Bogleheads® Chapter Series – Eric Balchunas on “The Bogle Effect”

00:00:00.000 | Welcome to the "Bogleheads" chapter series.

00:00:04.040 | This episode was jointly hosted by the South Florida and New York City "Bogleheads" local

00:00:08.120 | chapters and recorded November 2nd, 2022.

00:00:12.200 | It features Eric Balchunas, a senior ETF analyst for Bloomberg Intelligence, discussing his

00:00:17.040 | recent book, "The Bogle Effect."

00:00:19.240 | "Bogleheads" are investors who follow John Bogle's philosophy for attaining financial

00:00:23.840 | independence.

00:00:24.840 | This recording is for informational purposes only and should not be construed as personalized

00:00:29.640 | investment advice.

00:00:30.640 | Welcome to the "Bogleheads" chapter series meeting.

00:00:36.760 | We are really delighted today to host Eric Balchunas, who is from Bloomberg Intelligence.

00:00:45.600 | He is the ETF expert or researcher with Bloomberg Intelligence.

00:00:50.960 | I like that title, Eric.

00:00:53.720 | Am I pronouncing your name correctly?

00:00:56.640 | It is Balchunas?

00:00:57.640 | Yeah.

00:00:58.640 | No, that's better than most.

00:01:01.240 | Okay, good.

00:01:03.440 | We are delighted to have you here.

00:01:04.960 | Eric is the author of this wonderful, wonderful book, "The Bogle Effect."

00:01:11.880 | It is a...

00:01:12.880 | I love the book.

00:01:14.560 | It's a great read, Eric.

00:01:16.200 | It's easy, well-written.

00:01:17.560 | I really, really appreciate it.

00:01:18.920 | I learned so much about the history of, well, the financial industry, as well as Vanguard

00:01:26.120 | index funds, and Mr. Bogle also.

00:01:30.820 | As everyone knows, we are the Bogleheads, and we follow the investing philosophy of

00:01:36.440 | Jack Bogle.

00:01:39.040 | Jack Bogle created Vanguard, and he also basically created the index fund for retail investors.

00:01:45.640 | Eric, we also have, not with us tonight, but we do have a Boglehead who invested in 1976,

00:01:54.360 | 1977, with the Vanguard First...

00:02:01.920 | It's called the Vanguard First Index Investment Trust.

00:02:07.080 | He was an airplane pilot, and he invested then, and he still owned it until the Vanguard

00:02:13.640 | opened their total market index fund, and then he thought that was a good idea.

00:02:18.800 | I asked him on the forum, "How did you even invest in that?

00:02:23.040 | Where did you even find that fund?"

00:02:25.440 | He said he found it on the Wall Street Journal or Money Magazine.

00:02:29.240 | He just read a little bit about it, and he thought, "That makes perfect sense."

00:02:35.000 | Everything that you wrote in your book shows how everything came together for creating

00:02:41.800 | that fund.

00:02:42.800 | Anyway, let me go forward here.

00:02:45.480 | I'd like to introduce our helpers tonight.

00:02:48.280 | Gauri is going to coordinate the meeting and ask the questions.

00:02:51.760 | Gauri is from New York City.

00:02:54.060 | We have Alan from Tampa, the Tampa chapter.

00:02:57.200 | Carol from the Dallas chapter.

00:03:01.400 | Kip is joining us from Wyoming, and he said it is going to be the first snowfall tonight

00:03:06.920 | in Wyoming.

00:03:08.080 | I hope you're ready for that, Kip.

00:03:11.280 | We are, we are.

00:03:13.120 | We also have Jim from Chicago.

00:03:15.240 | He will be doing the recording.

00:03:17.160 | This meeting will be recorded from beginning to end, and it will then be posted on the

00:03:22.160 | Bogleheads calendar and the Bogleheads YouTube.

00:03:27.440 | In addition, we have several other guests.

00:03:29.160 | We have Mel Lindauer, who is one of the creators, the founders of the Bogleheads.

00:03:35.800 | Hi, Mel.

00:03:38.120 | He's here.

00:03:39.320 | We also have, from Germany, Mary, who joins us from Germany.

00:03:45.120 | We welcome tonight the Japan Bogleheads.

00:03:48.740 | Mayumi is here from Japan.

00:03:51.400 | Eric, Mayumi worked for Vanguard from 2008 until 2017 and met Mr. Bogle several times

00:04:02.520 | on the Vanguard campus.

00:04:05.280 | I visited Vanguard campus several times.

00:04:09.200 | I met with Bogle several times, and I impressed his talk very deeply.

00:04:19.240 | So I left financial industry last year, but I'd like to introduce Bogle's philosophy in

00:04:28.880 | Japan.

00:04:29.880 | So we decided to establish Bogleheads Japan chapter last year.

00:04:36.760 | Thank you.

00:04:37.760 | Thank you so much.

00:04:39.500 | Very nice.

00:04:40.500 | Thank you for coming.

00:04:41.500 | We really appreciate it.

00:04:42.500 | Okay.

00:04:43.500 | Let me see what else.

00:04:45.240 | Zoom tips.

00:04:46.680 | Everybody probably knows how to use Zoom.

00:04:48.760 | You can keep your video off.

00:04:50.960 | Please keep yourself muted unless you're speaking.

00:04:54.240 | What we are going to do is hold the questions until the end of the presentation.

00:04:58.640 | Is that okay, Eric, that we hold the questions until the end?

00:05:01.520 | Yeah, sure.

00:05:02.520 | Okay.

00:05:03.520 | That's probably easier, and I'm going to go very quickly.

00:05:06.600 | Okay.

00:05:07.600 | So just jot down your questions, and then we can hit them at the end.

00:05:11.520 | Right.

00:05:12.520 | Put your questions in the chat, and we will be monitoring the chat.

00:05:15.280 | We'll get to them in the end.

00:05:17.080 | You can save the chat.

00:05:19.020 | Throughout the evening, people will be posting things on the chat, links.

00:05:22.560 | Don't worry.

00:05:23.560 | You don't have to write them down.

00:05:24.560 | You can save the chat by bringing the chat window up, and then the lower right are the

00:05:29.320 | three ellipses.

00:05:31.160 | Click on that, and it will have an option to save the chat.

00:05:35.360 | The chat will be saved as of the time you click it, so do it at the end of the meeting.

00:05:40.840 | You can also move the goalposts if Eric has slides.

00:05:43.160 | The goalposts are the little -- you know, so the peanut gallery is over here, and his

00:05:46.680 | slides are here.

00:05:47.680 | You can move that goalpost so that you can enlarge his slides, and the disclaimer is

00:05:52.680 | that this is for informational and educational purposes only.

00:05:55.840 | We are not giving investing advice.

00:05:58.320 | Okay.

00:05:59.320 | Is there anything that I didn't cover, Gorey, Alan, Carol?

00:06:05.800 | >> I think you got it all, as far as I know, for me.

00:06:08.520 | >> Okay.

00:06:09.520 | Gorey, why don't you take over?

00:06:10.520 | Eric, I already mentioned that I liked your book, and why don't you take it over, Gorey?

00:06:15.360 | >> Fantastic.

00:06:16.360 | Thank you, Miriam, and thanks to the team that helped put this together, and Eric, it's

00:06:20.960 | so great to have you here.

00:06:22.360 | Thanks for being here.

00:06:23.720 | So for folks who haven't seen or read Eric's book already, I will put it -- put the cover

00:06:30.240 | on the screen while I read -- while I further introduce Eric a little beyond what Miriam

00:06:37.940 | already mentioned.

00:06:39.280 | So this description is straight from Eric's book.

00:06:42.440 | Eric Balchunas is a senior ETF analyst for Bloomberg Intelligence, where he writes for

00:06:47.460 | and leads the fund research team.

00:06:49.640 | He has more than 15 years' experience working with ETF data, designing new functions, and

00:06:55.480 | writing research and articles.

00:06:57.440 | He also helped to create the first TV show solely focusing on the opportunities, risks,

00:07:02.920 | and current events in the ETF industry, Bloomberg ETF IQ, as well as a podcast, Trillions.

00:07:10.200 | He's a Bloomberg Opinion Contributor and the author of the Institutional ETF Toolbox, published

00:07:15.480 | by Wiley in March 2016.

00:07:18.640 | Eric holds a bachelor's degree in journalism and environmental economics from Rutgers University.

00:07:24.360 | Currently lives in Philadelphia with his wife and two sons, and as folks mentioned earlier,

00:07:30.780 | is in tune to the World Series game going on.

00:07:33.800 | So for folks who haven't read the book yet, I'm happy to say it reads and flows really

00:07:37.880 | well.

00:07:38.880 | I could see it appealing to both nerds, self-proclaimed nerd, and it would appeal to non-nerds as

00:07:45.760 | well.

00:07:46.760 | But really anyone who's interested in a good story, it reads like you're watching a documentary.

00:07:52.920 | So for housekeeping, before I turn it over to Eric in terms of what to expect, like Miriam

00:07:58.280 | said, Eric will present first, after which I'll ask a few questions, and Miriam will

00:08:03.280 | ask a few questions, then we'll turn it over to questions from the chat.

00:08:06.980 | So again, folks should feel free throughout the evening to submit questions via chat.

00:08:12.520 | With that, I'll turn it over to Eric.

00:08:15.760 | >> Thank you very much, both of you guys.

00:08:19.400 | I'm going to share my screen real quick and just make sure we have the PowerPoint up and

00:08:22.640 | then we'll get going here.

00:08:24.560 | So let me share screen.

00:08:27.400 | It says host disabled participant screen sharing.

00:08:30.360 | Can you allow me to share it?

00:08:32.640 | >> Well, hold on, hold on, sorry.

00:08:36.520 | >> Okay.

00:08:37.520 | >> No, no, no, no, hold on.

00:08:40.040 | Okay.

00:08:41.040 | >> I got it.

00:08:42.040 | >> There you go.

00:08:43.040 | >> Let's try it now.

00:08:44.040 | I got it.

00:08:45.040 | Okay.

00:08:46.040 | So I'm going to share, and then I'm going to go like this.

00:08:47.720 | Let's go.

00:08:48.720 | I mean, my desktop is very busy, as you can see.

00:08:55.240 | I don't delete a lot.

00:08:56.240 | Okay.

00:08:57.240 | Can you see the full PowerPoint here?

00:08:58.240 | >> Yes.

00:08:59.240 | >> Okay.

00:09:00.240 | All right.

00:09:01.240 | Let's get started.

00:09:02.240 | So thank you for the introduction, and I'm a big fan of the Bogleheads.

00:09:04.600 | And for those of you who heard me speak at the dinner that was at the banquet at the

00:09:10.380 | Bogleheads conference, some of this will be redundant, but you can just tune into Philly's

00:09:15.960 | game while I talk, and then come back in after.

00:09:19.160 | But this is a bridge version.

00:09:20.160 | I'm not going through every slide.

00:09:21.320 | So I also wanted to just, I heard Mel was on the call, and Taylor, who really came ahead

00:09:27.840 | of me in that banquet.

00:09:29.680 | And I just want to say how awesome it is that they started this really cool organization.

00:09:37.820 | And Taylor in particular, who I interviewed for the book, was really helpful in my section

00:09:42.360 | on the Bogleheads.

00:09:43.600 | And again, I, it wasn't just because of him, but I dedicated the book to the World War

00:09:48.440 | II generation.

00:09:49.440 | I know he was in Battle of the Bulge.

00:09:51.280 | But Bogle, in my opinion, when I went to hang out with him multiple times, I felt like I

00:09:56.120 | was kind of hanging out with my grandfather, or at least somebody from that generation.

00:09:59.640 | My grandfather was in the war.

00:10:01.840 | He was not a boomer.

00:10:02.920 | And so I just felt Bogle's character and his wit was very much from that generation.

00:10:09.800 | And that's why I dedicated the book to my own grandparents.

00:10:13.500 | Thank you for asking me here.

00:10:14.500 | And look, this PowerPoint is rapid style, so I'm going to go very quickly.

00:10:19.100 | And if you have a question, we'll go to the end.

00:10:21.280 | So this is the cover of the book, which you just showed.

00:10:24.500 | So I won't spend much time here.

00:10:26.420 | I'll just go into why I wrote the book.

00:10:29.580 | People know who Bogle is.

00:10:30.580 | I'm a guy at Bloomberg, why would this happen?

00:10:33.880 | The main reason is, see this dictaphone here?

00:10:36.660 | During the pandemic, that's my jar of pens, which is the cute little ceramic clay thing

00:10:42.700 | my son made when he was like eight years old.

00:10:45.760 | And the dictaphone was just like gnawing at me.

00:10:50.280 | And Jack had passed away maybe a year before.

00:10:53.960 | And that dictaphone contained about three and a half hours of me and Bogle just going

00:10:58.440 | at it, both in agreement and disagreement and debates and discussions.

00:11:03.800 | And I felt, especially the last interview, I felt he said some things about the future

00:11:06.640 | that were just so interesting.

00:11:07.640 | And I thought, you know, I really should get that on paper.

00:11:11.400 | And I knew I had the data.

00:11:12.480 | I'm a fund analyst who does nothing but look at funds data, and I'm blown away.

00:11:17.020 | Even as much as I look at it year after year, I'm still blown away at the amount of money

00:11:21.920 | Vanguard takes in every year.

00:11:24.200 | It is unbelievable.

00:11:25.200 | In any other industry, this would be a way bigger deal, but Vanguard isn't a public.

00:11:31.200 | So it isn't as examined or studied as much.

00:11:33.240 | In fact, in my research department, the woman who covers asset managers only covers the

00:11:38.220 | public ones, BlackRock, Goldman, T. Rowe Price.

00:11:41.600 | She doesn't know a lot about Vanguard.

00:11:43.040 | It's not even on her dashboard.

00:11:44.040 | And I'm like, that's crazy.

00:11:45.720 | That's like not knowing about Amazon.

00:11:47.160 | So I thought if she doesn't know much about this company, there's probably other people

00:11:52.080 | who don't know a lot.

00:11:53.240 | And I could combine the interviews with the data.

00:11:55.800 | And as Gauri said earlier, I was always surprised there was never a documentary on Jack or Vanguard,

00:12:03.120 | given the incredible influence and the fact that we finally have a happy Wall Street story.

00:12:09.280 | I would just think this would just really attract the creative types, but there isn't

00:12:13.560 | one.

00:12:14.560 | So I wrote the book as a documentary with me as the narrator, and I interviewed 50 different

00:12:18.680 | people for the book.

00:12:21.120 | And if you read it, you'll realize you could almost turn this into a script for a documentary.

00:12:26.520 | So if anybody on here knows anybody at Netflix, just Gauri has my email.

00:12:32.760 | Vanguard is also a great vehicle to talk about the changing financial industry and the ecosystem.

00:12:38.640 | So it's not just funds, it's the advisory business, it's ETFs, it's behavior, it's trading.

00:12:45.920 | There's so much going on that Vanguard allows you to talk about here.

00:12:50.620 | And I think it's a good business case study.

00:12:53.800 | The moral of the story here is treat your customers well, throw them a bone now and

00:12:57.760 | then, and they will stick with you.

