Latest / Masters in Business / Eric Balchunas on the Vanguard Effect

Transcript

Eric Balchunas on the Vanguard Effect · Masters in Business

• 0:02
  Speaker 1: This is mesters in Business with Very Results on Bloomberg
• 0:06
  Speaker 1: Radio this week on the podcast Hey guess what I
• 0:12
  Speaker 1: have an extra special guest. Uh. Eric Baucunus is someone
• 0:16
  Speaker 1: I've known from both the E t F industry and
• 0:19
  Speaker 1: Bloomberg for I don't know a decade or two, um,
• 0:22
  Speaker 1: and we hang out in a lot of the same circles. Uh.
• 0:26
  Speaker 1: There are few people in the world who know as
• 0:29
  Speaker 1: much about E t f's indexing vanguard, Jack Bogel. I
• 0:36
  Speaker 1: mean I could count him on one hand the number
• 0:37
  Speaker 1: of people who have his depth of knowledge in this space. Uh.
• 0:42
  Speaker 1: And that's why he's really a fascinating character. Uh. You
• 0:46
  Speaker 1: could tell when you listen to this conversation that it's
• 0:49
  Speaker 1: two guys who know each other just b s ing
• 0:52
  Speaker 1: and schmoozing. But I find those to be some of
• 0:54
  Speaker 1: the best conversations because there's no pretense, there's no marketing,
• 0:59
  Speaker 1: it's just people talking about things that genuinely interest them.
• 1:05
  Speaker 1: And when I basically don't get to half my questions
• 1:08
  Speaker 1: because we're just what about this? Tell me about that? Hey,
• 1:11
  Speaker 1: isn't this wrong? Or it just leads to all sorts
• 1:14
  Speaker 1: of fun and interesting places. I thought this was a
• 1:17
  Speaker 1: fascinating conversation, and I think you will also so if
• 1:21
  Speaker 1: you are remotely interested in passive investing E t FS indexing,
• 1:27
  Speaker 1: or Vanguard and Jack Bogel, you will find this to
• 1:30
  Speaker 1: be an absolutely fascinating conversation. With no further ado, my
• 1:35
  Speaker 1: interview of Eric Balcunis of Bloomberg Intelligence. He is the
• 1:40
  Speaker 1: senior E t F analyst for Bloomberg News. He is
• 1:43
  Speaker 1: also co host of E t F i Q on
• 1:47
  Speaker 1: Bloomberg Television, and he hosts a podcast called Trillions with
• 1:52
  Speaker 1: Joe Weber, editor in chief of Business Week. He is
• 1:56
  Speaker 1: the author of several books, most recently The Bogel Effect,
• 2:01
  Speaker 1: How John Bogel and Vanguard turned Wall Street inside out
• 2:05
  Speaker 1: and saved investors trillions. Eric balcun Is, Welcome to Masters
• 2:10
  Speaker 1: in Business. It is a pleasure to be here, Barry always.
• 2:12
  Speaker 1: It's like a home game for me. I just walk
• 2:14
  Speaker 1: like ten feet here right. I texted you and said,
• 2:16
  Speaker 1: come down to five. Time to start. Um. So, so
• 2:21
  Speaker 1: let's talk a little bit about the home field advantage
• 2:24
  Speaker 1: and your career. You've been reporting on finance pretty much
• 2:28
  Speaker 1: your entire career. What what led to an interest in
• 2:30
  Speaker 1: money and markets? Um? Well, I was in cooing to Rutgers,
• 2:34
  Speaker 1: and I was wrote for the school paper, and I
• 2:38
  Speaker 1: decided to major in journalism and communications because I liked it.
• 2:41
  Speaker 1: And but I was at the Cook College, which is
• 2:44
  Speaker 1: the Egg School, and in order to graduate from Cookie
• 2:46
  Speaker 1: had to have at least a minor that was related,
• 2:48
  Speaker 1: and I thought. I took an econ class and I
• 2:51
  Speaker 1: kind of liked it. So I minded an environmental economics
• 2:54
  Speaker 1: that got me through Cook because I was with a
• 2:56
  Speaker 1: bunch of biology people. Um. And so I immediately applied
• 3:02
  Speaker 1: to Bloomberg, but I got rejected job. Yeah no, no,
• 3:05
  Speaker 1: it wasn't I got rejected. I only got in my
• 3:07
  Speaker 1: third time. Um. I because obviously I'm like journalism, economics,
• 3:11
  Speaker 1: I'm in Rutgers. Bloomberg makes perfect sense, and they were hiring,
• 3:15
  Speaker 1: but I just wasn't qualified. Hard pass. Yeah, way did
• 3:19
  Speaker 1: you start? I went to the Institutional Investor magazine newsletter division.
• 3:23
  Speaker 1: Their their website is a regular in my morning reading list.
• 3:27
  Speaker 1: Yeah it's always solid. Yeah, I mean the name turned
• 3:30
  Speaker 1: me off comeing out of college. I was like, Institutional
• 3:32
  Speaker 1: Investor just sounds so boring, like who would ever read this?
• 3:35
  Speaker 1: But the money was pretty Tutions Yeah, institutions, which came
• 3:39
  Speaker 1: in handy later in my when I wrote my first book.
• 3:41
  Speaker 1: But I covered UM derivatives at first, and then I
• 3:45
  Speaker 1: covered mutual fund So I work for a news that
• 3:46
  Speaker 1: I called fund Action and did that for a little
• 3:48
  Speaker 1: while and then went UM. I met a guy named
• 3:51
  Speaker 1: Duff Ferguson at a line Bernston. He was the PR guy,
• 3:54
  Speaker 1: and I just thought, man, I want to go behind
• 3:56
  Speaker 1: the keyhole. And so I went and took a job
• 3:58
  Speaker 1: in PR because I kind of like this guy's whole deal.
• 4:01
  Speaker 1: And so I got a job in PR at um
• 4:03
  Speaker 1: a crisis communication firm named Abernathew McGregor, and got to
• 4:07
  Speaker 1: work with several clients. Uh, and you know, took them
• 4:11
  Speaker 1: to Bloomberg, took them to Reuters, took them to there,
• 4:13
  Speaker 1: and Uh, I came to Bloomberg. I was like, man,
• 4:15
  Speaker 1: this place is different, right, So I always had an
• 4:17
  Speaker 1: eye on Bloomberg for my early career and then UM
• 4:21
  Speaker 1: in nine ish No No Nine two, early two thousand,
• 4:25
  Speaker 1: I got headhunted. That's how good the economy was. You
• 4:27
  Speaker 1: could be twenty five and you'd get headhunted for like
• 4:29
  Speaker 1: all these jobs. And she comes and she goes I've
• 4:32
  Speaker 1: got two jobs that are really good. One is that
• 4:36
  Speaker 1: bear Sterns a lot of money doing PR, and the
• 4:40
  Speaker 1: other one is at Bloomberg. And I was like, that's
• 4:42
  Speaker 1: a easy choice. So I basically put all my chips
• 4:45
  Speaker 1: on Bloomberg a plum and interviewed here to have a
• 4:48
  Speaker 1: job in PR. Went through many interviews. It took a while,
• 4:50
  Speaker 1: but yeah, really, yeah, so I started here relations So
• 4:55
  Speaker 1: so first, the first question is if you weren't reject
• 5:00
  Speaker 1: by Bloomberg right out of the gate when you were
• 5:03
  Speaker 1: right out of school, might you have ended up at
• 5:06
  Speaker 1: bear Stearns? Was was Bloomberg the one? It's a great
• 5:09
  Speaker 1: point we chase the things that received from us, to
• 5:12
  Speaker 1: quote the Tao of Steve. But having had like I
• 5:15
  Speaker 1: had like three jobs, maybe four, I worked. I worked
• 5:18
  Speaker 1: at a third party marketer for about six months, where
• 5:21
  Speaker 1: you had to call pensions and try to pitch them
• 5:23
  Speaker 1: on hedge funds. It was really tough. All those jobs.
• 5:27
  Speaker 1: When I finally got to Bloomberg always helped me stay
• 5:30
  Speaker 1: here because I know what is out there, at least
• 5:33
  Speaker 1: to a degree. If this is my first job, I
• 5:35
  Speaker 1: may have had such a I don't know, curiosity. I
• 5:39
  Speaker 1: probably would have left. So maybe it's a blessing in disguise.
• 5:42
  Speaker 1: So you were covering derivatives in the nineties, but not
• 5:45
  Speaker 1: the two thousands leading up to the O eight or
• 5:48
  Speaker 1: nine crisis. No, I only covered them for a little while,
• 5:50
  Speaker 1: so I'm hardly an expert. You missed the fun that's right,
• 5:55
  Speaker 1: That's right, I covered them. When you're like that in
• 5:57
  Speaker 1: the nineties, who needs the idea? Was you just try
• 6:00
  Speaker 1: to call these traders and just get them to give
• 6:02
  Speaker 1: you information on why what went up and down in
• 6:05
  Speaker 1: the futures market. It was a really, I mean honestly,
• 6:08
  Speaker 1: very unglamorous, manual labor type job. Journalists need. Journalists need
• 6:13
  Speaker 1: to get a reason for everything. It can't you see
• 6:16
  Speaker 1: the market went up for the future? What happened? And
• 6:18
  Speaker 1: you need someone from that where when? Why? Ye? Just
• 6:20
  Speaker 1: what makes financial news coverage either really good or really bad?
• 6:26
  Speaker 1: Because some people must impose a narrative when it's sometimes
• 6:30
  Speaker 1: it's just random. That was my first thought two months
• 6:33
  Speaker 1: in my first job. I was like, I don't know
• 6:34
  Speaker 1: if there there's a reason for this. Maybe it went
• 6:37
  Speaker 1: up like I don't know half a point today, maybe
• 6:40
  Speaker 1: they just maybe there is no reason and there's no
• 6:42
  Speaker 1: clear reason, it's okay. Can we just say that? And
• 6:45
  Speaker 1: I know they hate that. You cannot say we don't
• 6:48
  Speaker 1: know or who knows? We I think we've talked about this.
• 6:51
  Speaker 1: My favorite thing in the world to do on TV
• 6:53
  Speaker 1: is they ask you a question, say I have no idea,
• 6:56
  Speaker 1: Well what what about? I don't know? Nobody does, but
• 7:00
  Speaker 1: I'm telling you the truth. I don't know. The rest
• 7:02
  Speaker 1: of them are lying to you when they answer, and
• 7:04
  Speaker 1: people hate that. I agree, I don't know is a
• 7:07
  Speaker 1: underrated phrase and mindset, whether it's religion, politics, sometimes you
• 7:12
  Speaker 1: don't know, and I think I don't know is a
• 7:14
  Speaker 1: very most Yeah, and most people can relate because a
• 7:17
  Speaker 1: few of us are experts in anything or know anything absolutely.
• 7:20
  Speaker 1: And so I'm a big fan of I don't know
• 7:22
  Speaker 1: in general. But it doesn't really play well in the media.
• 7:25
  Speaker 1: All right, So let's get serious. Now, you're the go
• 7:28
  Speaker 1: to reporter for E T F s and passive indexes. Well,
• 7:32
  Speaker 1: can I stop you? So some people do think of
• 7:34
  Speaker 1: me as a reporter, and I started my career that way,
• 7:36
  Speaker 1: but I'm in research. So what I do is I
• 7:38
  Speaker 1: write notes that aren't I don't report on something. I'm
• 7:42
  Speaker 1: more get our team gives takes on things. So your
• 7:44
  Speaker 1: title is technically senior E t F Analysis. But when
• 7:49
  Speaker 1: I think of everybody in the media who covers E
• 7:53
  Speaker 1: t F, Passive Investing, Vanguard, etcetera, black Rock, etcetera, you're
• 7:59
  Speaker 1: the first name that pops into. Oh you have a
• 8:01
  Speaker 1: question of you want to speak to a journalist in
• 8:04
  Speaker 1: the E T S space? Get ahold of Eric so
• 8:08
  Speaker 1: so so well, I would say, you know some of
• 8:11
  Speaker 1: these guys who work for ESPN who are like experts
• 8:14
  Speaker 1: in the n B A or I kind of model
• 8:17
  Speaker 1: myself and well, or they just get the latest news
• 8:21
  Speaker 1: like woes for the NBA or Adam Schefter I believe
• 8:25
  Speaker 1: that's his name, uh for NFL. I'm I'm that for
• 8:29
  Speaker 1: E T F S And so there is an element
• 8:31
  Speaker 1: of trying to get on top of the latest things.
• 8:34
  Speaker 1: But more so I just see research is having to
• 8:38
  Speaker 1: get out there more. I think if you're in research
• 8:39
  Speaker 1: you sort of need to put on a pundit hat
• 8:41
  Speaker 1: sometimes and have a reaction on Twitter quickly, because if
• 8:44
  Speaker 1: you wait and wait, then you're late to it. And
• 8:46
  Speaker 1: I think it's good to just be um at a
• 8:48
  Speaker 1: little punditry. So I would understand why you would think that.
• 8:51
  Speaker 1: Plus I was a journalist, so I have maybe some
• 8:54
  Speaker 1: vibes that are so let's call you the go to guy,
• 8:56
  Speaker 1: should call you the go to reporter. Um, how do
• 9:00
  Speaker 1: the expertise in E T F and passive investing come about?
• 9:04
  Speaker 1: Remember the fund action newsletter I wrote for so when
• 9:07
  Speaker 1: I was at Bloomberg PR around nine eleven, I had
• 9:10
  Speaker 1: a near miss and I moved back to South Jersey.
• 9:12
  Speaker 1: Uh defined near miss? Uh? Well, Um, I was supposed
• 9:18
  Speaker 1: to be in the top windows of the world that day. Really, Yeah,
• 9:22
  Speaker 1: there was a way. There are thousands I know stories
• 9:26
  Speaker 1: I've had. I know and I don't I'm not looking.
• 9:28
  Speaker 1: I sometimes people over indulge themselves in these stories. And um,
• 9:31
  Speaker 1: but fate did intervene. Um. But there is a badge
• 9:34
  Speaker 1: there was a conference up there Waters Technology, Um, with
• 9:39
  Speaker 1: your name on it. There's a badge with my name
• 9:41
  Speaker 1: on it that was at the top. Isn't that crazy?
• 9:43
  Speaker 1: What did the event start? Oh? It started it like
• 9:47
  Speaker 1: seven in the morning. Have been Yeah, there were three
• 9:50
  Speaker 1: people from this company who were there. Yeah, sad And
• 9:53
  Speaker 1: one of them is actually my friend from South Jersey
• 9:55
  Speaker 1: knows him. And they still have a U I think
• 9:58
  Speaker 1: a walk for him every year. It's you know, it
• 10:00
  Speaker 1: really hit home. But I also was looking to take
• 10:03
  Speaker 1: a step, like I was looking to change gears in life. Anyway,
• 10:07
  Speaker 1: I was about seven, So I moved back to South
• 10:09
  Speaker 1: Jersey and I transferred to the Princeton office of Bloomberg.
• 10:12
  Speaker 1: And when you do that, um, I still think I'm
• 10:15
  Speaker 1: the first person ever in the history of this company
• 10:16
  Speaker 1: to go from pr to data because that's all they
• 10:20
  Speaker 1: do in Princeton is data and engineering. But I was like, well,
• 10:23
  Speaker 1: I don't want to commute to New York every day
• 10:24
  Speaker 1: from South Jerseys all take a job here. So they
• 10:26
  Speaker 1: looked at my background and sad, why don't you go
• 10:28
  Speaker 1: work for funds data? So I got to work where
• 10:31
  Speaker 1: they make the terminal. It's like the Keebler elves. So
• 10:34
  Speaker 1: I've I've seen how the terminal is made, all where
• 10:36
  Speaker 1: all the data comes from. And they I basically had
• 10:39
  Speaker 1: to work on getting fund information from the prospectuses is
• 10:42
  Speaker 1: before technology was really that great, put them into fields
• 10:46
  Speaker 1: and then was annual press. Yes, and we we automated
• 10:50
  Speaker 1: it as we went. We're always looking to automate and
• 10:52
  Speaker 1: so when you pull up a Bloomberg and you type
• 10:53
  Speaker 1: in like the Fidelity Magellan Fund and then you type
• 10:55
  Speaker 1: d E S. All that information there is really what
• 10:58
  Speaker 1: we we did. And so I was doing that in
• 11:01
  Speaker 1: two thousand, two thousand, two thousand, two, three four, And
• 11:04
  Speaker 1: in two thousand six I got a hand at et
• 11:06
  Speaker 1: F there like you work on et F now, and
• 11:08
  Speaker 1: I was like, I had heard of him, but I,
• 11:10
  Speaker 1: you know, it was still and let me just jump in.
• 11:12
  Speaker 1: So the Spiders had been around at that point in time,
• 11:15
  Speaker 1: the SMP five Spiders by State Street, they had been
• 11:18
  Speaker 1: around a couple of decades, and other companies had moved
• 11:23
  Speaker 1: into the space. And I just was having this conversation
• 11:26
  Speaker 1: with some of the other day. They said, who you
• 11:28
  Speaker 1: who you're interviewing? Oh, Eric Beljunas, oh uh. And then
• 11:32
  Speaker 1: the question they asked was was Bloomberg late to E
• 11:36
  Speaker 1: T F. I'm like, I thought they were their pre
• 11:39
  Speaker 1: financial crisis. They were fairly. They weren't the first one,
• 11:42
  Speaker 1: but they certainly didn't lag. That's a great question. So
• 11:46
  Speaker 1: Bloomberg covers everything, and if a ticker is on the exchange,
• 11:50
  Speaker 1: it's on the terminal. So we had E T S
• 11:52
  Speaker 1: from day one. But did we care about them. Did
• 11:55
  Speaker 1: we put a lot of resources into them? Not really.
• 11:57
  Speaker 1: They were still small back then, and I think that's
• 12:00
  Speaker 1: maybe part of my legacy. If there is one, here
• 12:02
  Speaker 1: is too. I was in two thousand and six seven.
• 12:05
  Speaker 1: I was like, oh my god, I was like kicking
• 12:06
  Speaker 1: the tires on et F and I'm like, these things
• 12:08
  Speaker 1: are going to take over. They're too good, that to
• 12:10
  Speaker 1: value is too strong. So I just was like became
• 12:13
  Speaker 1: I'm like dove head first into E t F s
• 12:15
  Speaker 1: and I went to Index Universe conferences, started listening to
• 12:18
  Speaker 1: their podcast with your friend Dave Nadi Matt Hogan, and
• 12:20
  Speaker 1: I looked at some of the stuff they how they talked,
• 12:23
  Speaker 1: the data they looked at, and it was very inspirational.
