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Jack Brennan on Succeeding the Legendary John Bogle (Podcast) · Masters in Business

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Speaker 1: M. This is Mesters in Business with Very Renaults on
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Speaker 1: Blueberg Radio. This week on the podcast, I have an
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Speaker 1: extra extra special guest. It's the return of Jack Brennan.
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Speaker 1: He is the former CEO and chairman of the Vanguard Group.
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Speaker 1: And what can I tell you? This is just a
0:23
Speaker 1: tourtive force about rational investing strategies, behavior psychology. There are
0:31
Speaker 1: a few people in the world who have Brennan's depth
0:36
Speaker 1: of experience and perspective. Not just because he worked with
0:40
Speaker 1: Jack Bogel for dozens of years and was Bogel's handpicked
0:45
Speaker 1: successor to run the Vanguard Group, but he's done a
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Speaker 1: variety of other things. He's on all sorts of other boards.
0:52
Speaker 1: He sees the world of investing and business and finance
0:57
Speaker 1: um from a three D and sixty re perspective. I
1:01
Speaker 1: find him not only just fascinating and intelligent and sincere,
1:06
Speaker 1: but really one of the few people who has that
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Speaker 1: full view of everything. His perspectives, his opinions are very
1:13
Speaker 1: well informed and and really matter a great deal. I
1:17
Speaker 1: found this to be a fascinating conversation and I think
1:20
Speaker 1: you will also so. With no further ado, the former
1:24
Speaker 1: chairman and CEO of the Vanguard Group. Jack Brennan. This
1:30
Speaker 1: is Mesters in Business with Very Renorts on Bluebird Radio.
1:35
Speaker 1: HI extra special guest is Jack Brennan. He was the
1:40
Speaker 1: CEO and chairman of the Vanguard Group from two thousand
1:45
Speaker 1: and eight. He is currently chairman of Notre Dame's Board
1:48
Speaker 1: of Trustees, as well as being on a variety of
1:51
Speaker 1: other boards. He is the author of a new book,
1:54
Speaker 1: More Straight Talk on investing Lessons for a Lifetime. Jack
2:00
Speaker 1: and in Welcome back to Bloomberg, Great Meridi, Very good
2:04
Speaker 1: to have you back. I recall our last conversation was
2:07
Speaker 1: quite fascinating a couple of years ago. But for people
2:10
Speaker 1: who may have missed it, let's let's just spend a
2:12
Speaker 1: few minutes going over your history. You joined Vanguard in
2:18
Speaker 1: serving as the company's president alongside Jack Bogel, the founder
2:23
Speaker 1: and CEO of Vanguard. Tell us a little bit what
2:26
Speaker 1: it was like in the eighties and what it was
2:28
Speaker 1: like working with a legend like Jack Bogel. Well, it
2:31
Speaker 1: was a gift to be hired by Jack Bogel and
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Speaker 1: to join Vanguard when I did. Bangard was a quite
2:36
Speaker 1: small place for point four billion dollars in assets undermanagement.
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Speaker 1: The industry is you might recall back in eighty two
2:45
Speaker 1: was driven mostly by money market funds. You know, at
2:47
Speaker 1: Socks hadn't done much for a long time. Bonds had
2:50
Speaker 1: been terrible because we were in the stagflation. You're coming
2:53
Speaker 1: out of it. But the chance to work side by
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Speaker 1: side with someone like Jack, we've been in the business
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Speaker 1: since the day graduated from Princeton in nineteen fifty one,
3:01
Speaker 1: was extraordinary. You know, we had lunch together nearly every
3:04
Speaker 1: day when I was in town over thirteen plus years.
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Speaker 1: I learned a ton of stuff from him in so
3:10
Speaker 1: many ways, as did the whole team of us that
3:14
Speaker 1: we're part of the early days of the growth phase
3:17
Speaker 1: of Angard from eighty two as the markets turned around
3:21
Speaker 1: and it turned into be a pretty good business today.
3:23
Speaker 1: We had a lot of fun, went through a lots
3:24
Speaker 1: of business challenges, many of which were challenges of success.
3:28
Speaker 1: How do you keep a place together as you grow
3:30
Speaker 1: at a percent some years? Uh, and that you know
3:35
Speaker 1: compounded for all those years we also went through on
3:38
Speaker 1: the personal side. You know, Jack had a lot of
3:40
Speaker 1: health challenges that you know, I tried to be helpful
3:42
Speaker 1: with and obviously lived with him through those. I had
3:46
Speaker 1: some on my family's side, and those kinds of things
3:49
Speaker 1: bond as well, very in a way that's different than
3:51
Speaker 1: a conventional just a business relationship, and was really another
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Speaker 1: shared experience. So you know, you get lucky sometimes, and
4:00
Speaker 1: joining Vanguard and working with Jack and for Jack was tremendous.
4:03
Speaker 1: Were thinking about that the other day. Actually, just a
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Speaker 1: couple of years ago, you know, Jack and Pat Jack
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Speaker 1: passed away and we had a celebration of life form
4:11
Speaker 1: at Vanguard and I was privileged to kick it off
4:13
Speaker 1: and just hit a four things that are lessons actually
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Speaker 1: maybe for your listeners that really, you know, you think
4:18
Speaker 1: about what Vanguard is today, it was not that when
4:21
Speaker 1: Jack launched in n But four things were consistent and
4:25
Speaker 1: hopefully you're very much still part of the company. And
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Speaker 1: one was just the dedication of the mission of Vanguard
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Speaker 1: those who followed Jack. He was continually on point about client,
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Speaker 1: client clients. The second is passion for competitive success. You know,
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Speaker 1: nobody liked to fight more than Jackie picked one now
4:42
Speaker 1: and then UH to try to get publicity for us
4:45
Speaker 1: and UH and things. But that focus on wanting to
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Speaker 1: win hugely, hugely valuable. The third thing that was remarkable,
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Speaker 1: really to watch and learn from the power of communication,
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Speaker 1: and you know, just consist can see and continual continually
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Speaker 1: promoting in a sense what the message for the company
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Speaker 1: was powerful force and the last thing focus. You know,
5:10
Speaker 1: we'd have people come to us very continually saying issue
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Speaker 1: credit cards, do mortgages, do this, and Jack would always
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Speaker 1: come back and say, now we do one thing pretty well.
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Speaker 1: We've managed package products in the form of mutual funds.
5:22
Speaker 1: Let's just go find people to buy them. So, when
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Speaker 1: Vogel finally stepped down, you were as handpicked successor did
5:30
Speaker 1: you feel the weight of that transition or was he
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Speaker 1: still not quite the legend he eventually became, and it
5:38
Speaker 1: didn't have the same gravitas that perhaps it does today.
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Speaker 1: You know, in some ways, not too much. In some ways,
5:45
Speaker 1: certainly you feel the weight of it. In a sense,
5:48
Speaker 1: not so much. Was you know, We've just been handing
5:51
Speaker 1: gloves together for thirteen years. I've been on the board
5:55
Speaker 1: for nine or something like that, the president for seven
5:59
Speaker 1: or eight, and most of the team that led the
6:02
Speaker 1: company I'd either hired or promoted and mentored along the way.
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Speaker 1: So so the internal aspects of change weren't weren't very
6:09
Speaker 1: great and in that sense, and so it was incredibly smooth.
6:13
Speaker 1: H And frankly, when I've been made the president, the
6:17
Speaker 1: board didn't he had announced that I would take his place,
6:19
Speaker 1: which was a little weird, but um, I think probably
6:23
Speaker 1: helpful in some ways, uh, internally in that regard. But
6:27
Speaker 1: the the other part of it is, um, you know,
6:30
Speaker 1: Jack had been the CEO from sin when this was announced,
6:34
Speaker 1: and I'm the new guide as some slice of the constituencies.
6:37
Speaker 1: And you know, in a sense you have to prove
6:40
Speaker 1: yourself to two people who knew Jack as the face
6:43
Speaker 1: of the company, and we're very different, different ideas around
6:47
Speaker 1: that role. But you feel a way to it. And
6:50
Speaker 1: you know, I don't know any CEO who, irrespective of
6:54
Speaker 1: you know, his or her tenure at a company, who
6:58
Speaker 1: the day they become the scene, oh it. Uh, they
7:02
Speaker 1: don't feel the weight of it. It's a different It's
7:04
Speaker 1: different on day one than it was on day minus
7:06
Speaker 1: one when you become CEO. And that was a surprise
7:10
Speaker 1: to me in some lay. I have to say, I
7:12
Speaker 1: didn't expect it and I felt it. And I can't
7:16
Speaker 1: sold low CEOs continually as they're moving into jobs that
7:20
Speaker 1: they will feel it and of the people say you're right,
7:23
Speaker 1: I get that really interesting. I love this quote you
7:27
Speaker 1: had in Business Week where you said, quote, being famous
7:31
Speaker 1: was never on my agenda unquote. And you tell the
7:33
Speaker 1: story You're coaching your son's soccer team and another player's
7:38
Speaker 1: mom comes up to you and says, I didn't realize
7:40
Speaker 1: you were that Jack Brennan. She thought you were a
7:43
Speaker 1: gym teacher. What was that transition like into the public eye.