00:12:59.960 | If you take all the money, they won't.

00:13:02.800 | And this is a great tale of that.

00:13:05.320 | And I think a lot of younger people who are into the more populism themes will identify.

00:13:11.320 | Here's a picture of me and Jack from, I believe, the second interview, or it might have been

00:13:16.000 | the first one.

00:13:17.000 | I can't remember.

00:13:18.000 | I'm 20 pounds skinnier, which is why, that's half the reason I like this picture.

00:13:22.580 | Yes, it's with me with this legendary guy, but I'm also probably in the best shape I've

00:13:26.940 | been for the past couple of years.

00:13:28.140 | I had to gain a few pounds during the pandemic.

00:13:30.780 | Anyway, this office, if you've ever been there, is really cool.

00:13:34.380 | There's papers flying all over the place.

00:13:36.620 | There's oil paintings.

00:13:38.980 | There's a pillow of Confederate flag in the United States.

00:13:43.660 | Again, it's a very old school room, and it's a special room, and I really enjoyed going

00:13:50.220 | there.

00:13:51.220 | But I was shocked at how much this guy knew about everything in the ETF industry.

00:13:56.300 | He knew a thematic ETF that was launched earlier that week that nobody cared about.

00:14:01.180 | He wanted to complain about the oil ETF right off the bat, and the dollar-weighted returns,

00:14:06.060 | and he showed me papers, and I was just like, "Wow, this guy's in his 80s, and he's kind

00:14:10.700 | of looking at the same stuff I am every day."

00:14:13.140 | And so that's sort of how our relationship began over the next five years, and I'll end

00:14:19.980 | with that.

00:14:20.980 | So the book project was born out of that.

00:14:23.900 | So what I'm going to do in this presentation is give you 10 takeaways from the book that

00:14:29.100 | might be obvious, but I think most are not obvious.

00:14:31.580 | They're things that I think would be big themes if you were to read it, and I'll start with

00:14:37.140 | this one, which is that indexing needed Vanguard way more than Vanguard needed indexing.

00:14:41.580 | It's ironic, but index funds got way too much credit for the index fund revolution.

00:14:48.700 | They simply wouldn't be a big deal unless Vanguard's mutual ownership structure existed.

00:14:54.320 | That's the real change agent.

00:14:56.680 | I would also add to that, Vogel's unique structure.

00:15:00.980 | Those two unique structures, to me, exploded to create everything we're seeing today.

00:15:07.820 | Indexing just got lucky to be around at the time.

00:15:12.460 | Indexing almost surfed the Vanguard wave in a weird way.

00:15:16.260 | And so I speculate in the book that if Vogel and Vanguard hadn't existed, indexing would

00:15:20.820 | happen.

00:15:21.820 | I mean, he didn't invent it, but it would only have 4% to 5% of the assets as today,

00:15:26.180 | maybe $500 billion versus $12 trillion.

00:15:29.660 | And I point to this.

00:15:30.660 | There's a couple of pieces of evidence here.

00:15:31.980 | I point to this quote that Jack points out, meeting Jonathan Lovelace in an airport in

00:15:37.180 | 1974, when Lovelace heard that Vanguard was formed as a back office company that was mutually

00:15:43.020 | owned.

00:15:44.300 | This was two years before they launched the index fund and four months before Jack read

00:15:49.420 | the article in the journal that gave him the idea for the index fund.

00:15:53.220 | So this was purely based on the structure.

00:15:56.420 | Lovelace isn't a dumb guy.

00:15:57.940 | He nailed it all the way back in 1974.

00:15:59.820 | Now, the industry isn't destroyed, but it is on its way to being completely disrupted.

00:16:06.280 | And it's this chart here, which I think if you were to take one chart that defined Vogel's

00:16:14.020 | life's work, it's probably this one.

00:16:15.660 | This is the average fee of a Vanguard fund versus that of the average active fund.

00:16:20.300 | And you can see the natural gravity for the industry is to charge more because they're

00:16:25.820 | in a business.

00:16:26.820 | They're trying to serve these other people who aren't the investors, right?

00:16:30.500 | Vanguard obviously has this one master thing, and they continually vote to lower the fee

00:16:36.100 | over the years.

00:16:37.540 | It also shows that indexing wasn't dirt cheap from the get-go.

00:16:42.980 | It got that way over many years.

00:16:44.940 | I'm talking decades.

00:16:46.980 | It wasn't until 2010 that it was below 10 basis points.

00:16:52.980 | That's when it really took off.

00:16:54.820 | So this chart to me shows that it's the mutual ownership structure that brought indexing

00:16:59.820 | to a cheap point, which is when it really took off.

00:17:02.860 | I just don't think it gets cheap without it.

00:17:04.460 | And here's an example.

00:17:06.020 | If you look, there are many index funds today that are not cheap.

00:17:09.060 | In other words, it's not the guarantee that if you have an index fund, it's automatically

00:17:13.660 | cheap.

00:17:14.660 | This was just what Vogel did and Vanguard.

00:17:16.380 | I think if Vogel hadn't existed, index funds would be out, but they'd be 80, 90 basis

00:17:20.940 | points.

00:17:21.940 | They'd be used by institutions and fans of the efficient market hypothesis.

00:17:27.300 | And the one I highlight here is the Wells Fargo.

00:17:29.260 | This is the second index fund ever launched, and it still charges 44 basis points.

00:17:33.980 | And that's with Vogel and Vanguard in the picture.

00:17:37.180 | So imagine without, I say it's probably double, and nobody really cares.

00:17:42.220 | It's not a big deal.

00:17:45.060 | Now some people say, let's say indexing didn't exist at all.

00:17:48.460 | Let's say nobody had even thought of this as a concept.

00:17:52.060 | Vogel starts Vanguard, and he ends up starting to audit active funds eventually.

00:17:56.260 | I know he couldn't do it at first, but let's just say he could.

00:17:59.540 | I have premised that Vanguard would be the biggest active fund manager six times over

00:18:04.060 | if indexing never happened.

00:18:06.100 | They're already the third biggest, and that's with Vanguard crapping on active for 35 years.

00:18:12.400 | So you think about if he was praising active, or cheap active, if you will, I think Vanguard

00:18:19.040 | would have taken off.

00:18:20.040 | Because all studies point to the fact that the lower your fee is as an active fund, the

00:18:24.000 | higher or better chance you have of beating the benchmark over 10, 20 years.

00:18:28.200 | So the 10 to 20 year SPIVA reports, if you will, would show Vanguard active funds at

00:18:32.840 | the top, and the word would get out, and ultimately they'd get the majority of the flows.

00:18:37.320 | So again, this speaks to the mutual ownership structure is the thing.

00:18:42.120 | And here's another great example.

00:18:43.480 | The Wellington Fund is an active fund, as you all know.

00:18:47.340 | It was launched in the '20s.

00:18:49.600 | And I actually looked at all the funds launched in the '20s.

00:18:52.040 | We'll call these the early pioneer funds.

00:18:53.760 | They're all 90 plus years old.

00:18:55.800 | And you can see here, Wellington has 90% of the assets of those funds.

00:19:00.000 | First of all, half of them closed, and the half that exists only have 10% market share

00:19:05.320 | between them.

00:19:06.320 | So this, to me, is a great point.

00:19:08.200 | A, it shows you if Vanguard only had active, they would dominate.

00:19:12.160 | And B, it shows you that Vanguard today is going to dominate in the future too, because

00:19:19.040 | this shows you what they can do when that structure is applied to their home team, if

00:19:23.880 | you will.

00:19:24.880 | They're just ultimately going to win out.

00:19:27.280 | Okay, number two, Bogle's mission not yet realized.

00:19:30.800 | I had read a bunch of Bogle's quotes like everybody else.

00:19:33.360 | The needle in the haystack, you get what you don't pay for, all these, those are the Ben

00:19:39.440 | Franklin type quotes we all know.

00:19:41.680 | But there was a quote I read in Character Counts that I was like, I'd never read before.

00:19:45.200 | And I was like, holy moly.

00:19:47.760 | And it's this one here, which is the first sign that Vanguard's mission is create a better

00:19:50.800 | world for the investor will be when our market share begins to erode.

00:19:55.480 | I've asked many people, I've been on like 25 podcasts, people who know business.

00:20:00.480 | Can you find a CEO in the history of time who has ever rooted for their market share

00:20:05.200 | to erode?

00:20:06.200 | Again, if you can find one, let me know.

00:20:08.840 | I still have not found one.

00:20:11.540 | Speak to the different trip this guy was on.

00:20:14.200 | Because what he knew back in 1991, by the way, when they were still small, was that

00:20:18.080 | ultimately, if you offer this great deal, people will come, right?

00:20:21.000 | You build it, they will come and they did.

00:20:23.940 | But it won't be until other people do it.

00:20:27.200 | And they get cheap and they become good stewards that Vanguard's market share will plateau

00:20:30.560 | and ultimately erode.

00:20:32.520 | So you can see he was on a quote mission beyond just making a big company to actually completely

00:20:38.720 | change the industry.

00:20:40.440 | This is why, and the Bogleheads are also why, at the beginning of the book, I compare Bogle

00:20:46.040 | to be a combination of Steve Jobs, because he put actual products that people could use

00:20:51.240 | in the marketplace.

00:20:53.120 | And Martin Luther, the Reformation guy, who stuck the thing right on the church door and

00:20:57.800 | preached this stuff right to the people in the church, pissed everybody off.

00:21:01.960 | But you can see he created a new religion in a way.

00:21:05.440 | And so I think that's sort of why the story was so attractive to me.

00:21:10.680 | There was multiple elements to it.

00:21:14.600 | And Vanguard's market share is not eroding.

00:21:16.440 | In fact, it's only growing.

00:21:17.760 | Right now, it's about 27%, 28% of all US fund assets.

00:21:21.880 | So that's double the old high watermark held by any other company.

00:21:26.040 | Fidelity was 14% in 1992, I think.

00:21:29.440 | Since then, it's been all Vanguard.

00:21:31.680 | And they take in more money than everybody else.

00:21:34.200 | And so until that changes, they're going to continue to grow their market share, obviously,

00:21:37.600 | especially in bear markets.

00:21:39.520 | The line at the bottom is the percent of the industry's revenue they account for.

00:21:45.080 | So you can see that they account for 5% of the revenue, but 27% of the market share.

00:21:50.360 | That gap also doesn't really exist in any other business.

00:21:54.640 | It's weird.

00:21:56.800 | But that, in my opinion, this chart, I would say, is the scariest chart on Wall Street,

00:22:01.560 | because it speaks of the pain that's to come, which I will feel, my company will feel.

00:22:06.960 | I write this book not as somebody who is necessarily rooting for this, because I feed off of the

00:22:12.520 | active fund industry in many ways in the trading world.

00:22:15.560 | But I'm an analyst, and I'm just trying to give it to people straight.

00:22:18.480 | So it's my analyst hat that I'm trying to explain all this.

00:22:21.400 | And I'm also trying to warn our clients, you had better have a plan for this.

00:22:25.200 | This is a big deal.

00:22:26.200 | It's like not having a plan for Amazon if you're in the retail business.

00:22:30.320 | And here you can see Vanguard's flows.

00:22:31.760 | They always take in more money than everybody else.

00:22:33.680 | They've taken a $2.4 trillion over the past 10 years, which is $920 million a day.

00:22:40.280 | So almost a billion dollars a day for a decade.

00:22:43.640 | The next most flow getter is BlackRock, with half.

00:22:49.140 | And then you need binoculars to see third place.

00:22:52.240 | And then many have seen outflows.

00:22:54.060 | So again, this deserves to be studied.

00:22:58.240 | If you look at the top funds in the United States by assets, now the top 10 are all cheap

00:23:06.520 | index funds.

00:23:07.800 | And eight of the top 11 are Vanguards.

00:23:10.680 | And three that aren't Vanguard are people who just copy them.

00:23:13.080 | So that'd be Fidelity, Spider, and let's get the one iShares.

00:23:17.080 | This is part of why I call it the Bogle effect and not like a book about Vanguard, because

00:23:21.120 | the effect is almost as interesting as the thing itself.

00:23:24.760 | These companies all had to copy Vanguard to get money.

00:23:27.960 | I just looked at Fidelity's flows recently.

00:23:30.760 | They've taken in $64 billion in their index mutual funds, but they've seen $30 billion

00:23:36.640 | out of their active funds.

00:23:37.640 | And this is a pattern we've seen all year.

00:23:40.200 | Fidelity looks like it's having good years, because it's flat for a little bit in terms

00:23:44.720 | of positive flows.

00:23:45.720 | But if you unpeel that, all the money that they get is into their low-cost index funds,

00:23:52.280 | which on one hand, it's like if there's ever a compliment, it's that Fidelity has gone

00:24:00.360 | here.

00:24:01.360 | But it's also smart of them.

00:24:02.400 | They swallowed their pride.

00:24:03.400 | They used the trash index funds.

00:24:05.320 | And now it's helping save their business in a way, at least on assets.

00:24:10.560 | And so a capital group has three in the top 15.

00:24:16.240 | Obviously, all those are below the top 12.

00:24:19.600 | I think those will probably be pushed off in the next couple of years, be 15 out of

00:24:23.200 | 15 at some point.

00:24:24.760 | And just so you know, of all the passive assets out there that are low cost, Vanguard has

00:24:30.120 | half.

00:24:31.440 | The other half are other people.

00:24:32.720 | So Bogle would have loved this.

00:24:34.440 | I think Bogle would have loved that Fidelity did it, and Goldman did it, and Spyder did

00:24:38.480 | it.

00:24:39.480 | He was happy to see this.

00:24:40.480 | Number three, Vanguard wouldn't exist if not for a ton of serendipity.

00:24:44.680 | I didn't know everything about the story.

00:24:46.600 | So when I researched it, and I read all these books about it, I was just amazed at how many

00:24:51.220 | little moments it could have gone the other way, and we would not have a Vanguard.

00:24:55.560 | So the first moment would be when Jack's looking for a thesis to write.

00:24:59.280 | He goes to the library at Princeton in December 1949, he finds this magazine, Fortune.

00:25:04.840 | He reads it, and he finds an article on mutual funds in there, and says, "Oh, this is interesting.

00:25:09.680 | Let me write about this."

00:25:12.320 | I looked at other magazines that would have been laying around the library in December

00:25:15.880 | 1949, and on time, the cover was Conrad Hilton, the hotel guy.

00:25:21.880 | So I tell anyone I know in the hotel industry, you guys dodged a major bullet, because we

00:25:28.980 | would have probably had low-cost hotels if he had picked up this magazine, who knows?

00:25:33.280 | But you can see, isn't it funny how life works like that?

00:25:35.880 | Sometimes your whole life can be just what you pick up versus not.

00:25:38.420 | I just think that's pretty wild.

00:25:42.280 | Another moment of serendipity was when Bogle was searching for a partner in the '60s, because

00:25:48.000 | his Wellington Fund was boring, and everybody wanted gross stocks, so he felt he needed

00:25:52.320 | to partner with an equity manager.

00:25:54.880 | He said he wanted a middle-of-the-road equity manager.

00:25:58.140 | So he went and he asked Capital Group, they said no.