• 12:26
  Speaker 1: I said, we have to cover things like index weighting methodology,
• 12:29
  Speaker 1: the criteria, the rebounding. There's all these A t S
• 12:31
  Speaker 1: specific fields we have to get on. So part of
• 12:34
  Speaker 1: what I did was to make the d S page
• 12:36
  Speaker 1: one for E t S that had all of fields
• 12:38
  Speaker 1: that were prevalent for E t F Because the time
• 12:41
  Speaker 1: they're putting ETFs into mutual funds and there you were
• 12:43
  Speaker 1: a driver. You yeah, you helped separate it. And that's
• 12:46
  Speaker 1: why people think of you as the e t F guy.
• 12:48
  Speaker 1: By the way, the folks you mentioned I group you
• 12:52
  Speaker 1: in with them, because when I befriended folks like David
• 12:57
  Speaker 1: not Eig, I had no idea that this was the
• 13:00
  Speaker 1: e t F MAFI and these were the people running,
• 13:04
  Speaker 1: you know, really driving the mind share and the perception
• 13:09
  Speaker 1: of e t f s, both in the industry and
• 13:12
  Speaker 1: amongst the investment community. And I'm like, oh, what do
• 13:15
  Speaker 1: you guys do? Kind of we're hanging out and having
• 13:17
  Speaker 1: some fun, and it's like, we've messed around with the
• 13:19
  Speaker 1: t F so that we own e t F so
• 13:22
  Speaker 1: we can hang with you not realizing oh no, no,
• 13:24
  Speaker 1: you don't understand who these got, Jim, and go down
• 13:26
  Speaker 1: the list of people. Um, these are the folks that
• 13:31
  Speaker 1: really drove the entire expansion of the E t F
• 13:34
  Speaker 1: industry quietly in the nineties, but as you mentioned in
• 13:38
  Speaker 1: the two thousands, it was just starting to ramp up.
• 13:41
  Speaker 1: So how did you drive this company into putting a
• 13:48
  Speaker 1: greater emphasis on e t f s and treating them
• 13:51
  Speaker 1: as distinct from mutual funds. Yeah. I tried all kinds
• 13:55
  Speaker 1: of ways, which is sort of I could relate to
• 13:58
  Speaker 1: Bogel trying to sell index funds in this seven these
• 14:00
  Speaker 1: and eighties when no one was really interested. UM. I
• 14:02
  Speaker 1: think everybody has these plates in their life where they're
• 14:04
  Speaker 1: trying to tell people about something and it just takes
• 14:06
  Speaker 1: a long time to break through. So I would get
• 14:08
  Speaker 1: I would I would basically use my communication skills. I
• 14:11
  Speaker 1: would talk to people internally. I would go to sales meetings.
• 14:13
  Speaker 1: I would present the chart I really like to show
• 14:16
  Speaker 1: was people think of E t f s at the
• 14:18
  Speaker 1: time of having say like two percent market share of
• 14:20
  Speaker 1: all funds. But I'm like, but they make up of
• 14:23
  Speaker 1: all equity trading. So I would show them the volume
• 14:26
  Speaker 1: and be like, and we're a service that does a
• 14:28
  Speaker 1: lot with trading. We should have of the equity programmers.
• 14:32
  Speaker 1: If you think about it. That people would nod their heads.
• 14:36
  Speaker 1: But I would never get the aguay programmers. But over
• 14:39
  Speaker 1: over time we made some headway. We started doing events,
• 14:42
  Speaker 1: and honestly, I I just really was like a one
• 14:45
  Speaker 1: man army for a little while. But then the assets
• 14:47
  Speaker 1: started to come in. UM, and then someone like at
• 14:50
  Speaker 1: a higher level would be told by somebody E t
• 14:52
  Speaker 1: f s are big and that would help a little
• 14:54
  Speaker 1: and Ultimately it was like a wave that just finally
• 14:57
  Speaker 1: broke and now we have a lot of resources into
• 14:59
  Speaker 1: et F s. But I also think that Bloomberg and
• 15:02
  Speaker 1: what I would tell people back in the days, we
• 15:04
  Speaker 1: might have been a little late to sort of E
• 15:05
  Speaker 1: t F I S or d S pages and give
• 15:08
  Speaker 1: you some functions. But it was always on the terminal.
• 15:10
  Speaker 1: But once you do that, that's just the frost thing
• 15:13
  Speaker 1: on the cake. You click on an e t F,
• 15:15
  Speaker 1: then you gotta look at the holdings, and then you
• 15:17
  Speaker 1: want to analyze one stock you click on that you
• 15:19
  Speaker 1: could just keep clicking on a terminal other services you had,
• 15:21
  Speaker 1: your clicking had to stop somewhere. So I'm like all
• 15:24
  Speaker 1: the stuff they did here in the eighties and nineties
• 15:26
  Speaker 1: to connect to the exchanges, to get all the stocks
• 15:28
  Speaker 1: and the bonds. We when the E t F came out,
• 15:30
  Speaker 1: all we had to do is put some like you know,
• 15:32
  Speaker 1: sort of frosting on the cake. Now your analysis could
• 15:35
  Speaker 1: go anywhere, and so the terminal and the infrastructure there
• 15:39
  Speaker 1: was really a huge tail wind for my efforts. So
• 15:42
  Speaker 1: so let me ask you a question that will tee
• 15:44
  Speaker 1: up the rest of our conversation. Um, you started in
• 15:48
  Speaker 1: the E T F space in the mid two thousand's,
• 15:50
  Speaker 1: and you know, following the financial crisis, they exploded. Imagine,
• 15:57
  Speaker 1: you know, just banging away at this for forty years
• 16:01
  Speaker 1: with some limited success, but mostly being looked at as
• 16:06
  Speaker 1: that Jack Bogel guy in Pennsylvania. What is this stuff?
• 16:11
  Speaker 1: He's well, he's just hitting his head against the wall.
• 16:13
  Speaker 1: That is just going nowhere? Could you could you picture
• 16:16
  Speaker 1: decades of this with just moderate at best acceptance to
• 16:21
  Speaker 1: the whole idea? Yeah, I mean this is part of
• 16:24
  Speaker 1: the story. I couldn't believe the numbers. Here's to two
• 16:27
  Speaker 1: examples of how long it took took Vanguard twenty five
• 16:31
  Speaker 1: years to get ten percent market share and funds. Nent
• 16:35
  Speaker 1: of Vanguard's assets came after Jack Bogel step down to CEO.
• 16:39
  Speaker 1: That's even it's amazing, right, So he built a foundation
• 16:44
  Speaker 1: largely an oblivion, right, but once it got built and
• 16:48
  Speaker 1: then it became the gradually then suddenly thing. But he
• 16:50
  Speaker 1: toiled around a long time, although he was a very loud,
• 16:53
  Speaker 1: prominent voice. But the assets really weren't there until I
• 16:57
  Speaker 1: would say the financial crisis two thousands when they really
• 17:00
  Speaker 1: kicked in. But up until then they had less than
• 17:02
  Speaker 1: a trillion, I believe, and uh, you know, they were
• 17:05
  Speaker 1: always out there. I remember when I covered for Fund
• 17:07
  Speaker 1: Action in the in the nineties and late nineties, I
• 17:09
  Speaker 1: would cover all the fund companies. I looked at Vanguard
• 17:11
  Speaker 1: is maybe the fourth or fifth company. I was like,
• 17:13
  Speaker 1: Fidelity got a cover, Fidelity t row like Mason, Vanguard
• 17:16
  Speaker 1: was like fourth or fifth. Now when I think of
• 17:18
  Speaker 1: the universe, it's like Vanguard black Rock and then you
• 17:21
  Speaker 1: can need binoculars to see somebody else that. That's amazing
• 17:24
  Speaker 1: and I appreciate the Hamingweight reference. That's always uh, that's
• 17:28
  Speaker 1: always really interesting. You wrote this very insightful and what
• 17:32
  Speaker 1: turned out to be influential column in Cold the Vanguard Effects.
• 17:39
  Speaker 1: Tell us what is the Vanguard effect? Yeah, so the
• 17:43
  Speaker 1: Vanguard effect is, you know, Vanguard comes out there a
• 17:47
  Speaker 1: mutually owned company, right, the investors, the funds on the company,
• 17:50
  Speaker 1: the investors on the funds. That is really the heart
• 17:53
  Speaker 1: of the matter here. Very different, more akin to an
• 17:55
  Speaker 1: insurance company than a typical COO or a nonprofit. It's
• 18:00
  Speaker 1: not they're not exactly those things, but it's something like that.
• 18:03
  Speaker 1: It's unique and this is part of the story. I
• 18:05
  Speaker 1: was so fascinated with was why would someone set up
• 18:08
  Speaker 1: a company where they deliberately turn over all the future
• 18:11
  Speaker 1: profits to the to the people. It just it makes
• 18:14
  Speaker 1: no sense. And so it's Marxists. It's crazy. And I
• 18:18
  Speaker 1: asked everybody intrew fifty people for this book. I asked
• 18:20
  Speaker 1: them all that question. How come nobody has copied the
• 18:23
  Speaker 1: Vanguard structure? And the answer was all the same. Well,
• 18:26
  Speaker 1: there's no incentive to no one. And as Jason Swike said,
• 18:29
  Speaker 1: no one goes to Wall Street to drive a Volvo.
• 18:31
  Speaker 1: And so can I tell you that is the most
• 18:34
  Speaker 1: one percent thing I've ever heard from you, because in
• 18:39
  Speaker 1: normal middle class households of Volvo is considered a higher
• 18:44
  Speaker 1: end called sure, but well I guess. But it's also
• 18:47
  Speaker 1: very accurate. But it's also Bogel worked hard. If you
• 18:52
  Speaker 1: are going to go to Wall Street and you were
• 18:53
  Speaker 1: going to put in those hours, I think most people
• 18:55
  Speaker 1: want a big payoff, So I'm really gonna put this
• 18:58
  Speaker 1: much of my sand intensity. It's and they got that
• 19:00
  Speaker 1: on the belly thing. It's just the way the story goes.
• 19:02
  Speaker 1: On Wall Street. You make a ton of money, usually
• 19:04
  Speaker 1: there's some fall, you know, where maybe you get into
• 19:07
  Speaker 1: fight with people like the Bill growth story I thought
• 19:09
  Speaker 1: was probably more traditional Wall Street story, the rise in
• 19:12
  Speaker 1: the fall. Right. Um, So it's unusual, though, to have
• 19:16
  Speaker 1: that much work ethic, that much drive and say, yeah,
• 19:19
  Speaker 1: I want all the investors to have the money. I mean,
• 19:22
  Speaker 1: they got paid well, but he was never going to
• 19:24
  Speaker 1: get Jeff Bezos rich or you know, the Johnson family
• 19:27
  Speaker 1: rich if he turned over the profits. That decision was
• 19:31
  Speaker 1: the biggest, I think the single biggest decision in the
• 19:35
  Speaker 1: in the last fifty years. Indexing is just the lucky
• 19:38
  Speaker 1: byproduct of that decision. If indexing was expensive, it wouldn't
• 19:42
  Speaker 1: really catch hold. And I think it was Vanguard's mutual
• 19:45
  Speaker 1: ownership structure that is the key ingredient, as well as
• 19:49
  Speaker 1: Bogel's unique structure. So most of my book is exploring
• 19:52
  Speaker 1: those two things. I think those two things were created
• 19:55
  Speaker 1: the explosion, and then when they were looking for something
• 19:58
  Speaker 1: to apply this to, indexing was out there and they said,
• 20:00
  Speaker 1: let's do that, and that I think in a weird way,
• 20:03
  Speaker 1: I think indexing got lucky that Vanguard and Vogel existence.
• 20:07
  Speaker 1: So so let me push back a little bit on that.
• 20:11
  Speaker 1: If Vanguard had this mute see, I think they're they're
• 20:14
  Speaker 1: very complementary the mutual ownership structure. Of course, handing glove
• 20:20
  Speaker 1: because hypothetically, in the alternative universe, Vanguard never gets into
• 20:24
  Speaker 1: passive and indexing and instead just does low cost active,
• 20:28
  Speaker 1: which would destroy though they'd get all the money, I
• 20:31
  Speaker 1: don't think, yes, they wouldn't, because if you look at
• 20:34
  Speaker 1: any study, the lowest cost active funds beat their benchmarks
• 20:38
  Speaker 1: way more, and Vanguard's active funds, relatively speaking the monks
• 20:43
  Speaker 1: amongst active funds, the lowest cost wins. But if you're
• 20:48
  Speaker 1: low cost active versus someone else doing low cost passive,
• 20:52
  Speaker 1: you're gonna lose. Yeah, over the fullness of time. Maybe
• 20:55
  Speaker 1: part of my theory on low cost passive, I don't
• 20:57
  Speaker 1: think it would have happened without Vanguard because it's just
• 21:01
  Speaker 1: it could be true, because it's possible, you know, because
• 21:05
  Speaker 1: the Wells Fargo Index fund, which was the second one
• 21:08
  Speaker 1: to ever come out in the early seventies, right, yes,
• 21:11
  Speaker 1: still charges forty four basis points and with a load,
• 21:14
  Speaker 1: and that's with vanguarded the picture, and and how much
• 21:17
  Speaker 1: has the Wells Fargo Index amassed and as nothing It's like, no,
• 21:22
  Speaker 1: it's very little. So that's why these two are so
• 21:24
  Speaker 1: here's successful low successful indexing not attracting assets, but it's
• 21:29
  Speaker 1: it's the low cost. This this whole thing that we're
• 21:32
  Speaker 1: experiencing with with what I call the Bogel effect. It's
• 21:35
  Speaker 1: it's low cost. That's the thing. I call it the
• 21:38
  Speaker 1: great cost migration. It is much more powerful than indexing.
• 21:41
  Speaker 1: Indexing is really just taking a group of thocks and
• 21:44
  Speaker 1: market cap waiting them right or and each index company
• 21:48
  Speaker 1: does in a different way. Like there is no like
• 21:51
  Speaker 1: is different from Vanguard is different. How about the Russell
• 21:54
  Speaker 1: one thousands of different than the sp five. SPID is
• 21:56
  Speaker 1: literally active. I mean, it's really because it's cheap. And
• 22:00
  Speaker 1: if you were to have let's say, indexing wasn't even
• 22:01
  Speaker 1: a concept. We don't even know what it is. If
• 22:03
  Speaker 1: you had made active mutual funds and got them down
• 22:07
  Speaker 1: to those low fees that Vanguards active funds currently are at,
• 22:11
  Speaker 1: they would utterly destroy They'd be the biggest active mutual
• 22:14
  Speaker 1: fund shops six times over. Sex my opinion, I just
• 22:17
  Speaker 1: feel like active is sold by performance, and if your
• 22:21
  Speaker 1: low costs, it will help your performance. But depending on
• 22:24
  Speaker 1: your model, there there are active funds that have great
• 22:27
  Speaker 1: years and then have terrible years, and if they were
• 22:30
  Speaker 1: low cost, I think you would have inflows and outflows
• 22:33
  Speaker 1: over time. Vanguards active funds would rise to the top
• 22:36
  Speaker 1: in the ten and twenty year but it would take
• 22:39
  Speaker 1: decades to get there, all right, It still would have
• 22:41
  Speaker 1: taken a while. It would have been the graduate. Then
• 22:43
  Speaker 1: suddenly it just would have all happened with active instead
• 22:44
  Speaker 1: of passive. It would have happened, though. I think cost,
• 22:48
  Speaker 1: I think is really what he pushed forward and what
• 22:51
  Speaker 1: is here to stay. So so the next thing is
• 22:53
  Speaker 1: such a you know, there are active funds that are
• 22:56
  Speaker 1: very very passive ish. There are a closet indext will
• 23:00
  Speaker 1: come back hold that there's gonna condex funds that are
• 23:03
  Speaker 1: pretty active. So index thing is a very nuanced conversation.
• 23:06
  Speaker 1: What isn't nuanced and what is the mother of all
• 23:09
  Speaker 1: trends is high costs of low cost alright, So so
• 23:12
  Speaker 1: let's put some flesh on those bones in And I
• 23:16
  Speaker 1: think I totally didn't even answer your question, but well,
• 23:18
  Speaker 1: I'll kay, I'm gonna pin you down. We got lots
• 23:21
  Speaker 1: of time to make you answer the questions you're on
• 23:25
  Speaker 1: you're on our Would you please direct the witness to
• 23:28
  Speaker 1: what you asked what the Vandguard effect was in dollars.
• 23:31
  Speaker 1: Let's talk about dolls. So that mutual ownership company that
• 23:35
  Speaker 1: he created, and once it got really popular and then
• 23:38
  Speaker 1: gradually then suddenly kicked in in two thousand eight and
• 23:41
  Speaker 1: they started getting trillions um. Once the trillions started kick in,
• 23:45
  Speaker 1: a couple of things happened, and you can start to
• 23:47
  Speaker 1: calculate the savings that Vanguard saved investors. If you take
• 23:50
  Speaker 1: the money they would have had and say a sixties
• 23:52
  Speaker 1: seventy basis point active fund versus a ten basis point
• 23:55
  Speaker 1: in X fund, and the turnover the trading cost is
• 23:57
  Speaker 1: like another one percent for active funds, and you don't
• 24:00
  Speaker 1: even see you add that up. You know, arguably it's
• 24:02
  Speaker 1: five to a trillion. Uh, there's ways it could be more.
• 24:06
  Speaker 1: Bogel wanted to reinvest the savings and that grows it more.
• 24:08
  Speaker 1: But let's say it's a lot of money. Now. The
• 24:11
  Speaker 1: Vanguard effect is everybody saying, oh, they're getting all these flows,
• 24:14
  Speaker 1: we're gonna have to copy their local feast to compete
• 24:18
  Speaker 1: they And so in my book, a lot of people
• 24:20
  Speaker 1: were like, nobody wanted to do this. Only Bogel wanted this.