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Speaker 1: That was the hardest part of it, because it's just
7:51
Speaker 1: not me. I love having tons of responsibility of bandrad
7:55
Speaker 1: and having nobody know my name. I don't think I
7:57
Speaker 1: was a gym teacher when I was coaching, right, And
7:59
Speaker 1: you take the job, you have to make that change.
8:02
Speaker 1: And you know, I'm a big believer that being the
8:05
Speaker 1: leader is notoriety enough, and that any credit for stuff
8:10
Speaker 1: that happens positively in an organization should go to the team.
8:14
Speaker 1: And he blamed that something that goes awry should you
8:17
Speaker 1: should accept that as the leader. And so it was.
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Speaker 1: It was a challenge and an interesting one, particularly because
8:25
Speaker 1: you will recall, you know, the fund industry was kind
8:29
Speaker 1: of on the sidelines in in finance, if you will.
8:33
Speaker 1: When I started out there, and then we were progressively
8:36
Speaker 1: but by we were very prominent part of the business.
8:40
Speaker 1: And so with all of the industry and and and
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Speaker 1: company responsibilities, you really do have to change and adapt.
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Speaker 1: And it's a growth opportunity for anybody who falls into
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Speaker 1: that role. I think particularly challenged for someone like me
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Speaker 1: who is Anonymity is something that is highly prized, uh,
8:58
Speaker 1: which makes me like an and not comment as I
9:00
Speaker 1: do this thing through this interview with you, but it's
9:03
Speaker 1: it's very much real. That was I would say, hands
9:06
Speaker 1: down the hardest change for me as I took over
9:09
Speaker 1: the as the CEO of the company. That's the beauty
9:11
Speaker 1: of radio. Nobody knows what you look like exactly. So
9:16
Speaker 1: two questions about your leadership period at Vanguard. Tell us
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Speaker 1: what you're most proud of from that period and if
9:24
Speaker 1: you had a mulligan, if you can have a do
9:26
Speaker 1: over for one thing, what what would that? Big? Yeah,
9:30
Speaker 1: I get asked what are you most proud of? Question
9:32
Speaker 1: all the time, Verry, and I think the three things
9:34
Speaker 1: that that matter first and foremost is the team that
9:39
Speaker 1: you've helped put together over time and trig in a
9:43
Speaker 1: rapidly grown company where you know the team almost can't
9:47
Speaker 1: grow quickly enough to keep up with the challenges in
9:50
Speaker 1: the company. But you know, from top to bottom, we
9:52
Speaker 1: were able to attract and help build great careers for
9:55
Speaker 1: people who had a sign on to this quirky mission
9:58
Speaker 1: in a quirky place where you're not public company, you're
10:01
Speaker 1: not private, you're owned by your mutual fund shareholders. But
10:04
Speaker 1: maintaining and enhancing the commitment to that, to our mission
10:07
Speaker 1: and the intense competitive edge and deal in the face
10:11
Speaker 1: of you know what, in many ways is UH remarketable success.
10:15
Speaker 1: That that's a thing that I look back and I
10:18
Speaker 1: look today at Vanguard and see it there and really
10:21
Speaker 1: proud of that tangibly the billions and billions and billions
10:25
Speaker 1: of incremental rewards you delivered to the shareholders because of
10:28
Speaker 1: our structure, because our funds performed well critically important part.
10:33
Speaker 1: And that's that's what you're there for. That's why you
10:35
Speaker 1: put your shoes on every day, um, you know. And
10:38
Speaker 1: then probably the last thing that I always like to
10:41
Speaker 1: highlight is the culture, which you would think would get
10:45
Speaker 1: diluted as it grew in by a hundred and then
10:48
Speaker 1: a thousand times would get diluted. I think the culture
10:52
Speaker 1: got stronger progressively and continues to get stronger around again,
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Speaker 1: the singular focus on the client, and then even more
11:01
Speaker 1: important in many ways, always doing it the right way.
11:04
Speaker 1: So I look at that and say, that's a that's
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Speaker 1: a template if somebody said, you'll be around a long
11:09
Speaker 1: time and you'll feel this good about those three things
11:13
Speaker 1: high on my list of things. As to the Mulligan,
11:17
Speaker 1: I might need a roving a few roving. Mulligan's right
11:20
Speaker 1: in some ways the UH. I once said a relatively
11:24
Speaker 1: new person as officer at Vanguard, I think she was
11:28
Speaker 1: trying to insolve me, and I thought she was complimenting me.
11:31
Speaker 1: She said, I I live in a perpetual state of dissatisfaction,
11:35
Speaker 1: and I think it is a compliment. I could give
11:37
Speaker 1: you a really long list, but I'll give you one
11:39
Speaker 1: thing that I look back and say, we we had
11:42
Speaker 1: it right and didn't do it right, if you will,
11:44
Speaker 1: and that is advice and support for the advice community.
11:48
Speaker 1: You know, Vanguard today is a burgeoning advice business delivering
11:53
Speaker 1: a great product at a great price. And we started
11:57
Speaker 1: in the advice business twenty five years ago. But I
12:00
Speaker 1: wasn't aggressive and I wasn't aggressive enough in saying we
12:04
Speaker 1: should really build this out in a form and fashion,
12:08
Speaker 1: and then as a compliment, be even more aggressive in
12:11
Speaker 1: supporting the advisor community. There was a legacy there. We
12:15
Speaker 1: used to be a load fun group. We became no
12:17
Speaker 1: load and so on. But it was clear to us
12:20
Speaker 1: that advice was going to be a crucial part of
12:22
Speaker 1: the investing future, and very importantly so. And if I
12:26
Speaker 1: look back and say, if there's one thing I would
12:28
Speaker 1: have spent a lot more money, put a lot more
12:30
Speaker 1: energy behind, it's that. And I'm really glad to see
12:33
Speaker 1: the companies doing it on both sides of that. By
12:35
Speaker 1: the way, delivering advice and then supporting advice providers, it's
12:38
Speaker 1: a core, very core part of Anger today. I wish
12:42
Speaker 1: we'd been much more advanced during my time leading a company.
12:46
Speaker 1: Really interesting, let's talk a little bit about your new book.
12:50
Speaker 1: By the way, am I reading this right? The first
12:52
Speaker 1: book was straight talk on investing. Correct. It was because
12:56
Speaker 1: I read that one. You know, it's got to be
12:58
Speaker 1: five years ago when we did our person interview, when
13:00
Speaker 1: I plowed through whatever notes I had from that. Is
13:04
Speaker 1: this an update or is this a brand new book.
13:07
Speaker 1: It's a combination. It's one of the great lessons in
13:10
Speaker 1: redoing and doing another book is the core of the
13:14
Speaker 1: book really hasn't changed, actually, And then there's lots of
13:18
Speaker 1: you think about this person one's book published in two
13:21
Speaker 1: thousand two. So you've got the GFC, you've got the
13:27
Speaker 1: last year, you've got twenty years almost to say how
13:31
Speaker 1: it's the aftermath of the dot com bubble of GFC
13:35
Speaker 1: and what we've been through. And you say, because what
13:38
Speaker 1: we've wrote then withstand the test of time. It's actually
13:43
Speaker 1: it's rarities are enhanced by that test of time. And
13:48
Speaker 1: then there's some other new stuff that we can talk
13:49
Speaker 1: about it. But it's the advent of Ridholds Advisors and
13:53
Speaker 1: Vanguard's advisory services. It's radical decline and cost of investing
13:58
Speaker 1: in twenty years it's stunning, and some other stuff that
14:02
Speaker 1: is important. So it's a combination of new and new
14:06
Speaker 1: and reaffirmation of what was in the private book. Well,
14:10
Speaker 1: some of the basics from the other book is pretty timeless. Homework,
14:14
Speaker 1: good habits, no fads, stay, continue to learn. I mean
14:18
Speaker 1: that's pretty straight talk as it gets. So tell us
14:23
Speaker 1: what motivated that approach. I appreciate the term straight talk.
14:27
Speaker 1: I had one of my colleagues at Vanguard the other
14:30
Speaker 1: day asked me do I enjoy being boring? And uh,
14:34
Speaker 1: and the with with this advice, But you know, um,
14:39
Speaker 1: it's what motivates it is this is the time tested
14:43
Speaker 1: way serious money gets invested successfully. And that might be
14:49
Speaker 1: an endowment at a great university, it may be a
14:52
Speaker 1: pension fund. And this is really targeted at people who
14:56
Speaker 1: are their own personal financial entrepreneurs with their own assets,
14:59
Speaker 1: and they can get help from an advisor, they can
15:01
Speaker 1: do it themselves whatever. But if you look back over
15:04
Speaker 1: decades and decades very in some ways simple approach to investing,
15:11
Speaker 1: as you just highlighted around homework, good habits, avoiding fads
15:15
Speaker 1: is the proven strategy and the problem is it's always
15:18
Speaker 1: challenged right by the new news thing. And so you know,
15:23
Speaker 1: we found, we find that it's important to reaffirm these
15:27
Speaker 1: test them, by the way, and there's unlimited amounts of
15:30
Speaker 1: data as you know, to look and and test them.