00:26:00.800 | He asked Incorporated Investors, they said no.

00:26:02.640 | He asked Franklin, they said no.

00:26:04.860 | Wasn't until fourth on the list, Thorndike, Doran, Payne, and Lewis, they said yes.

00:26:08.760 | They were like Cathie Wood.

00:26:10.100 | They were like the arc of that era, small, but very growthy.

00:26:15.120 | And they were one of these people who saw everything as the new normal, and mean reversion

00:26:19.080 | is dead, really into this stuff, totally full of Kool-Aid.

00:26:23.440 | So when the '70s hit, the bear market hit, they got into a huge fight with Bogle, because

00:26:28.180 | Bogle thought they ruined his company.

00:26:31.700 | And so that bifurcation was nasty.

00:26:34.840 | And it was out of that bifurcation that Vanguard was born as a solution to this nasty situation.

00:26:41.540 | So let's say Capital Group had said yes.

00:26:44.320 | He was friendly with Lovelace.

00:26:45.840 | They weren't as hardcore into gross stocks.

00:26:48.520 | They probably wouldn't have had a falling out.

00:26:50.580 | Same with Franklin.

00:26:52.000 | Again, interesting how life works.

00:26:54.840 | Sometimes when one door closes, another one opens, or something was just meant to be.

00:26:59.400 | And I found in my story here, the universe almost wanted this to exist in a weird way.

00:27:07.040 | The third one is now you have Vanguard, and you promised the new people that you will

00:27:12.400 | not manage money.

00:27:13.400 | You'll just do back office.

00:27:14.880 | So he reads this magazine.

00:27:15.880 | I think it was the first edition of the Journal of Portfolio Management, where Sam Wilson

00:27:22.440 | says, look, can somebody please set up an S&P 500 index?

00:27:25.240 | We need the pleas to people.

00:27:26.680 | Can someone do this, please?

00:27:28.360 | So Bogle, this is it.

00:27:29.560 | He thought, this is a great idea, and I can sell it to the board, because we're not actually

00:27:33.760 | running money.

00:27:34.760 | It doesn't have to be managed.

00:27:36.240 | And as he said to my colleague, Mike Regan, in a Businessweek article, they actually bought

00:27:40.360 | it.

00:27:42.640 | So he knew he was sort of getting one by.

00:27:45.140 | And again, that little opening created a whole different change in history.

00:27:51.360 | So it was those three things that I think were remarkably serendipitous.

00:27:55.800 | All right, let's have a little fun here.

00:27:58.320 | I think Bogle has a lot of similarities to punk rock.

00:28:02.440 | OK, let me, before you tune out, let me explain what I mean.

00:28:06.640 | Number one, before I interviewed Bogle, I would see him on CNBC and Bloomberg TV.

00:28:12.000 | And he would get up there.

00:28:14.000 | And the whole network is designed to sign, where's the next hot stock sector?

00:28:18.400 | What do you think of the Fed?

00:28:20.280 | He'd get up like completely a 180, and he'd be like, trading is for losers.

00:28:26.540 | There is no there there.

00:28:28.560 | There's no way around the index.

00:28:29.720 | He would just pour cold water just on the whole network's mission, really.

00:28:35.240 | And I was like, man, this guy is kind of punk rock.

00:28:38.040 | He's just basically dumping on the whole thing, and he's got this nice smile on his face.

00:28:42.760 | He looks like Latter-day Henry Fonda.

00:28:45.240 | And I just found him looks like your grandfather.

00:28:48.760 | Somebody put it, grandfatherly assassin.

00:28:51.920 | And he would do this at events.

00:28:53.640 | He was at an ETF event, and he said, ETFs suck.

00:28:57.080 | Rate to the ETF people.

00:28:58.760 | He'd go to Morningstar and say, active is awful.

00:29:01.120 | Rate to active managers.

00:29:02.200 | And that idea of just antagonizing an audience like that is not easy.

00:29:07.880 | I think it actually helped him to create attention for himself and to sell indexing.

00:29:11.760 | But I give him credit for sort of being kind of punk like that.

00:29:14.920 | Most people just want to get along and not really stick out.

00:29:19.280 | If that were the only metaphor, I wouldn't have done it.

00:29:21.080 | But the other huge metaphor with punk rock is this.

00:29:23.960 | The birth of punk is largely the Ramones.

00:29:27.320 | The Ramones, in 1974-- by the way, three weeks between the Ramones' first show, Vanguard

00:29:34.400 | was formed.

00:29:35.520 | I think in the early '70s, a lot of things were forming that were like a let's get real

00:29:42.320 | reaction to the collapse of the '60s, both culturally and economically.

00:29:47.680 | So I think Vanguard was a let's get real reaction.

00:29:50.600 | So was punk rock.

00:29:51.680 | A lot of cinema became very gritty.

00:29:54.320 | And those movies have held up for a long time, just as punk rock has.

00:29:58.060 | And if you can see here, Ramone, Johnny Ramone said, all we did was take out the stuff we

00:30:02.240 | didn't like about rock and roll and use the rest.

00:30:04.860 | No blues influence, no long guitar solos.

00:30:07.800 | If you think about it, Jack's life work is taking everything he didn't like about the

00:30:12.280 | mutual fund industry and leaving what's left.

00:30:15.160 | Let's remove the expense ratio, let's remove the transaction costs, let's remove the brokers,

00:30:19.520 | and let's remove the human emotion.

00:30:22.120 | And so you basically get addition by subtraction.

00:30:25.800 | And this chart, I think, is a brilliant chart that he used, which is the growth of $10,000

00:30:30.880 | over 50 years, if you get 5% annually versus 7%.

00:30:35.000 | 7% annually is after Bogle took out everything.

00:30:38.600 | The 5% is when the industry gets their takes and all this stuff is in the middle.

00:30:43.320 | And you can see, one will get you $300,000 and one gets you a little over $100,000.

00:30:48.200 | And this is a powerful way to explain that those little innocuous percentage points on

00:30:53.680 | fees add up over the long term.

00:30:56.640 | I also think he was punk by this one.

00:30:59.880 | When he wouldn't pay brokers-- again, this reminds me of Michael Corleone in Godfather

00:31:05.160 | 2, when he wouldn't give the senator who was looking for handouts any money.

00:31:10.520 | He says, my offer is this, nothing.

00:31:12.280 | So this is a tough move, especially if you're a guy with a young family, a lot of kids.

00:31:19.160 | It would have been easier just to sell out to the man, pay the loads, get your fund some

00:31:25.720 | assets.

00:31:26.800 | And this was also in the midst of 80 months of straight outflows.

00:31:29.920 | Again, this is a pretty ballsy move, if I can say so.

00:31:35.280 | And it's ultimately saying, you need to come to us.

00:31:38.680 | So anybody who wanted to use Vanguard had to leave the system.

00:31:42.040 | So I actually fathom in the book that the RAA movement should be loosely credited to

00:31:46.920 | Bogle.

00:31:47.920 | He forced brokers to leave because they knew what they were up to was bad for the investor.

00:31:53.180 | Leave that system, which is pay-to-play, and go to Vanguard and set up as an RAA who was

00:32:00.600 | a fiduciary.

00:32:01.600 | Doing this made Vanguard's success take a long time.

00:32:05.840 | It would have been faster if you took the shortcut.

00:32:08.320 | And that's why this stat exists, which is wild, which is 97% of Vanguard's assets today

00:32:13.780 | came after Bogle stepped down as CEO.

00:32:17.840 | I looked at Apple, and 83% of Apple's market cap came after Steve Jobs left.

00:32:22.320 | So this is even a more hardcore situation than that.

00:32:26.440 | Active funds root problem isn't underperformance.

00:32:28.760 | It is, but it isn't.

00:32:29.940 | The root problem with active is not sharing economies of scale.

00:32:34.120 | Bogle didn't even have a problem with high fees.

00:32:35.800 | If you were just starting out, and you had to charge 1% on a small amount of assets,

00:32:39.960 | we'll say, in this case here, I'm showing you, 1% on $10 million is $100,000.

00:32:45.400 | You need that money.

00:32:46.600 | That's barely enough to live on.

00:32:47.600 | Let's say you have a billion dollars.

00:32:49.560 | Now you have $10 million.

00:32:50.560 | OK, fine.

00:32:51.560 | You have a staff.

00:32:52.560 | You have an office.

00:32:53.560 | You're up and running.

00:32:54.560 | But once you get to $40 billion, $75 billion, you keep that 1%.

00:32:59.000 | Now you're looking at $400 million a year, $750 million a year, or in the case of a $100

00:33:03.920 | billion fund like PIMCO and Fidelity, that's a billion a year in fees.

00:33:09.200 | They didn't share any of that.

00:33:11.440 | They could have shared just a portion of the gravy and not even cannibalized themselves.

00:33:19.280 | And thank good will, the lower the fee would have helped their beat rates in terms of the

00:33:23.960 | benchmark, and Vanguard wouldn't have completely, utterly disrupted them.

00:33:27.480 | So they missed a major opportunity here.

00:33:30.440 | And Bogle argued to make dollar fees a bigger deal.

00:33:35.200 | But he couldn't even get the Supreme Court to agree to it.

00:33:37.640 | But I think investors over the years, just sniff test-wise, understood that this is a

00:33:42.080 | better deal.

00:33:43.080 | And obviously, we've seen the results.

00:33:45.080 | But it's the dollar fees that did them in.

00:33:48.880 | And it reminds me of the music industry.

00:33:51.800 | A CD was $16.99 for 30 years or whatever.

00:33:58.000 | But the cost of making a CD dropped to $0.50.

00:34:01.080 | The music industry didn't share any of their economy scale.

00:34:03.600 | So when the MP3 came along, and Napster, people were like, I'm leaving.

00:34:07.840 | I have no loyalty to these record companies.

00:34:11.040 | And the industry revenue of the music industry dropped by half.

00:34:14.520 | And so I think the MP3 metaphor is somewhat relevant.

00:34:18.720 | I think Uber to cabs, there's been many examples like this.

00:34:22.440 | The difference between those industries and this one, though, is that you can actually

00:34:25.680 | lose market share and still make more money in this industry.

00:34:29.640 | It almost should be illegal.

00:34:32.040 | You can see here that in 1993, passive made up only 2% of all assets.

00:34:38.680 | Active is 98%.

00:34:39.680 | In 2012, passive makes up almost a quarter.

00:34:43.000 | Now it makes up 40%.

00:34:44.880 | But you can see here that active slice, even though it shrunk, the pie itself grew, because

00:34:50.240 | the market doubled like 10 times.

00:34:53.640 | Thus, they lost customers, didn't do a good job because they underperformed the benchmark,

00:34:58.720 | yet they got more money.

00:35:00.360 | And again, I benefit from this.

00:35:01.840 | I'm not knocking it.

00:35:02.880 | I'm just saying it's unusual.

00:35:04.880 | It's almost not really fair or capitalist.

00:35:08.040 | But that's what happens when you have an equity market premium baked into your business.

00:35:11.680 | You get lucky.

00:35:13.600 | And this is part of why Jack said the index fund revolution has claimed no victims yet.

00:35:20.360 | Now a bear market is where we're going to see victims.

00:35:22.920 | And so I use this metaphor of the bank consolidation.

00:35:26.200 | It went from like 60, it was like the March Madness brackets, it went from like 35 banks

00:35:30.280 | to four.

00:35:31.280 | I think we're going to see something similar if this bear market goes on and on, because

00:35:35.520 | they won't have the market to save them.

00:35:37.140 | I think we'll see like three or four mega giant asset managers controlling 70, 80% of

00:35:43.380 | all assets.

00:35:44.660 | And they'll do everything for you.

00:35:45.660 | They'll do the mutual funds, the advice work, yada, yada, be full service, vertically integrated

00:35:49.820 | kind of thing.

00:35:50.820 | The other 30% will be niche providers.

00:35:54.360 | Maybe if we compare it to the airlines, those would be like your Hawaiian airs, right?

00:35:58.220 | They do specialized things, arc themes, crypto, alternative stuff like that.

00:36:03.500 | I could be wrong.

00:36:04.640 | This is how I see it playing out.

00:36:05.820 | I asked Jack what he thought, he said this, it's going to go even further than this.

00:36:10.580 | These companies are going to have to mutualize to survive, which means they're going to have

00:36:13.980 | to adopt Vanguard's structure to make it.

00:36:18.140 | I couldn't find anybody to agree with this.

00:36:19.620 | I asked even his close friends, Christine Benz, Burt Malkiel, Rick Ferry, even they

00:36:25.820 | didn't agree with this.

00:36:27.820 | Basically there was three things that nobody agreed with Jack on, mass mutualization, ETFs,

00:36:35.060 | and international.

00:36:37.500 | He was a man alone in those three areas, maybe not alone, but at least amongst his people

00:36:42.220 | who really liked him, definitely disagreed on those big topics.

00:36:47.980 | Number six, the bigger Active gets, the more active Active will become.

00:36:52.220 | So like I said, BogleEffect isn't just funds, he's changing or Vanguard is changing Active.

00:36:59.140 | So what we see is the modern portfolio based on the way flows are going these days is 85%

00:37:04.500 | of a portfolio now is low cost, cheap beta.

00:37:06.780 | This is your 60/40 for like seven bips.

00:37:09.540 | It's a wonderful thing.

00:37:11.140 | Everybody's happy.

00:37:12.140 | The problem with it is it's boring as hell.

00:37:14.980 | Now for Bogleheads, you may love boring and Bogle himself would say that's fine with me.

00:37:19.660 | Boring is good, but there are definitely people who want to decorate that and maybe keep themselves

00:37:24.860 | a little busy, have some fun in the market and speculate.

00:37:27.680 | So what they want is something completely opposite.

00:37:30.620 | So they want a hot sauce.

00:37:33.260 | This would be something like ARK would fit here, thematic ETFs, crypto, NFTs, call options,

00:37:42.220 | an account at Robinhood where you just trade stocks.

00:37:45.260 | That would be the hot sauce lane and that is a viable lane.

00:37:48.300 | We do see flows going there.

00:37:49.660 | This partially explains Cathie Wood's staying power.

00:37:54.020 | ARK has not seen any outflows, even though they're down 70%.

00:37:58.060 | And my theory on that is because everybody has the serious, fundamentally sound stocks

00:38:02.780 | covered in their Vanguard fund.

00:38:05.340 | They don't need her for that.

00:38:06.420 | They need her to be crazy and live in the future.

00:38:11.460 | And so that hot sauce plate is a little bit to satisfy your FOMO because, hey, what if

00:38:15.940 | this lady's right and there's robo taxis and AI all over the place?

00:38:20.460 | I don't want to be sad I missed out.

00:38:24.260 | So I think, ironically, Cathie Wood staying power is a byproduct of Vogel's success of

00:38:30.860 | dominating the portfolio.

00:38:33.940 | And we know this because the number of stocks in every new equity ETF launch is going down.

00:38:39.540 | In other words, they're designing ETFs now, which is where all the innovation is, to have

00:38:44.540 | maximum pot potential.

00:38:46.700 | They want to be your hot sauce.

00:38:48.700 | They certainly don't want to compete with Vanguard.