• 24:24
  Speaker 1: Everybody else did it because they had to, and that
• 24:26
  Speaker 1: mattered to some people, but ultimately that's how everybody saw it,
• 24:29
  Speaker 1: and I agree, and that's the Vanguard effect. And that's
• 24:31
  Speaker 1: why I was so attracted this topic because as somebody
• 24:33
  Speaker 1: looks at the flows every day, I'm like, damn man,
• 24:36
  Speaker 1: every every year we look at the flows, and I'm like,
• 24:38
  Speaker 1: if you pull a thread on basically of this money,
• 24:42
  Speaker 1: you end up in nineteen seventy four and it's all
• 24:45
  Speaker 1: traced back to this guy in this decision to set
• 24:48
  Speaker 1: this company up like this. And that is interesting that
• 24:51
  Speaker 1: nobody copied Vanguard's mutual ownership structure, but it's the governing
• 24:55
  Speaker 1: force of the whole enchilada. Now basically people are they
• 24:58
  Speaker 1: have to copy it, even they don't structurally copy, if
• 25:01
  Speaker 1: they have to copy the products, which leads me to
• 25:04
  Speaker 1: a statement that Bogel made that blew my mind. I
• 25:06
  Speaker 1: didn't know he said this. I had known some of
• 25:08
  Speaker 1: his quotes, but not all of them. In one of
• 25:10
  Speaker 1: his books, Character Counts, where he goes over his speeches,
• 25:13
  Speaker 1: he's given the crew. He talks about how the crew
• 25:17
  Speaker 1: is what they called the employee. Uh. He talks about
• 25:22
  Speaker 1: Vanguard's mission will be will start, Vanguard's will know Vanguard's
• 25:28
  Speaker 1: mission is beginning to be successful when our market share eroads,
• 25:32
  Speaker 1: meaning everybody else has. And that's happened in specific spaces,
• 25:37
  Speaker 1: but not overall, not overall. So he I wrote a
• 25:40
  Speaker 1: note saying Bogel's dream on hold still despite passive revolution.
• 25:44
  Speaker 1: So so they at one point in time where the
• 25:47
  Speaker 1: number one funds in a lot of specific categories and
• 25:51
  Speaker 1: in many areas, that is no longer the case because
• 25:55
  Speaker 1: other companies as a loss leader and to be able
• 25:58
  Speaker 1: to market hey, where the number one in this have
• 26:00
  Speaker 1: either cut their fees below Vanguard running at a loss,
• 26:04
  Speaker 1: and so there's still two three four in everything and
• 26:07
  Speaker 1: much more asset's under management. But when you look at
• 26:11
  Speaker 1: the fun tables and look at specific things, it used
• 26:13
  Speaker 1: to be Vanguard Vanguard, Vanguard Vangard, and that's no longer
• 26:16
  Speaker 1: the case. Is that the market share loss Jack was
• 26:20
  Speaker 1: talking about, that's exactly he would he would have like,
• 26:23
  Speaker 1: that's what's so uh interesting about this guy is that's
• 26:27
  Speaker 1: a completely different trip to actually root for your market share?
• 26:30
  Speaker 1: Do road to think that that's that's like saying I
• 26:33
  Speaker 1: want to actually change the whole industry, the whole industry, um,
• 26:37
  Speaker 1: and it is happening. The problem is, overall, Vanguard still
• 26:41
  Speaker 1: leads and flows every year like clockwork black Rock. Typically
• 26:45
  Speaker 1: in a given year, Vanguard, let's say takes in ten,
• 26:47
  Speaker 1: black Rock will take in seven, and then you know,
• 26:50
  Speaker 1: go maybe three or two is the next one, and
• 26:52
  Speaker 1: then after that it's a fraction. Yeah, and then there
• 26:55
  Speaker 1: a lot of people see outflow. So net wise, you know,
• 26:57
  Speaker 1: Vanguard and black Rock are really can on Godzilla at
• 27:00
  Speaker 1: this point, and then there's just this huge gap. But
• 27:03
  Speaker 1: if Vanguards still takes in more than black Rock though,
• 27:05
  Speaker 1: and we know how big they are, so ultimately Vanguard
• 27:07
  Speaker 1: will pass black Rock. Eventual events con especially in a
• 27:10
  Speaker 1: bear market. Bear markets are where Vanguard's market share really
• 27:14
  Speaker 1: starts to grow because there's no asset appreciation. Asset growth
• 27:17
  Speaker 1: or market appreciation. Asset growth. The only thing that can
• 27:20
  Speaker 1: actually grow your assets or stop the asset losses flows.
• 27:24
  Speaker 1: So once flows are the only variable the market share
• 27:27
  Speaker 1: percentage that Vanguard has start to go, it doubles the
• 27:30
  Speaker 1: rate of growth. So bear markets are because I woul
• 27:32
  Speaker 1: always over the years here, oh just wait till a
• 27:35
  Speaker 1: bear market. That's when all this Vanguard stuff constant, like,
• 27:40
  Speaker 1: if you're active, you should root for fed liquidity forever,
• 27:43
  Speaker 1: market appreciative forever, and just live with your outflows because
• 27:47
  Speaker 1: the market appreciation will totally overwhelm that and you'll get
• 27:49
  Speaker 1: you'll still stay rich. A bear market is when you're
• 27:52
  Speaker 1: probably gonna really find um, You're gonna start to see
• 27:57
  Speaker 1: real erosion because you're gonna have the ass it's come
• 28:00
  Speaker 1: down from the market, the outflows, and there's still arguably
• 28:03
  Speaker 1: a couple of trillions stuck in there because of taxes.
• 28:06
  Speaker 1: So I would say a bear market in my opinion.
• 28:09
  Speaker 1: We have a phrase on the team is that bull
• 28:11
  Speaker 1: markets are good for passive. Bear markets are great. That
• 28:13
  Speaker 1: that makes a lot of sense. But Bill McNab, the
• 28:16
  Speaker 1: previous Vanguard CEO, told the fascinating story on that topic.
• 28:22
  Speaker 1: So what they do, what some of the senior management does,
• 28:26
  Speaker 1: is they call. They log into the call center to
• 28:30
  Speaker 1: see what clients are saying, to see how people are
• 28:32
  Speaker 1: dealing with it. And in O eight, McNab logs in
• 28:36
  Speaker 1: and he hears not just nervous clients, but nervous customer
• 28:40
  Speaker 1: service reps. No one knows middle of oh eight, no
• 28:43
  Speaker 1: one knows what the hell is gonna happen. Am I
• 28:45
  Speaker 1: gonna lose my job? And he came to realize, Hey,
• 28:49
  Speaker 1: our folks have to sound like they're comfortable, they're confident.
• 28:53
  Speaker 1: They can't reflect the fear from clients. So he does
• 28:57
  Speaker 1: an all hands on deck. It doesn't matter how low
• 28:59
  Speaker 1: the market goes. There will be no layoffs. Everybody's job
• 29:02
  Speaker 1: is secured and we're going to continue to pick up money.
• 29:05
  Speaker 1: In oh eight o nine. Are inflows are strong? You
• 29:09
  Speaker 1: guys just have to communicate that too to our clients.
• 29:13
  Speaker 1: And at that point forward it was a fire hose.
• 29:17
  Speaker 1: Everybody was getting. All the things that were being sold
• 29:20
  Speaker 1: was flowing straight to van. Eight was the year that
• 29:24
  Speaker 1: made Vanguard and ETFs um. It was one of those
• 29:27
  Speaker 1: years where a lot of active managers did worse than
• 29:30
  Speaker 1: the market, and so it was one of those Ah,
• 29:32
  Speaker 1: you couldn't even save me from the whole reason for existing.
• 29:36
  Speaker 1: So that was one the liquid peak to trough um
• 29:42
  Speaker 1: and in Vanguard astonishingly took in flows every month in
• 29:45
  Speaker 1: two thousand eight, which even in October, where we were
• 29:48
  Speaker 1: already weary of going down. In October two the market
• 29:51
  Speaker 1: was found seventeen percent in a month, and they took
• 29:53
  Speaker 1: in money. And that's when I really I look back
• 29:56
  Speaker 1: at this. This is I might have been starting to
• 29:57
  Speaker 1: look at this at two. That when I really got
• 30:00
  Speaker 1: on this whole notion that bear markets are actually going
• 30:04
  Speaker 1: to speed this thing up. And we've been bringing that
• 30:07
  Speaker 1: drum internally and we've been proven right so far. Uh
• 30:10
  Speaker 1: and this year is no exception. Um Vanguard is leading flows.
• 30:13
  Speaker 1: I think I I did a status. I forget the
• 30:16
  Speaker 1: exact flows. It's something like Vanguard's taken in I don't
• 30:18
  Speaker 1: know the rest of the industry combined is like negative
• 30:23
  Speaker 1: to fifty. It's it's almost as if people are selling
• 30:27
  Speaker 1: under other funds and sending the money to Vanguard. I
• 30:30
  Speaker 1: means coincidence. There's also this I see the Vanguard flows
• 30:35
  Speaker 1: are so good and persistent because and I asked Bogel,
• 30:39
  Speaker 1: why are why are Vanguard investors so disciplined? And he said,
• 30:43
  Speaker 1: because they had to find us. These are people who
• 30:46
  Speaker 1: who weren't stuck in it because they got a kickback
• 30:49
  Speaker 1: from a fund company through a broker. They found us,
• 30:51
  Speaker 1: and they're usually pretty with it. And I also think
• 30:54
  Speaker 1: this is and I point this on the book. Behavior
• 30:57
  Speaker 1: of Vanguard investors is off the charts good. But I
• 31:00
  Speaker 1: and I think advisors like you, who are are specialized
• 31:04
  Speaker 1: in behavior, I think your job is made a little
• 31:07
  Speaker 1: easier by just introducing a cheap index fund. I think
• 31:10
  Speaker 1: it's easier to behave when you have a cheap index
• 31:13
  Speaker 1: fund as a tool, because you're, like I called the
• 31:16
  Speaker 1: like a resignation. You're like, what am I gonna do?
• 31:18
  Speaker 1: Hop onto some high flying who has a good year.
• 31:20
  Speaker 1: They're under performing, but at least they're expensive, right yeah. Uh.
• 31:25
  Speaker 1: And I think that that resignation is made behavior. And
• 31:29
  Speaker 1: there's all this stuff on psychology and behavior that seems
• 31:32
  Speaker 1: to be like written about, But I'm like, I try
• 31:34
  Speaker 1: to imagine, try writing all that stuff if all you
• 31:37
  Speaker 1: have is active mutual funds that charge one percent, it's
• 31:40
  Speaker 1: much harder. It's easier to reflect on behavior and how
• 31:42
  Speaker 1: important it is when you have a cheap index fund.
• 31:45
  Speaker 1: So I think Bogel's contribution to behavior was monumental just
• 31:49
  Speaker 1: by introducing the index fund. And also think Bogel was
• 31:52
  Speaker 1: interesting in that he wasn't really into the efficient market hypothesis.
• 31:55
  Speaker 1: He wasn't really an academic. A lot of what he did, though,
• 31:58
  Speaker 1: if impacted those worlds. I think but and people may
• 32:01
  Speaker 1: see him as like thinking that way, but he I
• 32:03
  Speaker 1: think he was just a very practical guy who kind
• 32:06
  Speaker 1: of just saw it makes no sense to charge all
• 32:08
  Speaker 1: this money because when stuff, when you start to compound,
• 32:11
  Speaker 1: much of that compounding then goes to the intermediary, not you.
• 32:14
  Speaker 1: So so it's interesting about the flows to Vanguard. My
• 32:17
  Speaker 1: partner Josh Brown calls this the relentless bid. And what
• 32:22
  Speaker 1: he means by that is everybody who has Vanguard in
• 32:25
  Speaker 1: their four oh one K, everybody goes Vanguard in their IRA.
• 32:29
  Speaker 1: Their accountant says, hey, it's time to make your contribution.
• 32:32
  Speaker 1: It goes to Vanguard twice a month or every other week,
• 32:35
  Speaker 1: depending on when you get paid. In Wall Street, it
• 32:37
  Speaker 1: seems to be twice a month. You know that there's
• 32:41
  Speaker 1: a percentage And and in my firm, I watched these
• 32:43
  Speaker 1: like fifty thousand now checks go out every month to
• 32:47
  Speaker 1: to the four one K company and a huge percentage
• 32:50
  Speaker 1: of that is captured by Vanguard. So even when the
• 32:53
  Speaker 1: tide goes out in the market, like the first half
• 32:56
  Speaker 1: of the year, you're still sending money to Vanguard automagically.
• 33:01
  Speaker 1: It just happens. The other thing is um An underrated
• 33:05
  Speaker 1: word is trust. Um, you look at Vogel and you
• 33:10
  Speaker 1: had a quote in my book about this, which is must.
• 33:13
  Speaker 1: You have used only quotes with curses for me, but
• 33:17
  Speaker 1: it was hard to avoid them. Man. But if I
• 33:21
  Speaker 1: think when you curse, you're saying your best stuff. That's
• 33:24
  Speaker 1: why you curse, because you're so into it. So it
• 33:27
  Speaker 1: happens to be your best points. When I listen back
• 33:29
  Speaker 1: to your audio, happened to contain curses, and I maybe
• 33:32
  Speaker 1: there's a correlation there, but it's it's good to know.
• 33:35
  Speaker 1: But you can take the ball and go home. Yeah.
• 33:38
  Speaker 1: It basically over time, Uh, it was really other people
• 33:42
  Speaker 1: shooting themselves in the foot active funds showing uh that
• 33:45
  Speaker 1: they you know, people's experience over time that added up
• 33:49
  Speaker 1: and then you see Vanguard over here and they just
• 33:52
  Speaker 1: look boy scout in Comparison's phrase, And so that thrust
• 33:57
  Speaker 1: it gets built over thirty forty years. Because people ask
• 34:00
  Speaker 1: me all the time, how can how isn't Vanguard's market
• 34:03
  Speaker 1: share roting when everybody has cheap index funds? Now, even
• 34:06
  Speaker 1: JP Morgan Goldman, who have armies of advisors, they could
• 34:09
  Speaker 1: just move them all in. And I'm like, well, you
• 34:11
  Speaker 1: have forty four years of trust built up, goodwill banked,
• 34:16
  Speaker 1: and the low cost. So it doesn't matter if somebody
• 34:19
  Speaker 1: zero and vanguards three basis points. It's not enough because
• 34:22
  Speaker 1: the trust and the branding is so strong and it
• 34:24
  Speaker 1: will be for a while. It could have wrote eventually,
• 34:26
  Speaker 1: but right now that trust is so underrated. It's not
• 34:29
  Speaker 1: just the fees. Nobody's ever accused Vanguard of being a
• 34:33
  Speaker 1: vampire squid jamming. It's funnel into the vein of money
• 34:39
  Speaker 1: flows as as we heard about UH some large companies
• 34:44
  Speaker 1: during the financial crisis, and there was no accounting scandal
• 34:47
  Speaker 1: at Vanguard. There was no I P O spinning, there
• 34:50
  Speaker 1: was no go down the list of all the scandals
• 34:52
  Speaker 1: the analysts scandals, scandal after scandal after the derivative scandal
• 34:57
  Speaker 1: within County got It was one after another after another,
• 35:00
  Speaker 1: and they're like, that's investors with a mutual fun overnight
• 35:04
  Speaker 1: trading scandal that Elliot Spitzer investigated. Here's the thing that
• 35:09
  Speaker 1: I feel for the rest of the world is that
• 35:12
  Speaker 1: the structure of a publicly traded asset manager is such
• 35:16
  Speaker 1: that you are you're you have to serve the shareholders
• 35:20
  Speaker 1: who want more money, and where where's the money going
• 35:22
  Speaker 1: to come from the investors or your clients, and that
• 35:26
  Speaker 1: is a vicious tension to live in. And and people
• 35:29
  Speaker 1: try their best. And some companies like you take a
• 35:31
  Speaker 1: black Rock, good people work there. They like to serve
• 35:33
  Speaker 1: their clients. I think they like what Bogel pushed onto them,
• 35:37
  Speaker 1: but they are still having to live with that in
• 35:39
  Speaker 1: her intention, and there's probably gonna be times where they
• 35:41
  Speaker 1: have to make a decision, well we should we should
• 35:44
  Speaker 1: try to get them into the higher costs one because
• 35:46
  Speaker 1: we have to meet our revenue goals. And this is
• 35:49
  Speaker 1: the sort of thing that Bogel would talk about any
• 35:52
  Speaker 1: time he had a chance, which is the two masters
• 35:55
  Speaker 1: that um speaking of masters in business, the two masters.
• 35:59
  Speaker 1: It's hard to of two masters. And his structure was
• 36:02
  Speaker 1: such that there was only one master, which was the
• 36:04
  Speaker 1: owner of the company, was the investors. So and I
• 36:06
  Speaker 1: know this story gets told all the time. People kind
• 36:08
  Speaker 1: of know it, but it again when you dive into
• 36:12
  Speaker 1: it and trace it. The amount of money this guy
• 36:15
  Speaker 1: commandeered and the idea that no one's copied it just
• 36:20
  Speaker 1: makes this such a fascinating story. I heard your interview
• 36:22
  Speaker 1: with Spencer Jacob and the Memestocks and you said you
• 36:26
  Speaker 1: couldn't make this fiction because you could never invent I
• 36:29
  Speaker 1: would say the same thing about Bob. You could never
• 36:31
  Speaker 1: dream this guy up in like the sixty. You just couldn't.
• 36:34
  Speaker 1: You couldn't dream this. Maybe possibly, but and I know
• 36:37
  Speaker 1: the story isn't that interesting. But if you again, the
• 36:40
  Speaker 1: more you think about it and ponder it, you're like, wow,
• 36:44
  Speaker 1: you know that's the the old joke. I don't know
• 36:46
  Speaker 1: who I'm stealing in the line from. But the difference
• 36:48
  Speaker 1: between fiction and nonfiction is fiction has to be plausible.
• 36:52
  Speaker 1: Nonfiction can be utterly insane because it's real. But you
• 36:55
  Speaker 1: tell some of these stuff. Listen the I I have
• 36:58
  Speaker 1: coming up, Bill, Bill Outer and Red Notice would have
• 37:02
  Speaker 1: will have broadcast, And that has to be a work
• 37:05
  Speaker 1: of nonfiction, because if it was fiction, you would look
• 37:07
  Speaker 1: in and say, this is just too ridiculous to have
• 37:10
  Speaker 1: ever occurred. It can't be real, and so the story
• 37:14
  Speaker 1: loses effect. But you find out that all the stuff happened,
• 37:16
  Speaker 1: it's it's insane. I totally agree with you. We'll talk
• 37:19
  Speaker 1: a little more bit more about Jack and how completely
• 37:24
  Speaker 1: contradictory his background is and how how interesting it is. Um.
• 37:29
  Speaker 1: The thing with the other E T F companies. You
• 37:33
  Speaker 1: what you're essentially saying is that there are fiduciaries and
• 37:37
  Speaker 1: then there are really fiduciaries. Is that what I'm hearing
• 37:40
  Speaker 1: from you. Yeah. Bogel wasn't necessarily against high cost or
• 37:44
  Speaker 1: active with a word. He focused it on with stewardship.
• 37:48
  Speaker 1: He thought there are good stewards and bad stewards, because
• 37:51
  Speaker 1: he says, if you're a small company asset manager, you
• 37:54
  Speaker 1: probably need to charge one percent because you gotta keep
• 37:56
  Speaker 1: the lights on. One percent of a million isn't a
• 37:58
  Speaker 1: lot of money. One percent on thirty billion is a
• 38:01
  Speaker 1: ton of money. And so what he thought was they
• 38:04
  Speaker 1: broke their stewardship by not sharing any of those economies
• 38:07
  Speaker 1: of scale. The dollar fees were enormous. So I think
• 38:11
  Speaker 1: that's ultimately where he was trying to separate what they
• 38:15
  Speaker 1: did from others, because again I found in a lot
• 38:18
  Speaker 1: of his books he was proud of some of the
• 38:19
  Speaker 1: active funds. So I thought stewardship was the main word.
