 Welcome, everyone, to the Bogle Heads On Investing Podcast, episode number two. In this episode, we have a special guest, Dr. David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. My name is Rick Ferri and I'm the host of Bogle Heads On Investing, a podcast made available by the John C. Bogle Center for Financial Literacy, a 501C3 corporation. In this episode, we're talking with David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, who has the overall responsibility for index security selection, as well as index analysis and management. Before Dr. Blitzer became the chairman of the index committee, he was standard and poorest chief economist. Dr. Blitzer can discuss many things with us about the Dow Jones Industrial Average and the S&P, which he is the head of the committee. But there is one thing he cannot discuss. He cannot tell us which stocks they are going to be selecting next for those indexes, which are highly confidential until the day that they're announced. However, today we are going to be talking a lot about the methodology behind the selection of various stocks that go in and out of the Dow Jones Industrial Average and the S&P 500, as well as many other indexes. In addition, we'll talk about how the world has changed because of indexing. It's no longer just a benchmark, it's now an investment strategy, and that has changed the entire indexing industry. Finally, we'll talk about how active managers are having a very difficult time beating indexes, not only in the United States, but globally, and how that is expanding the use of indexing and index products. Let's get to our podcast. With no further ado, let me introduce Dr. David Blitzer of S&P Dow Jones Indices. Good morning, Dr. Blitzer. Good morning. You can call me David, and it's a pleasure to be here. Okay, thank you, David. Well, you have a lot of responsibility. How many indexes are you following at S&P Dow Jones? I guess two points at the background to start off. We usually talk about something like a billion indices produced on a daily basis, which sounds like an incredible amount, but one has to think about how indices sort of break down into other indices. If you think about the S&P 500, which is obviously a single index, but each company in the index is categorized into a sector like technology, an industry group, an industry, and a sub-industry, and for all those categories, we create other indices as well. Plus, we may have a version that's equally weighted instead of weighted by market value and so on. So the single S&P 500 by itself begets probably close to 500 indices, and that's how we get to this surprisingly high number of a million. In terms of committees, we actually have about 45 committees organized by geography, by stocks versus bonds versus commodities, and that kind of thing. In some cases, we run indices in cooperation with an exchange. An example would be we run indices in Canada called S&P TSX, TSX is Toronto Stock Exchange. There's a committee for just those Canadian indices, which has people from the Toronto Stock Exchange as well as people from S&P Dow Jones sitting on it. I directly chair probably about 15 of the 45 committees, and I sit on most of the other ones. So it sounds like a lot of responsibility, especially since some of the biggest indexes we know of, such as the S&P 500 and the Dow Jones industrial average are included in those. I have a question about that. It wasn't always S&P Dow Jones industrial average. When did it start to become S&P Dow Jones industries as opposed to S&P indices and a separate company called Dow Jones? There must have been some sort of a merger or acquisition along the way. There was a merger or maybe one called a combination that was completed in the second half of 2012. It was a bit of history behind it. To go back a ways, Dow Jones was originally owned by Dow Jones and Company, which owns the Wall Street Journal. I won't get all the dates right, but around about 2005 or 2006, News Corp, which now owns the Wall Street Journal, acquired Dow Jones and Company. Following that, News Corp looked around and they ended up selling it to the Chicago Mercantile Exchange, which people probably know because futures on indices are traded on the Chicago Mercantile Exchange or the CME. We rolled forward a couple of years, and the CME out in Chicago found itself running a bunch of indexes in New Jersey that had a big interest in indices also, and that is the futures on the S&P 500 are traded on the Chicago Mercantile Exchange or what we sometimes call the Merc. At the same time, S&P was very interested in what was going to go on because of the Dow Jones industrial average, which we knew to be a wide-we followed major index. The result of a series of discussions and arrangements was that two firms got together and really brought a lot of complementary strengths. There were certain ideas that people at Dow had done, which we wish we had done, one of the first really successful indices based on dividends, was done by Dow and very successful, and we've done some, but not quite as successful as that. They looked at us and we had been much more successful with big institutional investors and the 500 than they had been with the Dow, and it just made sense to put everything together. Obviously took a lot of discussion and so forth, but on November 1st, 2012, as New York City was virtually flooded by a storm called Superstorm Sandy, we started doing business with one company. Now, if I recall correctly, prior to S&P and Dow Jones doing a business combination so that one of your committees took over the Dow Jones industrial average, it was the editors of the Wall Street Journal who were picking the 30 Dow Jones stocks. Do they still have involvement in that? Yes, they do. I don't know firsthand the history of the Dow Jones industrial average before 2012, obviously, because I come from the S&P half