00:38:51.280 | This is also why we say that if you're in the middle, you're in trouble.

00:38:55.020 | And this is where legacy active would exist.

00:38:57.820 | If you're kind of near the benchmark and you charge over 20 basis points, you're probably

00:39:03.500 | going to go extinct.

00:39:05.340 | So the middle is dead.

00:39:07.120 | But if you're cheap or shiny, you might have a future.

00:39:10.340 | OK, Vogel's relationship with ETFs was complicated.

00:39:15.300 | So I know I'm an ETF business.

00:39:18.460 | He wasn't a fan.

00:39:21.180 | But what's funny is he had such a big impact on ETFs.

00:39:23.500 | If it wasn't for Vogel, ETFs would be a couple percent of assets of what they are today.

00:39:30.140 | So for example, when S&P 500, or I say Amex, Nate Most, wanted to launch the first ETF

00:39:37.340 | in the early 90s, he went to Vogel's office, said, hey, can we make the Vanguard index

00:39:41.540 | fund be the first ETF?

00:39:42.540 | And Vogel said, no way, I hate trading.

00:39:45.140 | Here's a couple ideas on your design.

00:39:47.320 | So Nate Most goes to State Street with the same pitch, and they buy it.

00:39:51.220 | But when SPY comes out in 1993, the expense ratio is 0.20%.

00:39:57.780 | Why?

00:39:59.180 | That is where Vanguard 500 index mutual fund had been mutually owned structured down to

00:40:05.700 | in '93.

00:40:06.700 | So SPY launches because it wants to be able to be at the same price point as Vanguard.

00:40:11.900 | Major.

00:40:12.900 | Had SPY launched at 80 or 90, the ETF business would not be what it is.

00:40:16.660 | It started out on third base because it was 20 bits.

00:40:20.700 | And then Barclays comes along and see, it was originally designed to be a trading tool,

00:40:25.380 | but Barclays comes along and sees it as something that could spread to retail because it's low

00:40:30.500 | cost, tax efficient, yada, yada.

00:40:32.740 | So that's sort of a major contribution to the ETF market that he did not like at all.

00:40:39.060 | I sometimes equate Vogel's relationship to ETFs is like this, like the index mutual fund

00:40:45.260 | was like his firstborn daughter who he just loved.

00:40:49.740 | And the ETF was like the sort of tatted up bad boy that she married.

00:40:54.620 | So he didn't like it, but he's in the family now and he has to deal with it.

00:40:59.540 | And he would wrestle with it for the rest of his life, and he could never get comfortable

00:41:04.220 | with it.

00:41:05.220 | He even would like, he'd make some, you know, he would offer an olive branch a little bit

00:41:11.860 | sometimes, but then he would go right back to how it trades too much and he didn't like

00:41:15.180 | trading and he'd just never get comfortable with it.

00:41:17.740 | And now ETFs are bigger than traditional index funds in assets.

00:41:23.220 | And if you look at Vanguard, they're about to become the biggest ETF for sure.

00:41:27.780 | In two years, they're going to pass BlackRock, who is the white line in assets there.

00:41:33.980 | And again, on one hand, ETFs spread indexing to more people.

00:41:39.800 | How can you be, you know, how can you hate that?

00:41:41.740 | On the other, they do trade and he was against trading so you could understand his point

00:41:45.420 | of view.

00:41:46.420 | A lot of times in the book when Vogel would go savage, unless it was against dollar fees

00:41:52.460 | of high cost managers, I agree with him completely there.

00:41:55.500 | I would sort of just lay out both points of view because he would fight with Vanguard

00:41:59.740 | and ETFs.

00:42:00.740 | And I'm like, I don't know, here's, you know, here's his take, here's some other people's

00:42:04.580 | takes, you be the judge.

00:42:06.860 | But anyway, Vogel, I think also beyond the trading of ETFs, he didn't like the innovation.

00:42:13.380 | And so he said he felt like Dr. Frankenstein where he had created a monster.

00:42:18.500 | And you know, Gus Sauter and Rick Ferry, they agree, they think the ETF industry has gotten

00:42:22.660 | too crazy, all kinds of weird stuff coming out that are based on the index funds.

00:42:27.680 | And they're sort of riding the index funds success a bit because they're technically

00:42:32.980 | passive, but they're far from it in spirit.

00:42:36.220 | So I kind of understand what he felt here.

00:42:38.780 | But I will say the bulk of the money in ETFs goes to very boring, vanilla, cheap beta.

00:42:44.740 | So I think his influence is bigger than even he might think.

00:42:49.340 | And this is a funny story.

00:42:51.740 | Our last podcast with him, which was six months before he passed away, he was 89, I believe,

00:42:56.900 | or 88.

00:42:57.900 | At the end of our ETF podcast, we ask every guest a fun question to end it on.

00:43:02.900 | We say, what's your favorite ETF ticker?

00:43:05.220 | Because ETFs have some funny tickers.

00:43:07.740 | He thinks for three seconds, and he goes, CRZY, which isn't a ticker, by the way.

00:43:13.740 | It's just his take on ETFs, but in a ticker form, which, again, we thought was just really

00:43:20.540 | funny and witty, especially for someone of that age, his mind was sharp as a tack.

00:43:25.420 | And he could, you know, have a sense of humor, because he just got done ranting against them.

00:43:29.740 | And then he's able to sort of have fun with it and move on.

00:43:33.940 | Number eight, most passive worries are overblown.

00:43:36.220 | I'll go fast through this.

00:43:38.300 | The idea that passive is going to, like, take over the stock market and ruin everything

00:43:41.660 | is just wrong.

00:43:43.220 | If you look at the ownership of the stock market, households own 40% of all stocks.

00:43:48.980 | Mutual funds and ETFs that are passively managed own about 17%, 18%.

00:43:52.660 | If we add institutions, we might get to 25%.

00:43:56.440 | But even if mutual funds and ETFs were 100% passive, that would still be only 40% of the

00:44:02.860 | stock market.

00:44:03.860 | So you're still looking at at least half would be trading.

00:44:07.740 | Burt Malkiel, Gus Sauter, even Vogel thought you can get well over 70% and still be fine

00:44:13.100 | and have price discovery.

00:44:14.100 | Speaking of price discovery, I don't think index funds are really ruining fundamentals.

00:44:18.060 | We've seen time and again a stock price like GE here will crash, essentially, over like

00:44:24.140 | a 10-month or 18-month period because of bad earnings.

00:44:28.140 | Meanwhile, the blue bars are showing you flows into index funds and ETFs that own GE.

00:44:34.080 | So clearly, the tail cannot wag the dog.

00:44:36.360 | It's just not enough muscle power to make that stock not react to bad news.

00:44:42.300 | Now, would the stock have gone down 50% instead of 45% because there was a bid coming in from

00:44:48.220 | passive?

00:44:49.220 | Maybe.

00:44:50.220 | But I would almost argue that's a good thing.

00:44:51.220 | I think passive and the relentless bid can sometimes put a floor in a sell-off, which

00:44:55.620 | helps everybody.

00:44:56.620 | So I have no problem with it.

00:44:58.220 | I'm a big sniff test, guys.

00:44:59.940 | If stocks don't move on earnings the way they should, then I think we need to start looking

00:45:05.500 | at this more.

00:45:07.020 | Now, what is a big concern that is-- most of these worries on passive I just kick out

00:45:12.380 | pretty quickly.

00:45:13.660 | The one that I tend to find most legitimate is that you have a concentration of voting

00:45:19.020 | power.

00:45:20.020 | Vanguard owns 8.4% of most stocks.

00:45:22.700 | They are now the top owner of 69% of the stocks in the S&P 500.

00:45:27.980 | And BlackRock is 7%.

00:45:29.280 | So the two of them own 15% of every company in America.

00:45:33.100 | And their little corporate governance group, which is made up of a couple of people, are

00:45:36.180 | voting 8% of that share.

00:45:38.860 | That's 30 million investors getting voted on by five people.

00:45:42.940 | I don't even like that.

00:45:43.940 | I think there's something wrong with it.

00:45:44.940 | So Vanguard actually today came out and said, we're going to try to do a pilot program where

00:45:50.500 | we let people have a choice on how they're going to vote.

00:45:53.380 | So if you want to have a third party do it, or we'll do it if you want, or you can opt

00:45:58.340 | not to vote, I think it's a practical solution to help solve this concern over this.

00:46:04.620 | Because that 8.4% is going to grow, because they take in more money than everybody else.

00:46:09.100 | So it could get to 15%, 20% at some point.

00:46:13.500 | So anyway, I think this is an issue we're going to see.

00:46:15.300 | But what they did today will go a long way in staving off potential regulation.

00:46:21.940 | And this brings me to my Warren Buffett quote.

00:46:23.620 | Like I said, I interviewed 50 people.

00:46:25.780 | One of them was Warren Buffett, who answered my email within like half a day, by the way.

00:46:32.300 | I was told he will never reply to me, because I'm like nobody.

00:46:36.580 | But he did.

00:46:38.140 | And he answered four or five questions, because he said he loved Jack.

00:46:42.380 | Anyway, one of the questions I had was, do you think passive is getting too big?

00:46:47.220 | And he said, if index funds continue to grow, there will be public policy issues down the

00:46:51.180 | line.

00:46:52.180 | But that's a subject for another day.

00:46:53.340 | So I do think at some point, we have a team on our team, it's the only thing that can

00:46:56.500 | stop Vanguard is regulation.

00:46:59.980 | And at some point, I think they'll be regulated.

00:47:01.540 | But here's the thing, it doesn't even matter.

00:47:04.020 | Because every firm now has low cost passive funds.

00:47:06.940 | So if Vanguard can no longer sell funds to you, you can go to Fidelity, you can go to

00:47:10.460 | Goldman, you can go to Schwab.

00:47:12.300 | That again, is why I call the book Bogle Effect, and not like the Vanguard story.

00:47:16.900 | Number nine, a cheap index fund is way undercredited for improving investor behavior.

00:47:22.180 | There's all these books on behavior and psychology and all these advisors, I think they take

00:47:26.860 | a lot of credit for behavioral coaching.

00:47:29.760 | But try doing that when the person's in a high cost active fund that's underperforming

00:47:34.060 | the market.

00:47:35.700 | That is hard.

00:47:36.940 | But in a cheap index fund makes behavior very easy.

00:47:40.880 | And we know this because the flows go into index funds and ETFs, even when the market's

00:47:45.460 | down.

00:47:46.580 | Index fund investors are the best behaved, like maybe seals level discipline.

00:47:51.500 | And same thing this year, they're not leaving, they're fine.

00:47:55.300 | They don't just can't be, because you know why?

00:47:59.380 | They've resigned to the fact they have the best possible deal.

00:48:02.380 | They probably think to themselves, oh, the market's down, what am I going to do?

00:48:06.020 | Jump out of this three basis point total market fund, and hop into some hot manager who has

00:48:10.860 | happened to pick like managed futures or like inverse strategy and having no, because I

00:48:15.740 | know they'll underperform eventually, I'll just stick where I am.

00:48:19.100 | And that's that.

00:48:20.100 | So I call it the great resignation.

00:48:21.960 | And that has that.

00:48:23.780 | But so just by providing a cheap index fund, he radically made behavior way more easy.

00:48:30.460 | And he should get more credit.

00:48:31.460 | I think the academics don't really give him enough credit for that.

00:48:35.420 | And I like to look at Vanguard's flows during 2008.

00:48:37.900 | I mean, this should be in a hanging in art gallery.

00:48:42.660 | They took in money every month.

00:48:44.540 | That's just insane.

00:48:46.780 | Even in October, when the market was down 17%, they took in cash.

00:48:50.500 | That is, it's just, it's crazy.

00:48:52.760 | So again, this deserves to be studied, it's not normal.

00:48:56.720 | And this is a quote from Michael Lewis, who I also interviewed for the book, who gave

00:49:01.060 | this knock on effect of Vanguard about how once you have this great resignation, you

00:49:06.660 | can just stop looking at this stuff.

00:49:08.700 | And for him, he said it made him a better writer.

00:49:10.980 | He became a Vanguard investor in the 80s actually.

00:49:13.740 | And he says, I don't have to worry about this.

00:49:15.540 | I can focus on my job, my family, whatever.

00:49:18.620 | And that's a beautiful thing.

00:49:19.620 | Again, it's an unmeasured benefit.

00:49:21.500 | And I think this kind of takes you in the mindset of the great, the resigned Vanguard

00:49:25.900 | investor.

00:49:27.500 | That's to say, sometimes it's not easy to do this because you have free trading.

00:49:32.780 | You've got the media focuses on like trying to scare you or give you FOMO.

00:49:38.380 | So there are definitely elements that can make this tough.

00:49:40.460 | But I think a cheap index fund has been able to overcome all those.

00:49:43.660 | And for the young people that have gone crazy trading over the past decade, the Robin Hood

00:49:47.340 | Army, you know, we look at their, they make up 24% of all equity trading in 2021.

00:49:54.860 | That was the height of the Robin Hood Army thing.

00:49:56.780 | That's up from 10% a decade ago, but you see how it's fallen off because they got a bear

00:50:02.100 | market.

00:50:03.100 | It's a lot harder to be a day trader when a bear market hits, it sobers you up.

00:50:06.260 | So I think the whole day trading thing is just a young person's thing.

00:50:09.820 | I did it when I was in the 90s as a Gen Xer.

00:50:12.740 | And then I got handed a bear market, realized I'm not a genius.

00:50:16.820 | And I got a family, a house, and I can't just be like wasting money gambling on the market.

00:50:21.720 | So these young people are going to find what Dave Nading calls Vogel's hack, which reminds

00:50:26.420 | me of the scene in war games.

00:50:28.340 | When the computer figures out that when it comes to nuclear war, the only winning game

00:50:33.620 | is not to play, which I think is where you eventually get to as an investor, a young

00:50:39.420 | person who tried it the other way.

00:50:41.680 | So I do think that this is sort of the natural state of things, but it does make it way easier

00:50:48.060 | not to play.

00:50:49.060 | If you have a three basis point index fund, a little harder when you're only dealing with

00:50:53.100 | like a fidelity active fund.

00:50:55.060 | And then finally, the Vogel effect is much bigger than Vanguard, and it's only just beginning.

00:51:01.300 | I think that the Vogel effect is going to hit the advisory business next.

00:51:05.380 | Here's the assets in Vanguard's personal advisory service, which charges you between five and

00:51:09.060 | 30 basis points.

00:51:10.580 | I think advisors that charge 1% are probably in trouble.

00:51:13.660 | There's some that are specialized that will be fine, but there's a middle, I think, that's

00:51:17.420 | going to be disrupted by Schwab, Vanguard, Wealthfront, Betterment over the next 20 years.

00:51:23.420 | This is the next big area, and they manage 26 trillion in assets, so there's a lot of

00:51:28.300 | money here at play.

00:51:29.980 | I also think overseas, right now, the Vogel effect is just barely, barely even cracking

00:51:36.140 | the surface in Europe, in South America, in Asia.

00:51:41.400 | So here's a chart.

00:51:42.620 | The further right this chart is, the more passive the country is.

00:51:46.180 | Japan is not really, it's an outlier because the Bank of Japan bought a bunch of ETFs.

