Index fund industry: Behind one of the greatest financial revolutions of the last 50 years

SOME 50 years ago, the index fund revolution began in the financial markets. Like many revolutions, it opened quietly, with little fanfare. As it started to attract attention, many of its ideas were rebuked by the establishment. But the revolution was kept alive by a number of smart, passionate outsiders who were looking for a way to apply the academic research they studied to real-world investing. Today, index funds have moved from being a fringe investment idea to the point of becoming the establishment.

In Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever, Robin Wigglesworth, the Financial Times global finance correspondent, has penned an enlightening history of the index fund industry. With his gifted writing style, Wigglesworth has taken what could be a dry and boring account of the financial markets and woven a compelling tale of the characters who created one of the greatest financial revolutions of the last 50 years.

The book reads much like a good novel, with interesting characters that we meet along the way. Wigglesworth begins by introducing the major players with short blurbs on their backgrounds. Everyone will be familiar with Warren Buffett and John Bogle on the practitioner side, and students of finance will know of Harry Markowitz, William Sharpe, and Eugene Fama. Many of the indexing revolution's founders, however, are less well known, even to those well versed in academic finance. Some may be unaware that indexing's intellectual development did not begin with the aforementioned scholars, but rather with Louis Bachelier, a French mathematician whose early-20th-century work on the random walk laid the groundwork for the likes of Eugene Fama more than half a century later. Sadly, Bachelier was in the wrong field and ahead of his time, so his work languished in obscurity for many decades.