Bogleheads® Conference 2014 - John Bogle Keynote Part 1
Chapters
0:08:53 Dedication
11:34 Vanguard's History
30:59 Story of Vanguard
00:00:00.000 | [BLANK_AUDIO]
00:00:07.120 | >> [LAUGH] >> So I won't bother introducing myself.
00:00:14.000 | First thing I wanna say, a very important thing.
00:00:16.720 | We wouldn't be together if it weren't for Taylor Lambert.
00:00:20.040 | He's not here with us.
00:00:21.840 | I don't know if he's gonna tune in or whether Rich will get him on one of his
00:00:25.980 | videos.
00:00:26.520 | But Taylor, we wish you the best.
00:00:29.880 | We constantly hope you'll be able to get yourself together and
00:00:32.600 | get back here another year.
00:00:34.560 | But a lot of what I'm saying is dedicated to you and
00:00:37.360 | the inspiration that you gave me.
00:00:39.680 | That said, I wanna start off by saying we're talking a little bit about books.
00:00:46.760 | I worked with the great Bill Bernstein, Dr. Bernstein, here this morning.
00:00:50.600 | And he did something that was kind of mean-spirited.
00:00:53.800 | >> [LAUGH] >> The book Vogel on Mutual Funds has
00:00:58.200 | been the number one book on Amazon since the day it was published,
00:01:03.240 | seven and a half years ago, and it continues to be the number one book today.
00:01:08.220 | It's amazing, I don't know any other book in any category that has that sustained
00:01:13.000 | kind of leadership for seven and a half, going on eight years.
00:01:18.120 | Applause, so that's common sense.
00:01:19.960 | It's a little book, but it's the one that does so well.
00:01:22.200 | That's number two, by the way.
00:01:23.360 | >> [LAUGH] >> So Amazon's a good guy,
00:01:28.000 | I think it's as good as any.
00:01:29.560 | A lot of volume goes on there, probably 40% of the books sold in America, maybe 50.
00:01:34.840 | But it's a pretty good test, and obviously I'm pleased with that.
00:01:37.360 | But Bill, darn him, brings out a book on Materna, Are You Ready?
00:01:42.520 | I think it's called.
00:01:43.520 | It's a great book, it's a short book.
00:01:46.200 | He gives it away, he's number one.
00:01:49.000 | >> [LAUGH] >> Don't do that to me.
00:01:51.520 | >> [LAUGH] >> Not a mini Vanguard there, man.
00:01:54.600 | >> [LAUGH] >> Cutting costs all over the place.
00:01:58.320 | But in any event, I think everybody that exists now owns Bill's book, so
00:02:02.000 | I can come back to number one again.
00:02:04.920 | I do want to concede that on the mutual fund list
00:02:10.280 | at Amazon is not in the same genre
00:02:14.640 | as, say, Fifty Shades of Grey.
00:02:19.280 | >> [LAUGH] >> Now, you shouldn't have read that.
00:02:24.520 | >> [LAUGH] >> You must know what's in it when you're
00:02:28.000 | laughing.
00:02:28.720 | >> [LAUGH] >> But in any event,
00:02:31.640 | it's been great to see those books do so well.
00:02:34.920 | And they're three of my books of the most wished for books on Amazon.
00:02:39.480 | And still selling, and I think it ranks in all books.
00:02:43.240 | Obviously, not number one, but maybe number 2,500 or 3,000.
00:02:48.120 | And they have, I think it's 5 million books on Amazon.
00:02:54.680 | So it's pretty good, and it's an awful lot of fun to have done that.
00:03:00.960 | And to have it work out so very well with the acceptance of shareholders.
00:03:04.760 | There are two more books coming out, even though I promised my wife.
00:03:10.000 | >> [LAUGH] >> I probably told you earlier I wouldn't
00:03:12.000 | write anymore.
00:03:13.080 | These aren't real books, but we're gonna give you,
00:03:15.720 | with your loyalty to being here today, we're gonna give you copies of each of them.
00:03:19.640 | And they're out there, but we don't actually have them now.
00:03:22.640 | You should all be reading them.
00:03:23.480 | >> [LAUGH] >> And one is a very short one,
00:03:27.480 | more of a pamphlet than a book, called The Man in the Arena.
00:03:31.520 | And it's the transcript of a follow-up to the Legacy Forum.
00:03:37.680 | They had a 60-year legacy party they had with me at the Museum of Finance in New
00:03:41.160 | York, and we had four really distinguished people who took a day off.
00:03:49.140 | And basically, they come to New York and talk about me.
00:03:54.080 | It seems kind of amazing to me, I'm sure it seems kind of amazing to you.
00:03:57.680 | >> [LAUGH] >> It was Alan Blinder,
00:04:00.400 | Professor from Princeton, Head of the Center for Economic Studies,
00:04:04.080 | Center for Economic Policy Studies.
00:04:06.360 | Professor there for many years.
00:04:08.520 | Former head of the Vice Chairman of the Federal Reserve Board.
00:04:11.480 | Frequent contributor to the Wall Street Journal regular,
00:04:13.960 | contributor to the Wall Street Journal.
00:04:15.920 | We had Cliff Asness, a hedge fund manager,
00:04:18.640 | probably the biggest group of hedge funds in America, who had a little side story.
00:04:24.520 | He tells this story in The Man in the Arena, in this transcript.
00:04:28.440 | He says he has a license plate on his car that says WWJD.
00:04:34.320 | And someone says, wait a minute, Cliff.
00:04:36.840 | Aren't you like a Jewish?
00:04:38.560 | What is Jesus doing there?
00:04:40.280 | And he said, no, it's not Jesus, it's what would Jack do?
00:04:43.360 | >> [LAUGH] >> He's got a great sense of humor.
00:04:49.600 | >> [LAUGH] >> And the third one was Jim Grant,
00:04:52.600 | the editor of Grant's Interest Rate Observer.
00:04:55.520 | A brilliant writer, not just about financial stuff, but
00:04:58.480 | many other things, he's got a biography of John Adams.