of the result, but there was involvement from the editors at the Journal, and recognizing that huge more history of the Dow, it is the oldest stock index that's currently in existence and still being used and so on, and the input that the Journal provided for almost 120 years at that point. We felt it was important to keep some involvement with them, and so we created a committee, or maybe you could say continued an existing committee, called the Averages Committee, which handles the Dow Jones industrial average, the Dow transports, and the Dow utilities, and that committee has five people on it, three representing S&P Dow Jones indices, and two from the Wall Street Journal. And sitting on that committee and sharing it, it's not only very welcome but very good to have two people from the Journal. They bring a slightly different perspective than we do in terms of how they see the economy and the markets and developments in the news. They're both very sharp and it's worked out very well, and I think I'm very pleased to not just continue the role of the Wall Street Journal's editorial group, but really to have two very good people on the committee. I recall a conversation we had a couple of months ago when the committee decided to take out General Electric from the Dow Jones. It appeared that it was going to be a big shock that GE was coming out of the Dow Jones industrial average, but it turned out that it really wasn't a big shock. People quickly accepted that. GE was one of the original members of the Dow, an original, I mean 1896. It had been in the first 15, 20 years of the Dow, it was in and out a few times. But probably from the early to mid-1920s, GE was continuously a member of the Dow Jones industrial average up until this year. And given the history of the company and its history with the index and so on, this is not something one does likely. Obviously we don't take any company out or put any company in an index like the Dow lightly, but this one gets even more consideration. GE has fallen on some difficult times. Various people have various explanations and so on. Since I'm not an analyst on GE in particular, I won't leave any of those details aside. But it had fallen on some difficult times and I think its weaknesses were widely recognized, and even though some people wanted to carry it in, but as we looked at it, in an index, you only have 30 names because that's the rules. We really thought we shouldn't use the name on one stock that wasn't doing that well. A lot of people didn't think it was going to do that well. And given the way the Dow was calculated, it wasn't having any impact on the index at all. So it was not a difficult call once we sat down to talk about it. And it's interesting you say that it didn't have a big impact on the Dow because the Dow Jones is an unusual index. It is weighted by the price of the stock, which the larger the price, the more influence or impact that a change would have on the index. And isn't this one of the reasons why companies that have very, very large prices and the thousands of dollars may not work well in the Dow Jones 30? That's right. The Dow, as you mentioned, is unusual. The only other index I know of that's done that way is the Nikkei 225 in Japan, although I'm sure there are a couple of others that haven't come across. And when we look at stocks in the Dow, we'd like the ratio between the highest price stock and the lowest price stock to be not much more than 10 to 1. So GE, when it came out, was probably about $12 or $13 a share. The highest price stock in the Dow at that point was around $200 or more. And the GE didn't have much impact. The $200 stock would have had eight to 10 times the impact of OGE on the value of the index. And it just didn't make sense to do that. So we replaced it with a slightly higher price stock that we felt was a better representation of what was going on in the economy and the markets. And I think, you know, after the initial excitement, we're often a dare to, we're generally apported. And I think people are more comfortable with the Dow the way it is now than the way it was when we still had GE at the last days. Let's go over to the S&P 500. I've been in the business about 30 years and I've seen some pretty large changes to the methodology by which the S&P 500 calculated. I believe back in the 1990s, there was a couple of changes concerning, I was going from a full capitalization to a float capitalization methodology. And then there was a change is what stocks are actually U.S. stocks and what stocks are non-U.S. stocks. Could you talk about some of these big major changes that have occurred in the S&P over the last, say, 25 years? OK. I think that the background that people should recognize is, you know, what color the world changes, the economy changes, the way people use indices change. And so to run an index today, the way it was run, let's say, in 1982 when futures trading started would be pretty silly and it wouldn't work that well. And there have been a lot of changes since then. Probably the biggest change is the amount of money that tracks the S&P 500, which means it's a lot more visible and changes, changing. Companies make a bigger difference and so on than it did 30 or 40 years ago or something like that. The float change, I think, was actually in the early 2000s. The idea being that, well, first, the S&P had always had a rule that for stock to be in the index or when it was added to the index, at least half of the outstanding stocks should be available to the public. So they had a company where the insiders or the founders would ever own 80 percent of the stock. That was nice. I'm sure they were doing very well, but it wouldn't be eligible for the 500. But even with that rule, there was concern that we had some stocks that were just not very liquid and might be difficult to trade, especially in the lower or the