00:51:51.980 | It's not really that high.

00:51:52.980 | But you can see the US is pretty much the furthest along.

00:51:56.160 | We think all of this is going to go to 75%, at least, before it finds some medium.

00:52:02.460 | But it will take 10 years, probably.

00:52:04.300 | Because overseas, there's still brokers who rely on kickbacks and mutual funds, or think

00:52:08.460 | their value add is to pick an active fund manager.

00:52:11.140 | And again, in the US, we were all pushed into being somewhat intelligent on investing because

00:52:17.780 | we had to, they have 401k here, the 401k market.

00:52:22.180 | So US investors are smarter than other investors because other investors get defined benefits

00:52:27.900 | and pensions.

00:52:29.140 | And so they never really have to learn about what fees mean and all this stuff.

00:52:31.780 | So that's another challenge for overseas.

00:52:34.860 | But ultimately, I'm a big believer in value and technology.

00:52:38.580 | And the Vogel effect is what that's all about.

00:52:41.980 | Plus, as we just heard this nice young woman talk about spreading in Vanguard, all these

00:52:46.700 | Vogel head sites are set up almost like the way a religion is spread in the early days.

00:52:51.700 | So I think that'll all help, which brings me to the Vogel head's quote from Jack.

00:52:55.580 | I use it because you guys are here.

00:52:57.980 | He loves you guys.

00:52:58.980 | I mean, if you listen to the first episode of Vogel head's podcast, he goes on and says

00:53:04.740 | about how big of a service the Vogel heads have been.

00:53:07.940 | I find it interesting, sometimes Vanguard isn't hot on the Vogel heads, and there's

00:53:11.660 | a gap formed between you guys.

00:53:13.940 | And again, that was another reason I chose to go with the Vogel effect versus the Vanguard

00:53:16.900 | effect, because I think Vogelism is actually much bigger than Vanguard, the company, and

00:53:23.420 | Vogel heads are a big part of that.

00:53:26.540 | I'll leave you with this.

00:53:28.820 | Everything I just described helps half the country.

00:53:32.220 | Only 50% of people are invested in stocks.

00:53:35.780 | The bottom 50% have no exposure.

00:53:38.260 | They do not get the Vogel effect.

00:53:39.700 | So at the end, I sort of say, this is sort of the next.

00:53:42.820 | Everyone should step up and in Vogel spirit, help this.

00:53:46.900 | I do say if they come up with a plan to get the underserved into the stock market, they

00:53:53.420 | have a great tool awaiting them when they start.

00:53:55.780 | So at least there's that.

00:53:56.980 | But anyway, that's sort of the way I leave the book at the end.

00:54:01.940 | And with that, I will conclude the presentation and say, thank you for your time, turn it

00:54:05.260 | back to Gauri.

00:54:06.260 | Fantastic.

00:54:07.260 | Thanks so much, Eric.

00:54:08.500 | That was phenomenal.

00:54:10.420 | In the interest of time, so I have a few questions that I'm dying to ask you, but I also want

00:54:14.240 | to turn it over to the audience.

00:54:16.760 | So if we could turn this into semi-speed round, and if you feel the questions, just there's

00:54:23.540 | not that much there, we can move on to the next one.

00:54:26.220 | So you mentioned that the book was, in a separate talk, you mentioned that the book was originally

00:54:32.300 | 600 pages.

00:54:33.820 | What did you find toughest to cut from the book that got cut?

00:54:38.020 | Oh, I cut a whole chapter, which is called The Game of Basis Points.

00:54:43.580 | I studied the art of passive management.

00:54:46.340 | You know these people who make sure that the index fund tracks the benchmark?

00:54:51.260 | What they do every day is actually that they actually provide hundreds of millions of dollars

00:54:55.340 | in value to investors by securities lending, which allows you to make up a basis point.

00:55:00.100 | So the Vanguard Total Market Fund is three basis points, but really it's only one basis

00:55:06.820 | point of tracking difference, because the two basis points you get in a rebate.

00:55:10.980 | So I just wanted to explore that, and I thought it was an unsung area, but everybody I showed

00:55:16.320 | the book to was like, "This is too boring, it's just too wonky, I don't care."

00:55:20.980 | And so I ended up, I whittled it down, and I just cut the whole thing.

00:55:25.900 | That was probably the toughest to cut, because it was literally like 25 pages, and I spent

00:55:31.980 | a lot of time on it, and just, you know, had to hack it.

00:55:35.460 | So that's why I give the book to regular people, like my mom, and not just nerds.

00:55:41.620 | Got it, makes sense.

00:55:44.500 | And so I'll just squeeze in another plug for the book, just that it is not a cheerleading

00:55:49.900 | book about Jack.

00:55:51.820 | It's balanced, it's objective, it's factual, there's a lot of data in there, there are

00:55:55.140 | a lot of personalities commenting, both pro and not necessarily our icon, but it's a story

00:56:03.940 | well told, and it's not all positive.

00:56:06.140 | So thanks, Eric, for keeping it balanced.

00:56:09.060 | Next question.

00:56:10.060 | You write about how Jack wore frumpy clothes, and this is not surprising, like a sort of

00:56:16.340 | Warren Buffett personality.

00:56:18.820 | He flew coach when possible, not first class.

00:56:22.300 | He enjoyed saving over spending.

00:56:26.220 | Can you talk about how Jack's personality type and personal concept of enough contributed

00:56:32.540 | so significantly to Vanguard's unique structure in that space?

00:56:37.260 | Yeah, well, and to your point, I did show Jack's blemishes, including while he was immune

00:56:45.740 | seemingly to greed and money, like most people who go to Wall Street, and he wrote the book

00:56:51.180 | Enough, which was about that, after talking to people, I realized what filled him, because

00:56:57.060 | we all have a void inside that we need to fill, was adulation.

00:57:02.100 | He could never get enough, and his kids were even like, he would stop and talk to a doorman

00:57:06.820 | for like 15 minutes on vacation and stuff, and he loved it.

00:57:12.220 | And so we all have different needs.

00:57:14.500 | He just didn't have the need of money and power, which was what draws most people to

00:57:19.100 | Wall Street.

00:57:20.100 | And that character, I think, was important because Vanguard's mutual ownership structure

00:57:25.620 | obviously turned over all the future profits to the investors.

00:57:29.580 | No normal Wall Street titan would ever do that, and so you had to have a unique character

00:57:34.740 | do that, and that's why Bogle deserves all the credit, really, for this.

00:57:40.940 | Let's say there was a circumstance where somebody else created a mutual.

00:57:44.420 | I'm not sure they would have championed it or hung with it that long if they were the

00:57:47.660 | kind of person who was going to work 12 hours a day and be a good manager of people and

00:57:51.900 | build this huge asset manager, but he did it, and it's just an amazing story.

00:57:57.780 | He ended up with $80 million, which is not bad.

00:58:00.060 | I mean, a house at Lake Placid, so he wasn't poor, and nobody at Vanguard is.

00:58:05.740 | I think when people get confused, it's like people at Vanguard don't live in the woods

00:58:08.820 | and eat bugs.

00:58:10.900 | They make decent money, but nobody's getting like Ned Johnson rich.

00:58:15.340 | Nobody's getting Jeff Bezos rich because the owners are the investors, whereas in those

00:58:19.180 | cases they're the owners, and you can see how much their wealth blooms beyond anything

00:58:23.380 | they could possibly spend in their lifetime, and I think people really respond to that.

00:58:27.420 | An interesting anecdote on that, when I interviewed Michael Lewis about the book, he said, "How

00:58:32.260 | much did Bogle end up with in his net worth?"

00:58:35.540 | And I said, "80 million," and he said, "Oh, my God," he goes, "I almost fell off my chair.

00:58:40.900 | I thought you were going to say a couple billion, and even then I was going to say he left so

00:58:45.100 | much money on the table."

00:58:47.100 | That's when he gave me the quote of the book, because he's Michael Lewis, he's better at

00:58:50.820 | words than I am.

00:58:51.820 | He said, "Never in the history of Wall Street has so much money been touched, but so little

00:58:57.860 | kept."

00:58:59.740 | That gap, that ratio is just ridiculously off the charts.

00:59:05.540 | So yeah, I think Bogle's structure and discipline deserves a lot of credit, and there was many

00:59:09.380 | times early in the Vanguard story where they denied money because it was short-term traders.

00:59:14.580 | Always protecting of the little investor early on, it prolonged Vanguard's success.

00:59:20.740 | So I try to tell people who read this book, it's kind of a cool book about if you do the

00:59:25.580 | hard road, it may take a long time, but when it finally hits, it will have real staying

00:59:30.420 | power.

00:59:31.420 | It won't be like a gimmick.

00:59:32.420 | Okay.

00:59:33.420 | Fantastic.

00:59:34.420 | Building on that, and also, Eric, the screen that I see is a red or orange.

00:59:40.220 | If you unshare your deck, we might have you back on camera.

00:59:45.740 | I'm not sure that'll solve it.

00:59:47.060 | Hold on.

00:59:48.060 | I did a screen share.

00:59:49.060 | Let me share it and then unshare it again.

00:59:51.060 | Okay.

00:59:52.060 | I had that and then I hear a stop share.

00:59:53.800 | It goes to red for me.

00:59:54.800 | I don't know why.

00:59:55.800 | Okay.

00:59:56.800 | Yeah.

00:59:57.800 | I saw you for a second there.

00:59:58.800 | Okay.

00:59:59.800 | We can live with that.

01:00:00.800 | So building on that, there are plenty of phenomenal founder leaders who build phenomenal companies

01:00:07.060 | during their oversight and then things change dramatically for the worse often when they

01:00:14.020 | depart.

01:00:15.020 | In Vanguard's case, it's different.

01:00:16.020 | We know there was management shakeup, but in terms of what Jack ingrained in the crew

01:00:23.220 | that would sustain for decades, this commitment to keeping costs low beyond operating costs

01:00:29.780 | and mutual ownership, can you comment on how Vanguard incentivizes keeping costs low?

01:00:35.660 | Like you said, folks are decently paid.

01:00:38.340 | Is there a bonus structure to reward keeping costs low?

01:00:41.800 | Things like that.

01:00:42.800 | Yes, there is, which can be tough if you work there.

01:00:47.940 | I think he's had several cases where the employees felt like they were being too altruistic and

01:00:53.800 | they wanted money.

01:00:54.800 | They could make money more elsewhere.

01:00:55.800 | So there's a Vanguard partnership plan, which does very well.

01:00:59.340 | There was one report that outperformed the S&P 500, which is kind of ironic.

01:01:03.860 | So people have different ways to sort of get over that, but yeah, they are more incentivized

01:01:08.380 | to keep costs low.

01:01:09.660 | I personally think it's enough.

01:01:11.820 | If I was running Vanguard, I would stop with the low cost thing.

01:01:14.980 | It's all low enough.

01:01:16.580 | We're good.

01:01:17.840 | Put all future profits that would have otherwise gone to low cost to customer service because

01:01:22.740 | that's their Achilles heel.

01:01:23.940 | This is why Vogel didn't want Vanguard to get so big.

01:01:27.220 | He thought we'll stop seeing our people as like human souls who have wants and needs

01:01:32.860 | and we'll just see them as just like 30 million numbers.

01:01:36.260 | And that's sort of what's happening.

01:01:37.380 | It's unfortunate.

01:01:38.380 | But even with that, they're still growing because of all of the goodwill.

01:01:41.700 | But that's what I would do if I ran the place.

01:01:43.420 | I would actually change the incentive system away from the low cost because it's done.

01:01:49.780 | Everybody's happy.

01:01:50.880 | Move to customer service and let's spend money there.

01:01:54.460 | So I'm not totally sure how you can get the people to sort of vote that up or maybe I'm

01:02:01.340 | alone and they really just want lower costs to be on three basis points.

01:02:04.940 | But I would do that.

01:02:06.180 | But yeah, the whole culture is designed around that.

01:02:08.500 | And you read the early speeches and character counts.

01:02:11.740 | That's really what he talks about.

01:02:12.740 | In fact, I have this funny split screen image of December 1987.

01:02:17.420 | That's the year Wall Street came out, the movie.

01:02:20.980 | There was people in audiences all over America watching Gordon Gekko's "Greed is Good" speech.

01:02:26.500 | And it inspired all these young traders to get into the market and become masters of

01:02:32.420 | the universe.

01:02:33.420 | And meanwhile, out in Malvern, the same month, maybe even the same day, you have Bogle talking

01:02:41.420 | about cutting a basis point off the fund and if we're good stewards and hang around, we

01:02:45.340 | should have success.

01:02:46.340 | And it was such a boring, wholesome speech compared to what was happening in the 80s.

01:02:51.740 | And I do give Vanguard, the employees and Bogle credit.

01:02:55.500 | It's easier to do all this now because it's kind of cool and in fashion.

01:02:59.220 | But in the 80s, it was way more normal to party and be decadent and then have the crash.

01:03:05.740 | And even the 90s were kind of decadent.

01:03:07.580 | And Bogle just was able to tunnel vision this idea and not have any of the cycles mess with

01:03:14.580 | his mind, which again, unusual and way ahead of its time.

01:03:20.740 | Okay, great.

01:03:22.860 | So I'll try to squeeze in two more questions and then we'll turn it over to the audience.

01:03:27.780 | This one will involve sort of your personal and professional, maybe evolution.

01:03:35.300 | Given you were well-informed about the fundamentals of investing, how did your many hours with

01:03:42.260 | Jack and the folks you spoke with affect you personally and professionally, either investing

01:03:48.220 | outlook approach or values, principles, things like that?

01:03:53.060 | Sure.

01:03:54.220 | I'm back on screen now, right?

01:03:55.620 | Yes.

01:03:56.620 | So I'm going to share my screen just so you can see me.

01:03:58.860 | Is that worth it?

01:04:00.340 | Yeah.

01:04:01.340 | Okay.

01:04:02.340 | Yeah.

01:04:03.340 | Thank you.

01:04:04.340 | Yeah.

01:04:05.340 | Like I said, there's something about Jack that is like just eating a ton of broccoli

01:04:12.340 | or this feels like, right.

01:04:15.180 | He's not serving you like sugar or he's giving you the real deal and you feel it when you're

01:04:21.940 | with them.

01:04:22.940 | I liked his sense of humor.

01:04:24.780 | I also enjoyed, I thought, I was amazed at how good he was at separating what you did

01:04:31.900 | with the person you were.

01:04:33.660 | Because remember, he was pretty savage towards everything and everybody in terms of their

01:04:38.860 | livelihood.

01:04:39.860 | Active ETFs, it's my whole livelihood is ETFs and he would dump on them.

01:04:44.020 | But I could tell he generally enjoyed me as a person and vice versa.

01:04:47.980 | I also found it interesting when I was seeing him in the first meeting, he invited me to

01:04:51.620 | lunch.

01:04:52.620 | We go out to the lunch hall there and everybody's like, "Oh, hi, Mr. Bogle."

01:04:57.660 | And he's moving real slow, but eventually gets into the cafeteria, goes right in the

01:05:02.060 | middle.

01:05:03.060 | I mean, he must've brought the average age in that cafeteria down to about 32, right?