15:34
Speaker 1: But you come back to these core principles that define
15:38
Speaker 1: success strategies for any of us, whether an institutional investor
15:42
Speaker 1: in individuals. So that's the that's the motivation of it.
15:47
Speaker 1: And you know, for me personally, it's Uh, I had
15:49
Speaker 1: the privilege of knowing Walter or Morgan who found in
15:52
Speaker 1: Wellington Fund. So I've had live tutorial from Mr Morgan. Jack.
15:59
Speaker 1: Now now I'm the old guy and had hired ends
16:05
Speaker 1: of advisors and advisory firms, have observed millions of investors,
16:09
Speaker 1: and you come back to core character traits that defined success,
16:14
Speaker 1: as you know, and in the end, there's two character
16:17
Speaker 1: traits that matter. One is humility and the other's discipline.
16:22
Speaker 1: And then there's some practices that matter. And if you
16:26
Speaker 1: find that package in yourself or in your advisor or
16:30
Speaker 1: in the firm you hired to manage assets for you,
16:34
Speaker 1: you're going to be successful. And if you don't, the
16:37
Speaker 1: odds are you will not, and you will look jealously
16:40
Speaker 1: at people who followed these old school practices and old
16:45
Speaker 1: school behaviors and have won the game. Really interesting, Let's
16:50
Speaker 1: stick with the idea of character such as humility and
16:54
Speaker 1: discipline and just ask a simple question, why are so
16:58
Speaker 1: many investors quote their own worst enemy unquote? Uh, you
17:03
Speaker 1: know one word and its emotions, right, And whether it's
17:07
Speaker 1: fear agreed, whether it's competitive juices that you're sister in
17:11
Speaker 1: law beta killing in some stocks, whether it's over confidence.
17:18
Speaker 1: Whether it's an institution saying I've got a hustle or
17:21
Speaker 1: I'm going to get fired by an institutional client. It's
17:25
Speaker 1: emotion is an incredible headwind of success in building and
17:29
Speaker 1: maintaining financial security and through the markets. The story that's
17:34
Speaker 1: played out again and again and again over time. And
17:37
Speaker 1: you know, so you need to understand that simple. I
17:42
Speaker 1: will be my own worst enemy unless I take emotion
17:44
Speaker 1: out of the equation. Hard to do. It's easier with experience.
17:48
Speaker 1: But that's a simple answer to it. Verry, Let's stick
17:51
Speaker 1: with the idea of emotion as a valid factor. And
17:56
Speaker 1: I have to ask you one of the things you
17:58
Speaker 1: write about people would be more selective about the financial
18:02
Speaker 1: content they consume. Explain what you mean by that, you know,
18:06
Speaker 1: one of the best things that's happened in my career
18:09
Speaker 1: since the early eighties today is the ability for individuals
18:15
Speaker 1: in particular about all of us too uh learn whether
18:20
Speaker 1: in the early days it was Money magazine and today
18:23
Speaker 1: it's just obviously the ubiquity of information on through online media.
18:30
Speaker 1: It's so different than um than it was a long
18:34
Speaker 1: time ago. The downside of that, it's like everything too
18:37
Speaker 1: much of a good things about and so there's too
18:41
Speaker 1: much information, too readily available, too broadly covered. That it's
18:45
Speaker 1: a distraction, and distractions will lead to other emotions very
18:51
Speaker 1: and that that is the that is I think that
18:55
Speaker 1: the core challenge h and why people really need to say.
19:01
Speaker 1: I find certain writers on Bluebird valuable to me, and
19:06
Speaker 1: I'm going to follow them because they provide me with
19:09
Speaker 1: information I find valuable as an investor. But zigging and
19:13
Speaker 1: bagging from this hot topic to that hot topic, or
19:15
Speaker 1: this influencer to that you know prognosticator is just damaging
19:21
Speaker 1: to your financial well being, and always it has proven
19:24
Speaker 1: to be, and I suspect you'll always will be because
19:27
Speaker 1: you know, this isn't a game, and it's not how
19:30
Speaker 1: the Red Sox do last night, right, Hoyla Red Sox
19:33
Speaker 1: did last night actually matters this year to their chances
19:36
Speaker 1: to make the playoffs. But what happened in the markets
19:39
Speaker 1: today matters to almost nobody who you and I know,
19:44
Speaker 1: because they have long term time horizons, right, and they're
19:47
Speaker 1: not traders managing a book at at a Wall Street firm.
19:51
Speaker 1: There are people thinking about ten and twenty and forty
19:53
Speaker 1: years from now. So what happens today is in significance.
19:56
Speaker 1: So let's continue with that thought. Sometimes bear markets come along,
20:02
Speaker 1: and that seems to be what drives a lot of
20:05
Speaker 1: the sort of hair on fire hand waving in a
20:08
Speaker 1: lot of the media. How should people think about bear markets?
20:13
Speaker 1: How should they prepare for one? And how should they
20:15
Speaker 1: behave during a bear market? So actually, in in uh
20:21
Speaker 1: in more straight talk, we have old chapter on bear
20:23
Speaker 1: markets for a reason, and it's because they're an inevitable
20:26
Speaker 1: part of investing if you're investing over a career, in
20:31
Speaker 1: a four ohn K plan or over a lifetime. So
20:33
Speaker 1: when you recognize they're going to happen, and then your
20:37
Speaker 1: question is is spot on? You say, so, what should
20:41
Speaker 1: we do? Well? One, you should you know, on a
20:44
Speaker 1: strategic basis, know what your risk tolerance is and be
20:49
Speaker 1: prepared for. Then test that risk tolerance against your portfolio structure, diversification,
20:56
Speaker 1: your balance to say, am I gonna be able to
20:59
Speaker 1: sleep at night at the ark? It drops fair question
21:03
Speaker 1: and you should know it. And by the way, if
21:05
Speaker 1: you've only been investing in this century, if you've had
21:09
Speaker 1: a chance to test that, how did you think? What
21:12
Speaker 1: did you think about in October of two thousand eight,
21:14
Speaker 1: what did you think about in March of could you
21:17
Speaker 1: not sleep? Etcetera. So you you understand their reality, you
21:21
Speaker 1: prepare structurally in your portfolio and importantly in your mental preparation.
21:29
Speaker 1: Am I going to react or am I going to
21:31
Speaker 1: assume that? In over my time horizon? This is uh
21:37
Speaker 1: in inevitable, an inevitable thing. But it I'm not going
21:41
Speaker 1: to do anything about it. Um And the answer for
21:44
Speaker 1: most people is doing nothing in a bare market. It
21:46
Speaker 1: really is um because most people have a long term
21:50
Speaker 1: time horizon. I was talking to Tim Buckley, who's the
21:52
Speaker 1: CEO Advance Great CEO of Van Guard uh uh, the
21:55
Speaker 1: other day. He said they calculated that by not pay
22:00
Speaker 1: that King, Vanguard investors saved a trillion dollars trillion dollars.
22:06
Speaker 1: And the difference the important thing that gets back to
22:07
Speaker 1: your question on which you consume from an education standpoint
22:11
Speaker 1: or an information standpoint. Fact, when I started at Vanguard,
22:14
Speaker 1: the activity level with small changes in the stocker bond
22:17
Speaker 1: market was frenhetic today, and Vanguard's just a microcosm of
22:22
Speaker 1: the market. More broadly, serious people generally don't panic, and
22:26
Speaker 1: you don't see that at a Vanguard. I assume it's
22:29
Speaker 1: true at a fidelity and the zero price that you
22:31
Speaker 1: don't see panic where before they had a chance to
22:34
Speaker 1: get experience and educated. My generation of baby boomers would react.
22:38
Speaker 1: So do nothing should be your default option during a
22:41
Speaker 1: bearer market. And if you can dollar cost average down
22:47
Speaker 1: even better, but don't pass. It makes a whole lot
22:50
Speaker 1: of sense. So you wrote the first version of the
22:53
Speaker 1: book about twenty years ago? What made you think, Hey,
22:57
Speaker 1: now is the time to update this? Why bringing into
23:01
Speaker 1: the modern era? And who are you hoping actually reads it?
