaker 3: mainstream strategy.
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  Speaker 2: Okay, so we've established that Bogle's popularization of passive investing
• 13:08
  Speaker 2: changed things a lot. It brought more investors into the market,
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  Speaker 2: made everything cheaper and much more accessible. So it was
• 13:13
  Speaker 2: a good thing. We also established the rise of ETFs
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  Speaker 2: in the 90s and 2000s, made it even easier and
• 13:19
  Speaker 2: even more accessible. And then after the financial crisis in 2008,
• 13:24
  Speaker 2: passive really accelerated in adaptation as people lost faith in
• 13:29
  Speaker 2: financial institutions in general and were looking to cut the
• 13:32
  Speaker 2: cost of investing even further.
• 13:34
  Speaker 3: So now we need to recognize that as passive investing
• 13:37
  Speaker 3: became more mainstream, something else was happening, a worrying increase
• 13:42
  Speaker 3: in market concentration.
• 13:44
  Speaker 2: And that's important because remember, the more concentrated the market becomes,
• 13:47
  Speaker 2: the more concentrated investors' portfolios become too. And that's especially
• 13:52
  Speaker 2: so in a market dominated by passive investing.
• 13:55
  Speaker 3: And we bring this up because this entire series is
• 13:58
  Speaker 3: about thinking about why passive investing, this really popular strategy
• 14:02
  Speaker 3: of buying and holding an S & P tracker, isn't
• 14:05
  Speaker 3: necessarily a perfect strategy. So the very word passive makes
• 14:10
  Speaker 3: it sound as though you're making absolutely no decisions at all.
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  Speaker 3: It's literally all done for you. Only decision you have
• 14:18
  Speaker 3: to make is to passively invest. And that is that.
• 14:21
  Speaker 1: You're just buying everything. Job done. But of course, you're
• 14:25
  Speaker 1: not actually buying everything. You're buying an index.
• 14:29
  Speaker 3: And an index is just a set of rules and
• 14:31
  Speaker 3: judgments about what counts and what doesn't. In the same
• 14:35
  Speaker 3: way that an active fund manager makes decisions about what
• 14:38
  Speaker 3: they're going to put in and out of a fund,
• 14:40
  Speaker 3: an index provider does kind of the same.
• 14:43
  Speaker 7: Even the indices that you're tracking have made decisions. The
• 14:47
  Speaker 7: S & P 500 is a market cap weighted index.
• 14:50
  Speaker 7: That's a decision.
• 14:51
  Speaker 3: That's Paul Kearney, executive chairman of Asset Risk Consultants. He
• 14:55
  Speaker 3: advises family offices and foundations on their investment strategies. He's
• 14:59
  Speaker 3: been in the wealth space for more than two decades
• 15:01
  Speaker 3: and has worked in private banking and investment consulting. Paul
• 15:05
  Speaker 3: mentions the market cap weighted index. That's the one where
• 15:07
  Speaker 3: the index gives larger companies a higher percentage weight in
• 15:10
  Speaker 3: the index. So the bigger your company, the more of
• 15:12
  Speaker 3: the index you make up.
• 15:14
  Speaker 7: So there are judgments being displayed everywhere in the construction
• 15:18
  Speaker 7: of the indices, as well as which index you're choosing
• 15:21
  Speaker 7: to follow and which mix of the indices you're choosing
• 15:24
  Speaker 7: to put together.
• 15:25
  Speaker 1: So there's the point. Someone makes the decision.
• 15:28
  Speaker 3: And the risk, of course, is that the investors don't
• 15:30
  Speaker 3: think about the fact that they are actively making decisions.
• 15:35
  Speaker 2: And as Simon talked at the beginning, most of the
• 15:37
  Speaker 2: trackers we're talking about are market cap weighted. And that
• 15:40
  Speaker 2: means the more valuable something becomes, the more of it
• 15:42
  Speaker 2: you own. And that's all very well while the thing
• 15:46
  Speaker 2: that is becoming more valuable keeps on becoming more valuable.
• 15:51
  Speaker 1: Until maybe it doesn't. And you can see where a
• 15:53
  Speaker 1: problem has crept in.