smaller stock end of the index. And as trading and as exchange-traded funds became bigger and bigger, those became something of an issue for a lot of people. So what we did with, we went to float where we go through once a year the proxy statements that companies saw with the SEC, and we do our best to figure out what proportion of the stock is actually in the market and what proportion is locked up in holdings by insiders or holdings by another company. And holdings by another company would mean if both companies are in the index, we sort of double counting. Things like Berkshire owns big chunks of various different large companies in the index or where the stock just wasn't available because the founding family wasn't going to sell because they didn't want to. And so we made the adjustment to be what we call float-adjusted. So if a company had 80% of its stock in the index, we would count that 80% or, excuse me, in the market. And we'd count that 80% being available in the index and that we'd take the total shares outstanding and multiply it by .8. And that would be the number of shares we'd use for index calculation. It was a fairly big change, although if you went, took the both 500 stocks, you just took an average of the percentage each company's stock or shares that was available in the index. I came out about 93% or something. So there were a handful of companies that was just fairly big change, but the vast majority was talking about a few percentage points of change in their value as measured in the index. The domicile, what we call domicile, which is how do you know if this is a U.S. company, which sounds sort of silly and obvious to most people, but it got more complicated in about 2007, 2008, 2009. Two things happened. First, a lot of U.S. companies started changing their incorporation to Switzerland, Ireland, various places in the Caribbean, Bermuda. They all wanted to avoid paying U.S. taxes, which is again in the news in the last year or so. And initially, the index committee is the first two or three of these came along and said, you know, those violate the rules because the index is supposed to be U.S. companies. It's not supposed to be Swiss companies or Irish companies or whomever. And we started telling these companies out one by one. We then very quickly heard from a lot of investors, some individual investors who said, you know, I've owned this company for 40 years and now you're telling me it's not where they used to be. Some big institutional investors who are a little more vocal than the individual investors possibly. So we went around listening to people and talking to people. We hold an annual meeting called an advisory panel. We invite in a lot of major institutional investors and let them tell us what they like and don't like about our indices. And out of that came the feeling that what a U.S. company should be slightly different than where do you incorporate? The two key things that investors tell us about is, number one, how do you report your financial results? Do you report them to the SEC as a U.S. company? Do you file a 10K and a 10Q? That's from an investor's point of view. If you don't do that, then you're not U.S. And second of all, where do you stop trade? And there it's pretty hip. New York Stock Exchange, NASDAQ. Those are the two major U.S. exchanges that get mentioned. And our rules now say if you do those two things and if you have at least a large portion of your assets or your employees or your activities in the United States, U.S. company. The last rule is there are a few Chinese companies that the only place they trade is New York and NASDAQ. They report on a 10K to the SEC. But all their business activities are in China. And but we don't think they're U.S. companies. It's interesting what you said about going out to investors, large institutional investors, and before you make a big change to the index, you actually speak with the others in the industry and you speak with large investors in the S&P 500 and you get their input into changes that you're considering before you make them as opposed to doing it in a vacuum. Do you do that when you're looking at potentially putting a new company in and taking a new company out? Do you get input from the industry? Well, yeah, I think because here the rules and the regulations have been changing a lot over the years and so we should be very careful as to explaining what we do and don't do. When it comes to considering adding a company, removing a company from the S&P 500, pretty much the same thing is true for any index. Those discussions are absolutely confidential and they're so confidential that the only people within S&P Dow Jones who are committed to be involved with them are those of us who work specifically on the indices. And for those of us, the ones working directly in the indices, we cannot do anything commercial. I can't quote a price, I can't negotiate a contract. That's completely off limits and so on. So, market moving things like adding a stock to the S&P 500. Those discussions, that research, that analysis is restricted to a very small group of people, essentially the one sitting on the index committee that covers the index. And we don't talk to anybody until we publish an announcement on our website and give it to the news media which says this company is being added at such and such a date or this company is being removed. So those kinds of discussions, the ones that are really market moving, we keep them under wraps. Other discussions, much more general things, like how would you define what company is a U.S. company? For those, we will invite comments. What we do the vast majority of times is we'll publish a letter or paper on our website and explain what the issues are and ask people to send us their comments. In fact, they can go on our website and fill out the information right there. And at the same time, if