23:06
Speaker 1: So with respect to the why now, a few things
23:10
Speaker 1: I've been asked a lot over the years. Would you
23:12
Speaker 1: would you do another version of this? And? Uh, frankly,
23:17
Speaker 1: the environment is what props it? And if you know,
23:21
Speaker 1: if you take out last March, um, we've been eleven
23:26
Speaker 1: year bull markets. The headlines are you read the headlines
23:31
Speaker 1: about investing and and it's uh, speculation is very prominent. Again,
23:38
Speaker 1: Um the headlines or somebody made a lot of money
23:41
Speaker 1: on game stoff? You don't read a lot about those
23:43
Speaker 1: who get killed and so on and so forth. You're
23:45
Speaker 1: trading is the new thing you can Oh, I saw
23:48
Speaker 1: an ad on TV. You can start a trading account
23:52
Speaker 1: at one firm with as little as five dollars, I
23:55
Speaker 1: must fell out of my chair. So it was catalyst
23:58
Speaker 1: to say, you know what, it feels a lot like
24:00
Speaker 1: when I started writing the first book was just after
24:04
Speaker 1: the as back bubble, but lots of lessons to affirm there,
24:08
Speaker 1: and this one felt like it felt like a good
24:10
Speaker 1: time to do it, so I literally started it right
24:13
Speaker 1: around Frankly, when you may quite pressing call that's said
24:18
Speaker 1: don't assumeable market is over because of the pandemic is
24:21
Speaker 1: right around then we started working on this. The other
24:25
Speaker 1: important part of it, frankly is um uh, A bunch
24:31
Speaker 1: of changed. Importantly that's made this to be a fantastic
24:34
Speaker 1: time to be an investor. You know, give you just
24:41
Speaker 1: give you two examples. One, the advent of the variety
24:50
Speaker 1: of advice choices today at different price points is staggering.
24:56
Speaker 1: It's fantastic. You know, you can buy a robo advice,
24:59
Speaker 1: you get a advice from a robo advisor, a robo
25:01
Speaker 1: advisor plus the human being, or you can have of
25:05
Speaker 1: a wealth manager in a family office and everything in between.
25:09
Speaker 1: But it's all much lower cost than it was twenty
25:11
Speaker 1: years ago. And frankly, there's this whole cohort of people
25:15
Speaker 1: baby boomers who really my own view is need to
25:19
Speaker 1: make a conscious decision to do it yourself in retirement
25:22
Speaker 1: or or find an advisor. And today you can do
25:26
Speaker 1: that in the variety of ways. It's a fantastic thing.
25:28
Speaker 1: We provide advice in the book about how to do
25:30
Speaker 1: that best. The second thing is, um, you know, even
25:35
Speaker 1: twenty years ago, Vanguard was a bit of an anomaly
25:38
Speaker 1: around cost and we preached it and it was a
25:40
Speaker 1: very it's a very important part of the culture. But
25:43
Speaker 1: if you look at the cost of investing, total cost
25:45
Speaker 1: of ownership, if you will, for individuals today, and how
25:49
Speaker 1: it's changed in twenty years, it frees you up with
25:52
Speaker 1: lots of different ways you can think about investing. You know,
25:55
Speaker 1: obvious one being uts and how important they are, how
25:58
Speaker 1: low cost tax efficients, so lots had changed. The market said, um,
26:04
Speaker 1: you know, it's pretty frenzied, and it's not the market necessarily,
26:08
Speaker 1: but the chatter around the market. Um. So it felt
26:11
Speaker 1: like a good time to do it. First book. I
26:14
Speaker 1: wrote in the foreword that I was writing it for
26:17
Speaker 1: my kids who were in their late teens early twenties. UM,
26:20
Speaker 1: and I hope that they and their cohorts would get
26:24
Speaker 1: something from this. Interesting part is how many people now
26:28
Speaker 1: my age shoes that this is just what I needed
26:30
Speaker 1: because it helps me think about my future in a
26:35
Speaker 1: different stage in life. Frank, I hope it's the same
26:38
Speaker 1: Calgary that that gets some value out of this book
26:41
Speaker 1: as well, people who are emerging investors and then people
26:45
Speaker 1: who look and earn a veteran and say, let's go back,
26:47
Speaker 1: let me go back and test how I think about
26:50
Speaker 1: things against this template. Not saying that this is you know,
26:54
Speaker 1: this is true. This is uh, my experience based on
26:58
Speaker 1: lots of exposure to people. But I hope it's kind
27:02
Speaker 1: of hits both those cohorts. The last book that we
27:06
Speaker 1: we still get request from people in other countries to
27:08
Speaker 1: translate the first book, and uh so we've deferred them
27:13
Speaker 1: a bit and we'll have them, uh and we'll we'll
27:15
Speaker 1: get them big translate this one. Let's talk a little
27:18
Speaker 1: bit about some of the lessons you've learned as it
27:21
Speaker 1: applied to which was clearly a crazy year between the
27:28
Speaker 1: rise of robin Hood and Game Stop and all sorts
27:32
Speaker 1: of manias. What do you make of the rise of
27:36
Speaker 1: the retail investors? Have they learned the wrong lessons in
27:40
Speaker 1: or is this just board gambling and when things go
27:44
Speaker 1: back to normal, their investment posture will go back to normal.
27:49
Speaker 1: So my own view is it's just another cycle. Uh,
27:52
Speaker 1: you know that has is no different than you know,
27:55
Speaker 1: when discount broke breage came in in the late eighties,
27:58
Speaker 1: in the late eighties and the at a and was
28:00
Speaker 1: a bowl market and oh boy, I can change trade
28:02
Speaker 1: chiefly now right, Um, you know, it was the dot
28:06
Speaker 1: com phenomenon. At the end of the twentieth century, it
28:09
Speaker 1: was house flipping, right, they were tall and U two
28:12
Speaker 1: thousand six seven. So all of these things are high profile.
28:17
Speaker 1: I would call them fads, not substantism in terms of
28:22
Speaker 1: fundamental changes in the way people should think about or
28:26
Speaker 1: you know, will think about once they get to once
28:30
Speaker 1: they realize that investing is not a game, Frankie, trading
28:34
Speaker 1: is not investing. There there's a business called trading, but
28:37
Speaker 1: it has nothing to do with investing in that sense.
28:39
Speaker 1: So I think it's cyclical. Um, it makes great headlines.
28:45
Speaker 1: It inevitably makes for great hard lessons learned from people.
28:48
Speaker 1: And you know, my hope, frankly, is that people aren't
28:52
Speaker 1: doing this the headline making stuff with the serious money
28:55
Speaker 1: to people, aren't therey I think it's uh, you know,
28:58
Speaker 1: somebody wants to play around at the edges, trading stocks,
29:03
Speaker 1: trading bitcoin, do whatever they want to do. That's fine, um,
29:07
Speaker 1: but serious money needs to be treated seriously and again
29:13
Speaker 1: for any loss as individuals, the idea that we're going
29:16
Speaker 1: to trade our way to wealth is a fool talent,
29:20
Speaker 1: pretty sharp observation. I never imagine for a minute that
29:24
Speaker 1: eight dollar trading was some sort of a speed bump,
29:28
Speaker 1: but it seems like once these apps went to free,
29:32
Speaker 1: suddenly everybody and their brother became a day trader. How
29:36
Speaker 1: much of this behavior is caused by free and and
29:40
Speaker 1: what does it mean? So the young people who are
29:44
Speaker 1: starting out with trading as as entertainment, well that's the
29:49
Speaker 1: interesting phraseology. M Is it entertainment or is it invested? Right?
29:55
Speaker 1: And as long as you think of it as entertainment,
29:58
Speaker 1: you know it's us' is no different than slot machines
30:02
Speaker 1: or going to a casino, but it is not investing.
30:06
Speaker 1: And again I think the question is how and when
30:10
Speaker 1: do you learn that lesson right and free is absolutely
30:14
Speaker 1: a is one of the things that invests this no question.
30:19
Speaker 1: But listen, um, momentum is another part of it. And
30:24
Speaker 1: you know in assent everybody is smart in a momentum
30:27
Speaker 1: market if you're in the right sectors. But momentum investing
30:30
Speaker 1: has never proven to be a long term viable strategy. Right.
30:34
Speaker 1: Substantent value uh is how people make money, So you know,
30:39
Speaker 1: I actually don't worry much about it. Um. It's a
30:42
Speaker 1: classic place right, tune out the noise, looking at the
30:44
Speaker 1: headline and reading it. Uh. And again, I think as
30:47
Speaker 1: long as using your tournament's package is entertainment, it's it's
30:51
Speaker 1: it is what it is. You certainly hope that people
30:56
Speaker 1: won't put trading accounts into four owing K plans where
30:59
Speaker 1: most young people will do their first investing, right, as
31:03
Speaker 1: long as those plans stay in a sensible mode, I
31:07
Speaker 1: think you're going to segregate investment in financial security from
31:11
Speaker 1: entertainment and high profile trading. Interesting, So let me um
31:17
Speaker 1: wax philosophical with you a moment. One of the chapters
31:21
Speaker 1: of the book, you urge investors to define enough for themselves.
31:27
Speaker 1: Explain you're thinking on that, and why do investors need
31:31
Speaker 1: to understand the concept of enough. It's such an important
31:35
Speaker 1: concept because it will determine how much risk you want
31:40
Speaker 1: to or can take in a in a in your
31:45
Speaker 1: investment portfolio. And again, not defining enough plays out tragically
31:53
Speaker 1: in in so many different ways. Either somebody thinks I've
31:57
Speaker 1: done really well, boy, I can do even better, and
32:01
Speaker 1: it's at an inappropriate time or inappropriately executed um and
32:07
Speaker 1: they wake up saying, boy, if I, if I had
32:10
Speaker 1: a million dollars and that's what I needed, perhaps I
32:14
Speaker 1: should have been far more conservative. Just take that as
32:16
Speaker 1: an example, because a million dollars is going to serve
32:19
Speaker 1: me well for the rest of my life, but instead
32:22
Speaker 1: you double down and you end up with half a
32:23
Speaker 1: million bad decisions. Right. Alternatively, somebody say, I have a
32:28
Speaker 1: million dollars, and my time arrives in this perpetual because
32:32
Speaker 1: I'm going to my state is going to go to charity.
