Acquired
01:10:34 · Ben Gilbert, David Rosenthal
[01:10:34] S0: Yes. It is. Listeners, if you are running a large enterprise, then AI agents are likely spread across every single team, and deploying them is actually not the hard part anymore. [01:10:47] S1: Yep. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. The risks are real. [01:11:00] S0: Yep. So if you think about the companies like the ones we cover, at that scale, you can't have a blind spot. Your systems, your employees, your permissions, they all need to be accounted for to maintain customer trust. That is the problem that many companies have with AI right now. A lot of intelligence, but not enough visibility. [01:11:19] S1: Yep. And that is what ServiceNow does. Building on top of their end to end enterprise workflows, every device on your network, every permission across every system, your AI agents, all visible and secure in one place. [01:11:32] S0: They've been at this for over twenty years. Today, they run the workflows behind more than 85% of the Fortune 500, over 95,000,000,000 workflows a year. A big part of the world already works with ServiceNow. [01:11:44] S1: And now as the AI control tower, they're giving companies a single place to manage all of it, turning AI chaos into AI control.
01:11:44 · David Rosenthal, Ben Gilbert
[01:11:44] S1: And now as the AI control tower, they're giving companies a single place to manage all of it, turning AI chaos into AI control. [01:11:52] S0: So listeners, if you are thinking about how to scale AI securely, go check out servicenow.com/acquired, and just tell them that Ben and David sent you. So, David, the creation of the first commercially available index fund for retail investor consumers. [01:12:13] S1: Yes. [01:12:13] S0: People really care. Right? They're they're they're lining up around the block for this thing. It's the most hotly anticipated financial product of all time, except that it's not at all. [01:12:22] S1: It's so funny. This would change the world, and not just, like, [01:12:26] S0: a little bit, like, a massive, massive impact. Most of all of your net worth is in these funds. [01:12:34] S1: Yeah. People today are concerned that index and passive funds are too much of the market. What will happen to corporate governance when 70% of the equity ownership of America's companies are all in passive index funds? Like, this is, you know, existential fear happening right now. That could not be farther away from the reaction in the industry to the launch of these things fifty years ago. Okay. So, David, take [01:13:04] S0: us to 1974 and the journal article that inspired it all.
01:13:04 · Ben Gilbert, David Rosenthal
[01:13:04] S0: us to 1974 and the journal article that inspired it all. [01:13:09] S1: Yes. Yes. The Journal of Portfolio Management, where Nobel Prize winning American economist Paul Samuelson had written that fall in 1974 that he had been studying market returns and active fund manager returns in this new mutual fund industry, and he had found no actual evidence that any fund managers could systematically outperform the market. And in the conclusion of the paper, he argues that, well, there's an obvious, opportunity here. Somebody should come along and offer a fund that, quote, apes the whole market, requires no load, and keeps commissions, turnover, and management fees to the feasible minimum, AKA an index fund. [01:14:06] S0: And interestingly, I actually didn't realize he proposed the sort of commercial availability of it like that. The part of it that I read was some large foundation should set up an in house portfolio that tracks the S and P 500 index if only for the purposes of setting up a naive model against which their in house gunslingers can measure their prowess. Yeah. No. He was thinking about distribution to retail, like, in that paper by talking about no load, but you are touching on something. This idea of an index fund that would passively track the stock market was not totally new. A couple people in institutional circles
01:14:06 · Ben Gilbert, David Rosenthal
[01:14:06] S0: And interestingly, I actually didn't realize he proposed the sort of commercial availability of it like that. The part of it that I read was some large foundation should set up an in house portfolio that tracks the S and P 500 index if only for the purposes of setting up a naive model against which their in house gunslingers can measure their prowess. Yeah. No. He was thinking about distribution to retail, like, in that paper by talking about no load, but you are touching on something. This idea of an index fund that would passively track the stock market was not totally new. A couple people in institutional circles [01:14:49] S1: had had the same or similar realization in the years leading up to this, that this could be an interesting idea. And in fact, the whole idea of having an index or indices in the first place really is the precursor to this idea. Like, people wanted some way to measure the entire market. I mean, that's what the Standard and Poor's 500 is. That's what the Dow Jones Industrial Average is. These things go all the way back to the eighteen hundreds. Like, newspapers wanted a way to report on the movement of the market. [01:15:21] S0: The delicious thing is that it took, like, a hundred years from the founding of those to think, maybe this isn't just a benchmark we should measure ourselves against, but maybe this is actually a great investment product. [01:15:33] S1: Yes. This could be an asset class in and of itself.
01:15:33 · David Rosenthal, Ben Gilbert
[01:15:33] S1: Yes. This could be an asset class in and of itself. [01:15:36] S0: And it makes sense because why would anyone want to buy the average? I mean, why would you want to own the fiftieth percentile of the market isn't the whole point to work with a great investment manager who can beat the market. Why would you just want beta? You want alpha on top of beta. It's not a immediately saleable proposition to say, hey. Don't you wanna be average? [01:16:01] S1: Right. Right. It's uniquely counter to this sort of whole American way of being and aspiration of America. American exceptionalism. It's funny. If this had all been in Europe or somewhere else, it might have emerged sooner. [01:16:15] S0: But That's [01:16:15] S1: funny. Anyway, so, yeah, a couple people had tried to make this idea work on the institutional side before. Most prominently, the pension management division of Wells Fargo, so, like, the division of Wells Fargo that would manage and administer pensions for large corporations. They had actually created an index fund for the pension fund of the Samsonite Luggage Corporation a few years earlier. Amazing. Incredible. But it had failed. They couldn't make it work because, actually, this was a deceptively hard problem. In order to do this, to create a fund that continuously tracked something like the S and P 500 index, you needed a lot of software. You had to have automation. Humans could not do this.
01:16:15 · David Rosenthal, Ben Gilbert
[01:16:15] S1: funny. Anyway, so, yeah, a couple people had tried to make this idea work on the institutional side before. Most prominently, the pension management division of Wells Fargo, so, like, the division of Wells Fargo that would manage and administer pensions for large corporations. They had actually created an index fund for the pension fund of the Samsonite Luggage Corporation a few years earlier. Amazing. Incredible. But it had failed. They couldn't make it work because, actually, this was a deceptively hard problem. In order to do this, to create a fund that continuously tracked something like the S and P 500 index, you needed a lot of software. You had to have automation. Humans could not do this. [01:17:10] S0: Right. The point of the S and P 500 is to create a subset of the total market that has essentially the same returns but with a smaller set of companies. So you don't need the thousands of companies. You just need this 500. But even setting up the systems to track 500 companies' movements day to day, sophisticated. Yeah. The other thing that makes it challenging is it's kind of expensive to buy, especially in whole share denominated amounts, a representative correctly weighted set of the entire S and P 500. Today, the minimum quantity of dollars you would need to do it on your own without buying into a fund is about 3 and a half million dollars to the sort of minimum efficient or or minimum representative S and P 500.