we know of investors, whether it's to an individual, who would have an opinion or be interested, we want to make sure we hear from them and we will send them an email and say, we've just published a consultation on this matter. And we would appreciate your response so that we do reach out with that. But even with those, if we're doing a consultation on a particular question, we'll ask a lot of input from people, but we're not going to tell anybody what we're going to do until we publish the result for everybody. So we're very concerned that personal information, all investors have equal access at the same time, same information and so on. And if we're talking with something that's going to be market moving, we're going to keep it to ourselves until we tell everybody at the same time. That's the way we run what we feel is a fair and transparent index. Is it fair to say that if a very large company comes out of the index, then you're trying to find an equally sized company or something close to it? Like you talked about with the Dow Jones Industrial Average price as far as S&P given a cap weighted index, if a $100 billion cap weighted company comes out, are you looking for something close to that to put in? I'm not sure that too many $100 billion companies float around there, they're not in an index actually. But for the $500, there are a bunch of, there are a series of rules. One we mentioned already has to be US company. Its market value should be, currently I believe the minimum is at about $6.8 billion at a minimum at the time it goes in. It should be profitable, meaning on gap earnings, it should have made money over the last year and that's an unusual rule for an index. It should be liquid. If it's not liquid, somebody will have a hard time trading the stock and so on. So those rules are public and a company we choose should comply and does comply with those rules and so on. And all that's published in a thing called the US Indices Methodology, it's up on our website. Some people may tell you it's a great cure for insomnia, but other people tell you it's actually worthwhile reading. All right, thank you. Let's get into some big changes that have taken place in industry classifications that have occurred over the last couple of years. And you could probably start out with an overview of the global industry classification system, GICS, or standards is it? And what that is and then how does that all work into the S&P and what you're doing? And it's a global change. It's very large changes that have taken place. Can we talk about that for a minute? GICS is the Global Industry Classification Standard. It's a system for classifying companies into a sector, which, for example, would be technology or health care, an industry group. And then within that, within an industry group, there'll be one or more industries and within each industry, there'll be one or more sub-industries. So that at the very bottom there are around 160 sub-industries, which is a pretty detailed statement as to what a company does. And classification is done principally by looking at where the company gets its revenues. We also won't look at earnings. And at times, we'll look at the way the market precedes a company and that the market sometimes sees a company doing one thing, even though it does something else that's a little bigger. GICS is an effort that's maintained or run jointly by S&P Dow Jones Indices and MSCI. We've been running it together since it was created in about 1999. And on a global basis, I don't remember the exact numbers, but essentially any publicly held company anywhere in the world that an investor is likely to even look at has a GICS classification, sector industry group, industry sub-industry. Somebody sort of wonders, why do you do this? Well, the way investors think about markets and what moves markets is they like to have an idea which ones are going up and which ones are going down, because it's very rare that everything moves together. So somebody will say the S&P 500 was up 3% last week. It was led by the technology stocks and healthcare by consumer discretionary lag or something of that sort. Those are all names of the major sectors. And people will then tell you what portion of the 3% was contributed by each sector, some going down, so to speak. Reduce the 3%, other ones pushed it up. They'll look over a period of time, what's been growing fast, all that kind of thing. So this year, people have talked about technology stocks leading the way and so on. And the way they decide whether that's not true or not is they look at the S&P 500 and then look at how the technology sector within it has done. And in fact, we calculate the S&P 500, we calculate the technology sectors, its own index, and if you break it up into a couple of industry groups and industries, we calculate indices for all those as well. So you can take that data and you can see exactly what went up and what went down in the market by how much, what was pushing the market one way or the other. You can look at, did things change over time? Did certain areas react a lot positively or negatively to changes in government policy, just about anything? It's really the way to take the stock market and sort of peel back all the layers and understand what's going on. So some of the major changes that have occurred in the last couple of years, real estate investment trusts or real estate was part of the financial services sector. You broke that out now and made it its own industry group, which would include real estate investment trusts or equity. So you saw that as a significant enough part of the market now to give it its own industry classification. That's right. When GIC started back in 1999, other than a handful of real estate investment trusts, there wasn't much real estate in the stock market to begin with. And we just tucked it under financial figure. Well, all