• 38:22
  Speaker 1: And you can be active and be a good steward.
• 38:24
  Speaker 1: You could be even moderate costs and be a good steward.
• 38:26
  Speaker 1: I think the idea is, are you you know, sort
• 38:29
  Speaker 1: of totally abusing the relationship you have as the controller
• 38:34
  Speaker 1: of somebody's money. And I think that's where he really
• 38:37
  Speaker 1: had problems. And he wrote many books that are just
• 38:39
  Speaker 1: all one big rant, especially rant about the two eight crisis,
• 38:43
  Speaker 1: and he wrote a rant about two thousand one and
• 38:45
  Speaker 1: end Ron, and these books are where he just is
• 38:47
  Speaker 1: like he's unmarnished. In other books he's just a little softer.
• 38:52
  Speaker 1: But he found that that was what pissed him off
• 38:55
  Speaker 1: the most is when people broke their fiduciary and stewardship bonds,
• 38:59
  Speaker 1: not necessarily active or even high cost. It was about
• 39:04
  Speaker 1: is the high cost warranted um? And in the case
• 39:07
  Speaker 1: of asset managers, I think I have a chapter called
• 39:10
  Speaker 1: the Fall and Rise of Active because Active is evolving
• 39:13
  Speaker 1: in different ways, but the fall is a missed opportunity.
• 39:17
  Speaker 1: I think these companies in the eighties and nineties, when
• 39:20
  Speaker 1: they got enormous, they got into four one K plans
• 39:22
  Speaker 1: that se basis points, they charged even more um was
• 39:27
  Speaker 1: once you got ten thirty fifty billion dollars in that fund.
• 39:31
  Speaker 1: They never shared any of that, and I think it
• 39:33
  Speaker 1: was a missed opportunity. Had they shared a little bit
• 39:35
  Speaker 1: of it, they still would have made tons of money,
• 39:38
  Speaker 1: and they would have been able to bank goodwill, lower
• 39:40
  Speaker 1: the fees and increase their beat rates against the benchmark
• 39:43
  Speaker 1: because their fees are now lower. It was a missed opportunity.
• 39:45
  Speaker 1: And I find it interesting that they were so disrupted
• 39:49
  Speaker 1: when their whole job is to analyze companies and stocks
• 39:52
  Speaker 1: and try to figure out who's going to get disrupted
• 39:54
  Speaker 1: and why. And they've seen Amazon's come along in these
• 39:56
  Speaker 1: other industries, but they it's like they never applied it
• 39:59
  Speaker 1: to themselves. And I find that kind of interesting that
• 40:02
  Speaker 1: they were so disrupted and their students of disruption. Well, first,
• 40:06
  Speaker 1: very few people have an accurate self perception, and that
• 40:10
  Speaker 1: includes companies. But second, more important, how often do companies
• 40:16
  Speaker 1: cannibalize themselves, compete against themselves cut fees if competition does
• 40:23
  Speaker 1: enforce them, And so I can think of you know,
• 40:26
  Speaker 1: my favorite example is Apple. Remember the first Apple was
• 40:29
  Speaker 1: like a deck of cards. It was five hundred bucks.
• 40:32
  Speaker 1: The first the first iPod a thousand songs in your pocket,
• 40:36
  Speaker 1: A thousand songs laughable, and it was I think three.
• 40:40
  Speaker 1: It was big and heavy. So they come out next
• 40:42
  Speaker 1: year with another one. Now it's ten thousand songs. And
• 40:45
  Speaker 1: it's a hundred bucks less, and the next one is
• 40:48
  Speaker 1: forty thousand songs, and now it's one until eventually you
• 40:52
  Speaker 1: get the little i iPod touch. And the reason the
• 40:56
  Speaker 1: Apple story is so instructive is it's an outlier. People
• 41:02
  Speaker 1: don't cut cut costs unless they have to. People won't
• 41:05
  Speaker 1: cannibalize themselves and lets and then they said, oh, we're
• 41:08
  Speaker 1: gonna build that into our phone and give it away
• 41:10
  Speaker 1: for free. And you know, someone had to say, what
• 41:12
  Speaker 1: are you crazy. This is a billion dollar business. Well,
• 41:15
  Speaker 1: if we don't do it, someone else will, so we
• 41:17
  Speaker 1: have to Wall Street. Isn't that self reflective? Yeah, they
• 41:21
  Speaker 1: all love Steve Jobs and that mindset, but they didn't
• 41:24
  Speaker 1: apply it um And I have a section called the
• 41:27
  Speaker 1: Steve Jobs rule, which is, if you don't cannibalize yourself,
• 41:29
  Speaker 1: somebody else will. And I think you either have to
• 41:32
  Speaker 1: cannibalize yourself or create enormous value and keep just throwing
• 41:36
  Speaker 1: value and value and value to keep that price steady,
• 41:40
  Speaker 1: or do both then become the biggest company in the
• 41:42
  Speaker 1: world exactly. And so I do think there was there
• 41:45
  Speaker 1: are these outliers of people who are that hardcore. But
• 41:48
  Speaker 1: you're right, and again, this is what made the Vanguard
• 41:50
  Speaker 1: story interesting. And I also think what what made it
• 41:52
  Speaker 1: interesting was lowering fees in the seventies, eighties and even
• 41:55
  Speaker 1: the nineties. Nobody really cared, Like there wasn't a during
• 41:59
  Speaker 1: the bullmarket, you know, nobody cared. So he was doing
• 42:02
  Speaker 1: this at times when Wall Street was not. It was
• 42:07
  Speaker 1: decades before the world figured out this actually makes sense
• 42:11
  Speaker 1: and that vision is is pretty rare. And I have,
• 42:14
  Speaker 1: uh this sort of comparison in the book where I
• 42:16
  Speaker 1: look at and the movie Wall Street comes out, Gordon
• 42:19
  Speaker 1: Gecko is giving as greed as good speech Bogel's in
• 42:22
  Speaker 1: Valley Forge, given the Christmas you know speech to all
• 42:25
  Speaker 1: the employees, and the side by side of all these
• 42:29
  Speaker 1: young people watching Gordon Gecko wanting to go to Wall
• 42:31
  Speaker 1: Street and make a ton of money, and then Vanguard
• 42:33
  Speaker 1: Bogel is sitting there talking about like, oh, we shaved
• 42:36
  Speaker 1: one basis point off the fund this year, if we
• 42:38
  Speaker 1: keep doing good fiduciary and like in eighties seven, And
• 42:42
  Speaker 1: I'd say this in the book multiple times. Ay, if I,
• 42:45
  Speaker 1: if I was an active manager, I wouldn't shared economy
• 42:47
  Speaker 1: to scale. I would have bought the sport they did
• 42:49
  Speaker 1: I know, and so I. They did what most of
• 42:51
  Speaker 1: us would have done. Same thing. In the eighties. I
• 42:53
  Speaker 1: would have gone crazy in the eighties culture, I would
• 42:56
  Speaker 1: have just got carried away, so I and ferraris so
• 43:02
  Speaker 1: you know, in the nineties in the bullmarket, that was
• 43:04
  Speaker 1: a whole thing. It was Bogel is just weird. So
• 43:09
  Speaker 1: he's an outlier, and that's why the book is on him.
• 43:11
  Speaker 1: But I make points to say that I would have
• 43:14
  Speaker 1: done the same thing as them. I don't. I don't
• 43:16
  Speaker 1: think I would have shared it. I would have thought, well,
• 43:18
  Speaker 1: we earned this money, let's spend it, let's buy hire
• 43:20
  Speaker 1: new people, give us our ourself raises. So so let's
• 43:23
  Speaker 1: let's imagine that you're you're working in Fidelity, or you're
• 43:26
  Speaker 1: working at Templeton, or you're working wherever, and in you
• 43:31
  Speaker 1: just had your best year in history, and you walk
• 43:34
  Speaker 1: in and say, I have a great idea, we should
• 43:37
  Speaker 1: cut our fees because think about how great that will
• 43:41
  Speaker 1: be for investors, how it will improve fun performance, and
• 43:45
  Speaker 1: how sticky clients will become. And you wouldn't have been
• 43:48
  Speaker 1: laughed at. They would have thrown you out of the
• 43:50
  Speaker 1: room and fired you. Isn't that crazy? And so you
• 43:52
  Speaker 1: have a guy who did nothing but that for forty
• 43:54
  Speaker 1: five years. But now you he changed the whole world.
• 43:58
  Speaker 1: I mean, he changed the whole investing world with that concept.
• 44:01
  Speaker 1: But you're right again. I and you know the twelve
• 44:04
  Speaker 1: one fee, which is to say, which is the marketing
• 44:07
  Speaker 1: fee for mutual funds. It's to say, like, hey, look
• 44:10
  Speaker 1: we we have We're gonna take your money and we're
• 44:14
  Speaker 1: gonna go spend it on marketing. That way we get bigger,
• 44:17
  Speaker 1: so we can share economies to scale with you and
• 44:19
  Speaker 1: lower the fee. Well, they forgot the second part, and
• 44:23
  Speaker 1: Bogel was all about the second part constantly, And so
• 44:26
  Speaker 1: I try to tell people there is a great business
• 44:29
  Speaker 1: case study in this story. And I also tell my
• 44:32
  Speaker 1: Crypto friends, you guys should read this heavily. Bogel was
• 44:36
  Speaker 1: more defined. They're all about saving fees. Yeah, that's the thing.
• 44:40
  Speaker 1: Like Crypto almost sells themselves as Vanguard, but they're really
• 44:45
  Speaker 1: old school Wall Street. And I'm like, you need to
• 44:47
  Speaker 1: get more Vanguard in your life because all we see
• 44:50
  Speaker 1: is these billionaires hiring movie stars to do commercials. And
• 44:53
  Speaker 1: I'm like, and you sell yourselves though, is populous? And
• 44:56
  Speaker 1: for the people read this story. This guy was the
• 44:59
  Speaker 1: real deal. I him the o G of DeFi absolutely so.
• 45:03
  Speaker 1: So let's talk a little bit about Bogel. Boggle. Everybody
• 45:06
  Speaker 1: gets his name wrong, Jack Bogel. I know, I've had
• 45:09
  Speaker 1: people internally called the Boggle effect, and that's yeah, that's
• 45:14
  Speaker 1: where I knew man Um. Some people know about him,
• 45:16
  Speaker 1: but some people don't know about him inside the bubble.
• 45:19
  Speaker 1: So so let's start with Jack Bogel's early career. He
• 45:23
  Speaker 1: writes a senior thesis. It went to Princeton undergrad he
• 45:26
  Speaker 1: did that. That thesis seemed to have sealed his fate. Yeah,
• 45:30
  Speaker 1: it did. It was a thesis about, you know, how um,
• 45:33
  Speaker 1: the asset management industry should be better stewards. It was
• 45:36
  Speaker 1: just basically return it was. It was very much again
• 45:41
  Speaker 1: the seed was planted quickside. Note. I interviewed Michael Lewis
• 45:44
  Speaker 1: for this book, and when I told him that, he
• 45:47
  Speaker 1: said he keeps a file of Princeton thesis that have
• 45:51
  Speaker 1: changed the world, Like the Adam bomb was a Princeton
• 45:53
  Speaker 1: teach for America. He's like, I'm gonna have to add
• 45:55
  Speaker 1: this to my file. May maybe he'll have a book
• 45:57
  Speaker 1: on it one day. But I thought it was kind
• 45:58
  Speaker 1: of cool. Um. But yeah, Also the Prince and thesis
• 46:01
  Speaker 1: is interesting because when he was searching for an idea,
• 46:04
  Speaker 1: went to the library, didn't know what he's gonna write about,
• 46:06
  Speaker 1: and just found um Fortune magazine randomly random mumbles across
• 46:10
  Speaker 1: the magazine and on the cover it didn't even say
• 46:13
  Speaker 1: mutual funds. You had to like open it and it
• 46:15
  Speaker 1: was like big money in Boston or something, and it
• 46:17
  Speaker 1: was about mutual funds, all right about this? So I
• 46:20
  Speaker 1: actually went and looked at magazines that were also from
• 46:23
  Speaker 1: December nine that we're probably laying around the library. Time
• 46:26
  Speaker 1: magazine cover Conrad Hilton, so I tell I told the
• 46:30
  Speaker 1: hotel industry dodged a huge bullet there. Man. Uh So anyway,
• 46:33
  Speaker 1: he that's there was a lot of serendipity in bogel
• 46:36
  Speaker 1: story that again reminded me of that Meme stock interview
• 46:39
  Speaker 1: you did. There was a lot of things that had
• 46:41
  Speaker 1: to come together to prove that that meme uh sort
• 46:44
  Speaker 1: of moment, and there were a lot of things that
• 46:46
  Speaker 1: came together that were serendipitous. I would say that thesis
• 46:49
  Speaker 1: was the first one. So so Bogel eventually gets a
• 46:53
  Speaker 1: job at the Wellington Fund, which had been around. I
• 46:56
  Speaker 1: don't remember if they were the earliest mutual funds or
• 46:58
  Speaker 1: one of their there was like there's like ten funds
• 47:01
  Speaker 1: that came out in the twenties. But they went through
• 47:04
  Speaker 1: the twenty nine crash and survived and the Yeah, and
• 47:06
  Speaker 1: they actually was a balance fund that UM pat It
• 47:09
  Speaker 1: buffered a lot of the downfall because it was a
• 47:11
  Speaker 1: conservative dos and buttons. So so what was he doing
• 47:15
  Speaker 1: at Wellington and how long did that last join Wellington?
• 47:20
  Speaker 1: I want to say early, like early sixties, maybe even
• 47:24
  Speaker 1: the late fifties. Uh no, abuse sixties because he wrote
• 47:26
  Speaker 1: the thesis. Uh anyway, he's in at Wellington the sixties,
• 47:29
  Speaker 1: will say UM. And then the guy who ran Wellington
• 47:33
  Speaker 1: UM was like I'm out of here. I want you
• 47:35
  Speaker 1: to take over the company. Bogel was I think, I
• 47:37
  Speaker 1: want to say thirty five, pretty young, and they had
• 47:40
  Speaker 1: a problem. They were losing money because the sixties were
• 47:42
  Speaker 1: like a great It was like the last decade where
• 47:44
  Speaker 1: all the all the people taking your money were like
• 47:46
  Speaker 1: Cathy Wood and stuff except of their day, and Wellington
• 47:49
  Speaker 1: was like boring. It was like the value investors, how
• 47:51
  Speaker 1: we make fun of them? And uh so they're like
• 47:54
  Speaker 1: Bogel was like, I was selling bagels, nutricious bagels. Everybody
• 47:58
  Speaker 1: wanted donuts, so I figured, I gotta start selling donuts,
• 48:00
  Speaker 1: so we're gonna be out of business. So he teamed
• 48:03
  Speaker 1: up with a high flying growth manager, which is interesting
• 48:05
  Speaker 1: because it was the fourth or fifth one on the list. Um.
• 48:09
  Speaker 1: This company wasn't very well known, but they had a
• 48:11
  Speaker 1: fund called the I V. S fund Um. But the
• 48:14
  Speaker 1: first choice he had was Franklin and Capitol Group, and
• 48:18
  Speaker 1: they didn't say yet, they said they declined. Now, I,
• 48:21
  Speaker 1: theorized in the book, had one of those in acquisition.
• 48:24
  Speaker 1: In other words, he their private company. He offered to
• 48:27
  Speaker 1: buy them and fold them into Wellington and they said thanks,
• 48:30
  Speaker 1: but no thanks. Yes, they did not want any part
• 48:32
  Speaker 1: of merging or any acquisitions with him or Wellingtons. He
• 48:36
  Speaker 1: finally gets this growth manager down fifth, fourth or fifth
• 48:40
  Speaker 1: on the list, and it goes well for a while.
• 48:42
  Speaker 1: You know, they've got the boring stuff and the arc
• 48:45
  Speaker 1: stuff and uh, but then the basically the stock market
• 48:49
  Speaker 1: goes into a bear market. Sixty six is the peak
• 48:52
  Speaker 1: following the post war around by the way, parallel to
• 48:59
  Speaker 1: oh wait or not about of fifty and right before
• 49:04
  Speaker 1: that the people who were at Wellington UM changed the
• 49:07
  Speaker 1: Wellington Fund. His new partners changed the Wellington Fund to
• 49:11
  Speaker 1: be much more equity oriented at the exact work, exact
• 49:15
  Speaker 1: wrong time, and even Bogel had a memo saying, we
• 49:18
  Speaker 1: can't do this, and he's like, no, this is the
• 49:20
  Speaker 1: right way to trust me. Anyway, So they're growth funds
• 49:23
  Speaker 1: fall off a cliff. They go down worse than the market.
• 49:25
  Speaker 1: But the Wellington Fund goes down the same as the market,
• 49:28
  Speaker 1: the same thirty It doesn't buffer at all. And I
• 49:31
  Speaker 1: think this was probably had to be one of the
• 49:33
  Speaker 1: most pivotal life moments of Bogel to feel he betrayed himself,
• 49:37
  Speaker 1: he betrayed his mentor, he sold him. He sold it
• 49:41
  Speaker 1: all out and these guys had voting control the board
• 49:45
  Speaker 1: and they got into massive fights. The clashes were historically bad.
• 49:49
  Speaker 1: They were you know, basically piste off at each other, uh,
• 49:52
  Speaker 1: you know, blaming each other. And they fired him, even
• 49:55
  Speaker 1: though he later in life he's always like, I was
• 49:58
  Speaker 1: the victim. But stories are he wasn't a picnic to
• 50:01
  Speaker 1: deal with. He's a big pain in the Yeah, he's
• 50:03
  Speaker 1: a pain in the butt. So anyway, UM, long story short,
• 50:07
  Speaker 1: he realized there's a loophole. Instead of being fired and
• 50:09
  Speaker 1: going away, he's like, I'm actually the owner or the
• 50:11
  Speaker 1: chairman of the funds themselves, and so that gave him
• 50:14
  Speaker 1: some leverage to sort of dig in and fight them,
• 50:17
  Speaker 1: and they had to come up with a resolution and
• 50:20
  Speaker 1: that the board would agree with. And so one of
• 50:22
  Speaker 1: the ways he was able to keep a job there
• 50:25
  Speaker 1: was He's like, I'll do the back office work and
• 50:27
  Speaker 1: I'll set this company up mutually owned. That way, it
• 50:30
  Speaker 1: doesn't look like I'm doing some cash grab here, and
• 50:33
  Speaker 1: all eleven people on the fund boards agreed with that.