32:37
Speaker 1: You know, you have an up and bucket A bucket
32:39
Speaker 1: beak can be a more aggressive portfolio than somebody might
32:42
Speaker 1: recommend view in a certain age, you know five iron
32:46
Speaker 1: plan accounts or a great example of this, where you
32:49
Speaker 1: accumulate money up to a point in time and then
32:52
Speaker 1: the glide path takes it down to a very conservative positioning.
32:56
Speaker 1: When when the kid turns eighteen, because you know there's
32:59
Speaker 1: a time I'm certainly going to need that money. So
33:02
Speaker 1: I think that that that's a metaphor for the way
33:05
Speaker 1: all of us, whether an institution or an individual, should
33:07
Speaker 1: think about assets and how those assets, what those assets
33:13
Speaker 1: need to fund for us. And you've seen some universities
33:16
Speaker 1: make the mistake of being overly aggressive, even when they
33:19
Speaker 1: were particularly well endowed, paying a big price and then
33:22
Speaker 1: playing catch up. And that's that's a shame. That's a
33:25
Speaker 1: shame because that's real money affecting real students ability to
33:29
Speaker 1: go to that university. So I learned this from a wise,
33:33
Speaker 1: older gentleman many many years ago, and I continue to
33:37
Speaker 1: talk to people about it. Uh. And it's a question
33:40
Speaker 1: you should ask yourself regularly because enough may change. It
33:43
Speaker 1: may be greater or less than you thought it was
33:46
Speaker 1: at a different point in time. But it's the perfect
33:49
Speaker 1: time to then reassess your ability to take risk, or
33:51
Speaker 1: your willingness to take risk. It's funny because I know
33:54
Speaker 1: the book was written last year, but as I was,
33:57
Speaker 1: as I was reading that chapter and crossing the headlines
34:02
Speaker 1: was the news about the highly leveraged ARCA ghosts hedge fund.
34:08
Speaker 1: I'm sure I'm pronouncing that wrong. Archigost arca coach who
34:11
Speaker 1: has twenty billion dollars of personal wealth and leverages it
34:16
Speaker 1: to the health to the point where they lose that
34:18
Speaker 1: it's just an astonishing lesson for people that there has
34:24
Speaker 1: to be a line where you say, Okay, I'm good,
34:28
Speaker 1: i may play with a little bit of money here,
34:30
Speaker 1: but I'm gonna pull this twenty billion dollars off the
34:33
Speaker 1: table because it would be horrible if it went to
34:36
Speaker 1: zero in two days, which is what happened. It's absolutely true.
34:41
Speaker 1: And that's as good an example as you can find.
34:46
Speaker 1: And you know somebody will counter with so and so
34:48
Speaker 1: double down, and then they had choice as much money.
34:50
Speaker 1: But that's a bad risk award trade off, right, And
34:54
Speaker 1: but it happens. A lot, happens a lot. You see
34:56
Speaker 1: it with You see it with sophisticated pools of capital.
34:59
Speaker 1: Who makes some their mistakes in endowed places. And it's
35:04
Speaker 1: why again it's a it's a it's a one word
35:07
Speaker 1: investment governor, if you will, Is that word enough? And
35:11
Speaker 1: again that's that's when you think you have enough, then
35:15
Speaker 1: you take it. You make it conscious decision, which fork
35:20
Speaker 1: you want to take in the room. Huh. Yeah, the
35:22
Speaker 1: regret minimization framework is more important than how much alpha
35:27
Speaker 1: you're generating in any given quarter. To say that that
35:29
Speaker 1: that's one of the other. Right. There's a chapter in
35:32
Speaker 1: the book called I'm in Boca, and the very short
35:36
Speaker 1: story is getting Jason's wide from the Wall Street Journal
35:40
Speaker 1: was in Boca. Asked a bunch of people whether they're marked,
35:42
Speaker 1: whether their investment portfolio said I'll perform the market or not,
35:46
Speaker 1: because some said yes, some said no. But the guy
35:49
Speaker 1: he remembers most as the guy say why don't what
35:51
Speaker 1: do I care? I'm in Boca? Classic, Absolutely classic. That's
35:56
Speaker 1: very smart because the only benchmark any one of us
36:00
Speaker 1: as is our goals and objectives. Right, how we did
36:03
Speaker 1: against the S and P or how we did against
36:05
Speaker 1: you know, how Harvard did against Yale and their endowment
36:08
Speaker 1: turns into a headline every year, and it's irrelevant. They
36:11
Speaker 1: have different financial situations. So what is Harvard's what is
36:15
Speaker 1: Harvard's spoke and what is yale spoke? Is much more
36:18
Speaker 1: important than how they did against persons each other, And
36:22
Speaker 1: that that's the critical part of this. Absolutely true. So
36:25
Speaker 1: let's talk a little bit about what's going on in
36:28
Speaker 1: the industry today. And I have to begin with some
36:32
Speaker 1: of the attacks we've seen recently on index thing that
36:37
Speaker 1: it's Marxist, that it's an American, that it's an antitrust violation.
36:42
Speaker 1: What do you think of some of these sort of
36:45
Speaker 1: wacky esoteric attacks on basic passive investment. Well, first, it's um,
36:51
Speaker 1: so you still found it. They just put it that way.
36:53
Speaker 1: You know, there's similar Some of them are the same
36:56
Speaker 1: as came out when A. T and T ran the
36:58
Speaker 1: first index fund and nineteen seventy years sixty nine, or
37:02
Speaker 1: when we came out with the first index neutral fund.
37:05
Speaker 1: It's not American, it's Marxists, etcetera. So you know the
37:09
Speaker 1: data data. Uh, to say that it's anything but a
37:13
Speaker 1: highly successful investment strategy is just plain and correct. So uh.
37:20
Speaker 1: And then the idea that of now the time to
37:22
Speaker 1: be active active, meaning high cost active, is flawed. Um.
37:30
Speaker 1: So the sort of investment arguments are just repeating what's
37:35
Speaker 1: been repeated continually over half century at the stage. UM.
37:40
Speaker 1: You know, some of the other academic ish arguments are
37:42
Speaker 1: just as ill founded. The antitrust idea, UM, the sense
37:47
Speaker 1: that there's too much concentration and voting and so on
37:49
Speaker 1: and so forth. Again, I have a strongly held view,
37:54
Speaker 1: not having anything to do with my former role of
37:58
Speaker 1: van guard, that the day the index fund's own half
38:02
Speaker 1: the stock and companies and there'll be more providers who
38:05
Speaker 1: are in that half the stock ownership is going to
38:08
Speaker 1: be a great day for the markets, because ceo s
38:11
Speaker 1: will have and companies will have permanent shareholders who will
38:16
Speaker 1: be interested in strategy, not the next two week sales points.
38:20
Speaker 1: And I think it will free companies up to think
38:23
Speaker 1: long term, in away that they aren't totally able to
38:28
Speaker 1: do today right, and so to be somehow promoting a
38:34
Speaker 1: myth that indexing is anti competitive, or indexing is bad
38:37
Speaker 1: for markets, or indexing is a bad investment strategy is
38:43
Speaker 1: just flood logic and wishful thinking. The critics don't say
38:47
Speaker 1: it's a bad investing strategy because the data overwhelms them,
38:50
Speaker 1: so they're they're forced to fall back to things like
38:54
Speaker 1: voting rights or any trust. If it was a bad
38:57
Speaker 1: investing strategy, I think the market it would resolve that.
39:02
Speaker 1: But I'm kind of intrigued about your point of Are
39:06
Speaker 1: you suggesting once half of the ownership of US public
39:12
Speaker 1: companies are held by indexes. Company management are then free
39:17
Speaker 1: to focus on the long term instead of the next
39:20
Speaker 1: quarters earnings. That would be my perspective. Yeah, actually because um,
39:25
Speaker 1: you know, uh, Wall Streets it does great research, but
39:30
Speaker 1: they get paid for activity. And what you want as
39:34
Speaker 1: a owner of if you're a permanent holder of a company,
39:38
Speaker 1: as you want companies to build great businesses, not to
39:42
Speaker 1: facilitate activity. And so if you can have you know,
39:46
Speaker 1: we always be people buying and sowing your stocks, it
39:49
Speaker 1: will be plenty of transparency and liquidity and market clearing
39:54
Speaker 1: exercises to value the company. But uh, the idea that
40:00
Speaker 1: I can talk to seven or eight or nine permanent
40:03
Speaker 1: shareholders if you will, about strategic choices, whether it's in
40:07
Speaker 1: a crisis like a year ago or it's long term,
40:11
Speaker 1: I think we'll give manage the good, the best management
40:15
Speaker 1: even more confident. There's confidence to think long term. I
40:19
Speaker 1: think it's a very important thing. And you look at
40:22
Speaker 1: you know, controlled companies or you look at private equity
40:26
Speaker 1: backed companies. You know, depending on the structure and private companies, um,
40:31
Speaker 1: you know, they can behave differently and sometimes it's at
40:34
Speaker 1: the margin, but sometimes it's core. Strategic choices that they
40:37
Speaker 1: can make, and so I believe they will. The markets
40:42
Speaker 1: will be advantaged by companies being able to think in
40:46
Speaker 1: a way where today there's there's just so much noise
40:50
Speaker 1: in the system for them. So let me switch gears
40:53
Speaker 1: on you and ask you about the classic portfolio. We're
40:59
Speaker 1: now seeing the lowest yield we've ever seen on that
41:03
Speaker 1: mix of stocks and bonds. What do you make of that?