01:05:07.580 | It's just him and a bunch of young people and he doesn't care.

01:05:10.980 | And I don't know many CEOs that would be that open to just walk right into the main place.

01:05:16.860 | They're usually in their private room and if they see somebody, it's all orchestrated

01:05:19.980 | and scripted.

01:05:20.980 | They walk around the office and they're scurried off.

01:05:23.380 | He had no handlers.

01:05:26.140 | He was just out there.

01:05:27.840 | I will always remember that.

01:05:30.340 | Nobody is better than anybody else.

01:05:32.180 | I think he was genuinely felt like among the people.

01:05:37.340 | I do think he thought he was a legendary figure, but in terms of, I don't think his ego really

01:05:44.820 | let him separate himself from humanity.

01:05:47.140 | I think he was right there and he loved the investors at Vanguard.

01:05:52.740 | Those would be my things.

01:05:53.740 | I also, one of the things he did that you don't see anymore is the art of letter writing.

01:05:57.980 | It used to be you'd write these nice letters to people, thank you cards.

01:06:01.860 | "Oh, I saw your article and here's my take on it."

01:06:05.820 | Nice email.

01:06:06.820 | He did that all the time.

01:06:08.380 | I really didn't know that well, but he did that on multiple occasions with me.

01:06:11.340 | Then I interviewed people and I realized he did it with everybody.

01:06:14.500 | There was a guy who was a Bogle scholar who became a musician.

01:06:17.740 | Bogle asked for him to send his CD.

01:06:19.860 | He listened to it and gave this three-paragraph review of the CD, even though he's into opera.

01:06:27.580 | This email was not meant to see the light of day.

01:06:29.820 | I reprinted it in my book, but I'm like taking that time after you've done all that in your

01:06:35.420 | life, it's pretty cool.

01:06:38.500 | It's those little things, I think, that really go a long way, that influenced me is that.

01:06:44.260 | Now my personal portfolio, yeah, I'm fully passive.

01:06:47.660 | It's too strong of a value proposition.

01:06:50.860 | That said, my wife, she loves to invest in really beat up value stocks.

01:06:55.780 | She'd be like, she's the kind of person who goes, "GE is trading at $7, should we buy

01:07:00.860 | some?"

01:07:01.860 | We do a little of that.

01:07:03.180 | Every now and then I get caught up in a flyer, like I bought the Bitcoin ETF, right at the

01:07:08.060 | top.

01:07:09.060 | That's your hot sauce.

01:07:10.060 | Yeah, that's my hot sauce.

01:07:11.060 | Largely, I'm happy with Borg.

01:07:13.300 | I've seen the numbers and I know I'm in the right place.

01:07:16.860 | Great.

01:07:17.860 | My last question, I have a bunch more that I'd like to ask, but we do need to switch

01:07:22.900 | it over.

01:07:23.900 | Last one for me for now, switching to Vanguard in the broader space.

01:07:28.300 | It's clear Vanguard's maturing relative to its younger self, but they have a lot of runway

01:07:35.180 | in the US.

01:07:36.180 | Can you talk about the challenges they face internationally and whether that varies by

01:07:41.260 | country and where you see Vanguard in that space in the future?

01:07:44.980 | Yeah, it's what I said earlier.

01:07:47.060 | The plumbing over there, it's more like the US in the '80s and '90s where a broker gets

01:07:52.660 | a kickback from mutual funds or the bank.

01:07:56.220 | People have one bank they've been going through for like 18 generations and the bank gets

01:08:00.180 | a kickback and people there, if you ask them, you're paying 2%, they're like, "Okay."

01:08:06.500 | Here you go crazy over two basis points, they're at 2%, no big deal.

01:08:11.900 | A lot more has to get out.

01:08:14.820 | They are getting ripped off.

01:08:16.700 | I think it will.

01:08:17.700 | The numbers are showing a decline, I mean, an incline in passive assets, but it just

01:08:22.260 | takes a while.

01:08:23.260 | I think the ultimate thing you need to see first is the move from brokers to advisors,

01:08:29.780 | from the suitability to the fiduciary model.

01:08:32.580 | Once that switch is over, the rest will fall in place because the intermediaries will be

01:08:38.340 | shoulder to shoulder with their own clients.

01:08:40.260 | Of course, they're going to pick the cheap ones, they know, they're not dumb.

01:08:44.700 | I think that's what we're looking at.

01:08:46.180 | I track that percentage of broker to fiduciary because to me, this pretty much informs where

01:08:52.660 | we'll see passive go.

01:08:53.660 | This is why in many countries, ETFs are big with institutions, but not yet retail.

01:08:58.020 | Okay, thanks for that.

01:09:00.660 | Excellent.

01:09:01.660 | Miriam, turn it over to you.

01:09:04.580 | Thank you.

01:09:05.580 | Thank you, Eric.

01:09:06.580 | What a nice presentation.

01:09:07.580 | Very interesting.

01:09:09.700 | I do have a question.

01:09:10.780 | I did notice that your dedication in your book was to your grandparents and the rest

01:09:16.620 | of the World War II generation.

01:09:20.900 | As we know, Jack Bogle and Taylor Laramore were part of that generation.

01:09:25.460 | Taylor moved to Miami when his parents and grandparents lost everything up in the Northeast.

01:09:34.020 | Is it possible, and also John Bogle was intensely interested in American history.

01:09:43.900 | Do you think that it is possible that his past and his interest in American history

01:09:50.300 | and his generation has spilled over into his views of international stock investing?

01:09:57.780 | Where he thinks that we really don't need international, you can stick with an American

01:10:03.140 | stock portfolio.

01:10:04.140 | That's a good question.

01:10:06.740 | Maybe.

01:10:07.740 | I think he just looked at the numbers and said, okay, 40% of the revenue from S&P 500

01:10:15.660 | stocks comes from international anyway.

01:10:18.740 | It's all linked together.

01:10:20.560 | Like Buffett, we know that American innovation is almost peerless.

01:10:25.120 | Is there really a point to add international?

01:10:29.220 | The same reason that investors are just content to pay 2% in Europe is also the same reason

01:10:37.140 | I think you don't see Amazons and Apples coming out of Europe.

01:10:41.740 | They're just not that motivated, I think in general.

01:10:47.700 | Europe is a special place, not to say they're not good companies elsewhere.

01:10:50.180 | This is why ESG, in my opinion, is much easier in Europe than here, because you don't have

01:10:55.660 | to worry about missing out on an Apple, Amazon, or Tesla, one of these companies that changes

01:11:00.340 | the world in intense innovation.

01:11:02.980 | I would argue he has a point, but again, most people I talked to thought they wanted international

01:11:07.980 | just in case.

01:11:08.980 | As Dan Egan of Betterment said, "Rome fell," which means it's possible America has a decline

01:11:17.060 | and you want to be diversified.

01:11:19.980 | But I see his point.

01:11:21.780 | If you had done nothing but international since when he said that, you'd actually be

01:11:25.020 | in a better place today.

01:11:27.820 | I can't guarantee that going forward, but you would have been in a better place.

01:11:30.540 | He kind of was right.

01:11:32.300 | I don't know if it was his World War II upbringing that caused that and maybe he was a little

01:11:37.700 | more patriotic than people today.

01:11:39.620 | I don't know.

01:11:40.620 | It's a good question.

01:11:42.660 | I think the World War II thing more informed his character in terms of not getting too

01:11:48.860 | high on himself, wearing the same khakis for 40 years, being thrifty, being patriotic,

01:11:56.980 | liking history, just having that nuclear family kind of thing, his wit.

01:12:08.420 | I remember when I asked him about when he talked about thematic ETFs, he'd call it the

01:12:17.820 | lunatic fringe or fruit cases and nut cakes or something.

01:12:23.860 | His language around some of this stuff was really funny and I thought that was partially

01:12:28.920 | because my grandfather, I remember he used to say, "Son, if you had a brain, you'd be

01:12:33.620 | dangerous," or, "Go take a 20-foot walk off a 10-foot pier," or, "Go play in traffic."

01:12:40.960 | There was a certain savagery to the wit that I felt Bogle shared as well.

01:12:44.900 | He just applied it to the stuff in the investing world and I thought it was fun.

01:12:50.020 | I think part of why I couldn't find anybody to really talk too much trash about him because

01:12:54.300 | even when I said, "Look, Bogle said this about your neck of the woods," they'd be like, "Yeah,

01:12:59.860 | it's just Jack being Jack.

01:13:01.580 | I love him anyway."

01:13:03.060 | There was something about that wit where I knew my grandfather did not love me, but it's

01:13:07.540 | just funny.

01:13:09.380 | I think some of that is lost today.

01:13:11.300 | People are a little too sensitive and not as creative when they're funny.

01:13:15.740 | Those would be some of the things I think the World War II generation instilled in him.

01:13:19.860 | I don't know if the international thing is related.

01:13:21.780 | Maybe.

01:13:22.780 | Kip, do you have a question?

01:13:25.940 | I do, Eric.

01:13:27.940 | Thank you so very much.

01:13:28.940 | That was a great presentation and very entertaining.

01:13:32.580 | I have to say, I hope your book would make a great Netflix special.

01:13:36.380 | Sadly, I don't know anybody at Netflix.

01:13:38.540 | If it does become a Netflix special, you need to be in it because you're a very entertaining

01:13:43.620 | public speaker.

01:13:44.620 | It's really refreshing.

01:13:45.620 | Thank you.

01:13:46.620 | My question is this.

01:13:49.500 | You talked about how Vanguard will dominate the future, but they were the disruptor of

01:13:55.020 | their time, arguably they still are a disruptor now, but we can all look what's going on with

01:14:00.260 | Facebook and Meta and all this stuff.

01:14:03.780 | What might be coming next?

01:14:05.260 | For example, in terms of robo-investing, the role of AI, I guess on the technology side,

01:14:15.020 | it just feels as though there's so much coming so quickly.

01:14:19.700 | Can you opine a little bit on Vanguard's role in that and do you get the sense that Vanguard

01:14:28.860 | is positioned for that?

01:14:31.020 | Yes.

01:14:32.020 | This is where I think you should be happy that other people were running Vanguard because

01:14:36.540 | I don't think Jack would have done a lot of this stuff.

01:14:39.020 | I don't think he would have launched DTS.

01:14:40.500 | We know he wouldn't have.

01:14:41.500 | He wouldn't have launched the advisory service.

01:14:44.460 | Maybe he would have done it for special cases or something, but he didn't want to get bigger.

01:14:49.380 | I think what Vanguard's doing is smart.

01:14:51.100 | They're vertically integrating.

01:14:52.100 | They'll give you the digital robo, the full service advisor, the ETFs, the funds.

01:14:57.500 | BlackRock does the same thing.

01:14:59.580 | We're going to find a couple of vertically integrated companies that will do anything

01:15:03.480 | you want.

01:15:04.480 | They bought a direct indexing platform.

01:15:05.900 | I think direct indexing is overrated.

01:15:07.820 | That's where you all get your own separate account and you pick out stocks based on your

01:15:11.180 | values.

01:15:12.180 | It's so overrated because it's active management in disguise and the tax efficiency is overrated.

01:15:18.140 | Most people don't really need customization.

01:15:24.380 | You could arguably customize your portfolio using ETFs right now.

01:15:27.100 | They're pretty specific.

01:15:28.820 | I think that's overrated, but the fact that Vanguard bought a DI platform shows you they're

01:15:33.260 | ready in case technology does change it quickly.

01:15:36.940 | They also are going into the private equity area because they know that the number of

01:15:42.780 | public stocks has declined over the last 10 years.

01:15:45.540 | There's only 4,000 public stocks.

01:15:46.980 | They're worth 7,000.

01:15:48.820 | Companies are going public less.

01:15:49.820 | They don't want the headache and stuff.

01:15:51.940 | That is probably good because if you're an investor who wants a diversified portfolio,

01:15:56.820 | you may want a slice of PE because that is capturing American capitalism.

01:16:02.020 | Again, this is Vanguard.

01:16:04.620 | The company, you're going to see them do all this and try to keep up all of this.

01:16:08.500 | Some of the bogleheads are going to go, "That's not my Vanguard," but to your point, would

01:16:13.340 | you rather them not do it and not have the Vanguard effect going into private equity?

01:16:18.900 | Maybe private equity needs a little boggle effect there.

01:16:22.100 | It's a complicated topic, but I do think technology will make things easier, but at the end of

01:16:27.420 | the day, even if technology happened, technology would have happened regardless, but I still

01:16:34.700 | do not think we're anywhere near three basis point portfolios without boggle and the Vanguard

01:16:40.420 | effect.

01:16:41.420 | The low cost, I think, almost should be entirely attributed to him, but technology certainly

01:16:47.300 | is going to continue to change things.

01:16:48.540 | I just think we're far away from tokenization or even at the direct indexing concept.

01:16:54.820 | I think people are very happy to have five funds in their portfolio.

01:16:58.780 | It's very simple.

01:17:00.500 | I'll outsource all of that stuff to them.

01:17:02.220 | It's a great deal for the cost.

01:17:05.060 | I just think we're going to be here for a long time.

01:17:07.060 | Some people try to look for the next thing that's going to disrupt, but I'm like, "Wait

01:17:10.020 | a second.

01:17:11.020 | ETFs hung around for a hundred years."

01:17:13.900 | ETFs and low cost, like I said, funds didn't get below 10 basis points until 10 years ago.

01:17:21.180 | I would say the cheap beta is going to last 50, 80 years at least in the form probably

01:17:27.580 | of the ETF.

01:17:29.540 | I would say the disrupting that they're doing is just getting started.

01:17:34.380 | I don't know if there's really much else to disrupt for a while.

01:17:37.460 | I think we're in a good spot.

01:17:38.660 | I think how they're able to get information to you and how you're able to look at your

01:17:42.460 | portfolio, I think will become easier and easier though, and more convenient through

01:17:45.820 | technology.

01:17:46.820 | Thank you so much, Eric.

01:17:47.820 | Again, it's a privilege to have you with us.

01:17:49.340 | Thank you.

01:17:50.340 | Great job.

01:17:51.340 | Thank you.

01:17:52.340 | Eric, you mentioned in your book about Jack Vogel being a force of nature.

01:18:00.260 | I like that because one could see that he was a force of nature.

01:18:09.100 | Do you think he really relished the idea of being a force for the average investor?

01:18:17.320 | You mentioned that in your own family, you have a family, you have things that you have

01:18:21.820 | to do.

01:18:22.820 | You cannot spend your whole day watching stocks, worrying about your stocks, individual stocks,

01:18:28.780 | protecting your own portfolio of stocks.

01:18:31.540 | It is difficult to raise your family, especially nowadays without pensions.

01:18:35.100 | You have to create your own pension, you have to have a retirement fund.

01:18:39.200 | What asset allocation, how much stock, how much bond, how many bonds, how do you buy

01:18:44.700 | your bonds?

01:18:45.700 | Jack Vogel, he was so interested in the average person.

01:18:53.180 | What I have read about people who interviewed with him when they applied for jobs, his first

01:19:00.300 | questions were not about their experience in the financial industry.

01:19:05.660 | It was, how did you grow up?