that matters is what the mortgage rates look like. So let's stick it there. Coming out of the financial crisis in 2008, 2009, well, first of all, everybody knew where real estate was because it had had a role in the financial crisis. But second of all, as interest rates came down and investors started looking for income, real estate and particularly REITs became an intriguing thing. The way REITs are structured, they tend to pay very, very high dividends relative to their size. They were getting more understood and indeed that sector was growing. So we looked at that and we said real estate is increasingly important. And maybe it should really be at its own sector. And instead of 10 sectors, we ended up having 11 sectors. In the process of doing that, we did do a lot of surveys and talked to a lot of people, institutional investors, individual investors, some brokerage firms, some brokerage firms that really focus and specialize in real estate and REITs in particular. And out of that, we, and in this case, it's both S&P Dow Jones and MSCI working together, felt that real estate deserved to get a little more provenance and be sort of pulled out from being buried in finance. The other thing is that maybe back in 1999, real estate and financials sort of behaved the same way. By the time you roll forward to the last few years, they weren't behaving the same way at all. And putting them in the same sector when one would go up and one would go down, wasn't really helping anybody was trying to understand what was happening. If anything, it was just muddying the waters, so we split it out. Big change occurred here last month with telecoms and technology turning into now technology and communications. And it was a very big because now companies like Facebook, Walt Disney, Alphabet, which is Google, I mean, some very big companies that we, the investors have always said, well, if I want to get exposure to those companies, all I have to do is buy a technology index fund. That has now changed. If I wanted to buy a industry specific index fund to get exposure to Facebook or to Google, I now need to buy something called communication services because it's not being looked at as a technology company anymore. That's true. And I guess there is the background is maybe more detailed, but I think more interesting than in the real estate story. First thing to say is for the S&P 500, telecom had gotten down to three companies. Number three wasn't very big either. So something really ought to change. But in fact, we had been discussing this and looking at this for three or four years and going and as we looked at it, we realized that the whole span of what is technology, what is communications, what's telecommunications, was going to go on a whole lot of rapid change. Give you a sense, iPhones are about 10 and a half years old. Eleven years ago, nobody had an iPhone that didn't exist. Nobody had a smartphone because the iPhone was essentially the first smartphone. Well, back even a few more years, certainly at the beginning of the century, but probably well in the first decade, if your company had a website, that was pretty high technology. Nowadays, nobody would admit they haven't had a website forever. And how did people communicate 10, 15 years ago? It was a telephone like the one we're talking on right now has wires. Email was sort of a rarefied thing. You had to be in a university in, you know, 1995 to have email. It just didn't exist. Nobody texted anybody because nobody quite knew what that was. And probably a few people still remember telegrams. So the world has really changed a whole lot. Well, I relate to telegrams. So do I. I want that one or something. But anyhow, then we don't want to date ourselves too much. As we started looking at this and we said, all right, what are all these things doing? And they're doing communications. Some of it sort of back and forth to a communications what we're doing right now. Some of it's broadcast communications and part of communications is movies, television, streaming, streaming anything and everything. I like entertainment or virtually all entertainment. All of that is part of communications. And on top of that, companies are jumping from one part to another part to another part. 18 team Verizon, one of them owns a chunk of Time Warner, the other one owns Yahoo and so on. So this is all changed for most people. Communicating today means reading about their cousins on Facebook or sending texts on WhatsApp or on and on and on. So it's all changed, but it's all blending into each other in terms of the way the companies operate. And on that basis, not only did we realize telecommunications, the old definition, didn't make any sense, but we really had to understand what the new things should look like. Facebook is very much the way people communicate. And it's not to say anything improper or unkind about their technology, but their real business is advertising and helping people communicate. And Google is very much the same way. Their real business is advertising and search. Advertising is the kind of communications. So that's the reason for the change. Yes, I admit that a few companies used to love and technology. You have to look a little bit farther to find them. But I think if you ask them or looked at their financial statement, you discover they've been in communications for the last few years and not longer. Getting back to indexes in general, back when I entered the business, indexes like the S&P 500 were not used as a way of investing or as a portfolio. There was one index fund from Vanguard that was out there. And which I know you probably have an interesting story about and I'd like to share with us if you could. This has become a big, big business indexing for the purpose of investing as opposed to indexing for the purpose of benchmarking or indexing for the purpose of economic