41:07
Speaker 1: And are there any viable alternatives to traditional fixed income investment?
41:14
Speaker 1: So you know, I think is challenged Barry right now
41:19
Speaker 1: as a matter of strategy because of going lowgoing and yields.
41:24
Speaker 1: What's likely to be at the engineer view positive correlation
41:28
Speaker 1: to stocks at these low levels? Right um? And so
41:34
Speaker 1: uh I encourage and we encourage people in the book
41:38
Speaker 1: to think hard about alternatives that The last chapter in
41:41
Speaker 1: this book is called where do my income go? You know,
41:44
Speaker 1: your income from short term cash reservices down four or
41:48
Speaker 1: five years for intermediate, for ten year treasury attent, sixty year,
41:52
Speaker 1: seventy over that same period. And so you come back
41:56
Speaker 1: and I think it's important for investors to take a
41:59
Speaker 1: step back and a if I've got a time horizon
42:02
Speaker 1: of some uh duration, not next week, or next year
42:06
Speaker 1: or four or five years from now. You know, there
42:09
Speaker 1: are fabulous companies and portfolios of companies that yield the
42:15
Speaker 1: same as a tenure treasurer. And am I what I
42:19
Speaker 1: should I be willing to take equity more equity risk,
42:24
Speaker 1: get the same income with a call option on growth
42:29
Speaker 1: by helping my equity exposure today because for the foreseeable future,
42:37
Speaker 1: the traditional role of bonds is going to be unlikely
42:41
Speaker 1: to play out the way it has over very long
42:44
Speaker 1: periods of time. And the question is when do we
42:46
Speaker 1: get out of this very low yield period. I don't
42:49
Speaker 1: see many very valuable options alternatives to to traditional fixed
42:56
Speaker 1: income assets. Frankly, you know it's certainly not how yell bonds,
43:00
Speaker 1: which is a misnomer today. You know you've played through.
43:03
Speaker 1: You know there are segments of the equity markets, whether
43:05
Speaker 1: it's reachs or something else, that offer a good yield.
43:09
Speaker 1: But it feels strange to say it's in the midst
43:12
Speaker 1: of the long bowl market. But my own sense is
43:15
Speaker 1: that people with any kind of time horizon should be
43:18
Speaker 1: thinking about income being generated by stocks, because you know,
43:22
Speaker 1: over time, the diven end growth of a vertisfied portfolio
43:26
Speaker 1: of stocks is far out, how far outplaced outpaced inflation.
43:31
Speaker 1: And if all you get is that income growth, you've
43:34
Speaker 1: done well. If you get capuality growth to go with it,
43:37
Speaker 1: it's it's a good trade to take that incremental equity
43:40
Speaker 1: risk today because of the unique period of time or
43:43
Speaker 1: really unique you know, if you if you look back,
43:45
Speaker 1: it's a seven hundred year bull market and box if
43:49
Speaker 1: you look at some charts from England, but that that
43:52
Speaker 1: is seventy year bull market in the United States, and so, uh,
43:57
Speaker 1: fixed income doesn't look very attractive, right. I think we
44:00
Speaker 1: reached the same conclusion you did. If if you're young enough,
44:03
Speaker 1: seventy thirty or eighty twenty makes much more sense than
44:07
Speaker 1: sixty forty. But the caveat is, hey, if you're in
44:11
Speaker 1: your sixties or if you're a few years away from retirement,
44:15
Speaker 1: that additional risk isn't worth the additional return because as
44:20
Speaker 1: we see all two regularly corrections. You know, those hundred
44:26
Speaker 1: year floods come along every ten years. We we probably
44:28
Speaker 1: need to rename the hundred year floods. Yeah, it's true,
44:32
Speaker 1: but um, the one factor you don't have in that
44:36
Speaker 1: in that equation is what are you drawing off your
44:38
Speaker 1: assets okay, And so the best thing you can do
44:42
Speaker 1: is draw as little as possible from your assets. It
44:44
Speaker 1: allows you to take more risk with your assets. Makes sense,
44:47
Speaker 1: And so that you know when people ask me my
44:50
Speaker 1: best financial advice, I see a little below your means.
44:52
Speaker 1: They want something sophisticated. That's what I give them. And
44:56
Speaker 1: I think it's very important today to say you know
44:59
Speaker 1: that for five draw is too much likely from retirement portfolio.
45:05
Speaker 1: Can you live on three? And if you can't live
45:07
Speaker 1: on three, you can probably take some more capital risk, uh,
45:12
Speaker 1: to to make those assets grow and endure in real
45:15
Speaker 1: terms for the longer term, especially given longer lifespans. That's
45:20
Speaker 1: another fact I think I have. I'll be sixty seven
45:24
Speaker 1: and a couple of months, I think I have a
45:25
Speaker 1: third year time harress. Well, that's family's life legacy is
45:29
Speaker 1: pretty good, long longevity. But that's the way I think
45:32
Speaker 1: about things. And I think most people at sixty seven
45:35
Speaker 1: should be thinking twenty years. It's that's a long time,
45:38
Speaker 1: that's long term. But gets you're spending, get the spend.
45:42
Speaker 1: The outgo part of this correct is a critical part
45:44
Speaker 1: for individuals. It's also critical part for institutions, critical parts
45:48
Speaker 1: for institutions, lower your expectations and then live within those.
45:52
Speaker 1: Hey man, so we're talking about yield, let's look at
45:55
Speaker 1: the flip side of that. What do you make of
45:57
Speaker 1: all the inflation chatter these days? Do you think that's
46:01
Speaker 1: a viable risk to portfolios? And and how much of
46:05
Speaker 1: this is just transitory noise? So I have to say
46:09
Speaker 1: I am a child of inflation. Of the video, I
46:11
Speaker 1: came out of college in nineteen seventy six sin stag
46:13
Speaker 1: inflation lived through the next five or six years before
46:17
Speaker 1: Chairman Bulker, you know, took it on. So I actually
46:21
Speaker 1: have a sort of inherent worry about it, and I
46:25
Speaker 1: do think it's real. I think, you know, I don't
46:27
Speaker 1: believe in modern monetary theory. I think the question of
46:33
Speaker 1: how much money you can pump into the system is
46:37
Speaker 1: a really important one. And I don't think we're going
46:40
Speaker 1: back to the late sixties, early at the late seventies
46:42
Speaker 1: early eighties from an inflation standpoint. But we've had thirty
46:47
Speaker 1: years of minimal inflation, and I think the noise for
46:51
Speaker 1: me is valuable because even if it's proved to be wrong,
46:54
Speaker 1: it educates people to think about it. But I talked
46:58
Speaker 1: I counsel people to fact or some inflation into their
47:02
Speaker 1: own financial planning in a way that we have experienced
47:05
Speaker 1: in thirty years. I hope I'm wrong. I hope I'm wrong,
47:08
Speaker 1: But my economics training tells me, UH, be wary of
47:15
Speaker 1: too much liquidity in a system and UH and the
47:20
Speaker 1: pressure on prices and whether globalization can offset it again
47:24
Speaker 1: like it has in the past, whether technology can offset
47:26
Speaker 1: it fair question, but I would worry more about it
47:30
Speaker 1: for the next fifteen years than it than it's been
47:33
Speaker 1: relevant in the prior fifteen years. Quite interesting. Let's talk
47:37
Speaker 1: a little bit about what's going on in the industry
47:39
Speaker 1: in general. We saw a massive purchase pretty recently Schwab
47:45
Speaker 1: took over t DU merit Trade. That's had a big
47:48
Speaker 1: impact on the industry. We've seen a variety of other
47:54
Speaker 1: mergers and acquisitions between big companies and smaller fin techs
47:58
Speaker 1: between other big Panese What are your thoughts on on these,
48:03
Speaker 1: especially given Vanguard's history of not really playing in those waters.
48:10
Speaker 1: So it's one of the great assets to the investing
48:14
Speaker 1: public in my view, is the tremendous sense of competition
48:17
Speaker 1: for all segments of our business. Right um, and if
48:22
Speaker 1: you just look over time, whether it's the active management business,
48:26
Speaker 1: the brokerage business, the advice business, UM. The inherent entrepreneurism
48:31
Speaker 1: creates new competitors, whether they're fin techs or whether it's
48:34
Speaker 1: your firm. Seven years ago in the advice space, UM,
48:38
Speaker 1: you know, Swab and America came together, big impact on
48:42
Speaker 1: the financial advisor community. Scale for the for the firm UM.
