Bogleheads® on Investing Podcast Episode 044: Eric Balchunas on the Bogle Effect, host Rick Ferri

00:00:00.000 | [MUSIC]

00:00:09.000 | Welcome everyone to Bogle Heads on Investing episode number 44.

00:00:13.560 | Today, our special guest is Eric Balchunis,

00:00:16.920 | senior ETF analyst at Bloomberg Intelligence.

00:00:20.840 | Eric recently wrote a book, The Bogle Effect, how John Bogle and

00:00:24.960 | Vanguard turned Wall Street inside out and saved investors trillions.

00:00:28.600 | [MUSIC]

00:00:37.880 | Hi everyone, my name is Rick Ferry and I'm the host of Bogle Heads on Investing.

00:00:42.160 | This episode, as with all episodes,

00:00:44.600 | is brought to you by the John C. Bogle Center for Financial Literacy,

00:00:48.840 | a 501(c)(3) nonprofit organization.

00:00:52.280 | Please visit boglecenter.net.

00:00:55.560 | Your tax deductible dollars are greatly appreciated.

00:00:58.960 | Today, our special guest is Eric Balchunis,

00:01:02.160 | senior ETF analyst for Bloomberg Intelligence.

00:01:05.280 | Eric was my guest on episode number 15 where we talked about his former book,

00:01:10.400 | The Institutional ETF Toolbox.

00:01:13.400 | This time, we're talking about a new book, The Bogle Effect.

00:01:17.120 | And what exactly is The Bogle Effect?

00:01:19.280 | It's not just Jack Bogle's life, it's not just Vanguard, but

00:01:23.080 | it's the influence that he had on an entire industry.

00:01:28.040 | In fact, the entire world.

00:01:30.800 | You can pre-order today and it will be published on April 26th.

00:01:34.920 | So with no further ado, let me introduce Eric Balchunis.

00:01:40.600 | Welcome again to the Bogle Heads on Investing podcast, Eric.

00:01:44.560 | >> It's great to be here, Rick.

00:01:45.560 | I'm a big fan of the podcast and all the work you do.

00:01:48.480 | >> Well, last time you were here was episode number 15, so

00:01:51.280 | it was a couple of years ago.

00:01:53.640 | Back then, we were talking about your previous book,

00:01:56.840 | The Institutional ETF Handbook.

00:01:59.880 | And this time, we're gonna be talking about your new book, The Bogle Effect.

00:02:04.840 | How Jack Bogle and Vanguard turned Wall Street inside out and

00:02:08.720 | saved investors trillions.

00:02:11.160 | And I have to say, you've done a wonderful job with this book.

00:02:14.560 | But before we jump into that, I mean,

00:02:16.880 | your job at Bloomberg is the senior ETF analyst.

00:02:22.160 | And as we both know, Jack Bogle thought that ETFs were a product of the devil.

00:02:28.920 | So what is an ETF analyst doing writing a book about Jack Bogle?

00:02:33.240 | >> Well, it's a good question, Rick, because Bogle was very animated and

00:02:37.840 | colorful in his critique of ETFs over the years.

00:02:40.560 | I know because I went to interview him multiple times and

00:02:44.080 | challenged him on this and asked him questions about ETFs.

00:02:47.360 | But my first time really sitting down and interviewing him came in about 2013-ish.

00:02:52.620 | And I was writing a book on ETFs, which you mentioned.

00:02:55.440 | And I wanted to get his take on them, some of the trends going on,

00:02:59.680 | like smart beta, I wanted to include him in the book.

00:03:02.160 | I write my books like semi-documentaries, and I like a lot of voices in there

00:03:05.960 | to give the topics more angles and color.

00:03:08.440 | And I thought Bogle on ETFs would be a way to get the green vegetables, so

00:03:12.960 | I don't get too carried away with ETFs.

00:03:14.520 | Let's get the grandfather Puritan voice in here to maybe give the other side

00:03:19.800 | of the ETF story.