01:19:07.940 | Did you work when you were in high school?

01:19:10.420 | He was interested in the person.

01:19:13.500 | He wanted to make investing simple, and yet he knew the simple was the best.

01:19:23.940 | You could have your index funds on hold, you could just have them in your portfolio and

01:19:30.340 | basically not worry about them, and when you retired, you would have a nice pot of money

01:19:35.500 | there for your family and for you and for your retirement.

01:19:38.380 | Yeah, the word I think that he would describe is predictability.

01:19:43.580 | Index funds had predictability, which active funds do not, and that's really helpful in

01:19:49.140 | their staying power and their ability for you to just tune out.

01:19:52.700 | Like Michael Lewis said, it's an unmeasured benefit, and it's great.

01:19:57.220 | Again, there's so many dimensions to this story.

01:20:01.140 | Your idea of him hiring characters, I think that was important because he also wanted

01:20:05.500 | to hire people who probably would get psychic income from working at Vanguard, because you're

01:20:09.060 | not going to make the most money on Wall Street there, but you're going to feel good about

01:20:12.700 | what you do, and you're probably going to settle down in Melbourne, get a family, a

01:20:16.300 | suburban house, and be less likely to get hired away.

01:20:20.700 | It makes a lot of sense, even if that wasn't his main motive.

01:20:23.580 | I also think that one of the stories I heard a lot, which I had to cut from the book, was

01:20:27.780 | he really likes sports.

01:20:30.540 | I think Gus Sauter came in with a tennis racket in his bag, or he had basketball shoes on

01:20:37.020 | that he forgot to take off.

01:20:38.340 | There were a couple of stories of key executives at Vanguard who got hired simply because they

01:20:42.780 | came with something sports-related hanging off of them, and Vogel went right to that.

01:20:47.860 | "Oh, what do you play?

01:20:48.860 | How do you play?"

01:20:49.860 | Because Vogel loved playing squash, and so he liked that competitive nature.

01:20:53.380 | You have a life outside of this place.

01:20:56.500 | I definitely heard some of those stories.

01:20:58.620 | There was one guy who told me that one time he came in to interview with Vogel, and Vogel

01:21:03.540 | fell asleep during the interview, because he's working really hard.

01:21:08.060 | I could see that, just kind of nodding off during the interview.

01:21:12.540 | That was funny.

01:21:13.540 | It was a good story, but yeah, no, I think those are all important things, and again,

01:21:21.180 | I keep going back to the word "weird."

01:21:23.260 | I know what you just described sounds like a normal person looking for character.

01:21:26.260 | I get that, but think of all the big companies that have hedge funds.

01:21:31.420 | They're looking for people who can apply some complicated math and have an edge.

01:21:38.220 | That wasn't his deal, and I think you're right.

01:21:40.260 | He kept it simple in how he hired as well, and many of those people stayed for a long

01:21:44.540 | time, and many of them who went on to other things speak fondly.

01:21:50.420 | I tried to find a former assistant or even someone near him that was dumped on or something,

01:21:57.380 | and I couldn't really find it.

01:21:58.900 | His former assistants were among his biggest fans.

01:22:01.680 | His son loved him, said he was my hero, and he was even ... I mean, guys seem pretty good

01:22:08.580 | model of what a person should be.

01:22:10.540 | Like I said, he wasn't perfect, but in the intro, I say, "Look, the net positive is the

01:22:17.980 | accurate framing here."

01:22:21.180 | There are a couple people out there, Dan Wiener in particular, and this other guy from the

01:22:24.820 | Philadelphia Inquirer, who they couldn't handle my take.

01:22:29.340 | They're like, "It's too positive."

01:22:32.540 | I'm just looking at the data.

01:22:33.620 | I'm looking at what this guy did, and I'm like, "It's incredible.

01:22:37.380 | I'm calling it like I see it."

01:22:39.740 | They get caught up with like, "Oh, well, the executives there, they don't tell you how

01:22:43.540 | much they make these days, and that's why it's all ... " I'm like, "You're looking at

01:22:47.420 | a tiny speck in this bigger picture, and even if they made $2 million, the fee's still three

01:22:53.620 | bips.

01:22:54.620 | It doesn't change that."

01:22:56.460 | There's a lot of nitpickers.

01:22:57.460 | There's a couple nitpickers to say that you could really go, and you could have a negative

01:23:03.460 | slant on the guy and everything he did.

01:23:05.580 | I guess you could.

01:23:06.580 | It'd be very difficult.

01:23:07.580 | I feel like you'd have to do a lot of mental gymnastics to say, "This guy sucked."

01:23:13.460 | I just don't see it.

01:23:16.020 | I thought, "I also want to write a book for my kids."

01:23:19.300 | I had a chance to hang out with this great man.

01:23:20.780 | He completely changed it.

01:23:22.300 | I wanted to give a Gen X version of him because, like I said, he had a dash of punk rock, a

01:23:27.820 | real dose of populism.

01:23:28.820 | These things are popular and interesting because most people think of mutual funds as interesting

01:23:34.740 | as C-SPAN.

01:23:35.740 | They think of them as like Boomer, and I really wanted to reframe him to a younger audience

01:23:42.060 | and to my kids later—they're not interested now, but maybe they will down the road—that

01:23:46.500 | yeah, this is a cool story.

01:23:48.660 | I framed it.

01:23:49.660 | There will be many books written about him.

01:23:51.700 | I won't be the only one.

01:23:53.020 | There's already been a couple.

01:23:55.220 | I think down the road, there'll be more.

01:23:57.580 | People can make their own decision.

01:23:58.580 | I think I heard there's like 800 books written on Winston Churchill.

01:24:03.660 | I think Vogel could at least get a dozen.

01:24:06.140 | Ellen, do you have a question?

01:24:12.020 | You're on mute.

01:24:13.020 | Ellen?

01:24:14.020 | Yeah.

01:24:15.020 | Yes.

01:24:16.020 | Thank you.

01:24:17.020 | Thank you, Eric, for an excellent presentation.

01:24:19.660 | Jean in the chat has a good question.

01:24:21.900 | Do you think Vanguard will continue to capture AUM growth at the same pace after their ETF

01:24:28.220 | share class patent expires next May?

01:24:31.660 | Yes.

01:24:33.100 | That patent expiration, it's not as huge of a big deal to the rest of the industry as

01:24:38.100 | people think.

01:24:39.620 | Also, you have to keep in mind that the rest of the industry that wants to use this patent,

01:24:46.700 | a lot of what they want to do is use it for their high-cost active mutual funds.

01:24:52.060 | But again, just like active non-transparent ETFs, you can create cool new structures,

01:24:59.340 | but the metaphor I use is you can have a dog food bowl that's state-of-the-art, but the

01:25:03.700 | dog has to want to eat the food in it.

01:25:07.420 | You could take, if an active mutual fund is seeing outflows, and people are leaving, putting

01:25:13.860 | an ETF share class on it isn't going to do much.

01:25:17.700 | We've seen Fidelity Magellan is a great example.

01:25:20.660 | They launched a clone of the Magellan fund in an ETF format about a year and a half ago.

01:25:24.700 | They have no assets.

01:25:25.940 | Nobody cares.

01:25:28.980 | Most of the assets in active funds are mirage.

01:25:32.900 | A lot of the customers have left.

01:25:34.740 | What's left is just that pie chart I showed.

01:25:37.380 | It's just assets based on the market having gone up.

01:25:40.620 | That's why if this bear market continues for like two years or so, I'd say, we're going

01:25:47.980 | to see these mirages collapse, and they're going to team up and get bought.

01:25:52.420 | You could see an ETF issuer like Invesco buying T. Rowe Price.

01:25:59.260 | It could get crazy.

01:26:01.220 | No, I don't really think it's going to change much.

01:26:05.220 | The other thing is people ask me all the time, "Well, a lot of people have cheap index funds

01:26:09.660 | and ETFs.

01:26:10.660 | Why does Vanguard continue taking the most money?"

01:26:12.580 | I'm like, "Well, they built up a brand of being for the little guy and low cost for

01:26:17.980 | 40 years before anybody else followed them."

01:26:21.500 | That's a 40-year head start with branding.

01:26:23.420 | You cannot just magically erase that.

01:26:26.500 | A lot of times in the book, people would say this, they'd say, "Vanguard lowered fees because

01:26:30.740 | they wanted to.

01:26:32.300 | Everyone else did it because they had to."

01:26:34.660 | That mattered to some people.

01:26:36.140 | I think for those reasons, I don't really think switching this or doing that will really

01:26:41.400 | change this whole trend much at all.

01:26:44.740 | Excellent answer.

01:26:47.780 | Eric, when you go on the Bogleheads forum, Jack Bogle loved our forum, and he loved the

01:26:58.060 | Bogleheads.

01:26:59.060 | He said he loved it because it was, and you put out the quote on your screen, "Individual

01:27:05.780 | investors helping other investors," for the main purpose of helping each other.

01:27:12.060 | He thought that when he had quotes from de Tocqueville about the American system where

01:27:16.260 | people band together in groups to help each other.

01:27:19.780 | He really liked it.

01:27:21.180 | When you go on the Boglehead forum, what strikes you about the forum?

01:27:27.260 | By the way, could you tell everybody how you were banned from the Boglehead forum?

01:27:34.820 | What happened there?

01:27:38.420 | Maybe Lady Geek wants to go over that story, but I'll tell you anyway.

01:27:41.440 | I was researching the book.

01:27:42.580 | I had not gone to the book.

01:27:43.740 | I knew they existed.

01:27:44.740 | I knew the forum existed.

01:27:45.740 | I had seen it.

01:27:46.740 | I just wasn't on there a lot.

01:27:47.740 | I live in this world, so I didn't really feel the need to get an account and do that, but

01:27:53.220 | I will say the specificity of what's shared on there is really interesting.

01:27:56.340 | It's like how to roll over a 401(k).

01:27:59.180 | It's really cool stuff, very, very useful.

01:28:01.820 | Again, not real flashy, but highly practical.

01:28:05.860 | The website, it looks like it's stuck in 1996, no offense.

01:28:10.860 | We like it.

01:28:11.860 | It's part of the charm because it looks like early internet, but there's nothing.

01:28:17.020 | There's no ads.

01:28:18.020 | There's just nothing.

01:28:19.020 | It's pure.

01:28:20.020 | When I went on there, I got an account and I wanted to interview do-it-yourself Vanguard

01:28:24.220 | investors and I said, "Hey, I'm this guy writing a book on Vanguard and Bogle.

01:28:27.700 | If anybody out there is just a regular Vanguard investor and would like to be interviewed,

01:28:31.500 | let me know."

01:28:32.500 | I got an email, I think a day later, from Lady Geek saying, "You are disqualified.

01:28:38.100 | That's illegal and you have been banned."

01:28:42.460 | I was like, "Oh, really?"

01:28:45.180 | I explained my case.

01:28:46.180 | She goes, "Okay, I'll give you a second chance."

01:28:47.580 | She did give me a second chance to her credit, but in the book, I say that after reflecting

01:28:52.980 | on that, I respected it because there is a rule you can't solicit.

01:28:56.560 | The idea of a book is something I would make money on, even though I make very little money.

01:29:00.900 | The author gets very little money unless you're like Stephen King.

01:29:04.540 | The book would be making me money and then you'd open up Pandora's box potentially for

01:29:08.660 | other people like me and who wants that?

01:29:11.580 | I actually respected the decision because you're going to have to be the bad guy from

01:29:19.540 | time to time to keep that pure.

01:29:23.900 | That's my story on that, but certainly the forum is awesome.

01:29:27.100 | It's got a wide reach.

01:29:28.100 | A dentist friend of mine who I play golf with sometimes is like, "I saw somebody talk about

01:29:33.260 | you on the forum."

01:29:34.260 | It was some tweet I had about, it might have been about the Bitcoin ETF, I forget, but

01:29:37.780 | they took a tweet of mine and he saw it on there.

01:29:40.100 | Here's a guy who's a dentist who's on there and I asked him, "What's your portfolio look

01:29:44.980 | like?"

01:29:45.980 | He's got a very good portfolio.

01:29:46.980 | He worked it out to himself, not through a broker, and the Bogleheads forum helped him

01:29:53.660 | get there.

01:29:54.660 | That's obviously not affiliated with me.

01:29:56.940 | He got there already when he brought that story up.

01:29:59.700 | Well, that is what Mr. Bogle wished, I think.

01:30:04.500 | That's what he wished for individual investors to create funds, the index funds, so they

01:30:12.420 | could do it their way or do it themselves and not be necessary for them to pay a lot

01:30:20.980 | of money to brokers and to financial advisors for assets under management.

01:30:26.500 | Yeah.

01:30:27.500 | The advisor, I asked him in the last interview we had, "What do you think is going to happen

01:30:31.060 | to the advisory world?"

01:30:32.060 | He said, "Well, I think they're going to move to a more professional way to get paid."

01:30:37.580 | He thought the 1% fee that they got, even if that gets brought down by Betterment and

01:30:42.700 | Vanguard and such to, I don't know, 50 bips over the next 10 years, he thinks ultimately

01:30:47.460 | that's not enough.

01:30:48.460 | It's going to have to switch to hourly or as you go.

01:30:52.620 | If you really look at the numbers, if you go to see your doctor, going to see your advisor

01:30:58.540 | is the equivalent of seeing your doctor 30 times if you have a decent amount of money.

01:31:03.580 | It's a ridiculous number for what they're doing.

01:31:06.220 | If you get paid by the session, the problem is some people are so in shock.

01:31:12.900 | If I said to you, "Okay, come see me, you're going to charge me $5,000."

01:31:17.260 | It seems crazy, but it's probably way cheaper than 1% on your assets.

01:31:23.180 | People don't see the 1%, they don't write a check, so it becomes more difficult to disrupt

01:31:28.100 | that.

01:31:29.100 | I do think over time that will happen because there are people who are out there promoting

01:31:32.860 | the hourly model and ultimately, you might start to see a migration over to it, but it's

01:31:40.420 | got more challenges than the active mutual fund world did in the '90s, but it should

01:31:44.940 | be interesting.

01:31:45.940 | That's an area we watch a lot.

01:31:47.820 | Are there more questions from the chat?

01:31:52.540 | Alan, Gauri, do you want to?

01:31:56.940 | I don't see any in the chat, but I'm also not watching it closely.

01:32:00.580 | Here's a real quick one.

01:32:04.700 | The person said, "Did I misunderstand?

01:32:06.380 | Does a typical European really pay 2% to manage their funds?"

01:32:09.900 | Yeah.

01:32:10.900 | Actually, a lot of times, they pay more.

01:32:15.620 | Between the broker, the bank, the funds, it could be 5%, 6%.

01:32:22.060 | I went to visit Vanguard in Europe, and I remember the guy going, "You have no idea.

01:32:26.780 | It's ridiculous."

01:32:29.780 | Just looking at active mutual funds alone, the average fee paid over there is almost

01:32:34.220 | near between 1.5% and 2%.

01:32:37.940 | It's worse than where we were in the '80s and '90s.

01:32:41.040 | You see the same thing in Canada.

01:32:42.900 | I've traveled all over.