48:46
Speaker 1: But you know, in the grand scheme of thing, none
48:49
Speaker 1: of us is that big a player, interestingly when you
48:52
Speaker 1: think about it. So I think we'll continue to watch.
48:55
Speaker 1: We'll see certain areas where scale really matters a lot.
48:59
Speaker 1: You know, index on management very important in that regard.
49:02
Speaker 1: But there'll be continual growth in boutique advisory firms, boutique
49:07
Speaker 1: investment management firms. And I think that's one of the
49:10
Speaker 1: great parts of the business is the dynamism of the
49:13
Speaker 1: business just forces every firm in a trench position to
49:19
Speaker 1: get better. And so whenever I see deals like this happened,
49:24
Speaker 1: I think it's good for the investing public. At the
49:26
Speaker 1: end of the day, I do think that, Uh, you know,
49:31
Speaker 1: obviously I'm a huge fan of agard. Organic growth is
49:34
Speaker 1: always better than an or growth and because you do
49:37
Speaker 1: it culturally you don't have integration challenges. And so to
49:40
Speaker 1: see what Vanguard has accomplished, I think it's attributed in
49:43
Speaker 1: the market says we like that that strategy mean something
49:48
Speaker 1: appropriate couldn't be bolted onto the firm. But you know,
49:52
Speaker 1: so there will be different ways of building businesses UH
49:57
Speaker 1: in the business. But sort of directly, my own view
50:01
Speaker 1: is it's all good because nobody in this space should
50:05
Speaker 1: be worried about monopoly power because it's just not there
50:08
Speaker 1: is anybody with enough in this relatively fragmented business to
50:13
Speaker 1: create monopoly power. So it just enhances competition. So let's
50:18
Speaker 1: talk about one of the small boutiques that are out there.
50:20
Speaker 1: You join the board of Rockefeller Capital Management, even though
50:25
Speaker 1: the company itself has been around a while, obviously a
50:30
Speaker 1: very different animal than the giant Vanguard Group. What motivated
50:35
Speaker 1: you to work with a smaller firm and what's that
50:38
Speaker 1: experience like compared to you know, the behemoth that's Vanguard Group. Well,
50:43
Speaker 1: and it's it's been a great experience. Let me just
50:46
Speaker 1: say that right off. The bad Rock Start family has
50:48
Speaker 1: been tremendous part of this three years journey, the UH
50:54
Speaker 1: back biking, the backing firm has, but Greg Flemming has
50:57
Speaker 1: put together a tremendous leadership team deeply focused on providing
51:03
Speaker 1: advice to high network families and very much and in
51:09
Speaker 1: that complementary in some ways to the wave of Angerant
51:12
Speaker 1: does its business UM and so they're very focused on
51:17
Speaker 1: in a sense, doing one thing while providing advice. Rocktal
51:20
Speaker 1: Asset Management provides is a niche specialist in UH E
51:24
Speaker 1: s G investing and the family office and the private
51:27
Speaker 1: wealth management businesses at Rockefeller are deeply focused on their
51:32
Speaker 1: in a sense small niches, but they want to be
51:36
Speaker 1: as deep as anyone is expert as anyone in those
51:39
Speaker 1: uh in those channels, and so it's about a lot
51:42
Speaker 1: of fun, been tremendous to watch UH great lead this
51:47
Speaker 1: business and kind of peoplely suttract the clients who have
51:51
Speaker 1: UH less generally much larger brokerage house based advisory business
51:58
Speaker 1: to come to Rockefeller Capital. And so far it's been
52:02
Speaker 1: a terrific success story. UH thoroughly enjoyed it, UH frankly
52:07
Speaker 1: because it's very different than where I spent my professional
52:10
Speaker 1: life at Vanguard prior to that. So it's fun to
52:14
Speaker 1: watch and more to come. And let's talk about another board.
52:17
Speaker 1: You're you're the chairman of Notre Dame's Board of trustees.
52:21
Speaker 1: What's that experience like and how involved are you with
52:25
Speaker 1: the Notre Dame endowment? So when I first came on
52:29
Speaker 1: the board, I went on the investment committee, as you
52:31
Speaker 1: might imagine, And we've had a tremendously successful endowment management
52:34
Speaker 1: uh operation there man named Scott Malpass letter for thirty
52:39
Speaker 1: issue years. Might Donovan now once it today, I would say,
52:43
Speaker 1: and the record has been outstanding um over time because
52:49
Speaker 1: they followed the principles of patients and research and and
52:52
Speaker 1: and and so on. So that was a gratifying way
52:55
Speaker 1: to get to know Notre Dame. Being the board chair
52:58
Speaker 1: as a tremendous honor. They have a standing leadership team
53:03
Speaker 1: top to bottom through you know, lots of challenging times.
53:07
Speaker 1: You know, the pandemic. This has been as big as
53:10
Speaker 1: challenge for higher education as anything in a century really
53:16
Speaker 1: in many ways, and you know, uh, we decided to
53:20
Speaker 1: be open within person classes. We decided last May, made
53:25
Speaker 1: it happen, delivered eighty five percent of our classes in person,
53:28
Speaker 1: invited all the students back to campus for both semesters.
53:31
Speaker 1: So it's been tremendously gratifying. You know, my kids are
53:34
Speaker 1: all noted name grats, so it's it's a privilege to
53:36
Speaker 1: serve the place that affected our family so positively. But
53:41
Speaker 1: it's been a great experience frankly to learn another business
53:43
Speaker 1: as well, try to bring some capabilities, as does our board.
53:47
Speaker 1: We have a wonderful board of trustees with diverse backgrounds
53:50
Speaker 1: and diverse experiences, so you see the value of that
53:53
Speaker 1: outside and view look from from a board of trustees,
53:58
Speaker 1: but at the board chair you're more deeply involved and
54:01
Speaker 1: learning a lot about what is a critically important business
54:04
Speaker 1: of this country and a very successful entering in that
54:07
Speaker 1: business and Notre Dame. So it's been one of the
54:10
Speaker 1: highlights of my professional career frankly. Quite interesting. I know
54:14
Speaker 1: we only had we made we made the football playoffs,
54:17
Speaker 1: which is always a good thing, that's right, And they
54:18
Speaker 1: actually did a pretty good job of maintaining a healthy
54:23
Speaker 1: team and staff in a in a period where a
54:27
Speaker 1: lot of colleges were having a hard time not having
54:31
Speaker 1: half the team catch COVID. Well, you see these student
54:36
Speaker 1: athletes and cross the board, um and we could very
54:40
Speaker 1: good results. But it tells you a lot about the
54:42
Speaker 1: character of the kids and coaches, and our our coaches
54:44
Speaker 1: that notre dame. They will tell you first and foremost
54:46
Speaker 1: their educators. They want to win on the field for
54:50
Speaker 1: their educators, and they have tried to build strong cultures
54:54
Speaker 1: in their programs and from the top down. Or athletic
54:57
Speaker 1: director Jack Schaubert is a big proponent of culture. And
55:02
Speaker 1: to watch these kids what they sacrificed. You know, they
55:04
Speaker 1: sacrifice being a college kid at some level right to
55:07
Speaker 1: avoid getting COVID and across the board with our teams,
55:10
Speaker 1: it's been a great outcome. So I never been proud
55:13
Speaker 1: of the student athletes, the coaches, and the people involved
55:16
Speaker 1: in athletics, but the student body broadly as well. Uh
55:19
Speaker 1: the way they've handled adversity. You know, sometimes college kids
55:23
Speaker 1: get a bad rap. They don't deserve it. They're tremendous
55:26
Speaker 1: young people and you're just proud to be able to
55:28
Speaker 1: try to help them a little bit in a role
55:30
Speaker 1: like being a TRUSTe or of board chair. So I
55:33
Speaker 1: only have you for a few more minutes. Let me
55:35
Speaker 1: jump to my favorite questions that I ask all of
55:37
Speaker 1: my guests, starting with what are you streaming these days?
55:41
Speaker 1: Give us your favorite Netflix or Amazon prime shows or
55:44
Speaker 1: what podcasts you're listening to. But we seem to have
55:47
Speaker 1: become my wife and I seem to become tremendous fans
55:51
Speaker 1: of British cops shows. You know, things like d c
55:54
Speaker 1: I Banks are endeavor prime suspects. So that's if you
55:59
Speaker 1: looked at our Amazon on her Netflix accounts, you'd see
56:02
Speaker 1: a lot of those um uh podcasts. No kidding and
56:07
Speaker 1: apologize for this. Masters and Business is one that's a
56:11
Speaker 1: regular weekly listen. I have to say thank you for
56:13
Speaker 1: doing it. Freakingomics is another one I find very interesting
56:17
Speaker 1: that gives you a different point of view and and
56:21
Speaker 1: you can't live without Wait Weight don't tell me, which
56:23
Speaker 1: is not as good without the audience, but it's still
56:25
Speaker 1: a great way to spend a Usually I listened to
56:28
Speaker 1: it Sunday after Saturday afternoon after it's on the radio
56:31
Speaker 1: on Saturday morning where I am. But I've been a
56:33
Speaker 1: lot of a lot more TV watching Turn the Pandemic
56:36
Speaker 1: than there has been in the prior forty years of
56:38
Speaker 1: our marriage. I can assure you, I'm glad to hear
56:40
Speaker 1: I'm not the only one suffering through an excess of television.