• 15:55
  Speaker 3: Because over the last couple of decades, one market has
• 15:57
  Speaker 3: become vastly more important than all the others.
• 16:01
  Speaker 1: The United States.
• 16:09
  Speaker 3: It's quite hard to remember a time now when American
• 16:12
  Speaker 3: dominance didn't feel completely inevitable. But our Bloomberg Opinion colleague,
• 16:17
  Speaker 3: Senior Editor for Markets John Authors, does remember.
• 16:21
  Speaker 6: I think it's now 20 years since I had a
• 16:24
  Speaker 6: story on the front of the second section of the
• 16:26
  Speaker 6: BFT when European market cap overtook US market cap.
• 16:32
  Speaker 1: Imagine that. Europe overtaking America.
• 16:35
  Speaker 6: I don't know that anybody thought that it was quite
• 16:38
  Speaker 6: as inevitable as people feel American exceptionalism is now, but
• 16:43
  Speaker 6: they did think it was going to continue.
• 16:45
  Speaker 3: And let's not forget that America had a pretty miserable
• 16:47
  Speaker 3: start to the century. Those first nine years, it returned
• 16:50
  Speaker 3: almost nothing, and everything else outperformed, even when the FTSE
• 16:53
  Speaker 3: 100 massively outperformed the S & P 500. How did
• 16:57
  Speaker 3: we get from the U.S. being a, frankly, really very
• 17:00
  Speaker 3: poor investment to a world in which the U.S. market
• 17:02
  Speaker 3: feels almost entirely unaffected?
• 17:05
  Speaker 1: Beatable.
• 17:06
  Speaker 6: Single biggest reason is the US has tech and those
• 17:10
  Speaker 6: have become dominant global industries.
• 17:14
  Speaker 3: And that transformation matters enormously for passive investors.
• 17:18
  Speaker 2: Let's say you think you're doing the most neutral thing imaginable.
• 17:21
  Speaker 2: You buy a global market cap weighted tracker. But what
• 17:25
  Speaker 2: have you actually bought?
• 17:26
  Speaker 1: You've bought America and you've bought a lot of America.
• 17:29
  Speaker 3: Look back the bit we were just talking about underperformance
• 17:32
  Speaker 3: for the US. Back then the US market was a
• 17:34
  Speaker 3: under half the MSC World Index, but no more. Buy
• 17:37
  Speaker 3: that same index today and you're buying 70% America and
• 17:41
  Speaker 3: almost no UK, for example. So the market is being
• 17:45
  Speaker 3: dominated by a country. And within that, you've got stocks
• 17:48
  Speaker 3: that are much more dominant as well.
• 17:50
  Speaker 2: And it has still outperformed, which has been great.
• 17:53
  Speaker 1: Absolutely.
• 17:53
  Speaker 3: It's been fantastic if that's what you've had. But there's
• 17:56
  Speaker 3: a really important distinction here between saying, yes, this worked
• 18:00
  Speaker 3: extremely well, it's been absolutely fantastic, and saying, this is diversified,
• 18:05
  Speaker 3: this is a good strategy. And then, of course, there's
• 18:07
  Speaker 3: the psychological effect. The longer this American outperformance continues, the
• 18:11
  Speaker 3: less it feels like outperformance and more it feels like
• 18:14
  Speaker 3: just the way things are, the natural order of things.
• 18:17
  Speaker 1: Here's Paul Kearney again.
• 18:18
  Speaker 7: I think it's had a dramatic impact. I think it's
• 18:21
  Speaker 7: sort of become the only show in town. The challenge
• 18:24
  Speaker 7: that gives is that the longer it goes on, it
• 18:30
  Speaker 7: feels normal. This concentration feels sensible because it's been successful,
• 18:36
  Speaker 7: but it is a concentrated bet.
• 18:38
  Speaker 3: Let's think about what Paul is actually saying here for
• 18:40
  Speaker 3: a moment. He is saying that concentration feels sensible because
• 18:46
  Speaker 3: it's been successful.
• 18:48
  Speaker 2: Yeah, and successful investments are a remarkable habit of making
• 18:52
  Speaker 2: the risks that got you there look rather less risky
• 18:55
  Speaker 2: with hindsight.