01:32:45.220 | Again, I've gone over the theories on why, but people just have way more tolerance than

01:32:51.980 | here in the US.

01:32:52.980 | I don't know.

01:32:53.980 | We're in the same culture, though, that created Amazon.

01:32:57.860 | We'll gladly leave the mall and go to Amazon because it's cheaper and more convenient.

01:33:02.580 | I think I give Americans credit.

01:33:04.800 | We are very good consumers.

01:33:06.700 | We are a consumer culture, and we don't have much to depend on.

01:33:10.340 | We have to look out for ourselves.

01:33:11.700 | I think that really makes a big difference.

01:33:16.540 | I agree with you.

01:33:17.540 | I would be like, "It's an absurd amount of money."

01:33:23.180 | Let's say you paid 2%.

01:33:25.380 | I just showed that chart with Vogel.

01:33:28.860 | Over 50 years, that 2% gap is worth like 200 grand.

01:33:34.220 | Basically the intermediaries take 60% of your gains over 50 years.

01:33:38.740 | You only keep 40% of your gains based on just that 2%, so a little bit is 3, 4, 5.

01:33:43.920 | It just becomes like you almost forego all of your future gains, all of it.

01:33:51.140 | Like I said, a lot of the SEC and people in the media, they go after really crazy cases

01:33:58.180 | like Madoff, which definitely you need to call that out.

01:34:01.580 | There's a general blob of money, a big blob of money, where the intermediaries, there's

01:34:06.380 | almost stuff that should probably be illegal.

01:34:10.580 | Look, it's been going on for so long and seems like no big deal, but when you convert all

01:34:18.260 | of that to dollars, it's crazy and it almost seems unethical at the very least.

01:34:27.980 | I say that as somebody who feeds downstream from these people who are friends with active

01:34:32.500 | managers.

01:34:33.500 | Some of them are very nice, but they're all caught in this incentive system that rewards

01:34:38.820 | all this.

01:34:39.820 | It's an incentive system, which is really the ultimate issue.

01:34:42.320 | That's why in the '70s, when he decided not to pay brokers, that really fired the first

01:34:46.940 | shot that changed everything, because now the incentive system, he would not be part

01:34:53.620 | of.

01:34:54.620 | He set up camp alone outside of the incentive system.

01:34:58.980 | As he quoted Field of Dreams, he built it and hoping they would come.

01:35:04.980 | Most people just unwilling to risk their whole career and a decade of profits for that are,

01:35:09.620 | like I said, it's unusual to do that.

01:35:12.300 | It's funny, I interviewed the guy from Flash Boys, Brad Kutsuyama.

01:35:16.620 | He's the guy who started that exchange that is boglish in a way that it doesn't take kickbacks.

01:35:23.180 | When I told him that it took Vanguard 25 years to get to 10% market share, he said I made

01:35:27.380 | his day, because they're having a tough time.

01:35:31.300 | If you operate outside of an incentive system, be prepared to be patient.

01:35:37.900 | That is the problem in Europe, but you have Vanguard and BlackRock and other companies

01:35:41.260 | coming in and trying to talk about this stuff and boggle heads, ultimately, I think it'll

01:35:47.500 | change.

01:35:48.500 | It's wild.

01:35:49.500 | I've been shocked when I actually physically go to these places and hear these stories.

01:35:55.820 | Especially here, because when BlackRock goes to three bips and Vanguard's two, we actually

01:35:59.740 | see money.

01:36:00.740 | I call it the power of one basis point.

01:36:03.280 | People here are that tuned in to cost that they're worried about one bip or 10, and over

01:36:08.380 | there, 100 is no biggie.

01:36:12.780 | Thanks for that, Eric.

01:36:13.780 | I'll post two questions, and I see it's 9.40 Eastern, so you let us know when you need

01:36:19.220 | to jump.

01:36:20.740 | One is, more broadly speaking, Vanguard, you're saying, is just beginning disrupting certain

01:36:27.380 | spaces, but overlaying your Dan Egan quote about Rome fell or empires fall applied to

01:36:34.780 | the US.

01:36:37.780 | Let's overlay that to Vanguard.

01:36:41.020 | What do you think the threats are to Vanguard?

01:36:42.860 | Where are they vulnerable?

01:36:45.720 | What should they be worried about?

01:36:48.740 | Customer service.

01:36:49.740 | Even on the boggle heads platform, and Lady Geek will tell you about this, people trash

01:36:55.820 | Vanguard's customer service right on the platform.

01:37:00.900 | That's not a good sign.

01:37:01.900 | These are supposed to be the biggest fans, and then, conversely, if you go to Yelp.com,

01:37:07.660 | where I live in the Philadelphia area, Vanguard gets 1.5 stars.

01:37:12.620 | Okay?

01:37:13.620 | That's out of five.

01:37:15.220 | The reviews are all awful.

01:37:17.380 | You know what else gets 1.5 stars?

01:37:19.220 | The Walmart on Columbus Boulevard, which is like a cesspool.

01:37:23.100 | I mean, it's awful.

01:37:26.980 | It's almost like it's just pandemonium.

01:37:30.580 | There's long lines.

01:37:31.580 | The carts don't work.

01:37:33.180 | There's nobody can help you.

01:37:35.500 | So Vanguard has the same Yelp review as Walmart, so that's a big problem, but it's still not

01:37:41.500 | big enough yet to curb their flows, so ultimately, I think what's going to happen is regulation's

01:37:46.820 | going to kick in and say, "Look, no company can own, say, more than 15% of a stock," and

01:37:52.100 | that will cap Vanguard, but again, it doesn't matter.

01:37:55.580 | All these little mini-Vanguards have been formed in the way of other companies copying

01:38:00.460 | them, so the genie is out of the bottle, the ship has sailed.

01:38:04.980 | It's almost meaningless.

01:38:06.260 | In fact, I think Bogle, if he had a choice, would say, "Yeah, regulate Vanguard right

01:38:10.380 | now.

01:38:11.380 | We own too much.

01:38:12.380 | It's ridiculous and absurd, and let these other people start getting assets into their

01:38:17.820 | cheap stuff, and that will, again, curb our market share," which was my ultimate dream,

01:38:24.940 | but outside of regulation, I'm not sure what else could do it.

01:38:29.580 | Okay.

01:38:30.580 | Great perspective.

01:38:31.580 | So my last question, you mentioned Jack's, say, commencement speeches, or you could read

01:38:38.980 | these things over decades sometimes and how there was this through line where he was unchanged

01:38:45.260 | on certain things, certain values and principles, but he also must have evolved in certain ways

01:38:50.140 | over those decades.

01:38:51.460 | So can you talk about those two contrasts and what ways was he absolutely firm and unchanging

01:38:58.860 | that you haven't already covered, and then in what ways did you learn that he evolved?

01:39:03.900 | And just something that's fun for me to share, speaking of the early Jack, I happened to

01:39:09.660 | get super lucky on eBay one day and purchased Jack's graduation album from Princeton.

01:39:19.560 | So this is from the 1951, I don't know what's in view here there.

01:39:26.220 | So 1951 from Princeton, and so to give folks a sense of Jack, mind you, he autographed

01:39:31.900 | this when I sent it to him in 2014, hopefully that's readable.

01:39:36.060 | So you see he was in student government back then as well.

01:39:39.360 | So he was, as far as I can tell, an activist at heart for a long time.

01:39:43.980 | So back to you, Eric.

01:39:46.260 | So his great-grandfather was a gadfly towards the fireman insurance business.

01:39:53.920 | And when you read his great-grandfather's pamphlets, it's all Bogle.

01:40:00.240 | It's like, "Gentlemen, lower your fees."

01:40:02.600 | That's the quote he used that he got from his great-grandfather.

01:40:04.740 | So there was something in the Bogle blood about that.

01:40:07.040 | And in the book, I say, honestly, he might've been miscast.

01:40:11.940 | As you said, I think government or military or maybe even medicine might've been a more

01:40:18.760 | accurate place for a guy like that.

01:40:21.280 | But we actually got lucky that he ended up in this industry.

01:40:24.680 | This industry probably needed a weird guy like that who was miscast.

01:40:28.760 | But to your point about how he stayed the same, stewardship and costs seem to be constant.

01:40:35.800 | What changed was that he would launch a quant fund, he launched value growth, he launched

01:40:40.900 | all these things.

01:40:41.900 | He did change with the times.

01:40:43.120 | He built a mutual fund company that had several options for you.

01:40:46.640 | But over the years, he would come to find them all an exercise in futility.

01:40:53.240 | And so one of the fascinating things was that Bogle would crap on many of the funds he created.

01:40:58.880 | He didn't like the value or growth funds, which are now the two biggest smart beta funds

01:41:03.280 | in the world.

01:41:04.480 | They have like $200 billion each.

01:41:07.280 | And he thought it's just a waste.

01:41:10.200 | And that's how honest he was that he obviously had problems with his own innovations over

01:41:18.360 | the years.

01:41:19.400 | And he settled into, well, you just buy an S&P 500 or total market US funds, and really

01:41:24.520 | there's nothing else to do.

01:41:26.080 | And so that put him at odds with everybody.

01:41:28.800 | But the stewardship and low cost, I think that thread was throughout.

01:41:34.760 | And in the book, he's not anti-active.

01:41:38.560 | He's not anti-high cost even.

01:41:40.800 | And the book, I sort of settle on what he said in his own words, which was that he's

01:41:44.800 | just very pro stewardship.

01:41:46.640 | Like I said, you can be high cost if you're small, you need the money.

01:41:50.960 | And you can be active and it's all about, are you a good steward of this person's money?

01:41:57.980 | And I think when you're getting $800 million a year in dollar fees to service one fund,

01:42:04.720 | you're not a good steward.

01:42:06.640 | So again, it was all about the specific situations and the word stewardship that I think was

01:42:12.920 | the common thread.

01:42:14.320 | But the crapping on his own innovations made it, again, who does that?

01:42:19.200 | You rarely see somebody like Steve Jobs ever came out and said, iPad sucks.

01:42:25.720 | It's just very unusual for someone to level their own company and most of the work they

01:42:31.440 | did there.

01:42:32.440 | Weird guy.

01:42:33.440 | And you've commented in similar to Steve Jobs that ultimately it was a journey towards

01:42:38.680 | simplicity.

01:42:39.680 | Right?

01:42:40.680 | Yeah.

01:42:41.680 | Also, Steve Jobs has this rule, if you don't cannibalize yourself, somebody else will.

01:42:45.380 | The first iPod comes out, it's 400 bucks, holds a thousand songs and it's huge.

01:42:51.640 | Second iPod comes out two years later, it's 300 bucks, holds 10,000 songs and it's smaller.

01:42:58.080 | Rinse and repeat and nobody can catch Apple.

01:43:02.000 | Bogle did this.

01:43:04.300 | Jobs did it because he's a hard ass and it's smart and it's the innovators dilemma.

01:43:08.720 | The active mutual fund industry did the opposite.

01:43:10.920 | They kept all the money, didn't do any of that and they paid the price.

01:43:16.120 | So I do think Steve Jobs had a hardcore element in him that was similar to Bogle's, although

01:43:24.420 | Jobs did it without the mutual ownership structure, purely just out of this makes sense business

01:43:29.760 | wise, so there was a relation there, I always thought.

01:43:34.960 | And I thought these are two guys who started doing this early on in their life and were

01:43:42.040 | consistent the whole time pretty much and put out products.

01:43:46.760 | He doesn't like the word products, but I'll use it anyway.

01:43:51.240 | Just the idea of getting a eight basis point, five basis point index fund into the marketplace

01:43:56.800 | is such a gift for people again that you could talk about all this stuff, you could talk

01:44:04.640 | about behavior, but you need something practical to actually use to implement all this.

01:44:11.540 | So providing the product was also important and like Jobs who was ultimately a visionary,

01:44:16.720 | you ever see an interview with Jobs, his mind is all over the place.

01:44:19.200 | He's clearly very, he's got a vision and he's got thoughts and he reads journals.

01:44:25.360 | At the same time, he could manage a huge organization.

01:44:29.720 | To be a manager of people and a visionary, these two things don't collide a lot.

01:44:34.480 | Normally one or the other, Bogle also had both.

01:44:38.140 | So usually when you combine a visionary, someone who has academic knowledge, someone who has

01:44:43.960 | competitive spirit and can actually manage people without pissing them all off and create

01:44:48.160 | a huge structure, those people tend to change the world because they have like four or five

01:44:52.600 | things that normally we only have one of.

01:44:55.960 | Got it, excellent.

01:44:59.920 | So I don't know, Miriam, if there are any other questions in the chat, but Eric is where

01:45:05.360 | 10 to 10 Eastern.

01:45:07.440 | Before we wrap up again, I want to thank you on behalf of the Bogleheads community for

01:45:13.080 | a phenomenal presentation and Q and A. And before you go, what's the best way for folks

01:45:19.560 | to find you?

01:45:22.320 | I would say here, I'll pull up my Twitter page here and you can find me on Twitter.

01:45:26.760 | Where is it?

01:45:27.760 | Here we go.

01:45:28.760 | @ericvaltunis.

01:45:29.760 | I don't know why I can't click on this, bad timing for my internet to not work.

01:45:34.640 | But @ericvaltunis on Twitter and let's see here, profile.

01:45:40.920 | Twitter's gotten a little crazy since Elon Musk took over, but I think it'll calm down.

01:45:45.840 | But anyway, here's my homepage here if it comes up.

01:45:50.000 | And the other way you can find me is I have a podcast called Trillions and I have a TV

01:45:57.600 | show called ETFIQ that's on Bloomberg TV every Monday at 1 p.m.

01:46:03.320 | But if you look at my feed here, you can see it's a lot of financial information.

01:46:12.160 | I talked about the Vanguard story on here earlier.

01:46:16.240 | Anyway I think this is a good place and my DMs are open.

01:46:19.040 | So if you go to message, you can message me whenever you want if you have a question.

01:46:22.920 | And this is all free.

01:46:23.920 | You can find me at the terminal, but most people that are retail don't have a terminal.

01:46:28.480 | So I'll say that, but assuming that's not how you're going to get me.

01:46:33.080 | Fantastic.

01:46:34.080 | So thanks for sharing.

01:46:35.080 | And then I'll just check in with Miriam really quickly.

01:46:37.460 | Any closing comments?

01:46:39.080 | And thanks again to all the team that helped organize this.

01:46:42.240 | Yes.

01:46:43.240 | Thank you, Eric, so much.

01:46:44.240 | It was very interesting, informative, delightful.

01:46:47.720 | You brought Jack Vogel to life for us.

01:46:49.800 | It was really wonderful.

01:46:51.640 | Thank you again so much for giving us your time.

01:46:54.280 | I'd like to thank the people who came and the Vogelheads who came, the attendees.

01:46:59.800 | Thank you.

01:47:00.800 | Our co-hosts and Gauri, thank you so much for your questions and for bringing Eric to

01:47:08.440 | us.

01:47:09.440 | Likewise.

01:47:10.440 | Miriam, thanks for co-hosting.

01:47:11.640 | We do have another meeting coming up.

01:47:18.840 | Thank you.

01:47:39.040 | (upbeat music)

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