00:03:21.160 | And he was critical, and I put some of his criticisms in my first book.

00:03:24.300 | But I kept pushing back, and at the end of the day,

00:03:27.240 | I think his problem was trading and marketing.

00:03:30.360 | That said, there's plenty of ETFs that aren't really full of gimmicky marketing,

00:03:35.640 | and that are not traded that much.

00:03:37.040 | And so he did admit that and acknowledge that over the years.

00:03:40.580 | But that was ultimately his issue.

00:03:42.280 | And I have a chapter in the book called Bogle and ETFs, it's complicated.

00:03:47.400 | One of the reasons I wrote this book as an ETF analyst is that I was shocked,

00:03:51.360 | and it always stuck with me when I interviewed Steve Bloom,

00:03:55.040 | who created the first ETF with Nate Most at the American Stock Exchange.

00:03:59.160 | He told me the story of going to Bogle's office, talking to him about ETFs,

00:04:02.480 | Bogle giving him some advice, but saying,

00:04:04.040 | you're never going to use the Vanguard fund for this.

00:04:06.040 | But he was nice, and one thing he said was, well,

00:04:09.160 | we priced the first ETF, SPY, at 20 basis points of a fee.

00:04:14.000 | And just for clarification, SPY is?

00:04:16.920 | The SPDR S&P 500 ETF, the first ETF launched in the US.

00:04:21.200 | It's the biggest to this day.

00:04:22.400 | It's basically king of the ETF world.

00:04:24.800 | And it was the first one launched, and it had a price point of 20 basis points.

00:04:29.200 | And why did they do that?

00:04:30.200 | And he said, because Vanguard's 500 index mutual fund was 20 basis

00:04:34.440 | points at the time, which is pretty cheap, especially in the '90s.

00:04:38.120 | This is absolutely major, and it really dawned on me

00:04:41.720 | that the ETF industry would be a tiny fraction of itself

00:04:45.600 | had Vanguard and the mutual ownership structure

00:04:47.680 | not gotten to 20 basis points at that point.

00:04:50.640 | These are guys from the American Stock Exchange.

00:04:52.720 | They weren't exactly like retail people.

00:04:54.760 | We know Wall Street.

00:04:55.920 | They probably would have priced it at 80 or 90,

00:04:58.840 | because that's just what you can get away with back then until Vanguard

00:05:01.680 | hit the scene.

00:05:02.480 | And that is huge, because if you start to think about that,

00:05:06.440 | you realize that the ETF industry is almost largely built off

00:05:09.800 | of retail and advisors at this point.

00:05:11.480 | And there's no way they're buying an ETF at 80, 90 basis points.

00:05:16.520 | Maybe a couple.

00:05:17.320 | Maybe at the fringes, it would have some assets.

00:05:19.320 | But I just think that was an interesting link and something

00:05:22.560 | where I thought, wow, Bogle had this profound effect on something

00:05:26.560 | that he hated.

00:05:27.200 | And then as I researched this book, I realized over and over this

00:05:30.400 | was the case.

00:05:31.640 | I get what you're saying exactly.

00:05:33.320 | And I really love the title of the book, The Bogle Effect,

00:05:37.480 | because what you just described was part of the Bogle effect, which

00:05:41.800 | was that even though Vanguard didn't create ETFs and Jack hated ETFs,

00:05:47.360 | that he had such a profound influence right

00:05:50.400 | at the beginning in the ETF marketplace.

00:05:52.960 | And this perpetuates through many, many things

00:05:55.640 | that we're going to talk about here on this podcast.

00:05:58.600 | It's not just index investing.

00:06:00.600 | It's the whole entire industry, and not only in the US,

00:06:04.720 | but now around the world.

00:06:07.360 | And so the Bogle effect is just growing in many different directions.

00:06:12.000 | So I think it's a great title.

00:06:14.240 | The book, which I found fascinating-- of course, I'm a Bogle head,

00:06:19.360 | and I read all this stuff, kind of a geek, if you will.