00:05:01.440 | Biography of the Speaker of the House of many, many years ago.
00:05:05.880 | And he was there, and his thing was about Bizzaro Vogel.
00:05:11.680 | Do you all, are you familiar with Bizzaro?
00:05:13.640 | Anybody here?
00:05:15.280 | Well, Bizzaro is the anti-superman.
00:05:17.800 | They used to talk about him on Seinfeld, and I had never read it.
00:05:21.920 | Never watched Seinfeld, but he's the exact opposite of who he's supposed to be.
00:05:28.000 | So Jim Grant's thing is a little riff on me and
00:05:31.840 | following a different career for different reasons.
00:05:36.720 | And my career is such that my son decided, my career's a hedge fund manager.
00:05:43.760 | Bizzaro, the opposite of what I do, and it was superseded.
00:05:47.760 | My son then thought, that's not the right way to run a business, so
00:05:51.400 | my son started the first index fund.
00:05:53.040 | >> [LAUGH] >> And his last line was something like,
00:05:56.240 | whatever the case, it's all about the money.
00:05:57.840 | >> [LAUGH] >> And the final one was Dick Silla,
00:06:03.040 | a professor of finance and basic corporate history at NYU.
00:06:10.160 | And he compared me with, I hate to tell you this, but it's silly,
00:06:14.800 | but it's nice, with Alexander Hamilton.
00:06:18.680 | And I think I came off well in comparison.
00:06:20.840 | >> [LAUGH] >> But that's in the man of the arena.
00:06:25.040 | And then I was like this, and thanks to Mike Nolan,
00:06:29.280 | my wonderful assistant, who's here somewhere over there, we self-published.
00:06:35.680 | You know selfies, well, this is a selfie.
00:06:38.160 | >> [LAUGH] >> I just decided I'd like to put this
00:06:44.760 | kind of between the covers of the article I have in the New Journal of Portfolio
00:06:50.440 | Management called Lightning Strikes, this remarkable coincidence of in two weeks,
00:06:57.600 | in late September, early October of 1974, starting Vanguard,
00:07:03.000 | Paul Samuelson's article, the very first edition, 40 years ago,
00:07:08.040 | Journal of Portfolio Management, saying, would somebody please start an index fund?
00:07:12.920 | And the bottom of the bear market, all that happened very quickly and
00:07:16.080 | set the stage for this new company.
00:07:18.680 | So that is in there, turns out I've also written 13 essays.
00:07:23.480 | I've printed them also in here, and so you can read what I've written in the past.
00:07:31.480 | And then two of the most outstanding articles,
00:07:34.760 | the outstanding articles of JPM in two particular years.
00:07:38.800 | And if you get that awesome treat,
00:07:41.920 | you're asked to write a retrospective five years later, essentially.
00:07:45.240 | So there are two retrospectives of how the idea is that won these prizes.
00:07:49.160 | And one, interestingly enough, the very JPM, it's a very,
00:07:53.020 | very quantitative magazine, and yet of all those 13 articles,
00:07:58.060 | really 12 because this one hadn't been reviewed yet, of the new one, Lightning Strikes,
00:08:02.320 | all these quants, and they were the ones into the subscribers to JPM,
00:08:09.560 | were the ones who picked by least quantitative works.
00:08:13.080 | It's good, one was called New Sherry Duty, No Man Can Serve Two Masters.
00:08:17.240 | And the other one was called,
00:08:19.000 | [BLANK_AUDIO]
00:08:23.080 | You get what you pay for or something.
00:08:25.040 | Well, there's an idea so important that you can't think about anything else.
00:08:28.240 | And that was the title of it.
00:08:29.760 | And so that cost the pension system.
00:08:32.400 | And then without a lot of big data in there and a lot of complicated formulas,
00:08:36.180 | those were the ones they selected.
00:08:38.080 | And then I printed also a sample of the original article.
00:08:41.800 | And one more nice letter from Paul Samuelson to me on my 80th birthday.
00:08:47.280 | And that's about it, that's in the book.
00:08:49.960 | And that looks like this.
00:08:52.320 | And I thought you'd be interested in the dedication.
00:08:55.040 | [BLANK_AUDIO]
00:08:57.520 | Which I thought about doing a little bit late, just for the last minute.
00:09:01.440 | And I think I'll read this, it's not very long.
00:09:03.760 | [BLANK_AUDIO]
00:09:12.240 | I've often said ideas are a dime a dozen, but implementation is everything.
00:09:16.680 | Well, this book is focused on the ideas that inspired the creation of Vanguard,
00:09:21.360 | the index fund.
00:09:22.400 | This dedication honors those, quote, honest to God, down to earth human beings.
00:09:26.840 | You've heard that expression before, who implemented those disruptive innovations.
00:09:31.840 | And those who inspire our crew, who came to place our clients' interests first.
00:09:36.520 | So a hearty salute to those who serve in our Vanguard crew.
00:09:40.640 | Those who are responsible for the hard, well, thankless task of getting a day's
00:09:45.000 | work done.
00:09:46.000 | Extraordinarily nice people who do their work with loyalty to our founding values
00:09:50.460 | and commitment to serve our shareholders.
00:09:52.800 | And a second hearty salute to those whom we at Vanguard as trustees and
00:09:57.500 | fiduciaries are pledged to serve.
00:10:00.420 | Placing their interests first and foremost.
00:10:02.940 | So 20 million families who have entrusted their wealth to our care.
00:10:06.640 | We teach them, as well as learn from them.
00:10:09.420 | Notably from 30,000 vocal heads,
00:10:11.920 | the core of one of the most active financial websites in the land.
00:10:16.920 | That's the dedication, so it's to you.
00:10:19.120 | And we will have that for you later on.
00:10:22.320 | Self-published, and therefore instead of taking six months,
00:10:25.800 | when should we get this to the press, Mike?
00:10:28.160 | >> Friday.
00:10:29.060 | >> [LAUGH] >> Is this a great country, or what?
00:10:34.640 | >> [LAUGH] >> Jack, I just heard from Taylor.