• 18:56
  Speaker 3: So Paul isn't saying, and we are not saying, that U.S.
• 18:59
  Speaker 3: exceptionalism might end tomorrow and suddenly you'll feel the risk.
• 19:03
  Speaker 2: Yeah, I mean, it could carry on for years, conceivably.
• 19:05
  Speaker 1: Yeah, yeah, it might. It might.
• 19:07
  Speaker 3: But that is not the point. The point is that
• 19:09
  Speaker 3: a portfolio can be enormously successful, but also very concentrated
• 19:15
  Speaker 3: and hence kind of risky.
• 19:17
  Speaker 6: It's not unusual for a fair amount of concentration to
• 19:20
  Speaker 6: occur and for at any one point there to be
• 19:22
  Speaker 6: some very clear winners and some clear losers. What we're
• 19:26
  Speaker 6: seeing at the moment is unusual. The dominance of the
• 19:30
  Speaker 6: top 1, 5, 10 is the last I checked, all-time records.
• 19:36
  Speaker 2: And it has continued to intensify.
• 19:37
  Speaker 3: So that's the first big challenge to the passive investment strategy.
• 19:41
  Speaker 3: Extraordinary concentration, first in the US and then in a
• 19:45
  Speaker 3: handful of giant tech stocks. Now, you may be wondering
• 19:49
  Speaker 3: why we're telling you all this. What's the takeaway from it?
• 19:53
  Speaker 3: What it means is that you're thinking about your portfolio
• 19:56
  Speaker 3: or the things that you have in your portfolio, possibly
• 19:59
  Speaker 3: in slightly the wrong way.
• 20:01
  Speaker 2: Right, John?
• 20:02
  Speaker 1: Yeah.
• 20:03
  Speaker 2: Basically, there might be an awful lot more of specific
• 20:05
  Speaker 2: stocks in the unspecific countries than you expect. or believe,
• 20:10
  Speaker 2: and is far less diversified than you might currently think.
• 20:15
  Speaker 3: So when you're looking at it, you need to look
• 20:17
  Speaker 3: at it through that prism. What's really inside it?
• 20:21
  Speaker 2: But even concentration risk isn't the end of the story.
• 20:26
  Speaker 2: In the next episode, we look at another shift that
• 20:29
  Speaker 2: also changes the picture.
• 20:31
  Speaker 7: Companies go from, you know, zero dollar valuations to trillion
• 20:34
  Speaker 7: dollar valuations.
• 20:35
  Speaker 2: And it involves companies like SpaceX, Anthropic, and OpenAI.
• 20:39
  Speaker 7: Everyone thinks that there is gold at the end of
• 20:42
  Speaker 7: the rainbow. If you're excluding yourself from investing in that,
• 20:46
  Speaker 7: how much are you impacting your returns?
• 20:50
  Speaker 3: Put all of these changes together and you get to
• 20:52
  Speaker 3: a slightly paradoxical conclusion. If you want to invest passively,
• 20:56
  Speaker 3: you may need to make some very active decisions about
• 20:59
  Speaker 3: where your money goes. Thanks for listening to this first
• 21:04
  Speaker 3: episode in our three-part investment series. And as a reminder,
• 21:06
  Speaker 3: we will have a final episode addressing listeners' questions. So
• 21:10
  Speaker 3: please do send them into our show email, merinmoney at bloomberg.net.
• 21:13
  Speaker 3: You can send that in as an email or a
• 21:15
  Speaker 3: voice note. We might even play your question on the show.
• 21:20
  Speaker 3: And as always, if you like this episode, share it
• 21:21
  Speaker 3: with a few friends and leave us a review wherever
• 21:23
  Speaker 3: you listen to podcasts. This episode was produced by Summer Saadi,
• 21:26
  Speaker 3: Moses Andem, and Jennifer Seeley. Amy Keene is Executive Producer
• 21:30
  Speaker 3: for Talk Podcasts And Cheryl Brumley is head of our podcast.
• 21:33
  Speaker 1: We'll be back next week with more.