56:45
Speaker 1: And thank you for the kind words about about the show.
56:48
Speaker 1: Let's talk a little bit about mentors who helped shape
56:52
Speaker 1: your career. Talking about Jack, obviously, that was a great
56:56
Speaker 1: privilege to to uh to work with him and and
57:00
Speaker 1: a ton from him. I had the great fortune of
57:03
Speaker 1: having a father who was one of these great American
57:06
Speaker 1: success stories. You know. His father was a ditch digger
57:09
Speaker 1: and then got a good job as a janitor and
57:13
Speaker 1: he ended up as the chairman CEO and built a
57:16
Speaker 1: great bank in Boston and started as a mutual savings bank,
57:19
Speaker 1: became a public company, and you know snow days, you
57:22
Speaker 1: get the day off. He'd said, come on getting the car,
57:24
Speaker 1: we're going to the office. But I grew up in
57:27
Speaker 1: Boston and he would stand at the front door and
57:29
Speaker 1: greet everybody who made it in on a snow day
57:32
Speaker 1: to the bank and thank them for coming. It's those
57:35
Speaker 1: kind of lessons that you can't make up. And so
57:39
Speaker 1: um that that was a sixties something, I guess, a
57:43
Speaker 1: fifty something year mentorship that was tremendous and one of
57:47
Speaker 1: what I just call out. You know, my first boss
57:49
Speaker 1: out of college, guy Nam Bill McKenna, then Eric Bank
57:51
Speaker 1: for Savings a similar story. Actually, um, very blue collar background,
57:57
Speaker 1: the president of a bank, and he probably it was
58:00
Speaker 1: like to be a businessman at twenty one years old,
58:03
Speaker 1: you know, and he hard feedback, great feedback. I still
58:08
Speaker 1: consider him a great friend forty five years later, So
58:11
Speaker 1: how good is that? And there's tons of others, but
58:13
Speaker 1: those three when I always think about how they affected
58:17
Speaker 1: my life, you know, in from different periods of time.
58:20
Speaker 1: But what a gift, right and you do it. I
58:24
Speaker 1: hope I've been able to try to pay it back
58:26
Speaker 1: a little bit by mentoring some other people. And you
58:29
Speaker 1: hope somebody names you somewhere along the way. Tell us
58:31
Speaker 1: about some of your favorite books. What are you reading
58:34
Speaker 1: right now? Well? I love historical biographies. He's funny. My
58:37
Speaker 1: wife reads fiction all the time that I have read
58:39
Speaker 1: a fiction book in twenty years. So I love historical biographies.
58:44
Speaker 1: I feel like it stills in the gaps of what
58:46
Speaker 1: I didn't learn. Uh, I didn't learn in high school
58:49
Speaker 1: or college, you know. So you know, always loved and
58:52
Speaker 1: I love leaders, interesting leaders, you know. Doris Current's good
58:56
Speaker 1: with Current Scotland's book Bully Pulpit about Teddy Roosevelt. Uh,
59:00
Speaker 1: The Splendor and the Vine about about Churchill. Right now,
59:05
Speaker 1: I'm reading long biography by Andrew Roberts about Napoleon and
59:11
Speaker 1: learning a ton what an unbelievable what an what an
59:16
Speaker 1: unbelievable life? That is that much more so than I
59:20
Speaker 1: ever knew. So I find those as two firs. You
59:22
Speaker 1: learned about an interesting person. You also learn about the history,
59:26
Speaker 1: but you've got to pepper up with some other things.
59:27
Speaker 1: One of the ones I've read recently that's great is
59:31
Speaker 1: uh it's called The World Beneath Our Feet, and it's
59:34
Speaker 1: about the race to climb out effort, and you learn
59:37
Speaker 1: about geopolitical issues that So I probably don't read enough
59:42
Speaker 1: for fun. I read to try to fill in the
59:44
Speaker 1: holes in my knowledge base more than anything. But there's
59:48
Speaker 1: nothing better than sitting down for two hours with a
59:50
Speaker 1: great book, is there? No, not at all. What sort
59:53
Speaker 1: of advice would you give to a recent college grad
59:56
Speaker 1: who was interested in a career in investment management or
1:00:01
Speaker 1: investment advisory? Do it? It's a great profession. It's it's
1:00:07
Speaker 1: it really is a great profession. You're you know, our
1:00:09
Speaker 1: business is one that's so interesting because it changes every minute,
1:00:13
Speaker 1: every hour, every day. There's something in the newspaper that's
1:00:16
Speaker 1: going to affect your business and your clients. So for me,
1:00:22
Speaker 1: I don't think enough people go into investment advisory frankly,
1:00:26
Speaker 1: and I hope more and more will because there is
1:00:30
Speaker 1: a big demand for it. It's very gratifying. Uh, it's
1:00:34
Speaker 1: constantly changing. As I said, Uh, and you can you
1:00:40
Speaker 1: can really do well for yourself while doing good for
1:00:44
Speaker 1: your clients. That's a great combo. Last piece, I always
1:00:47
Speaker 1: tell people find a great firm, find a great firm,
1:00:50
Speaker 1: and if you're lucky enough, find a great mentor and
1:00:52
Speaker 1: a great firm to help you accelerate your learning as
1:00:57
Speaker 1: you move along. So I'm very bullish on the industry
1:01:02
Speaker 1: I was in, very bullish and the industry you're in.
1:01:05
Speaker 1: I think they each have tremendous psychic gratifications as well
1:01:11
Speaker 1: as financial awards for people. So I'm pitching them all
1:01:15
Speaker 1: the time to people. Really interesting and our final question,
1:01:19
Speaker 1: what do you know about the world of investing today
1:01:22
Speaker 1: that you wish you knew thirty or forty years ago
1:01:25
Speaker 1: when you were first getting started? You know, in a sense,
1:01:28
Speaker 1: I think I knew that to produce differentiative results, you
1:01:32
Speaker 1: really had to be very different from the market. Um.
1:01:37
Speaker 1: But I obviously know that a lot more soundly today
1:01:40
Speaker 1: the statistics, but more more valuably the experience. Um. You know,
1:01:45
Speaker 1: one of my sons runs a long only investment firm,
1:01:49
Speaker 1: and his diversified fund has fourteen stocks and his non
1:01:53
Speaker 1: diverse fund has not has fund as nine. Wow. And
1:01:57
Speaker 1: I wouldn't have him invest not that he asked me,
1:02:00
Speaker 1: but I wouldn't have him invest in any other way
1:02:04
Speaker 1: because otherwise, if he's going to give you a beta
1:02:07
Speaker 1: in our square by our total stock market fund, right,
1:02:13
Speaker 1: And and the differentiation between being willing to be wrong
1:02:18
Speaker 1: and take risk is the only way you're going to
1:02:20
Speaker 1: deliver results that are differentiated and valuable to people, because
1:02:27
Speaker 1: the alternative is not hypothetical any longer. The alternative you
1:02:31
Speaker 1: can invest any way you want in an indexed portfolio,
1:02:34
Speaker 1: So that that that it's an affirmation of what I
1:02:38
Speaker 1: learned early in my career from some tremendously successful portfolio managers.
1:02:43
Speaker 1: But I wish I was as sure of that thirty
1:02:46
Speaker 1: years ago him today. Quite fascinating. Jack, thank you for
1:02:50
Speaker 1: being so generous with your time. We have been speaking
1:02:54
Speaker 1: to Jack Brennan. He is the former CEO and chairman
1:02:58
Speaker 1: of Investing John and the Vanguard Group If you enjoy
1:03:03
Speaker 1: this conversation, well, be sure and check out any of
1:03:06
Speaker 1: our previous four hundred such discussions. You could find those
1:03:10
Speaker 1: at iTunes, Spotify, wherever you feed your podcast fix. We
1:03:15
Speaker 1: love your comments, feedback and suggestions right to us at
1:03:19
Speaker 1: m IB podcast at Bloomberg dot net. Sign up for
1:03:23
Speaker 1: my daily reads at Rid Halts dot com. Check out
1:03:26
Speaker 1: my weekly column at Bloomberg dot com slash Opinion. You
1:03:30
Speaker 1: can follow me on Twitter at Rid Halts. I would
1:03:33
Speaker 1: be remiss if I did not thank our crack team
1:03:35
Speaker 1: that helps put this conversation together each week. Tim Harrow
1:03:40
Speaker 1: is my audio engineer. Attica val Bron is my project manager.
1:03:45
Speaker 1: Michael Boyle is my producer. Michael Batnick is my head
1:03:48
Speaker 1: of research. I'm Barry Hults. You've been listening to Master's
1:03:53
Speaker 1: in Business on Bloomberg Radio.