measurement. With the advent of indexing for the purpose of investing, you have to go into a product. That has significantly changed not only your business, but also the whole indexing business for all the different index providers. And could you talk about the business a little bit and how things have changed because indexing is now a product for investing in as opposed to just a benchmark or economic measurement? Okay. Well, indexes actually started, they probably started as advertisements. I mean, the best I can tell from reading the history, Dow Jones started the industrials because they wanted to get people to buy their newspaper. And it was a feature of the newspaper to have a number that would tell you what happened in the stock market yesterday. The S&P 500 started in 1926 is something called the S&P 90. Standard and Poor's in those days, there was two companies called Standard Statistics and they were financial publisher. They published newsletters about how to invest and that's why they started an index as well. The first individual investor product based on indices was Vanguard and you mentioned that you've interviewed Jack Boll, also he can tell you much better than I can firsthand. He'll probably tell you that they didn't have how much money at the end of the first year and everybody told them it was un-American because they were just going to be average and so on. We've got hordes of data that proves that the indices in most quarters and most years outperformed three-fifths two-thirds of three-fifths of all the active managers out there. So if being average is beating three out of five people, I'll be satisfied being average. But in terms of the business and I usually say S&P 500 was present at the creation. It was the first index in a retail mutual fund, retail mutual fund with Vanguard. It was not the first index to have Stock Exchange Index Futures traded on it was the first one that was successful and lasted running length of time with the futures of the Chicago Mercantile Exchange. It was the first index in the United States with an exchange-traded fund with the Big Spider in about 1993 and it's very much still here. And by most measurements, it's the biggest index period. So it really has been present at the creation. It in the process, it did turn its indexing into a business. I joined S&P by dumb luck about six weeks after futures trading on the 500 started, which also was the first year that instead of being a cost center, everybody thought might actually be a profit center. And indeed, it's become that over time. And the growth has been very strong and very nice. And I think it still has a great future ahead of it. I don't know, we go through sort of different steps and so on. Clearly, at the same time, the number of indices have increased the variety of indices, which really means the variety of tools for investors has grown dramatically. I think I mentioned earlier, indices designed to provide dividend income, which very popular investors, indices to target segments of the market. We talked about technology stocks and so on. Indices that focus on growth stocks or value stocks or goes on and on. So increasingly, any investment strategy that somebody can think up and write down as a set of rules or a set of steps, somebody else can build an index for and provide it to any investor who's interested. That makes it a little complicated because now we have to try to differentiate between traditional indexes or indexes as benchmarks and indexes as strategies, investment strategies where any set of rules would be all you need to create what's called an index. And including in that rules is how you weight securities, which means it doesn't have to be cap weighted. It can be weighted any number of different ways, as long as it follows some sort of a strategy. So it gets a little bit confusing for investors and we're trying to come up with a differentiation between Jack Bogle likes to call them traditional indexes. I like to call them benchmark indexes versus strategy indexes. And there's a lot of talk about how to differentiate the two. Do you have a differentiating term that you use for that? We probably don't have a term that we've been widely accepted or something like that to break one group off from another or something. And inside it gets to be too much jargon. People call about FMC, that means quote market cap, which is what you call a benchmark index. But if we wrote that in all the publications, everybody would scratch their heads so we don't. I would agree there's a huge number of different indices out there. And there are different building blocks in different ways. The two things to remember sort of as a basis is you've got to do two things in building a stock index. You have to have a way to select the stocks. You have to have a way to weight the stocks. And if you sort of stick with those looking for those two things and invest, you should be able to get a sense of what's going on. The selection talks about a certain industry or say a stock that has continuously paid dividends for the last 25 years. That tells you something about what kind of stocks people are looking for. And then if they look at the weighting rule, they can also have some idea of what's going on. It's a little more subtle, maybe. But if you start by saying the market is market cap weighted, that's the way the market is. It's all stocks out there together, Apple, Google, Facebook. They're big ones. They have to carry more weight in the market than some stock that's by size order number 400 down the list or number 2000 down the list or something like that. As soon as I change that, I'll get different results from the market weighting. If I make it equal weighting, which is sort of easy to see, the little stocks can get more weight and the big stocks can get less weight. And that'll change the results. If you want to see the