00:10:38.240 | Can I interrupt and just read the message from Taylor?
00:10:41.660 | It says, dear Mel, in March 2000, you and I organized the first Global Head
00:10:46.520 | Conference of 21 investors in my Miami condominium.
00:10:50.080 | [COUGH] Where Mr. Vogel honored us with his presence.
00:10:54.500 | We never imagined that 14 years later we would be chairing a conference,
00:10:58.840 | approximately ten times larger, and forced to limit attendance.
00:11:03.160 | Participating in Jack's noble crusade to give ordinary investors a fair share,
00:11:07.920 | has brought meaning and enrichment to our lives.
00:11:10.880 | I'm sure it will do the same for
00:11:12.280 | every local head who has made the journey to this year's conference.
00:11:15.920 | I send my affection to each of you, and
00:11:18.000 | especially to my dear friend and mentor, Jack Vogel, signed, Taylor.
00:11:22.640 | >> Well, that's very nice, a nice response.
00:11:24.360 | >> [APPLAUSE] >> Yes, so what I'm gonna do is talk
00:11:29.360 | a little bit about the personal side of things, a little bit about Maine Arts
00:11:35.080 | history, and I wanna do that first, because my deck of slides may run a little long,
00:11:41.120 | and that may have to take a short trip, although those slides will be available
00:11:46.760 | to anybody here that wants them, maybe take two or three hours to get them created,
00:11:52.560 | or something like that, but the title I picked was entitled,
00:11:57.800 | for all but together, Human Beings and Algorithms,
00:12:02.720 | as Vanguard's 41st Year Begins.
00:12:05.840 | So going back to the beginning, the title of the introduction,
00:12:11.160 | I'm really drawing heavily from the introduction to the book,
00:12:16.600 | is entitled, It's the Best of Times, It's the Worst of Times.
00:12:21.200 | Always a good idea to throw Dickens in there, and so
00:12:25.960 | as September 1974 drew a close, and October began,
00:12:30.760 | there was a fortuitous moment in financial history that was taking place.
00:12:35.400 | A new star, not in the big star sense, but just one more entry in the universe,
00:12:41.160 | entered the mutual fund department, a company that had just come into existence,
00:12:45.920 | and incorporated on September 24th, 1974.
00:12:49.680 | It had a unique, you know this, truly mutual structure,
00:12:53.120 | owned by its fund shareholders, and operated on an annual basis,
00:12:57.040 | and it was called, of course, Vanguard.
00:12:59.840 | A week later, October 1st, the first issue of Journal of Portfolio Management was published,
00:13:05.720 | under the leadership of founding editor Peter Bernstein.
00:13:08.800 | One of the major papers in that issue was entitled, Challenge to Judgment,
00:13:12.800 | by Professor Paul Samuelson of MIT, America's first Nobel laureate in economic science.
00:13:19.240 | He could find no root evidence, as he called it, that any mutual fund manager
00:13:22.880 | had consistently earned returns that surpassed the returns of the unmanaged S&P 500,
00:13:30.560 | and basically demanded somebody somewhere start an index fund.
00:13:35.960 | In retrospect, his essay powerfully echoed my early 1951 rudimentary statistical research
00:13:44.560 | in my Princeton thesis that reached a similar conclusion.
00:13:48.520 | And I witnessed further, much more important than that, my own personal experience.
00:13:54.360 | I'd witnessed firsthand the abject, even catastrophic, failure of the new breed of professional fund managers,
00:14:03.280 | following the collapse of the go-go era, back in the mid-1960s,
00:14:07.520 | a terrible chapter in this industry's history.
00:14:10.320 | Together, his inspiration, and my experience, with his being Dr. Samuelson,
00:14:15.840 | shaped my decision to create the world's first index fund.
00:14:20.080 | It would be a logical basis for an investment strategy that follows from,
00:14:25.920 | and would be fully consistent with, Vanguard's business structure.
00:14:30.400 | Strategy follows structure, as I've said so many times, which is consistent.
00:14:36.000 | Two days later, October 3rd, the third fortuitous event took place.
00:14:42.240 | In the long sense, counterintuitive.
00:14:45.200 | At the end of a long, harrowing, banned bear market, 50% decline,
00:14:49.200 | and from an early 1973 high, very few managers at the funds anticipated that decline,
00:14:56.960 | and many funds declined a lot more than that 50%,
00:15:00.480 | the fund industry had failed the investors who had trusted its money managers.
00:15:06.560 | And fund assets would decline almost fatally, like 40%, 53 billion to 31 billion,
00:15:14.720 | and only bailed out later on by the money market business.
00:15:19.520 | Amazing story.
00:15:20.960 | So in that two weeks, the moment for a new structure, a new strategy,
00:15:25.520 | for a failed industry began.
00:15:27.760 | Amazing.
00:15:28.560 | Times were bleak.
00:15:30.000 | Yes, the opportunity was deeply hidden.
00:15:33.200 | It was, to some people, totally invisible.
00:15:35.840 | And yes, the industry was in crisis.
00:15:38.880 | The rest is history, recounted in the essays that are in this book here.
00:15:44.000 | The new entity managed 1.4 billion of other people's money, OPM, in October '74.
00:15:50.240 | And four decades later, in October '14, 2014, it's now $3 trillion of other people's money,
00:15:56.400 | the largest-run enterprise in the world, and more than $1 trillion larger than its closest peer.
00:16:07.280 | The Financial Analyst Journal is also celebrating, of course, its 40th anniversary.
00:16:11.200 | They published 13 of my papers, and I republished all of this in this anthology.
00:16:17.360 | And it turns out-- I'll make this a brief here--
00:16:20.720 | there's three very different phases of focus in these papers.
00:16:24.720 | The first phase, 1990-1994, was establishing reasonable expectations
00:16:30.800 | for stock market returns in the coming decade.
00:16:33.760 | I continue to use that to this day.
00:16:35.280 | It's proved to be pretty good.
00:16:37.200 | And dividend yield, initial dividend yield, plus subsequent earnings growth,
00:16:42.160 | plus or minus short-term speculative return, plus market values change.