• 50:35
  Speaker 1: So the mutual ownership structure, I'm not sure it would
• 50:38
  Speaker 1: have been born ever, if it wasn't for this necessity
• 50:41
  Speaker 1: to sort of uh satisfy different groups of people at
• 50:45
  Speaker 1: a time when everybody was piste off and and upset
• 50:47
  Speaker 1: and figure out how to do something. So this really awful,
• 50:51
  Speaker 1: crazy situation that was just nasty ironically produced this amazing
• 50:57
  Speaker 1: sort of unique structure. It was almost like a freak accident.
• 51:00
  Speaker 1: So that was the first half of the freak accident.
• 51:03
  Speaker 1: His contract says he cannot manage a fund, and so
• 51:09
  Speaker 1: he comes up with this very clever back door. That's
• 51:13
  Speaker 1: the according to the Bogel Effect book, that very cleverly says, Hey,
• 51:18
  Speaker 1: you guys said I can't manage a funds, but there
• 51:21
  Speaker 1: are these indexes that are unmanaged funds, and we want
• 51:25
  Speaker 1: to put an unmanaged fund in the separate entity. Tell us.
• 51:29
  Speaker 1: So that's the other freak accident. Tell us what happened
• 51:32
  Speaker 1: from there? Yeah, that the the idea that an index
• 51:36
  Speaker 1: fund wouldn't be quote managed and wouldn't violate his agreement
• 51:39
  Speaker 1: with his former partners or current partners that we're not
• 51:43
  Speaker 1: talking was also a lucky break. And indexing was starting
• 51:47
  Speaker 1: to become a thing. People were writing about it in
• 51:49
  Speaker 1: the academic journals. It it was a thing in academia,
• 51:52
  Speaker 1: but not on Wall Street. Not a mutual fund. Wells
• 51:55
  Speaker 1: Fargo had tried one, but it was eaten work, and
• 51:58
  Speaker 1: because of the glass tigle, they couldn't do mutual funds.
• 52:00
  Speaker 1: There was a lot of things that made it um.
• 52:03
  Speaker 1: It was you know, Steve Johns wasn't the only one
• 52:05
  Speaker 1: in a garage thinking about PCs. Okay, something was in
• 52:09
  Speaker 1: the air. So Bogel read a journal piece by Paul
• 52:12
  Speaker 1: Samuelson that basically was like, can someone please just put
• 52:15
  Speaker 1: in the next fund out so we can have something
• 52:17
  Speaker 1: to benchmark these gun slingers against because he had. Again,
• 52:20
  Speaker 1: people are starting to come up with this notion that
• 52:22
  Speaker 1: active me wasn't that great back then. So let me
• 52:25
  Speaker 1: just let me interrupt your second because some of the
• 52:27
  Speaker 1: audience is a little younger and they're gonna find this
• 52:29
  Speaker 1: hard to believe. In the sixties, seventies, even eighties, if
• 52:34
  Speaker 1: you wanted to know how your fund was doing day
• 52:37
  Speaker 1: to day, week to week, month to month, quarter a quarter,
• 52:40
  Speaker 1: year to date, that information was not a click away.
• 52:44
  Speaker 1: Most of the time it didn't exist. You waited till
• 52:46
  Speaker 1: the end of the year to get an annual update,
• 52:50
  Speaker 1: and if you were a mutual fund holder you would
• 52:52
  Speaker 1: get some sort of quarterly update, but most of the
• 52:55
  Speaker 1: time you had no idea how well these funds were doing.
• 52:59
  Speaker 1: This is a great point and Michael Kittsis, who is
• 53:01
  Speaker 1: a great writer about the advisor world, once wrote a
• 53:04
  Speaker 1: blog post called um the Internet killed the active fund star,
• 53:08
  Speaker 1: and it was all about how once information started to
• 53:10
  Speaker 1: spread quickly, it was over because you could quickly compare.
• 53:13
  Speaker 1: Back then, you couldn't do that, and it was it
• 53:16
  Speaker 1: helped active I think back in the day by the
• 53:19
  Speaker 1: displaying their expensive, underperforming funds. How could that hurt them?
• 53:24
  Speaker 1: I sent that article to Bogel and an email and
• 53:27
  Speaker 1: I was like, hey, what do you think of this
• 53:28
  Speaker 1: internet theory? He writes back like two pages and he's like, well,
• 53:33
  Speaker 1: it helped a little, but I'd like to think I
• 53:35
  Speaker 1: had something to do with it. And he proceeds to
• 53:37
  Speaker 1: write like all the things that went into creating the
• 53:40
  Speaker 1: passive revolution, and he did, and he said, you know,
• 53:42
  Speaker 1: internet helped at the end, but the foundation had to
• 53:45
  Speaker 1: be there. But anyway, UM, back to your story. So
• 53:49
  Speaker 1: Bogel says, I will take this guy up on his
• 53:51
  Speaker 1: offer and do an innex fund. And it's not doesn
• 53:53
  Speaker 1: nothing managed, so I can hopefully squeeze it by the board.
• 53:56
  Speaker 1: He even knew he was like sort of right near
• 53:59
  Speaker 1: the line because he was way over the line. But
• 54:02
  Speaker 1: but he they bought it. Yeah, he might even said
• 54:06
  Speaker 1: they actually bought it. So his his uh Jan Twardowski,
• 54:09
  Speaker 1: which who was his first PM of that fund, had
• 54:12
  Speaker 1: to call himself a portfolio administrator. Yeah. So they went
• 54:15
  Speaker 1: through the whole thing of like, we're not managing money here. Yeah,
• 54:19
  Speaker 1: So that necessity was also a lucky break. There were
• 54:23
  Speaker 1: many of these as we just went over. That makes
• 54:25
  Speaker 1: you think there was some universal force ushering this along somehow,
• 54:29
  Speaker 1: because if any of these things doesn't happen, this probably
• 54:32
  Speaker 1: doesn't happen the way that we see it. So but
• 54:34
  Speaker 1: long story short, Um, they come with the indext Fund. Uh,
• 54:37
  Speaker 1: they launched it. Nobody cares. Uh, it doesn't sell it
• 54:40
  Speaker 1: well because it's this is an underrated point of Vogel story.
• 54:44
  Speaker 1: The Index Fund ultimately would not pay brokers, so he
• 54:47
  Speaker 1: had to. It was it's like making a movie outside
• 54:50
  Speaker 1: of all the distribution systems the theaters, Netflix and you,
• 54:54
  Speaker 1: and you're gonna people have to come to your backyard
• 54:56
  Speaker 1: to watch it. It's so he made something that you
• 54:59
  Speaker 1: had to leave the entire system and go to them
• 55:02
  Speaker 1: to buy. And that was really ballsy. I mean, it's
• 55:05
  Speaker 1: a guy with like five kids at the time and
• 55:08
  Speaker 1: trying to raise a family. I mean a couple of
• 55:10
  Speaker 1: time eatings for a hard transplant at the same time. Yeah,
• 55:12
  Speaker 1: I'm like a couple of times in the book, I'm like,
• 55:14
  Speaker 1: you know, I have a bad heart, I'm raising a family.
• 55:16
  Speaker 1: I might just go to the big company and take
• 55:18
  Speaker 1: the pay day and just like, not worry about this,
• 55:20
  Speaker 1: but to do these moves and to purposely delay the success.
• 55:25
  Speaker 1: I give him a lot of credit. This is the long,
• 55:28
  Speaker 1: hard walk that a lot of people just don't have
• 55:30
  Speaker 1: the courage to take. But he did it over and over.
• 55:32
  Speaker 1: So so let's talk about I was only half joking
• 55:35
  Speaker 1: about the heart transplant. However, in the book you talk
• 55:39
  Speaker 1: about it gave him a certain life is short lived
• 55:43
  Speaker 1: every day like it's your last, and don't go for
• 55:46
  Speaker 1: the money grab impact the universe? How significant were his
• 55:50
  Speaker 1: health issues and eventually he gets a life saving heart transplant.
• 55:54
  Speaker 1: Used to joking and say, hey, over the heart of
• 55:56
  Speaker 1: this of a twenty year old, really twenty eight year old?
• 56:00
  Speaker 1: I think how significant was the fact that his life
• 56:05
  Speaker 1: expectancy for the least for the first was it fifty
• 56:08
  Speaker 1: sixty years? Was he could drop dead tomorrow? And almost
• 56:12
  Speaker 1: did several times? Oh yeah, His wife took him to
• 56:14
  Speaker 1: the hospital all the time. It was a whole recurring thing.
• 56:17
  Speaker 1: He brought a defibrillator. Did I say that right? Play squash?
• 56:22
  Speaker 1: So he told them whoever he's playing with, if I
• 56:24
  Speaker 1: fall over, just you know, but these on my shocked
• 56:27
  Speaker 1: me back. So people like people were hesitant to play
• 56:30
  Speaker 1: squash with him, but I would think that it would
• 56:33
  Speaker 1: encourage him to let other people if you're winning too much,
• 56:36
  Speaker 1: It's like I couldn't forget out of the package. Yeah, Uh,
• 56:40
  Speaker 1: you're right. I think his heart was one of ten
• 56:43
  Speaker 1: things that made Bogel. And I have a chapter called
• 56:46
  Speaker 1: Explaining Bogel, because again, he's so unique. I'm like, what
• 56:49
  Speaker 1: went into produce this particular character, And his heart was
• 56:52
  Speaker 1: one of the things I go into And I think
• 56:54
  Speaker 1: that idea that you're going to die any minute, any day,
• 56:57
  Speaker 1: we're all we can push that off as people normally.
• 57:00
  Speaker 1: He couldn't. He could not. It was all It was
• 57:02
  Speaker 1: right in his face constantly. And I think that gave
• 57:04
  Speaker 1: him a jolt of life. Um. You know, people who
• 57:07
  Speaker 1: survived car crashes and airplane crashes or nine eleven have
• 57:11
  Speaker 1: similar experiences of and he had that almost probably like
• 57:14
  Speaker 1: more daily than most people. Uh So that was probably
• 57:17
  Speaker 1: a big thing that helped him. Your point about not
• 57:20
  Speaker 1: wanting the money, Um, I do think he was almost
• 57:23
  Speaker 1: miscast in this industry. I think he wrote a book
• 57:26
  Speaker 1: called Enough about how you don't need that much money,
• 57:28
  Speaker 1: YadA YadA, um, And I think he almost would have
• 57:31
  Speaker 1: made a better He would have been better in a
• 57:33
  Speaker 1: different industry. I think he was almost miscast. I also
• 57:36
  Speaker 1: think he was miscast in time. I think he was
• 57:39
  Speaker 1: meant for the eighteenth century. Well, it wasn't. His grandfather
• 57:43
  Speaker 1: did something very similar with insurance, if I remember your
• 57:45
  Speaker 1: book correctly. Yeah, he had a great grandfather who was
• 57:49
  Speaker 1: basically a gad flyer or uh what would you call that,
• 57:54
  Speaker 1: like the jack of the annuity. Yeah, it was like
• 57:57
  Speaker 1: the fire insurance business. And you read this guy's pamphlets
• 58:01
  Speaker 1: and he's like, the insurance companies are ripping off these firemen,
• 58:04
  Speaker 1: lower your fees, and and you realize, man, this you
• 58:07
  Speaker 1: can you can read Bogel in there. So there is
• 58:09
  Speaker 1: set There's some genetics involved as well. And I included
• 58:12
  Speaker 1: that because Bogel loved his great grandfather, he would read
• 58:15
  Speaker 1: these speeches he gave and take a lot of inspiration
• 58:18
  Speaker 1: from it. But yeah, I would I would say that,
• 58:21
  Speaker 1: you know, that is definitely one of them. But I
• 58:22
  Speaker 1: think the enough thing, even though he had enough money
• 58:27
  Speaker 1: and he wasn't um, he was sort of immune to
• 58:29
  Speaker 1: that greed for money, what he couldn't ever get enough
• 58:32
  Speaker 1: was adulation. That's why. I almost think like usually if
• 58:37
  Speaker 1: you really wish one adulation, you go into the media entertainment. Um,
• 58:41
  Speaker 1: maybe you're a physician, you know, somebody who's like good
• 58:43
  Speaker 1: at getting thanks a lot. So I think he he
• 58:46
  Speaker 1: was we all have to fill some void, like we're
• 58:49
  Speaker 1: all you know, holes in the middle. And I think
• 58:52
  Speaker 1: his was he wanted, you know, people to tell him
• 58:55
  Speaker 1: how great he was. He wanted people to say he
• 58:57
  Speaker 1: was important. And his son, you know, told me that
• 59:00
  Speaker 1: when he would get stopped on the street. He never
• 59:03
  Speaker 1: tired of hearing that. And the kids could never understand
• 59:05
  Speaker 1: why he would sit there and talk to this X
• 59:07
  Speaker 1: doormanaged and men, Yeah, and um, you made my retirement possible,
• 59:11
  Speaker 1: you helped me pay from You could never get that
• 59:14
  Speaker 1: just endless and he choked it up. Yes, so he could.
• 59:17
  Speaker 1: So he gotta hit enough was applied to the money,
• 59:19
  Speaker 1: but maybe not the sort of adulation and that that's
• 59:22
  Speaker 1: that's what drove him. And I tried to get at
• 59:24
  Speaker 1: that because he wasn't a even though I'm very complimentary
• 59:27
  Speaker 1: of him here, he was a human being. He had
• 59:28
  Speaker 1: flaws and he had needs. They just weren't exactly this
• 59:32
  Speaker 1: the prototype of somebody on Wall Street or running money,
• 59:35
  Speaker 1: they were completely different, uh in many ways. And so I,
• 59:39
  Speaker 1: you know, explore that in the book because again when
• 59:41
  Speaker 1: I said, why hasn't anybody copied Vanguard structure? There so
• 59:45
  Speaker 1: there's no economic consentive And then I said, well, why
• 59:48
  Speaker 1: did this guy do it? And everybody had the same answer.
• 59:50
  Speaker 1: That's a good question. And so you have to kind
• 59:53
  Speaker 1: of look at the character of the person um and
• 59:56
  Speaker 1: you know, try to figure out what what drove them.
• 59:59
  Speaker 1: And so I tried to do my best to sort
• 1:00:01
  Speaker 1: of lay all that out. So, so here's the key
• 1:00:04
  Speaker 1: Jack Bogel question with Vanguard today following this rally off
• 1:00:09
  Speaker 1: the lows in June two um making up more than
• 1:00:13
  Speaker 1: half of the first half of the year's crash. And
• 1:00:16
  Speaker 1: and that means the Vanguard is what seven and a
• 1:00:19
  Speaker 1: half eight trillion dollars. I don't even know where they
• 1:00:21
  Speaker 1: are these days, but they were eight point three at
• 1:00:23
  Speaker 1: this sort of top. I think the probably seven point
• 1:00:25
  Speaker 1: five today something like that. So sola between seven and
• 1:00:29
  Speaker 1: a half eight trillion dollars? Would that? Could that have
• 1:00:33
  Speaker 1: ever happened without Jack Bogel and and his philosophy? No,
• 1:00:39
  Speaker 1: just just happen. No, I agree the people who ran
• 1:00:42
  Speaker 1: Vanguard after. I have a chapter called Bogel versus Vanguard
• 1:00:45
  Speaker 1: because he had that's is fascinating. He had problems with
• 1:00:49
  Speaker 1: his own company and the the tfs overseas. He would
• 1:00:53
  Speaker 1: take giant craps on all like of the funds that
• 1:00:58
  Speaker 1: they served because he kind have honed it on, you know,
• 1:01:01
  Speaker 1: and I found that really interesting. And he'd be on
• 1:01:03
  Speaker 1: campus doing it, especially ets that really pissed them off,
• 1:01:06
  Speaker 1: Smart Beta, all of that. He just thought it was
• 1:01:08
  Speaker 1: needless distraction. Why are you doing this? And he thought,
• 1:01:11
  Speaker 1: why is Vangard trying to get so big? But the
• 1:01:13
  Speaker 1: other people who manage Vanguard, I thought they did a
• 1:01:15
  Speaker 1: good job. Um. So in the book, I try to
• 1:01:17
  Speaker 1: thread the needle because there's a growing gap between the
• 1:01:20
  Speaker 1: Bogel heads and Vanguard because they see Vanguard going into
• 1:01:24
  Speaker 1: wealth management, going into private equity, going into these places.
• 1:01:27
  Speaker 1: And Bogel was more like, enough, we don't need to
• 1:01:30
  Speaker 1: be that big. When I met with him once, he
• 1:01:32
  Speaker 1: was like, I can't believe we have three trillion dollars
• 1:01:36
  Speaker 1: like that is that is almost absurd. It's it's a ridiculous.
• 1:01:40
  Speaker 1: Now they have Bill McNab says home my beer Jack,
• 1:01:45
  Speaker 1: So watch this, But then you have to ask yourself.
• 1:01:48
  Speaker 1: You know, Bogel was sort of pushed out of Vanguard.
• 1:01:51
  Speaker 1: That's what's interesting about Bogel. He was pushed out of
• 1:01:53
  Speaker 1: but but not off the campus. He was pushed out
• 1:01:56
  Speaker 1: of the executive site into a chair airman. You're the
• 1:02:00
  Speaker 1: gray hair, you're the driving philosophy. Now I have an
• 1:02:05
  Speaker 1: E T F meaning and a private equity meaning for
• 1:02:08
  Speaker 1: a four one case. But please tell everybody about our philosophy. Yeah.
• 1:02:13
  Speaker 1: I mean, the core of Vanguard is still very much
• 1:02:15
  Speaker 1: Bogel's dna um, But on the outskirts, they're changing. They
• 1:02:19
  Speaker 1: are pushing people into E T F s. He would
• 1:02:21
  Speaker 1: have hated that. Um, the wealth management, you know, I
• 1:02:23
  Speaker 1: don't think he would have done that. He wouldn't have
• 1:02:24
  Speaker 1: done E T S. We know that. I probably wouldn't
• 1:02:27
  Speaker 1: have expanded that much overseas as they are now. But
• 1:02:29
  Speaker 1: one could make the argument, well shouldn't these other places,
• 1:02:33
  Speaker 1: don't they need a little vanguarding. Yeah? Absolutely, And so
• 1:02:37
  Speaker 1: there's you could see both sides of this story. But
• 1:02:39
  Speaker 1: Bogel also the way he was pushed out, I believe,
• 1:02:43
  Speaker 1: And then they went and launched E T f S.
• 1:02:44
  Speaker 1: Like within ten years of him saying no to E
• 1:02:46
  Speaker 1: T F S. That was sort of a I mean
• 1:02:49
  Speaker 1: he might have saw it as a slap in the face.
