in the public markets that they've

come to eclipse all other investors in terms

of size and market power.

So here's the deal.

People are really bad at picking which

stocks are going to succeed and which stocks are going to fail.

You may have heard the example that a blindfolded monkey

throwing darts at a stock list does better

than a professional.

Well, in a lot of cases, that's actually true.

So a man named Jack Bogle invented something

called the index fund.

And the index fund basically instead

of choosing which stocks you think are going to succeed

and which are going to fail, you just take a basket of stocks

and you track it.

So the S&P 500, for example, is a basket of stocks.

It's the 500 largest companies in the US

and it's weighted by their size.

So this is often referred to as passive investing

because you're not sitting around researching which

companies are going to do well this year, which

ones are going to do poorly.

You're not trading in and out of those.

You're just putting your money in an index fund

and letting it do its thing.

Now, let's switch to something else.

Perhaps, you've heard of a monopoly.

Perhaps, you've also heard of an oligopoly.

An oligopoly is essentially the same thing as a monopoly.

In a monopoly, there is one company

providing all the goods and services

in a particular market.

In an oligopoly there's just a small handful

of companies providing all the goods

or services in a single market.

So one example of this is phone services

in the US, which you're basically limited

to AT&T, Verizon, T-Mobile, or Sprint

if you want phone services in the United States.

So that is an oligopoly.

Well, in the world of index investing

we have what's emerging to be a bit of an oligopoly as well.

The three companies that comprise it

are Vanguard, that one that was started by Jack Bogle.

By the way, that's the largest provider

of mutual funds in the world.

You also have BlackRock and you also have State Street.

Now this chart, which is produced from research

by Backus, Sinkinson, and Conlon,

shows the ownership of an average company.

I'm sorry, the average ownership of a typical company

by these three firms.

So I put the per cent here to remind you

that Vanguard, if you can see it in 2017,

was approaching average ownership of 9 per cent

of a typical company.

Now, 9 per cent may seem on its face like a small number,

but think about this: if you combined these three companies

they would be the single largest shareholder of 9 out

of every 10 public companies.

That is just massive power.

And you can see it's been increasing in the last two

decades.

So shortly before his death, Jack Bogle, the inventor

of index funds, he even admitted that there is a bit of concern

if these three firms continue this path of market dominance.