00:16:46.800 | P/Es go up and down.
00:16:48.640 | Put them together, and they get the total return on the market.
00:16:52.240 | I'll talk a little bit more about that and show you the data later on.
00:16:55.680 | The second phase, 1992-2002, I didn't plan.
00:17:02.000 | And the papers that I wrote during that period focused on the investment performance
00:17:06.960 | of actively managed mutual funds compared to passively managed index funds.
00:17:11.280 | And I guess I was getting a little more confident about the index funds.
00:17:16.160 | And here, I focused on the relationship between returns and risk
00:17:20.160 | and the power of the role played by both of these costs.
00:17:23.920 | Then, in this third phase, the most interesting phase,
00:17:27.200 | the focus of my interest shifted again,
00:17:30.080 | veered sharply away from data on stock market returns and mutual fund returns
00:17:35.840 | to the counterproductive structure of the mutual fund industry,
00:17:39.920 | in particular, and in general, to the appropriate role
00:17:43.760 | of the U.S. financial system in modern society.
00:17:47.440 | I wrote four papers on these matters in my writing strife.
00:17:50.800 | As I think I mentioned, I did mention two of them became quite popular.
00:17:58.560 | Why did I change?
00:18:00.560 | Why did I change my focus?
00:18:01.760 | I don't know the answer to that, of course.
00:18:04.000 | As I say in the book, it's perhaps my growing idealism, which is still unshakable,
00:18:10.240 | and certainly it must have helped, that is now free from the rights
00:18:14.880 | and responsibilities of running Vanguard.
00:18:18.720 | My readiness, as always, even eagerness to speak out,
00:18:25.040 | from my self-created bully pulpit.
00:18:28.160 | And if this talk isn't too solicistic, a realization that if I didn't do it,
00:18:33.680 | there were few, if any, others who would take up the cudgel's grip on it.
00:18:39.520 | The Lord knows there is much room for reform in our system.
00:18:44.160 | Our nation's underfunded retirement plans.
00:18:47.120 | Our industry's failure to give individual investors a fair shake.
00:18:50.960 | The conflicts of interest that permeate and inhibit the appropriate regulation
00:18:54.960 | and legislation of our financial system.
00:18:57.440 | The reluctance of our money manager agents, that's what they are,
00:19:01.200 | who collectively hold voting control and 70% of all of America's corporations,
00:19:05.680 | the stockholding of America's corporations.
00:19:09.280 | To use that power in dealing with, among other unpleasant issues,
00:19:14.560 | excessive executive compensation, loose accounting practices,
00:19:19.120 | and undisclosed political contributions.
00:19:22.080 | Each issue is like a maniche for a federal standard,
00:19:25.680 | fiduciary duty for all those responsible for OPM.
00:19:30.480 | And in short, there's enough work to do now that I continue to speak out
00:19:35.280 | and not fully quote, but for the next two decades, or three, or four, or more.
00:19:43.360 | And I don't usually look bad, and I don't think most financial writers do,
00:19:48.720 | at my works in retrospect.
00:19:52.880 | But because two of these won the financial best article awards from JPM,
00:20:00.080 | they ask you to do this five years later after you've written your article,
00:20:04.320 | to take a look at what it looks like.
00:20:06.000 | Every five years, these winners are asked to present a retrospective
00:20:11.360 | on their winning papers.
00:20:13.120 | And this little document is published every five years.
00:20:19.680 | So I did that with the speeches that I wrote, outstanding articles in 2008,
00:20:26.560 | and again in 2009.
00:20:29.040 | Now, that first retrospective, early in '29, was on a 2008 paper at the time.
00:20:36.320 | Well, so I didn't really have a lot of time to think about it.
00:20:38.880 | The question's so important, I finally got it right here,
00:20:41.360 | that it should be hard to think about anything else.
00:20:43.760 | It was included in the five-year cycle, 2004, 2008, only a year before I was asked
00:20:49.840 | to write this essay about counterproductive support,
00:20:55.840 | counterproductive actions for financial intermediaries.
00:20:58.960 | It had already, within a year, garnered very broad, high-level support.
00:21:04.160 | I'm not sure that it was so inspired by me, but it happened almost immediately.
00:21:08.720 | A major article in the New York Times, an essay by Simon Johnson,
00:21:12.960 | former chief economist of the International Monetary Fund,
00:21:16.320 | and Buttonwood, the incisive columnist of the Economist of London.
00:21:21.280 | And that's all terrific people adopting this idea of the role of our financial system
00:21:29.120 | in subtracting value from the returns investors get on its own behalf.
00:21:35.520 | I concluded in that retrospective, expressing my pleasure,
00:21:41.520 | the escalating, rent-seeking, even rent-gouging by our financial intermediaries,
00:21:48.640 | never one to waste an adjective, had been recognized,
00:21:53.760 | initiating as I wrote the title, Of Course, from an idea whose time had come.
00:21:59.280 | And you'll see this in the documents I'll show you later on.
00:22:04.240 | Not enough, but it's beginning.
00:22:07.600 | And in 2014, just this year, I was asked to write another retrospective
00:22:13.200 | of my award-winning 2009 essay, The Fiduciary Principle, No Man Can Serve Two Masters.
00:22:20.000 | Here, the tables were turned, because I had fully five years to consider the impact of what I'd written.
00:22:27.920 | And in retrospect, what I liked about that paper was the most naked presentation
00:22:32.800 | of my native idealism that I've ever dared to write.
00:22:36.320 | Focuses it was on the need for integrity, principle, and ethical responsibility in finance,
00:22:41.680 | in a phrase, fiduciary duty.
00:22:44.080 | And particularly, I was proud, I hope it's okay to be proud,
00:22:48.160 | of citing similar wisdom from some of the greatest men in financial history.
00:22:52.080 | Adam Smith can't beat that, John Maynard Keynes, and Ben Graham,
00:22:56.640 | and of course, U.S. Supreme Court Justice Harlan Bistone,
00:23:00.640 | whose 1934 essay, The Public Influence of the Bar,
00:23:04.960 | provided both the inspiration and foundation for that paper.