• 1:02:51
  Speaker 1: Um that the book you you describe his gentle easing
• 1:02:55
  Speaker 1: out is while he's in the hospital dying, right, didn't didn't? Um?
• 1:03:00
  Speaker 1: What was it? Jack? Who? Who was the Brennan? Jack
• 1:03:03
  Speaker 1: Brennan before Bill McNabb. Jack was his protegee. They were
• 1:03:08
  Speaker 1: very tight. And the board says, hey, Jack, Bogel's in
• 1:03:12
  Speaker 1: the hospital waiting for a hard he's dying. I just
• 1:03:15
  Speaker 1: wanted to see him yesterday. It doesn't look like this
• 1:03:17
  Speaker 1: guy is gonna make it. Someone has to run the farm. Yeah,
• 1:03:22
  Speaker 1: and what happened, Well, Brennan was again I think he
• 1:03:27
  Speaker 1: was a great CEO, fabulous, fabulous steward. The big issue
• 1:03:31
  Speaker 1: there was the E T F S and Gus Souder
• 1:03:33
  Speaker 1: was the one who had the idea. Interviewed Gus for
• 1:03:35
  Speaker 1: the book. Gus Souder told me that was the chief
• 1:03:40
  Speaker 1: and he was also very close with Bogel. Um, you know,
• 1:03:44
  Speaker 1: I think they had a very good relationship. Souder looked
• 1:03:48
  Speaker 1: at Vanguard and thought about a massive crisis. What's going
• 1:03:51
  Speaker 1: to happen. All these people are index funds, and we're
• 1:03:53
  Speaker 1: gonna get all these calls. How are we going to
• 1:03:54
  Speaker 1: deal with redemptions? And he thought if we could make
• 1:03:57
  Speaker 1: the e t F a sheriff last people who wanted
• 1:04:01
  Speaker 1: to come in out of the fund, we could. They
• 1:04:03
  Speaker 1: could use that to trade and that would buffer and
• 1:04:06
  Speaker 1: protect the index fund investors. Bogel kind of saw et
• 1:04:10
  Speaker 1: F s ays, they just want to get bigger, they
• 1:04:11
  Speaker 1: want to distribute, and that's why he was against it.
• 1:04:13
  Speaker 1: Sounder's reason almost is more Bogel, like Souder told me,
• 1:04:16
  Speaker 1: he told Bogel that later in life, and Bogel kind
• 1:04:19
  Speaker 1: of I think it softened him because during my interviews
• 1:04:22
  Speaker 1: with Bogel over say, the last six years before he
• 1:04:25
  Speaker 1: passed away, he got more and more soft on et
• 1:04:28
  Speaker 1: F s um he would the last interview in particular,
• 1:04:32
  Speaker 1: here's what he'd say say, something like, well, look, I've
• 1:04:35
  Speaker 1: always said, as long as you buy the broad market
• 1:04:37
  Speaker 1: ones and you don't trade them low cost like hours,
• 1:04:41
  Speaker 1: they're fine. But then he couldn't just let that stay.
• 1:04:43
  Speaker 1: He couldn't just let it go like he always said that.
• 1:04:46
  Speaker 1: That was what he always said. But it wasn't that
• 1:04:48
  Speaker 1: they would be like dot dot dot, and then he
• 1:04:50
  Speaker 1: just would be like, but these things are marketing tools
• 1:04:53
  Speaker 1: there for trading. We don't even know what people are doing,
• 1:04:56
  Speaker 1: you know. I don't like them, and so he was
• 1:04:58
  Speaker 1: always wrestling with them. I like my metaphor. I uses
• 1:05:01
  Speaker 1: that the index fund was his beautiful firstborn daughter and
• 1:05:05
  Speaker 1: the E t f s like the tatted up bad
• 1:05:07
  Speaker 1: boy that she married, right, and so E t f
• 1:05:10
  Speaker 1: s did a lot to advance indexing and there and
• 1:05:13
  Speaker 1: now they're in the family and he has to deal
• 1:05:14
  Speaker 1: with them. And it was always this sort of like
• 1:05:17
  Speaker 1: push pull and it was never an easy relationship with him.
• 1:05:20
  Speaker 1: And it's I the chapter in the book that goes
• 1:05:23
  Speaker 1: over this is Bogel and ETFs. It's complicated because it
• 1:05:27
  Speaker 1: is complicated. I'm Rick Ferry, who I interviewed also, who's
• 1:05:30
  Speaker 1: big Bogel head. He tried to tell Bogel many times.
• 1:05:33
  Speaker 1: ETFs have really helped advance your cause, and they made
• 1:05:38
  Speaker 1: it very easy to get everywhere. You never have to
• 1:05:41
  Speaker 1: go to Vanguard to get index funds. Now you can
• 1:05:44
  Speaker 1: just buy them anywhere through the E t F So
• 1:05:46
  Speaker 1: it you know, even the most diehard Bogol heads and
• 1:05:51
  Speaker 1: friends of Jack Bert Malkiel, their fans of TS. Yeah.
• 1:05:56
  Speaker 1: Basically three things. Everybody disagree with Bogo on pretty much
• 1:06:01
  Speaker 1: E T F S international investing. Bogel says, you don't
• 1:06:04
  Speaker 1: need it. Almost everybody I've talked to, even his friends,
• 1:06:06
  Speaker 1: said I like a little international. And the third thing
• 1:06:09
  Speaker 1: was Bogel's prediction for what will happen to the asset
• 1:06:11
  Speaker 1: management industry. I couldn't find anybody to agree with this.
• 1:06:14
  Speaker 1: In his last interview six months before he passed away,
• 1:06:16
  Speaker 1: he was the most prophetic I've seen him, and he said,
• 1:06:19
  Speaker 1: there's gonna be a mass mutualization of this industry because
• 1:06:22
  Speaker 1: these companies, it's not gonna be enough to lower fees.
• 1:06:25
  Speaker 1: It's too late. They're just gonna give away all their margins.
• 1:06:27
  Speaker 1: It makes no sense. They're just gonna that they're gonna
• 1:06:30
  Speaker 1: have to do at some point is just convert to
• 1:06:31
  Speaker 1: our structure. And so the big asset managers will be
• 1:06:35
  Speaker 1: a mass mutualization. And no, I couldn't find nobody to
• 1:06:38
  Speaker 1: agree with that. So those are so Bogol said a
• 1:06:41
  Speaker 1: lot of things that even his closest friends and people
• 1:06:44
  Speaker 1: who look up to him did not agree with huh
• 1:06:46
  Speaker 1: quite quite fascinating. So let's start out with my my
• 1:06:50
  Speaker 1: favorite discussion on indexing. Indexing has been called un American,
• 1:06:56
  Speaker 1: anti competitive, Marxist, communist, It will ruin the economy, it
• 1:07:02
  Speaker 1: will crash the market. It turns out to be none
• 1:07:06
  Speaker 1: of those things. Why so much hate for something that
• 1:07:09
  Speaker 1: has saved investors trillions in fees? Well, that's why the
• 1:07:16
  Speaker 1: answer is in the question. I asked the question that
• 1:07:18
  Speaker 1: weigh on purpose because this has come primarily from the
• 1:07:23
  Speaker 1: active community and the academics they've hired. Bogel really found
• 1:07:28
  Speaker 1: he heartbroken by the academics. He really thought he got
• 1:07:32
  Speaker 1: the active people doing it, but he thought the academics
• 1:07:34
  Speaker 1: were a little irresponsible on this front. I am convinced
• 1:07:37
  Speaker 1: if you took all the people who have ever trashed
• 1:07:41
  Speaker 1: UH indexing or fear mongering and looked at therefore, in
• 1:07:43
  Speaker 1: one case, it's got to be low cost inext monk
• 1:07:46
  Speaker 1: because they're smart, they're not done. And by the way,
• 1:07:48
  Speaker 1: the next time one of these things happens in a debate,
• 1:07:51
  Speaker 1: I'm gonna steal that and say what's in your four
• 1:07:54
  Speaker 1: oh one K? Yeah, this is exactly how to debate.
• 1:07:58
  Speaker 1: Somebody on this. If they start doing that, just say, well, okay,
• 1:08:01
  Speaker 1: well how do you invest? Yeah, because if you're not
• 1:08:03
  Speaker 1: willing to like that, Warren Buffett is an advocate, I mean,
• 1:08:08
  Speaker 1: and and I think most most of us think Warren
• 1:08:11
  Speaker 1: is an honest steward of active investor. Yeah, and Buffett recommends,
• 1:08:17
  Speaker 1: I mean, Buffett is an active investor, but he recommends,
• 1:08:20
  Speaker 1: if unless you're going to do this all the day,
• 1:08:22
  Speaker 1: all the time, just put it index fund. You'll be
• 1:08:25
  Speaker 1: and you'll do better than almost all the pros. Anyway,
• 1:08:28
  Speaker 1: that was his advice to people, and I he actually
• 1:08:31
  Speaker 1: I was able to interview him for this book, and
• 1:08:33
  Speaker 1: I asked him if his advice was the same because
• 1:08:35
  Speaker 1: index is getting bigger, and he said, yes, it's still
• 1:08:37
  Speaker 1: by SMP. But then I said, well, do you think
• 1:08:40
  Speaker 1: the nexting is too big or and he's like, no,
• 1:08:43
  Speaker 1: it's possible it gets so big that it's a regulatory matter,
• 1:08:45
  Speaker 1: but that's an issue for another day. So I do
• 1:08:48
  Speaker 1: think that ultimately the reason the problem here with indexing
• 1:08:52
  Speaker 1: isn't necessarily indexing, because look, all you're doing is taking
• 1:08:55
  Speaker 1: a basket of stocks and you're buying them. It's all
• 1:08:59
  Speaker 1: funds are all cross the board. Look at the Philly Magellan.
• 1:09:01
  Speaker 1: It's Apple, it's Amazon. It's the same stuff, man, it's
• 1:09:04
  Speaker 1: just cheaper. Right. This is all indexing is. It's not
• 1:09:07
  Speaker 1: that different. It's just the same group of stocks for
• 1:09:09
  Speaker 1: a lower fee. Right. I think the problem that we're
• 1:09:12
  Speaker 1: going to have run into is Vanguard and black Rock
• 1:09:15
  Speaker 1: are going to own too much of corporate America. Right now,
• 1:09:18
  Speaker 1: Vanguard owns about eight nine of most stocks, black Rocks seven,
• 1:09:23
  Speaker 1: so it's fifteen between them. At this rate, they're probably
• 1:09:26
  Speaker 1: gonna own thirty of stocks collectively because the rule is
• 1:09:31
  Speaker 1: a fund can own no more than ten percent, not
• 1:09:34
  Speaker 1: a company, and the rules old. It was made back
• 1:09:36
  Speaker 1: when fun complexes one fund, not thirty fifty. So I
• 1:09:41
  Speaker 1: think there might Regulation is probably the only thing that
• 1:09:45
  Speaker 1: can stop their growth at this point, and I think
• 1:09:48
  Speaker 1: it will probably be an issue of Bernie Sanders tweeted
• 1:09:50
  Speaker 1: about it, although I don't think I actually put Bernie
• 1:09:53
  Speaker 1: in his place, because he said the most the most ignorant,
• 1:09:57
  Speaker 1: I mean, on either side of the aisle. I don't
• 1:09:59
  Speaker 1: remember a politician misunderstanding. Hey, Bernie, not for nothing, but
• 1:10:05
  Speaker 1: all your supporters are giant winners because of Ania. I have.
• 1:10:09
  Speaker 1: I had a line in the book that I removed,
• 1:10:11
  Speaker 1: which is that Bogel has done more for average people
• 1:10:17
  Speaker 1: and to reform Wall Street than Bernie Sanders could ever
• 1:10:19
  Speaker 1: dream of. Then he doesn't put bills that that fail.
• 1:10:23
  Speaker 1: Um yeah, I mean he's he talks a big game,
• 1:10:25
  Speaker 1: but he doesn't get much done. Um. I'm surprised Bernie
• 1:10:28
  Speaker 1: isn't more in touch with that. That's why I was
• 1:10:31
  Speaker 1: very polite in the post. Began Bernie, Bernie, Bernie, come
• 1:10:38
  Speaker 1: on you. If anybody should understand mutualization and communal ownership,
• 1:10:45
  Speaker 1: it's a socialist like you shouldn't you get that? But
• 1:10:48
  Speaker 1: but but real quick, I think what we're gonna find
• 1:10:51
  Speaker 1: is passive is going to continue to grow. Right, it's
• 1:10:53
  Speaker 1: going to be the core of most people's portfolios because
• 1:10:55
  Speaker 1: it's just too too good of a deal. So let
• 1:10:57
  Speaker 1: me push back on what's gonna happen. Let me just
• 1:11:00
  Speaker 1: get me finishing. But and this is a chapter I have.
• 1:11:03
  Speaker 1: What's gonna happen is Active won't die. It's just gonna
• 1:11:05
  Speaker 1: get crazier. So what's gonna happen is the core of
• 1:11:08
  Speaker 1: a portfolio will be low cost passive vanilla. Check that box.
• 1:11:12
  Speaker 1: Then people are going to decorate that with arc um
• 1:11:17
  Speaker 1: call options. They're gonna play that, you know, trade. They
• 1:11:20
  Speaker 1: might use bitcoin or crypto basically like hot sauce on
• 1:11:23
  Speaker 1: otherwise dull meal to sort of distract them. And I
• 1:11:26
  Speaker 1: think active is going to get ironically way more active
• 1:11:30
  Speaker 1: because of passive, and I think that maybe that's okay.
• 1:11:34
  Speaker 1: So I think that's ultimately where we'll stand, and those
• 1:11:37
  Speaker 1: active funds will shine enough consistently to make it that
• 1:11:42
  Speaker 1: it's never fully passive. There will always be somebody who's
• 1:11:44
  Speaker 1: gonna figure it out for a little while, and they'll
• 1:11:46
  Speaker 1: be used, probably to complement passive. But I do not
• 1:11:49
  Speaker 1: see a reversal where an eight basis point growth manager
• 1:11:52
  Speaker 1: from a legacy active shop replaces Vanguard. So that's why
• 1:11:55
  Speaker 1: when people freak out about Cathy Wood and they're like,
• 1:11:58
  Speaker 1: how can she have money dollars? I'm like, dude, you're
• 1:12:02
  Speaker 1: hitting her from a fundamental stockpicker point of view. Your
• 1:12:05
  Speaker 1: competition is an arc it's Vanguard, Dude, You're fighting the
• 1:12:08
  Speaker 1: wrong enemy. She's competing with like lottery tickets and crypto
• 1:12:11
  Speaker 1: and stuff that would go on the outside of your portfolio.
• 1:12:14
  Speaker 1: And I say, if you have vanguard in the core.
• 1:12:16
  Speaker 1: You want a little wild and crazy. You want somebody
• 1:12:18
  Speaker 1: who's dreaming five years in the future. Just in case
• 1:12:22
  Speaker 1: they're right. You don't want to miss out. She's the ornament,
• 1:12:24
  Speaker 1: not the Christmas Tree. I totally exactly. And I think
• 1:12:28
  Speaker 1: Kathy has been a kind of negative on index funds,
• 1:12:31
  Speaker 1: and I've I've told her privately in public, like I
• 1:12:34
  Speaker 1: really think you should team up. I think you should
• 1:12:36
  Speaker 1: be explaining that the cake you because she should a
• 1:12:41
  Speaker 1: She's like, well, people, index funds are misallocation to capital.
• 1:12:45
  Speaker 1: They're just putting money randomly. But I'm like, honestly, you can't.
• 1:12:49
  Speaker 1: I can't. I would not bank my kids college education
• 1:12:53
  Speaker 1: money on our high growth manager. I just wouldn't do it.
• 1:12:56
  Speaker 1: So but I do. I can understand the idea of
• 1:13:00
  Speaker 1: a little fomo. I don't want to miss out on
• 1:13:02
  Speaker 1: something like a crypto bitcoin arc, you know, some of
• 1:13:06
  Speaker 1: these high flying growth thocks, because it's like a call
• 1:13:09
  Speaker 1: option on the future. And I think those are why
• 1:13:12
  Speaker 1: those funds not only sell, but if with this bare
• 1:13:15
  Speaker 1: market they haven't really seen the autum, but think by
• 1:13:18
  Speaker 1: withstanding that they may be down six but they're still
• 1:13:21
  Speaker 1: seeing in Yeah, they're still seeing in flows or no outflows,
• 1:13:24
  Speaker 1: and so I try to explain to them that the
• 1:13:26
  Speaker 1: Vanguard effect is actually that. And so that's why this
• 1:13:29
  Speaker 1: book again, it's not just index funds Bogel. The Bogel
• 1:13:33
  Speaker 1: effect is the way it's impacting active it's impacting the
• 1:13:37
  Speaker 1: wealth management industry, it's impacting trading, it's impacting behavior. That's
• 1:13:41
  Speaker 1: how powerful this is. It's not just a mutual fund story.
• 1:13:44
  Speaker 1: That that was what also made the book exciting. So
• 1:13:46
  Speaker 1: so let's come back to you know, if if Vanguard
• 1:13:50
  Speaker 1: did an active low cost they would have been a
• 1:13:53
  Speaker 1: successful here's the pushback to that. First, you buy an
• 1:13:57
  Speaker 1: index funds or you make your own index. Of course,
• 1:13:59
  Speaker 1: you almost nothing to create the portfolio, meaning here's what
• 1:14:05
  Speaker 1: you're gonna own, and you don't need a staff of forty,
• 1:14:09
  Speaker 1: you don't need a research team, you don't have to
• 1:14:11
  Speaker 1: buy outside wall st research, you don't have these massive
• 1:14:14
  Speaker 1: trading costs. Inherently the fact that it's an index. And
• 1:14:18
  Speaker 1: whether it's the Vanguard Total Market or the SPI, you're
• 1:14:22
  Speaker 1: living in a world where Vanguard has low cost active funds,
• 1:14:25
  Speaker 1: but somebody has invented indexing. Okay, my my thing was
• 1:14:30
  Speaker 1: indexing isn't a concept. Okay, I just pretend, just pretend
• 1:14:34
  Speaker 1: it doesn't exist. Oh so low cost indext low cost
• 1:14:38
  Speaker 1: active versus expensive active, Well you would agree with that,
• 1:14:41
  Speaker 1: of course you can't disagree with that. But here's the thing.
• 1:14:43
  Speaker 1: But but but low cost active versus low cost passive.