impact, we run the S&P 500 both ways. If I weight them by the dividends they pay, I'm going to get a lot more weight, a lot more bang from the big dividend stocks and so on. It gets a lot more complicated as they go down the list. But I think you stick to weighting and selection and you'll have some idea of what's going on in the market. And I should add nobody knows everything that's going on in the market. So don't go down that trial. You'll never get to the end. They don't. Oh, that's not what they say on television. I know, but given how long I've been doing this and you've been doing this, Rick, I don't know about you, but I learned nobody knows everything in the market. And I'm like indices because I'm not a great friend of picking the one stock that'll go up this year. You know, getting back to the way in which indexes are created with the selection on one side and the weighting on the other. I don't know if you recall about 10 or 12 years ago, I created this thing called an index strategy box, which showed the three basic different buckets for selecting securities, which are basically covering the market and then screening the market and then a quantitative method where you pick just a few stocks as a selection methodology. And then on the bottom I had capitalization weighted, fundamental weighted, and then fixed weighted. And all the different indexes that were being created sort of fell into one of these boxes very nicely. It never took off, but you know, it's the same exact. I'm glad to hear the same thing that you're saying now as it really hasn't changed very much. Okay. I remember it in general. I won't, I won't say I remember every box in detail. Got it. So indexing, though, in the U.S. has really, seems to be the leader, you know, we here in the United States have, investors are now embracing indexing, and I personally believe a lot of that has to do with exchange traded funds and the ability of ETFs to reach a much broader, wider audience in the brokerage industry and in other places. But indexing and in core type indexing portfolios, which seem to be getting the most money, have really grown in the United States, but overseas they seem to be in some places 20 years behind us, but they're getting there. Do you see that growth just continuing? I do think the growth, the growth will continue, but I think there are some countries which you might have an equity mentality or an equity mindset, and other ones that have much less of an equity mindset. Certainly we do business in, in Canada. We do business in Australia in both cases with the major stock exchange in each country. They are as focused on equities as the United States is, their, their attention, their sophistication, their analysis is comparable to the U.S. and so on. And the U.K. also has a big equity mentality and so on. One of our competitors owns the Kingpin Index in Great Britain. We don't, but we definitely are active there. But there are other countries, maybe Germany, who may want to stand out that traditionally investors invested through banks, they held a lot more fixed income or a lot more structured products of various kinds than they held equities and invested directly in stocks the way Americans traditionally do. And as a result, the whole pickup in, in ETFs and exchange-traded funds is probably a little bit slower. Hong Kong has a very active market. China has two major stock markets. The volatility occasionally worries everybody, no matter where they are. But there's certainly plenty of equity expansion and ETF growth and a lot of places around the world. And it seems to be universally around the world as well. When you're measuring the performance of the S&P Dow Jones indexes to active management, that's fairly universal around the world that you get this three out of five managers underperform. Your SPIVA has really grown. The SPIVA is looking at the performance between active and your indexes. And you've been doing that now, I think, for 20 years. You alluded to it a little earlier. But that's also expanded now. You're doing more and more countries and you're looking at this phenomena occurring across more countries. And do you think that might help to increase indexing? Yeah, I think it has. We introduced SPIVA, which was an acronym for S&P index versus active. It was really to try and establish a benchmark to compare active managers to our indices and so on. We did it in a way that we felt was fair and so on. And it's been very well received. I think the surprising part was we really thought this was strictly for individual investors who didn't have access to reams of fancy institutional research. A few years in, we suddenly discovered that a lot of pension funds from municipalities, the police department here and the fire department there, their trustees were calling up and saying, will you send me the latest SPIVA report? They were sitting down in their quarterly meetings and looking at managers they had hired and say, why can't you do this? Well, and so on. So it's what we thought was a low key thing for the average guy. Suddenly turned out to have a lot more impact than we expected. But I think it's good reliable data. Indices don't win every time, but they do win more often than not. And I guess it's playing the averages to come out ahead. The good business to be in. We like it. With that, I want to thank you so much for your time today, David, and we really appreciate the both. It's the Bogle Heads On Investing podcast and today, my special guest, Dr. David Blitzer of S&P Dow Jones Industries. Thank you, David, for being with us today. Thank you. This concludes the second episode of Bogle Heads On Investing. I'm your host, Rick Ferry. Join us each month to hear a new special guest. In the meantime, visit Bogle Heads.org and the Bogle Heads Wiki, participate in the forum and help others find the forum. Thanks for listening.