00:23:08.480 | Yes, as he wrote in that essay, writing in 1934,
00:23:13.440 | "There is nothing more vital in our own day than those who act as fiduciaries
00:23:19.120 | should be held to those standards of scrupulous fidelity
00:23:22.400 | which our society has the right to demand, as it does."
00:23:26.240 | That was true in 1934, it was true in 2009 when I wrote that article,
00:23:31.360 | it is still true in 2014, and it will be true forevermore.
00:23:36.880 | Now, there's a lot more in here, I guess I could say.
00:23:42.000 | There has been yet another shift, partial shift,
00:23:45.360 | because I have busy days and I'm trying to get a lot done,
00:23:48.240 | and I do want to say thanks to Michael, who is an unbelievable help to me,
00:23:52.240 | because Michael and me and Emily, and she'll be here later,
00:23:54.400 | you won't know her if you've been here before.
00:23:56.960 | My amanuensis, I think that's the right word,
00:24:00.080 | look it up, and she will be here.
00:24:04.080 | And the three of us, plus Sarah who is in the parking lot,
00:24:07.280 | crank out this huge amount of work, so I'd like to publicly express my thanks to you, Michael,
00:24:12.080 | for doing such a fantastic job.
00:24:14.080 | You've been to a vanguard, it's around 13 or 14 years,
00:24:17.200 | you've been with me for three and a half, and I couldn't do it without it,
00:24:20.640 | I could go on about it.
00:24:21.840 | Kevin is out here somewhere.
00:24:23.600 | My long-lasting, probably long-suffering, are you here, Kevin?
00:24:27.920 | Somewhere back there.
00:24:30.960 | Yeah, there's Kevin, Kevin Lawson.
00:24:36.880 | I couldn't have done it without him in those days.
00:24:41.040 | These guys really made my life a lot more fun,
00:24:45.040 | a lot more enjoyable, and they're unbelievable,
00:24:48.400 | they're playing the computer like Paderewski.
00:24:53.840 | I just couldn't do anything without them, really.
00:24:56.320 | So, another shift, and I'm spending a lot of time,
00:25:00.880 | with our crew.
00:25:03.680 | I do, crew teams will come into my office,
00:25:07.680 | you know, they ask me to dance,
00:25:10.080 | and there may be seven or eight of them,
00:25:12.080 | they can bring you an extra chair, it's not that big,
00:25:14.480 | you can hold, I guess, ten, if you are willing to stand,
00:25:18.080 | and we'll come in and just talk, and they'll ask me things from now on.
00:25:20.880 | And, you know, one day, it's ten crew members,
00:25:24.880 | the longest-serving of whom,
00:25:27.280 | have been here since 2013, the longest-serving.
00:25:32.080 | And I say, "Who has the gall to marry,
00:25:35.280 | to ask for a meeting with me?"
00:25:39.280 | And, then I did one luncheon with five ladies,
00:25:44.080 | who have been there for an average of 26 years,
00:25:47.280 | in a group that works together,
00:25:49.280 | and they're all fun, they're all enjoyable,
00:25:53.280 | and they can talk about anything they want.
00:25:55.280 | And, I talk to the teams,
00:25:58.080 | I talk to retirees, when I'm asked,
00:26:01.280 | I always say, and the same thing is true,
00:26:04.080 | of the Award for Excellence winners,
00:26:06.080 | I talk for an hour and a half to each of them,
00:26:08.080 | and I talk to anniversaries,
00:26:10.080 | if someone has a 20th anniversary or something,
00:26:12.080 | and I always say, when I get invited,
00:26:16.080 | "I will come if the coast is clear,"
00:26:18.080 | if you know what I mean.
00:26:20.080 | I have no reason to fuss about management,
00:26:22.080 | they're getting in their way,
00:26:24.080 | I'm just saying, I know what you mean,
00:26:26.080 | yes, the coast is clear.
00:26:28.080 | So, I show up,
00:26:30.080 | and I don't want to waste a lot of time,
00:26:32.080 | but the human side of business,
00:26:34.080 | has become so important to me,
00:26:36.080 | as this company gets bigger and bigger,
00:26:38.080 | I'm going to talk a little bit about that now,
00:26:40.080 | but two recent ones were really,
00:26:42.080 | amazingly interesting,
00:26:44.080 | totally different.