• 1:14:46
  Speaker 1: But there's an inherent advantage to pass. Here's the problem
• 1:14:49
  Speaker 1: with your premise. Though. Indexing never would have gotten low
• 1:14:52
  Speaker 1: cost if Vanguard didn't do it. I promise you I
• 1:14:55
  Speaker 1: think you're right about that. No, I'm not disagreeing with
• 1:14:57
  Speaker 1: because I think they would have come out with indexing.
• 1:14:59
  Speaker 1: But you know these firms like, oh we'll charge eight,
• 1:15:01
  Speaker 1: we'll charge even if fifty, I still think you're not
• 1:15:04
  Speaker 1: powerful enough to overwhelm. It's because it's under ten that
• 1:15:07
  Speaker 1: it becomes. That's what. So what did the State Street
• 1:15:10
  Speaker 1: Spiders s p Y come out? What was the feast
• 1:15:13
  Speaker 1: for asking this? Because this is one of the data
• 1:15:16
  Speaker 1: points that drove me to write this book as well.
• 1:15:19
  Speaker 1: SPY came out at twenty basis points, so that's still cheap.
• 1:15:23
  Speaker 1: But this why did it pick twenty basis points? I
• 1:15:26
  Speaker 1: actually interviewed Steve Bloom, who from am X who put
• 1:15:29
  Speaker 1: out Spy with Nate most because that's what the Vanguard
• 1:15:31
  Speaker 1: five index fund was. So think about that. And Vogel
• 1:15:36
  Speaker 1: hated ETFs, but the dude had a profound positive influence
• 1:15:40
  Speaker 1: on the because it started dirt cheap. I think Spy
• 1:15:43
  Speaker 1: would have been one percent if there's no Vanguard. I
• 1:15:46
  Speaker 1: think et s probably would have been invented to but
• 1:15:48
  Speaker 1: they would have been one percent, and it would not
• 1:15:50
  Speaker 1: have been twenty and ten basis points as they are now.
• 1:15:53
  Speaker 1: So here's the crazy market efficiency question. There are index
• 1:16:00
  Speaker 1: E t F some mutual funds that charge a hundred
• 1:16:03
  Speaker 1: fifty and two hundred basis points and they still have
• 1:16:05
  Speaker 1: tens of millions, not billions, but tens, maybe even hundreds
• 1:16:09
  Speaker 1: of millions in assets. How do these things still exist?
• 1:16:13
  Speaker 1: They probably have loads. They probably are bribing somebody to
• 1:16:16
  Speaker 1: put somebody in there. Oh, there's no doubt that that's it.
• 1:16:19
  Speaker 1: I mean, that's the answer. Souch, no natural reason for that.
• 1:16:22
  Speaker 1: I mean, look, um, we have a phrase we use
• 1:16:25
  Speaker 1: in the team called the Cabernet lane. There's still a
• 1:16:28
  Speaker 1: huge market out there for wining and dining advisors. Um,
• 1:16:32
  Speaker 1: your friends and your golf buddies. People still will hook
• 1:16:36
  Speaker 1: you up. I'll buy your index fund. I know it's
• 1:16:38
  Speaker 1: sixty basis points, but it's my friend. There is still
• 1:16:40
  Speaker 1: a lot of that going on and not and that
• 1:16:42
  Speaker 1: happens in every business. But there's still a decent Cabernet
• 1:16:47
  Speaker 1: lane in asset management. But that can only happen on
• 1:16:50
  Speaker 1: the brokered side. I so we're let me get self,
• 1:16:55
  Speaker 1: let me insert myself a little further into the conversation.
• 1:16:58
  Speaker 1: So at my shop, we're in r i A. We're
• 1:17:00
  Speaker 1: a fiduciary. If I'm looking at an index fund and
• 1:17:03
  Speaker 1: there's a sixty basis point because somebody version because someone
• 1:17:07
  Speaker 1: took me out to dinner, and there's a Vanguard five
• 1:17:09
  Speaker 1: basis point, I don't believe I can legally on behalf
• 1:17:14
  Speaker 1: of my clients by the sixty bit fund as if
• 1:17:18
  Speaker 1: as an advisor, we have to buy the five bit fund. Now,
• 1:17:21
  Speaker 1: if you're a brokerage house, if you're and you follow
• 1:17:25
  Speaker 1: what what's the And there's some dual people who do
• 1:17:28
  Speaker 1: who try to do both, but you can't. It's either you,
• 1:17:30
  Speaker 1: we said fiduciers in the fiducia. Either you are a
• 1:17:33
  Speaker 1: legitimate fiducier where the best interesting client dominates or you
• 1:17:37
  Speaker 1: are a broker, and really it's the old it's the
• 1:17:40
  Speaker 1: old Louis B. Mayor um joke, which I'll skip the
• 1:17:45
  Speaker 1: dirty part and just say, hey, we've already decided that
• 1:17:48
  Speaker 1: now we're just debating price. I think my point of
• 1:17:51
  Speaker 1: the cabernetlane was even beyond that index fund example, into
• 1:17:55
  Speaker 1: e t f s, where you know, you just get
• 1:17:57
  Speaker 1: to know somebody they sell you on the narrative of
• 1:17:59
  Speaker 1: this worry and maybe they decided to put some money
• 1:18:02
  Speaker 1: into your dividend fund. That might be you know, thirty
• 1:18:04
  Speaker 1: fifty basis points more than a Vanguard one. But you
• 1:18:06
  Speaker 1: could say to yourself, well, this strategy is better. But
• 1:18:10
  Speaker 1: in your case of the index fund, you're right, there'd
• 1:18:11
  Speaker 1: be no fiduciary reason to go to the sixties. So,
• 1:18:14
  Speaker 1: like I said, it's probably all loads or sort of
• 1:18:16
  Speaker 1: captive assets somehow that that makes a whole lot of sense.
• 1:18:20
  Speaker 1: But by the way, some people are like, no, I
• 1:18:23
  Speaker 1: think somebody would come out and just put zero feet
• 1:18:26
  Speaker 1: you know how like Robin Hood came out, will do
• 1:18:28
  Speaker 1: free trading, like somebody would have come out like just
• 1:18:29
  Speaker 1: all like, but are they the problem with that premise
• 1:18:33
  Speaker 1: of like somebody who isn't Bogel in a for profit
• 1:18:36
  Speaker 1: asset manager to do this as a loss leader is
• 1:18:39
  Speaker 1: ultimately they would have that that the curtain would would
• 1:18:43
  Speaker 1: have come up at some point and you would have
• 1:18:44
  Speaker 1: figured out, oh my god, here's how they're screwing me
• 1:18:47
  Speaker 1: over here. In other words, if you put something out
• 1:18:50
  Speaker 1: there for that cheap, you're you're you're almost gonna always
• 1:18:53
  Speaker 1: look to make money somewhere else. That's would make Vanguard unique.
• 1:18:56
  Speaker 1: There is no curtain to pull. It's just that cheap
• 1:18:59
  Speaker 1: because it's that cheap, because that's their business model. That's
• 1:19:02
  Speaker 1: their business model. So I do think maybe somebody would
• 1:19:04
  Speaker 1: have come out gimmicky style and done, oh free index funds,
• 1:19:07
  Speaker 1: But I think ultimately people would have been like, oh,
• 1:19:09
  Speaker 1: you're just trying to upsell me on this, or your
• 1:19:11
  Speaker 1: pay for order flow, or you're taking money monment money
• 1:19:13
  Speaker 1: and getting more interest on it somewhere else. There would
• 1:19:16
  Speaker 1: have been something that would have soured people, and it
• 1:19:18
  Speaker 1: would have then gotten a bad name. Low cost is
• 1:19:21
  Speaker 1: a good has a good reputation because it was done
• 1:19:24
  Speaker 1: the hard way. And so we go back to when
• 1:19:27
  Speaker 1: Spy was twenty and Vanguard was twenty What people don't
• 1:19:30
  Speaker 1: realize is that Vanguard started at forty six basis points.
• 1:19:34
  Speaker 1: They came down like one or two a year, so
• 1:19:36
  Speaker 1: it wasn't until the nineties they were even twenty and
• 1:19:39
  Speaker 1: then in the last decade now they're three four across
• 1:19:41
  Speaker 1: the board pretty much. That's when people went gaga for them.
• 1:19:45
  Speaker 1: They didn't really sweep the nation until they got to ten.
• 1:19:48
  Speaker 1: So you and I the quote you used that. I
• 1:19:51
  Speaker 1: think the other factor was the financial crisis was the
• 1:19:55
  Speaker 1: last straw for a lot of main street investors. So
• 1:19:59
  Speaker 1: we we had the animal scandal, we the I p
• 1:20:01
  Speaker 1: O scandal, we have the mutual fund scandal, on and
• 1:20:03
  Speaker 1: on and on and on, not even talking about Bernie
• 1:20:05
  Speaker 1: made Off, and the financial crisis was you know what,
• 1:20:08
  Speaker 1: I'm done with this game. I'm just gonna give my
• 1:20:11
  Speaker 1: money to Vanguard and let it run and I'll check
• 1:20:15
  Speaker 1: my portfolio once a year. That was the sea change
• 1:20:18
  Speaker 1: from If you remember in the nineties, you couldn't walk
• 1:20:22
  Speaker 1: into a bar or a restaurant without CNBC being on
• 1:20:24
  Speaker 1: the TV. Everybody, every barbecue, every dinner party, every conversation
• 1:20:29
  Speaker 1: was about stocks. For a while, investing in the market
• 1:20:34
  Speaker 1: was America's pastime, and the two thousand's kind of cured
• 1:20:38
  Speaker 1: us of that, at least until the pandemic. This is
• 1:20:40
  Speaker 1: why I think books written on behavior in psychology need
• 1:20:44
  Speaker 1: to give vanguards index funds and Bogel way more credit
• 1:20:47
  Speaker 1: than they do. They don't even mention them really, But
• 1:20:49
  Speaker 1: I'm like, try try behaving in a two thousand and
• 1:20:53
  Speaker 1: eight without this as an option. Well, think about it.
• 1:20:56
  Speaker 1: If you're buying an active fund versus an index, you're
• 1:20:59
  Speaker 1: buying it. There's a little bit of ego involved. I'm
• 1:21:01
  Speaker 1: looking to outperform. There's a little bit of fomo and
• 1:21:03
  Speaker 1: greed there. Passive is just I want to own everything
• 1:21:07
  Speaker 1: and let lead. I'm investing in the world, and as
• 1:21:10
  Speaker 1: planet Earth does better economically anyway, I'll participate in it,
• 1:21:15
  Speaker 1: in stocks, bonds, real estate, whatever. It's a very different
• 1:21:18
  Speaker 1: headspace then I believe I have the ability to either
• 1:21:22
  Speaker 1: pick the guy that's going to outperform or pick the
• 1:21:27
  Speaker 1: guy that picks the guys that outperformed. Also, you know,
• 1:21:30
  Speaker 1: uh there, I have a chapter on looking at all
• 1:21:33
  Speaker 1: the ways Bogel had to sort of explain that indexing
• 1:21:36
  Speaker 1: wasn't quote average because he had to sort of sell
• 1:21:39
  Speaker 1: a concept that's Unamerican. It is average is not. We're America, right,
• 1:21:42
  Speaker 1: we want number one, yeah, top gun whatever. Like you know,
• 1:21:45
  Speaker 1: indexing seems like middle of the road and almost like Marxist,
• 1:21:48
  Speaker 1: as you said, so I think one of the ways
• 1:21:50
  Speaker 1: he did that was to look at the long term
• 1:21:53
  Speaker 1: compounding effect of indexing, but also just explain that, you know,
• 1:21:57
  Speaker 1: what are we doing here. We're investing in companies that
• 1:22:00
  Speaker 1: everybody goes through work every day, creates value. There's cash
• 1:22:03
  Speaker 1: flow there, there's dividends. That's what you're buying, right, and
• 1:22:06
  Speaker 1: over the decades that investment returns pretty stable. It's the
• 1:22:10
  Speaker 1: speculative return that can be a smoke screen, but that's
• 1:22:14
  Speaker 1: just you know, people making the pe go up a
• 1:22:17
  Speaker 1: lot and then there's a crash and then up. But
• 1:22:19
  Speaker 1: investment returns have been pretty stable throughout the decades, and
• 1:22:23
  Speaker 1: he just tried to get people to understand that that's
• 1:22:25
  Speaker 1: all we're doing here, and also the idea of the
• 1:22:27
  Speaker 1: zero sum game. I think some people think of the
• 1:22:29
  Speaker 1: stock market like they don't really view it as people
• 1:22:31
  Speaker 1: in a circle trading. It's not. Once you view yes,
• 1:22:36
  Speaker 1: once you view it as a table, you realize, oh yeah,
• 1:22:39
  Speaker 1: half the people will win, but after costs only like
• 1:22:41
  Speaker 1: two winners, you know, you start to really latch onto this.
• 1:22:45
  Speaker 1: But this was part of the challenge of what Bogel had.
• 1:22:49
  Speaker 1: That's why I took a long time. I think also
• 1:22:51
  Speaker 1: was that he had to really explain some of these
• 1:22:53
  Speaker 1: concepts and also again show compounding. Compounding is such a
• 1:22:58
  Speaker 1: powerful concept, and if you pounded seven versus five and
• 1:23:01
  Speaker 1: fifty years, the gap is enormous. And I think some
• 1:23:05
  Speaker 1: people don't look at a percent where bibs as a
• 1:23:09
  Speaker 1: big deal because they also write. They don't write checks
• 1:23:13
  Speaker 1: out of their assets when the markets, who cares about
• 1:23:17
  Speaker 1: ten or twenty gas? It's irrelevant? All right? Last question
• 1:23:20
  Speaker 1: before we get to our favorites, which circles back to
• 1:23:23
  Speaker 1: what with Jack Bogel and e t F and mutual funds.
• 1:23:27
  Speaker 1: When we look at e t F today, they're super efficient,
• 1:23:30
  Speaker 1: they're super cost effective, and and perhaps most important of all,
• 1:23:35
  Speaker 1: the tax advantages of an e t F vastly just
• 1:23:41
  Speaker 1: destroy mutual funds. So the question is if if the
• 1:23:46
  Speaker 1: mutual fund was introduced as a new product today, would
• 1:23:50
  Speaker 1: that pass sec muster versus the dominant et F with
• 1:23:54
  Speaker 1: its tax efficiency. Good question um, I assume if it
• 1:23:59
  Speaker 1: just check the regulatory boxes, that could come out. But
• 1:24:02
  Speaker 1: I just we have this product. And by the way,
• 1:24:04
  Speaker 1: if somebody sells, I would the tax problem goes to
• 1:24:08
  Speaker 1: the other shareholders who didn't sell. Yeah, that's the thing.
• 1:24:11
  Speaker 1: I almost feel like ETFs are the way it should
• 1:24:13
  Speaker 1: be done. You sell, you pay mutual funds where you're
• 1:24:16
  Speaker 1: sitting there as a good soldier, by the way, and
• 1:24:18
  Speaker 1: you get a tax bill because somebody else sold. It's
• 1:24:22
  Speaker 1: I almost feel bad for mutual funds. This is just
• 1:24:24
  Speaker 1: a bad break because it's not it's just not fair.
• 1:24:28
  Speaker 1: It's a legacy that they're stuck with from the government.
• 1:24:30
  Speaker 1: Almost should like. I'm surprised the i c I hasn't
• 1:24:33
  Speaker 1: lobbied the government to remove that and put them on
• 1:24:35
  Speaker 1: a level playing field with the ets, because they might
• 1:24:36
  Speaker 1: do a little better. But I also think mutual funds generally,
• 1:24:39
  Speaker 1: you know a lot of their costs or internalize e.
• 1:24:41
  Speaker 1: T F externalized a lot of costs. You know, you
• 1:24:43
  Speaker 1: trade on your own, you bought on your own, your
• 1:24:44
  Speaker 1: tax bills on your own, and people like that. It's
• 1:24:46
  Speaker 1: much more of a fair deal. I think people think so.
• 1:24:49
  Speaker 1: I think mutual funds there's possible some spaces it might
• 1:24:52
  Speaker 1: make sense. Um, maybe some less liquid spaces. An active
• 1:24:56
  Speaker 1: mutual funds still has some value fixed income they do
• 1:24:59
  Speaker 1: pretty well. UM. But I think overall, if a mutual
• 1:25:02
  Speaker 1: fund came out today, I think it would be something
• 1:25:04
  Speaker 1: akin to like a compact disc coming out today, Like
• 1:25:08
  Speaker 1: if you invented CDs right now and said, oh, take
• 1:25:10
  Speaker 1: this disc, go stick it into your computer or your
• 1:25:12
  Speaker 1: TV and watch this movie and be like why would
• 1:25:15
  Speaker 1: I do that? So I do think. Look, every industry
• 1:25:18
  Speaker 1: is evolving, you know. I compare the e t F
• 1:25:20
  Speaker 1: and the Index fund to the MP three, just like music,
• 1:25:23
  Speaker 1: the MP three really changed that industry. Uber completely revolutionized
• 1:25:27
  Speaker 1: the taxi industry, and some of these industries are caught
• 1:25:29
  Speaker 1: a little flat footed. There's nothing this is I this story.
• 1:25:32
  Speaker 1: I think it's not just the mutual funds. It's it's
• 1:25:34
  Speaker 1: a business story. It's a story about disruption, um and
• 1:25:38
  Speaker 1: I think if you're and also it's a story about patients.
• 1:25:40
  Speaker 1: One of the people interviews was Brad Kutzi Yama of
• 1:25:43
  Speaker 1: I X the Flash Boys guy, and it was like
• 1:25:46
  Speaker 1: when I told him it took Vanguard twenty five years
• 1:25:48
  Speaker 1: to get the tempercent market share. He's like, you just
• 1:25:50
  Speaker 1: made my day, because he's also sort of an out
• 1:25:53
  Speaker 1: of out, writing, out of the shop guy. So I
• 1:25:55
  Speaker 1: concept try to tell people this book, whether you're crypto
• 1:25:59
  Speaker 1: or you're building a business. I think a lot of
• 1:26:01
  Speaker 1: people can learn from some of these guys, some of
• 1:26:04
  Speaker 1: what this guy did, how he did it, and maybe
• 1:26:06
  Speaker 1: find some comfort and how long it took and then
• 1:26:09
  Speaker 1: when it finally kicked in, how much change it actually forced. Alright,
• 1:26:14
  Speaker 1: so let's jump to our favorite questions that we ask
• 1:26:16
  Speaker 1: all of our guests, starting with, Hey, what's been keeping
• 1:26:19
  Speaker 1: entertained during the pandemic? Give us your favorite Netflix and
• 1:26:24
  Speaker 1: Amazon Prime podcast? Whatever? Um? I mean my I have
• 1:26:29
  Speaker 1: an eleven year old son, so we've really enjoyed Stranger things.