00:26:46.080 | One was a 25 year anniversary,
00:26:49.080 | along with the man who was going to retire,
00:26:52.080 | he's retiring after 20 years with us,
00:26:54.080 | they were on the night shift,
00:26:56.080 | they were the tech guys,
00:26:58.080 | that keep our machine reworking,
00:27:00.080 | all night,
00:27:02.080 | a thankless job,
00:27:04.080 | but great people,
00:27:06.080 | I got up there,
00:27:08.080 | went over to the Stefano Center,
00:27:10.080 | made that long walk to the back,
00:27:12.080 | a long walk around a long corridor,
00:27:14.080 | I had to take the elevator to get upstairs,
00:27:16.080 | at this stage of my life,
00:27:18.080 | and there were these 25 people,
00:27:20.080 | and
00:27:22.080 | it looked like the United Nations,
00:27:24.080 | old, young, black, white,
00:27:26.080 | Chinese, Indian, Latino,
00:27:28.080 | every human was a male woman,
00:27:30.080 | male, female,
00:27:32.080 | and it was a great, great evening,
00:27:34.080 | in which they turned back and said,
00:27:36.080 | I haven't had this many pictures taken since my wedding,
00:27:40.080 | including,
00:27:42.080 | the now popular,
00:27:44.080 | selfies,
00:27:48.080 | and they seemed to love to do the selfies,
00:27:50.080 | and it was just a wonderful evening,
00:27:52.080 | and I got a note back from the retiree,
00:27:54.080 | saying,
00:27:56.080 | I think he used the phrase, big shot,
00:27:58.080 | no big shot,
00:28:00.080 | the Vanguard has ever come to see us before,
00:28:02.080 | and I think that's awful,
00:28:04.080 | and I was happy to fill the gap,
00:28:06.080 | and to make the more than happy,
00:28:08.080 | ecstatic,
00:28:10.080 | I could hardly sleep that night,
00:28:12.080 | I was so excited,
00:28:14.080 | and particularly,
00:28:16.080 | this is a little sidebar,
00:28:18.080 | particularly since my wife,
00:28:20.080 | does not like me to be going late,
00:28:22.080 | I have a time when I'm supposed to arrive home in the afternoon,
00:28:24.080 | which means getting out of the office at 4,
00:28:26.080 | and getting home at 4.30,
00:28:28.080 | and resting a little bit, sometimes even taking a nap,
00:28:30.080 | and she doesn't want me working so hard,
00:28:32.080 | and she doesn't want me working at night,
00:28:34.080 | she doesn't want me not being there for dinner,
00:28:36.080 | and she's right, by the way, in all counts,
00:28:40.080 | and she said,
00:28:44.080 | what a great thing to do,
00:28:46.080 | she understood the difference between,
00:28:48.080 | a lot of other things I could be doing,
00:28:50.080 | and dinner for big shots,
00:28:52.080 | and photo, or something like that,
00:28:54.080 | which I just don't do anymore,
00:28:56.080 | and the other one was,
00:28:58.080 | for a 26 year retiree,
00:29:00.080 | who just wanted to have a couple of people stop by,
00:29:02.080 | she had three pizza pies,
00:29:04.080 | and we were all going to have just a bite of pizza,
00:29:06.080 | she didn't want a celebration,
00:29:08.080 | she didn't want me to come,
00:29:10.080 | so of course,
00:29:12.080 | I showed up,
00:29:14.080 | and there were two people who were sitting around,
00:29:16.080 | having a pizza pie,
00:29:18.080 | she was a lovely woman,
00:29:20.080 | and she said something that broke my heart,
00:29:22.080 | you made it possible
00:29:24.080 | for me to retire early,
00:29:26.080 | with her retirement plan,
00:29:28.080 | and I said, oh boy, that's a mixed emotion,
00:29:30.080 | so I'm getting rid of you,
00:29:32.080 | because we're losing you,
00:29:34.080 | because we made it easy to leave,
00:29:36.080 | which we call a paradox,
00:29:40.080 | so I started to talk a little bit,
00:29:42.080 | about these things,
00:29:44.080 | 25 year things,
00:29:46.080 | I opened T's on my telegram,
00:29:48.080 | I'm sure they remember it,
00:29:50.080 | because I used to speak at every billion dollar advance we made,
00:29:52.080 | and every 10 billion,
00:29:54.080 | and I said, Susan, I know you'll remember some of these speeches,
00:29:56.080 | and it's amazing,
00:29:58.080 | speeches all those years ago,
00:30:00.080 | I'm not embarrassed about it at all,
00:30:02.080 | it's a great consistency of theme,
00:30:04.080 | and I just read a couple of things out of the books,
00:30:06.080 | and kid around about a little thing,
00:30:08.080 | and she came to us with her assets worth,
00:30:10.080 | 45 billion,
00:30:12.080 | so I thanked her for the remaining,
00:30:14.080 | 2 trillion,
00:30:16.080 | 955 billion,
00:30:18.080 | and I started to talk,
00:30:20.080 | and I guess I have kind of a loud voice,
00:30:22.080 | and this was just like,
00:30:24.080 | all the little cubicles of people answering the phone,
00:30:26.080 | and that kind of thing,
00:30:28.080 | and the next thing I look around,
00:30:30.080 | like five minutes into my talk,
00:30:32.080 | very very informal,
00:30:34.080 | it's like a flash mob,
00:30:36.080 | there must have been
00:30:38.080 | 120 people there,
00:30:40.080 | how did this thing happen,
00:30:42.080 | you just can't have better days than I have,
00:30:44.080 | being with the people that do
00:30:46.080 | all the hard work,
00:30:48.080 | so,
00:30:50.080 | I remind,
00:30:52.080 | it gives me a chance to remind our crew,
00:30:54.080 | our corporate values,
00:30:56.080 | our corporate structure, our corporate history,
00:30:58.080 | our investment strategy,
00:31:00.080 | and I try to explain to them the story of Vanguard,
00:31:02.080 | I want them to know how hard it was
00:31:04.080 | at the beginning, we got a trillion and four billion,
00:31:06.080 | God I still can't get it right,
00:31:08.080 | a billion and four of assets at the beginning,
00:31:10.080 | and our shareholders were so impressed,
00:31:12.080 | that they took out
00:31:14.080 | 400 billion dollars for the first three years,
00:31:16.080 | there's a vote of confidence for you,
00:31:18.080 | and I'm capped off
00:31:20.080 | by an article in Forbes magazine,
00:31:22.080 | talking about the new separate
00:31:24.080 | organizations of Wellington and Vanguard,
00:31:26.080 | and it was entitled, you'll notice
00:31:28.080 | it right out of Romeo and Juliet,
00:31:30.080 | a plague on both your houses,
00:31:32.080 | and they did apologize,
00:31:34.080 | but I did, if I know why,
00:31:36.080 | it took them 23 years to do it,
00:31:38.080 | that's a long time to wait,
00:31:40.080 | I'm a patient fellow,
00:31:42.080 | I'll make sure to live that long,
00:31:44.080 | but it's a story of contrarian opinion,
00:31:46.080 | opportunity deeply hidden,
00:31:48.080 | introspection about an industry
00:31:52.080 | that was losing its way,
00:31:54.080 | I guess some courage and stubbornness had to be there,
00:31:56.080 | in so many ways,
00:31:58.080 | the story of that serving,
00:32:00.080 | you know this again,
00:32:02.080 | human beings,
00:32:04.080 | with their own hopes and fears,
00:32:06.080 | and financial goals,
00:32:08.080 | it's a story of trusting and being trusted,
00:32:10.080 | and realizing through all that
00:32:12.080 | great fog that we see today,
00:32:14.080 | or money values,
00:32:16.080 | there is in fact, remain issues,
00:32:18.080 | that are white or black,
00:32:20.080 | right or wrong,
00:32:22.080 | and I say, don't compromise,
00:32:24.080 | I've never been good at compromising,
00:32:26.080 | I guess there may be a time for it,
00:32:28.080 | as one of our directors used to say,
00:32:30.080 | never compromise on matters of principle,
00:32:32.080 | I didn't spend a lot of time,
00:32:34.080 | I don't think four years ago,
00:32:36.080 | wondering about whether or not I'd be around
00:32:38.080 | to celebrate our 40th anniversary,
00:32:40.080 | obviously not everybody lives
00:32:42.080 | much beyond 85,
00:32:44.080 | and the odds are not improved,
00:32:46.080 | when you've been beset by profound
00:32:48.080 | cardiac challenges,
00:32:50.080 | it began 14 years before Van Gorder was even born,
00:32:52.080 | when it began I must have been
00:32:54.080 | wearing blinders,
00:32:56.080 | to ignore the odds,
00:32:58.080 | entrepreneurs
00:33:00.080 | as it said,
00:33:02.080 | are as risk averse as everyone else,
00:33:04.080 | fundamental characteristic
00:33:06.080 | of an entrepreneur is risk seeking,
00:33:08.080 | it's self confidence,
00:33:10.080 | entrepreneurs may recognize,
00:33:12.080 | probably do,
00:33:14.080 | that starting a business is risky,
00:33:16.080 | they just believe their innate skills
00:33:18.080 | will win out,
00:33:20.080 | a third of all entrepreneurs according to a survey,
00:33:22.080 | thought there was no chance, zero chance
00:33:24.080 | they would fail,
00:33:26.080 | looking back over my own decisions in the early years,
00:33:28.080 | I think it's a very receptive
00:33:30.080 | observation,
00:33:32.080 | I guess you could say I just don't scare very easily,
00:33:34.080 | yes,
00:33:36.080 | some great ideas, structure
00:33:38.080 | and strategy,
00:33:40.080 | central to our ability
00:33:42.080 | to change the world, investing for the better,
00:33:44.080 | it's very clear that's what we've done,
00:33:46.080 | but I yet repeat as I say in the beginning,
00:33:48.080 | in my previous introduction,
00:33:50.080 | ideas are a dime a dozen,
00:33:52.080 | implementation is anything,
00:33:54.080 | is everything,
00:33:56.080 | so I'm shameless about taking every
00:33:58.080 | opportunity to be with
00:34:00.080 | our crew members,
00:34:02.080 | to provide what leadership I can,
00:34:04.080 | the commitment, they provide the leadership,
00:34:06.080 | the commitment, the loyalty,
00:34:08.080 | the professional skills and the human values,
00:34:10.080 | that have been essential
00:34:12.080 | and remain essential to Vanguard's success,
00:34:14.080 | and whatever further success
00:34:16.080 | we might achieve before we
00:34:18.080 | celebrate our 50th anniversary,
00:34:20.080 | and God willing our 100th,
00:34:22.080 | which I also expect
00:34:24.080 | to be around for,
00:34:26.080 | and then
00:34:28.080 | maybe I'll be satisfied with
00:34:30.080 | well I'm just having this
00:34:32.080 | 88th anniversary this year,
00:34:34.080 | so maybe I'll be there for this one, who knows,
00:34:36.080 | but these crew members are our legacy,
00:34:38.080 | and they are the keepers of our value,
00:34:40.080 | leadership, Tom,
00:34:42.080 | really can keep those values, you can try and
00:34:44.080 | reinforce them, but it all comes
00:34:46.080 | from the people who are working day after day
00:34:48.080 | together, so there's
00:34:50.080 | been great joy in my life, you can probably tell,
00:34:52.080 | in these past
00:34:54.080 | 40 years, I love
00:34:56.080 | the joy of the battle,
00:34:58.080 | I love
00:35:00.080 | working on the firing line
00:35:02.080 | with the crew,
00:35:04.080 | those who do the hard work,
00:35:06.080 | thankless work, often thankless
00:35:08.080 | serving our clients and owners,
00:35:10.080 | and I get such joy
00:35:12.080 | every day of going
00:35:14.080 | over to our galley for lunch,
00:35:16.080 | waving to our crew, chatting
00:35:18.080 | with them, meeting with them on
00:35:20.080 | so many fine teams, and I mentioned large
00:35:22.080 | and small, and visiting
00:35:24.080 | on their anniversaries and so on.
00:35:26.080 | So,
00:35:28.080 | um,
00:35:30.080 | let's say
00:35:32.080 | a couple more things before we get
00:35:34.080 | all whistled, um,
00:35:36.080 | as the days
00:35:38.080 | fly on, of course
00:35:40.080 | I age, I reckon
00:35:42.080 | I don't really feel it, he says,
00:35:44.080 | well maybe I feel it, but not
00:35:46.080 | in my mind, uh,
00:35:48.080 | I recognize the time will come
00:35:50.080 | when I won't be able to engage
00:35:52.080 | in the mission, but I said to myself,
00:35:54.080 | to continue to speak out
00:35:56.080 | for truth and integrity and character in the
00:35:58.080 | global plans, striving to build
00:36:00.080 | I really do, a better word for investors,
00:36:02.080 | not just Vanguard investors, but
00:36:04.080 | honest to God, down to earth, you've heard this
00:36:06.080 | before and I'll repeat it again, human
00:36:08.080 | beings deserve a fair shake.
00:36:10.080 | One's strength to carry on
00:36:12.080 | alas, does not,
00:36:14.080 | cannot
00:36:16.080 | go on forever.
00:36:18.080 | In my case, the spirit
00:36:20.080 | is more willing than ever,
00:36:22.080 | but the flesh
00:36:24.080 | weakens.