• 1:26:32
  Speaker 1: That's probably an obvious answer. Another thing we do is
• 1:26:35
  Speaker 1: I I'll go to Google. He likes scary kind of stuff, right,
• 1:26:38
  Speaker 1: so I'll go PG thirteen scary, and we'll just go
• 1:26:41
  Speaker 1: through these movies I never heard of, Like right now
• 1:26:43
  Speaker 1: we're watching Escape Room and Escape Room too, and he
• 1:26:47
  Speaker 1: loves them and they're good enough for me that I
• 1:26:48
  Speaker 1: can like, you know, when he was young, he would
• 1:26:51
  Speaker 1: want to watch Pixar movies, and they're like a little
• 1:26:53
  Speaker 1: dull for an adult. But I don't know, I'm not.
• 1:26:56
  Speaker 1: I wasn't. I mean, Cars is okay, but like now
• 1:27:00
  Speaker 1: that he's you know, we both I think equally enjoy
• 1:27:02
  Speaker 1: stranger things some of these movies that we some are
• 1:27:05
  Speaker 1: better than others. But that's sort of where I've been.
• 1:27:08
  Speaker 1: I'm probably a bad person to ask. I did see
• 1:27:10
  Speaker 1: The Thirteen Lives on Amazon Prime, about the cave rescue
• 1:27:14
  Speaker 1: in Thailand, Ron Howard movie that came out fairly real.
• 1:27:17
  Speaker 1: It was pretty good. Colin Farrell's in it. I he's
• 1:27:20
  Speaker 1: so underrated. Everything he's in is pretty good. So sometimes
• 1:27:24
  Speaker 1: I'll do that. I'll take actor like Colin Farrell or
• 1:27:26
  Speaker 1: Bill Pullman, like somebody you don't really think about, and
• 1:27:28
  Speaker 1: I'll just put their name into Amazon Prime and I'll
• 1:27:31
  Speaker 1: just start going through some of their work that I
• 1:27:33
  Speaker 1: haven't heard of. Because if you just go to Amazon
• 1:27:35
  Speaker 1: Primary Netflix now, you end up scrolling forever. So you
• 1:27:39
  Speaker 1: need a search term, and so a lot of times
• 1:27:41
  Speaker 1: go to Google and put in PG thirteen scary or
• 1:27:44
  Speaker 1: something specific. What I really want them to have is
• 1:27:46
  Speaker 1: in Netflix. I want the rotten Tomatoes people to team
• 1:27:50
  Speaker 1: up with Netflix, so I can go, Okay, I want
• 1:27:53
  Speaker 1: a thriller that's ninety plus critic seventy audience, where I
• 1:27:59
  Speaker 1: want a comedy that's fifty critic ninety audience. And I
• 1:28:02
  Speaker 1: want to set these parameters so I can totally pinpoint
• 1:28:05
  Speaker 1: what I want. I cannot believe that hasn't happened yet. Netflix,
• 1:28:08
  Speaker 1: go by, go buy Rotten Tomatoes so Eric and I
• 1:28:11
  Speaker 1: can find better films. Second question, tell us about your
• 1:28:15
  Speaker 1: mentors who helped to shape your career. Mmm. I mean
• 1:28:19
  Speaker 1: I never had one real mentor. I guess you know.
• 1:28:22
  Speaker 1: Indext the institutional investor. Tom Lamont ran the show there
• 1:28:25
  Speaker 1: and he was sort of this gruff old editor guy
• 1:28:27
  Speaker 1: and he was really about fact checking, checking everything thirteen
• 1:28:30
  Speaker 1: times and it hurt. But that was a good lesson.
• 1:28:33
  Speaker 1: By the way, I have yet to interview a journalist who,
• 1:28:37
  Speaker 1: on the mentor question pretty much the exact. He was
• 1:28:41
  Speaker 1: old school as a gruff no bs guy, and you know,
• 1:28:45
  Speaker 1: and now I realize how useful it was. I've heard
• 1:28:47
  Speaker 1: also over and over the first meeting at that company,
• 1:28:51
  Speaker 1: Tom Lamont is sitting there, and remember Aldamato was senator
• 1:28:54
  Speaker 1: at the time. Yeah, he's like, listen, you gotta get
• 1:28:57
  Speaker 1: to work early. You gotta get there before the gate
• 1:28:59
  Speaker 1: key papers in the secretary show up. That's what they
• 1:29:01
  Speaker 1: called him back. Their assistance is the word. Now He's like,
• 1:29:04
  Speaker 1: you get there at seven am. You call Alda Motto.
• 1:29:06
  Speaker 1: You're gonna hear themato a thirty. You're gonna hear Alda
• 1:29:10
  Speaker 1: Motto's office. How can I help you? Oh yeah, sure whatever. Click.
• 1:29:13
  Speaker 1: So he he also had this like just you know,
• 1:29:16
  Speaker 1: use the phone, pick up the phone, call the people
• 1:29:18
  Speaker 1: go to the thing um. And I thought that was
• 1:29:21
  Speaker 1: he was a good mentor mine. I'll say my dad
• 1:29:23
  Speaker 1: as well. My dad was a highway or is a
• 1:29:26
  Speaker 1: where he retired, but he would go around and try
• 1:29:29
  Speaker 1: to get contracts to pave highways. So he'd go to
• 1:29:32
  Speaker 1: like the New Jersey Transportation and I saw him present
• 1:29:35
  Speaker 1: a couple of times, and it was I liked his style.
• 1:29:38
  Speaker 1: He would present on like hot mix boring topic right,
• 1:29:43
  Speaker 1: like like mutual funds, but he would have them rolling
• 1:29:47
  Speaker 1: like he would. He would he'd have a little a
• 1:29:49
  Speaker 1: little dry jokes here and there. You can tell he
• 1:29:51
  Speaker 1: curated this and sick. This doesn't have to suck. And
• 1:29:55
  Speaker 1: that's and that's what I thought with David Matt and
• 1:29:57
  Speaker 1: my first inside ETF conference, This doesn't have to suck.
• 1:30:00
  Speaker 1: These guys had a lot of fun up there with
• 1:30:02
  Speaker 1: your power point, and I find that with you guys,
• 1:30:04
  Speaker 1: this stuff can actually be fun, interesting, and I really
• 1:30:07
  Speaker 1: try to apply that to my world. It doesn't have
• 1:30:09
  Speaker 1: to be boring and stayed and just the dull lets
• 1:30:11
  Speaker 1: fall asleep. So I think i'd say those two people
• 1:30:15
  Speaker 1: the idea coming out of COVID of doing a conference
• 1:30:19
  Speaker 1: in a hotel room. Conference ends or or haven't been
• 1:30:23
  Speaker 1: the Javit sensor. It's why we tied up future Proof
• 1:30:26
  Speaker 1: on the beach in California. Like I've been locked in
• 1:30:30
  Speaker 1: the house for two years. I don't want to sit
• 1:30:32
  Speaker 1: in a hotel room. Let me out in the sunshine.
• 1:30:35
  Speaker 1: So yeah, absolutely, the idea that anything that might be
• 1:30:38
  Speaker 1: a little dry, you gotta make punch it up and
• 1:30:40
  Speaker 1: make it interesting. Yeah, and especially the younger generation, zero
• 1:30:44
  Speaker 1: tolerance for tolerance for bullet points on a power Yetta,
• 1:30:48
  Speaker 1: show me a picture that's funny and then explain to me,
• 1:30:51
  Speaker 1: you know the data behind it, Like that's the it's
• 1:30:55
  Speaker 1: it's our team really pays attention to this. We think
• 1:30:58
  Speaker 1: it's very important. The wise, you're going to just fade
• 1:31:00
  Speaker 1: into oblivion, You're just gonna torture people. Everybody's favorite question,
• 1:31:05
  Speaker 1: what are some of your favorite books? And what are
• 1:31:07
  Speaker 1: you reading right now? Um? For some reason, the book
• 1:31:11
  Speaker 1: keeps going to mynd read it twice now. Is Bob
• 1:31:13
  Speaker 1: Dylan's Chronicles? Really? Yeah? He only wrote one book. But
• 1:31:17
  Speaker 1: I got into Bob Dylan late, but I really got
• 1:31:19
  Speaker 1: into him and I find him it's fascinating, still alive
• 1:31:21
  Speaker 1: to my mom to see him, can't understand where he's saying, singing,
• 1:31:24
  Speaker 1: But but you realize this guy influenced the Beatles, the Beatles,
• 1:31:28
  Speaker 1: the Beatles. I want to hold your hand. If it
• 1:31:31
  Speaker 1: wasn't for Bob Dylan, Jimmy Hendricks worshiped. I mean, this
• 1:31:34
  Speaker 1: dude is like a walking Smithsonian Institute, right, So I
• 1:31:38
  Speaker 1: was like, I gotta read his book. His book is
• 1:31:40
  Speaker 1: fascinating because it's he writes about his childhood up until
• 1:31:44
  Speaker 1: nineteen sixty three and six sixty three. He's sort of
• 1:31:47
  Speaker 1: just like sleeping on couches in Manhattan, but he's starting
• 1:31:50
  Speaker 1: to read books on people's shelves and he's starting to
• 1:31:53
  Speaker 1: go into art exhibits, and he's taking the books and
• 1:31:56
  Speaker 1: the art, and then he's taking his Woody Guthrie of
• 1:32:00
  Speaker 1: and he's merging it all together, and and the you
• 1:32:03
  Speaker 1: really get an idea for how creativity happens in his books.
• 1:32:07
  Speaker 1: And then when sixty three happens he has the big album,
• 1:32:09
  Speaker 1: the book stops and then it starts again in when
• 1:32:13
  Speaker 1: he's in a slump and he tries to figure out
• 1:32:16
  Speaker 1: like he's lost, and it goes and how he found
• 1:32:18
  Speaker 1: his groove again and his inspiration. So I find that
• 1:32:22
  Speaker 1: to be so Bob Dylan. None of the book is
• 1:32:24
  Speaker 1: about his popularity, the big albums he wrote, nothing. It's
• 1:32:28
  Speaker 1: all about finding the spark, finding the creativity, putting together
• 1:32:33
  Speaker 1: different things together in a stew and how to do that.
• 1:32:37
  Speaker 1: And for anybody who writes or does anything creative, it's
• 1:32:39
  Speaker 1: a It's just a fascinating read. And clearly this guy
• 1:32:42
  Speaker 1: was ahead of his time and a very interesting figure.
• 1:32:47
  Speaker 1: So I would recommend that to anybody. Um chronicles, Yeah,
• 1:32:50
  Speaker 1: and I'm a gen extra. I wasn't. I didn't grow
• 1:32:52
  Speaker 1: up with Bob Dylan, but I I can't sometimes I
• 1:32:55
  Speaker 1: can't believe how good his like his albums are when
• 1:32:58
  Speaker 1: he wrote when he was twenty one two, I'm like
• 1:33:01
  Speaker 1: his way beyond his years. It's really it's interesting. Is
• 1:33:05
  Speaker 1: Scorre Stacy did a documentary called um No Direction Home
• 1:33:09
  Speaker 1: that's also very good. Give us one more books? So
• 1:33:13
  Speaker 1: chronicles by Bob Dylan. Um, let's see. Uh oh there's another.
• 1:33:19
  Speaker 1: You want a music one or a different one, doesn't
• 1:33:21
  Speaker 1: matter whatever you read. Um. I just got this book
• 1:33:25
  Speaker 1: that Hunter Horsley of bit Wise recommended to me. I
• 1:33:28
  Speaker 1: got it because I sent it to my dad. I
• 1:33:29
  Speaker 1: do my dad would love this. It's Winston Churchill, and
• 1:33:32
  Speaker 1: it's a book of all his takes on different figures.
• 1:33:36
  Speaker 1: So it's like all his notes and writings on all
• 1:33:40
  Speaker 1: these different figures in history, f Dr Charlie, Chaplin, Hitler,
• 1:33:45
  Speaker 1: and I find Churchill kind of fascinating. My dad's really
• 1:33:48
  Speaker 1: in love with him. So I sent my dad the book.
• 1:33:50
  Speaker 1: I got the book, and so now I'm reading that.
• 1:33:53
  Speaker 1: Churchill is also interesting because he wrote what's the name
• 1:33:56
  Speaker 1: of the book, Winston Great Contemporaries. Oh, what an interest thing.
• 1:34:01
  Speaker 1: My dad, who's read almost everything about him and by him,
• 1:34:04
  Speaker 1: never heard of it. If anybody's a fan of Churchill
• 1:34:07
  Speaker 1: at all, I took its way. This is a five
• 1:34:10
  Speaker 1: part Winston Churchill reflects on FDR Hitler Kipling Book three
• 1:34:14
  Speaker 1: of five. How many of these books are there? Um,
• 1:34:18
  Speaker 1: I'm not sure. I just download the one. There might
• 1:34:19
  Speaker 1: be three sections, and I think it's all in the
• 1:34:21
  Speaker 1: one book though, I think it's just in three sections.
• 1:34:24
  Speaker 1: But um, you know, he definitely he wrote all the time.
• 1:34:29
  Speaker 1: It seems like, so, yeah, he's got a ton of
• 1:34:32
  Speaker 1: books out and I'm not. I can't say I'm a
• 1:34:35
  Speaker 1: huge expert on that air, so I kind of let
• 1:34:37
  Speaker 1: me see what that cover looks like. Winston Churchill, Yeah,
• 1:34:40
  Speaker 1: I'm looking at great contemporaries, he says, book three of
• 1:34:43
  Speaker 1: five and other works. How many stars does it have?
• 1:34:46
  Speaker 1: Like or how many ratings? Four and a half isn't?
• 1:34:51
  Speaker 1: And it's actually him not and it's his words that's
• 1:34:54
  Speaker 1: I found that interesting. So anyway, had tipped Hunter Hunter Horsley,
• 1:34:57
  Speaker 1: who recommended that to me, And and then when I
• 1:35:00
  Speaker 1: told my Daddy's like, I've never heard of it, I'm like,
• 1:35:02
  Speaker 1: that seems weird to me, given how much he loves
• 1:35:05
  Speaker 1: that guy. Really interesting and and our last two questions
• 1:35:09
  Speaker 1: that we ask all of our guests, the first is
• 1:35:12
  Speaker 1: what sort of advice would you give to a college
• 1:35:14
  Speaker 1: grad who was interested in a career in either investment
• 1:35:19
  Speaker 1: in finance or journalism or research and analysis. Um, you know,
• 1:35:24
  Speaker 1: I would. I would get out there and do it,
• 1:35:26
  Speaker 1: you know, right for the school paper, go in turn somewhere.
• 1:35:29
  Speaker 1: I i'd tew I you know, I did not get
• 1:35:32
  Speaker 1: a c f A, although I would recommend that to
• 1:35:34
  Speaker 1: I if I could go back, I might take at
• 1:35:36
  Speaker 1: least c f A one, because sometimes sometimes I would
• 1:35:39
  Speaker 1: be I would find things that were logical and James
• 1:35:42
  Speaker 1: will be like, oh, yeah, that's in the c f A.
• 1:35:43
  Speaker 1: I'm like, okay, So I I definitely would recommend though,
• 1:35:48
  Speaker 1: getting out and doing it and and being as social
• 1:35:50
  Speaker 1: as possible. I think, you know, uh, being able to
• 1:35:55
  Speaker 1: work with people, being likable, and also it can help
• 1:35:58
  Speaker 1: with your longevity because you don't burn bridges. You end
• 1:36:02
  Speaker 1: up getting into an industry and like, the E t
• 1:36:04
  Speaker 1: F industry is great. I feel like it's a scene,
• 1:36:07
  Speaker 1: and I would encourage getting into a scene. Interesting. And
• 1:36:11
  Speaker 1: our final question, what do you know about the world
• 1:36:14
  Speaker 1: of E t F s, mutual funds, financial journalism today?
• 1:36:17
  Speaker 1: You wish you knew twenty five years ago, I guess
• 1:36:21
  Speaker 1: I would go with compounding. UM. When I was in
• 1:36:24
  Speaker 1: my twenties, I withdrew a lot of my four one
• 1:36:26
  Speaker 1: K because I just wanted money to hang out with,
• 1:36:28
  Speaker 1: like spend life. So I actually took money out of
• 1:36:30
  Speaker 1: my form kids get idiot, and I just I didn't
• 1:36:35
  Speaker 1: know that much about it UM and I wish compounding
• 1:36:38
  Speaker 1: is probably the single most important word in investing in
• 1:36:41
  Speaker 1: my opinion. Compounding also, I think sorts of it shows
• 1:36:45
  Speaker 1: you the end, which helps you in the now, and
• 1:36:48
  Speaker 1: it helps you just relax because it's just like, you know,
• 1:36:51
  Speaker 1: let let it grow. It's like watching a tree grow.
• 1:36:53
  Speaker 1: It's not like running or do the action. It helps
• 1:36:57
  Speaker 1: you take less action. I think compounding is something I
• 1:37:00
  Speaker 1: would immediately learn about, whether it's compound interest or the investing.
• 1:37:05
  Speaker 1: I think that that term is really powerful. I mean,
• 1:37:08
  Speaker 1: that's not a great answer, but I can't see a
• 1:37:11
  Speaker 1: lot about that. It's it's a pretty good answer. We
• 1:37:14
  Speaker 1: have been speaking with Eric Balcunas. He is the senior
• 1:37:17
  Speaker 1: et F analyst at Bloomberg and author of The Bogel Effect,
• 1:37:22
  Speaker 1: How John Boglan Vanguard turned Wall Street inside out and
• 1:37:26
  Speaker 1: saved investors trillions. If you enjoy this conversation, well, be
• 1:37:31
  Speaker 1: sure and check out any of our previous four hundred
• 1:37:34
  Speaker 1: or so episodes we've done over the past. Uh is
• 1:37:38
  Speaker 1: it eight years? Wow? That's kind of crazy. You can
• 1:37:40
  Speaker 1: find that at iTunes, Spotify, wherever you feed your podcast fix.
• 1:37:45
  Speaker 1: We love your comments, feedback and suggestions right to us
• 1:37:48
  Speaker 1: at m IB podcast at Bloomberg dot net. Sign up
• 1:37:53
  Speaker 1: for my daily reading list at Ridlts dot com. Follow
• 1:37:56
  Speaker 1: me on Twitter at rid Halts. I would be remiss
• 1:37:59
  Speaker 1: if I did not think the crack team that helps
• 1:38:01
  Speaker 1: put these conversations together each week. Juan Taurus is my
• 1:38:06
  Speaker 1: audio engineer. Attica Valbron is my project manager. Sean Russo
• 1:38:11
  Speaker 1: is my head of research. Paris Wald is my producer.
• 1:38:15
  Speaker 1: I'm Barry Ritolts. You've been listening to Master's in Business
• 1:38:19
  Speaker 1: on Bloomberg Radio.