00:36:26.080 | So, for me,
00:36:28.080 | the human beings have been part of my
00:36:30.080 | long career, including all of you,
00:36:32.080 | including our Vanguard crew,
00:36:34.080 | and have been by far its most important
00:36:36.080 | aspect, particularly these most
00:36:38.080 | recent years. I'm not sure I was as considerate of everybody,
00:36:40.080 | very arbitrary,
00:36:42.080 | high-handed, dictatorial,
00:36:44.080 | and when Vanguard started I thought
00:36:46.080 | I had to be, it's my nature anyway,
00:36:48.080 | but I've learned a lot
00:36:50.080 | about dealing
00:36:52.080 | with human beings, and I've often
00:36:54.080 | said, I like
00:36:56.080 | human beings better than algorithms.
00:36:58.080 | And I like
00:37:00.080 | judgment better than process,
00:37:02.080 | not the Garcia I say,
00:37:04.080 | Nick's blessing, you don't require
00:37:06.080 | an awful lot of algorithms,
00:37:08.080 | you don't require an awful lot of process.
00:37:10.080 | Neither has ever been my strong point.
00:37:12.080 | In its early years,
00:37:14.080 | we were young, beleaguered, scorned,
00:37:16.080 | but by the mid-80s we developed the momentum,
00:37:18.080 | and it's continued ever since,
00:37:20.080 | building the same bullies and whereabouts
00:37:22.080 | strategy of power destruction.
00:37:24.080 | So, in this rapidly
00:37:26.080 | changing world,
00:37:28.080 | how many firms
00:37:30.080 | can say that? They're doing the same thing
00:37:32.080 | they've been doing for 40 years,
00:37:34.080 | and it still works.
00:37:36.080 | Especially in those early years
00:37:38.080 | when success was by no means assured, as I told you,
00:37:40.080 | my highest priorities
00:37:42.080 | were the need to be
00:37:44.080 | optimistic every day, no matter
00:37:46.080 | how many reverses there were.
00:37:48.080 | Set the standards for commitment,
00:37:50.080 | I basically had to be
00:37:52.080 | the longest working person there,
00:37:54.080 | I had to be the first one in the morning,
00:37:56.080 | and the last one out at night,
00:37:58.080 | and I was probably not quite the first,
00:38:00.080 | but I was usually in the office
00:38:02.080 | at 6.30, left at 6.30.
00:38:04.080 | No, that didn't mean I didn't work at all.
00:38:06.080 | It's 6.30 in the morning
00:38:08.080 | and 6.30 at night.
00:38:10.080 | But, um,
00:38:12.080 | to communicate openly
00:38:14.080 | and to give the crew the strength
00:38:16.080 | to carry on,
00:38:18.080 | turn about as fair play, and today
00:38:20.080 | it is our crew and all
00:38:22.080 | of you at Fogelheads
00:38:24.080 | who are giving me the strength to carry on.
00:38:26.080 | The tables have been turned.
00:38:28.080 | These have not, these recent years,
00:38:30.080 | have not been the easiest for me,
00:38:32.080 | surprisingly, but I carry on
00:38:34.080 | because of your confidence, our crew's confidence,
00:38:36.080 | your collective way
00:38:38.080 | to improve, your respect, your admiration,
00:38:40.080 | and as some crew members
00:38:42.080 | have put it, maybe you too,
00:38:44.080 | your love
00:38:46.080 | to have a life
00:38:48.080 | and possibly
00:38:50.080 | be more rewarding.
00:38:52.080 | I quoted this song
00:38:54.080 | in my
00:38:56.080 | 63rd anniversary
00:38:58.080 | in business, beginning with Wellington,
00:39:00.080 | earlier
00:39:02.080 | in summer, I guess,
00:39:04.080 | which was the day of July 9th,
00:39:06.080 | my 63rd anniversary at work,
00:39:08.080 | and I concluded with
00:39:10.080 | a nice little song.
00:39:12.080 | Sometimes
00:39:14.080 | in our lives we all have pain,
00:39:16.080 | we all have sorrow,
00:39:18.080 | but if we are wise,
00:39:20.080 | we know that
00:39:22.080 | there is always tomorrow.
00:39:24.080 | Lean on me
00:39:26.080 | when you're not strong.
00:39:28.080 | Lean on me
00:39:30.080 | and I'll be your friend.
00:39:32.080 | I'll carry on.
00:39:34.080 | I'll carry on.
00:39:36.080 | And
00:39:38.080 | at the end of that,
00:39:40.080 | you know the song.
00:39:42.080 | Lean on me
00:39:44.080 | and I know I lean on you.
00:39:46.080 | So it's been a fabulous time.
00:39:48.080 | I am very reflective
00:39:52.080 | of it. I'll lean until I'm going to need
00:39:54.080 | somebody to lean on.
00:39:56.080 | So,
00:39:58.080 | thanks Bobleheads.
00:40:00.080 | I lean on you, you lean on me,
00:40:02.080 | and it's been a very
00:40:04.080 | rewarding part of life.
00:40:06.080 | The main thing I've tried
00:40:08.080 | to do
00:40:10.080 | is
00:40:12.080 | I quoted
00:40:14.080 | that document. The main thing
00:40:16.080 | I've tried to do since we were founded in 1974
00:40:18.080 | is create a working environment
00:40:20.080 | and an investment environment
00:40:22.080 | based on integrity and service
00:40:24.080 | and values.
00:40:26.080 | A place where each of us, after Abraham
00:40:28.080 | and Lincoln, first inaugural,
00:40:30.080 | each of us are touched by the better
00:40:32.080 | angels of our nature.
00:40:34.080 | So,
00:40:36.080 | that concludes my rather lengthy remarks.
00:40:38.080 | Before we even get to the deck
00:40:40.080 | of slides, which Michael will help me
00:40:42.080 | with, so we'll just pause for a minute.
00:40:44.080 | We should take maybe a five minute break
00:40:46.080 | and we'll get these slides together.
00:40:48.080 | Is that okay, Mike? Sure. Okay, let's
00:40:50.080 | just sit and relax here.
00:40:52.080 | [applause]
00:40:54.080 | [applause]
00:40:56.080 | [applause]
00:40:58.080 | [applause]
00:41:00.080 | [BLANK_AUDIO]