00:06:22.840 | And thanks for mentioning me a few times in the book as well.

00:06:25.440 | I appreciate that.

00:06:27.000 | You've done a great job describing who Jack Bogle really was.

00:06:31.280 | People used to call him Saint Jack, right?

00:06:34.960 | As soon as he had this idea about indexing, his world changed,

00:06:40.160 | and he was all about indexing and so forth.

00:06:42.120 | But that's not really true.

00:06:44.640 | And I think that you brought that out of the book,

00:06:46.720 | and I think it's interesting.

00:06:48.480 | So this is sort of the true story of Jack Bogle and Vanguard

00:06:54.080 | and the rise of Bogle-ism, if you will.

00:06:58.200 | Bogle was an investor activist most of the time during his life,

00:07:01.920 | although not all of the time.

00:07:03.840 | And so let's start with Jack Bogle, the beginning.

00:07:07.800 | And the fact is, he was an active investor.

00:07:12.240 | Yeah, so he ran Wellington, which was a balanced fund.

00:07:16.080 | The big Wellington fund was balanced, and it was active.

00:07:19.760 | And I think, had a crisis not emerged at Wellington,

00:07:25.800 | I believe he would have stayed there.

00:07:27.440 | He was happy there, but fate intervened.

00:07:31.280 | And what was interesting is, he had this balanced fund,

00:07:34.320 | and everybody can identify with it because it's just like this era.

00:07:36.640 | The last 10 years, you know how growth stocks have gone wild.

00:07:39.840 | They've sold off a little this year, but for the last 10 years,

00:07:43.680 | if you're a value investor or doing anything conservative,

00:07:45.920 | you've probably had a tough time in the past decade.

00:07:48.440 | And so it was a similar situation where there were funds like ARK

00:07:52.800 | just going wild and basically capturing and riding this wave.

00:07:56.360 | And his Wellington fund was conservative, and it wasn't going well.

00:07:59.640 | They were losing customers and assets and clients.

00:08:02.160 | And his boss, Walter Morgan, said, okay, look,

00:08:04.840 | I'm going to hand the firm over to you at age 35.

00:08:07.840 | I need you to fix it.

00:08:09.720 | So he said, look, I was selling bagels, and everybody wanted donuts

00:08:14.120 | across the street, so I thought we should start selling donuts.

00:08:17.080 | And it was a great metaphor because donuts are sweet and just like,

00:08:19.560 | you know, high performing funds are in a similar way sweet,

00:08:23.680 | but maybe not good for you.

00:08:25.280 | And so he looked to try to team up with an equity company

00:08:30.320 | that was good at equities.

00:08:31.680 | And he went through like four or five people.

00:08:33.880 | And I actually think he brought this up on your podcast.

00:08:37.680 | I think he was on the first one, I'm sure, right?

00:08:40.160 | Yeah, he was my first guest.

00:08:42.680 | He said he went to Capital Group.

00:08:44.040 | They weren't interested.

00:08:45.760 | He goes to Franklin. They weren't interested.

00:08:47.880 | And ultimately, he lands at Thorndike, which had this iVest fund.

00:08:52.960 | And it was a real popular fund.

00:08:54.280 | And so it wasn't his first choice.

00:08:55.680 | These were like his fourth or fifth choice.

00:08:57.880 | And they were really polar opposites.

00:09:00.880 | And for a while, it worked.

00:09:02.360 | It was like they had gotten chocolate to match with the peanut butter.

00:09:05.360 | It seemed good.

00:09:06.520 | But then the market basically dropped after the '60s were over in the early '70s.

00:09:11.440 | It fell, I believe it was 35% in two years.

00:09:16.160 | And basically, they had changed the Wellington Fund to be almost all equities.

00:09:21.160 | And so the Wellington Fund went down as much as the market.

00:09:24.760 | Just rewinding the story a little bit.

00:09:26.040 | So during this period of time, the go-go years of the late 1960s,

00:09:29.880 | you had companies like Xerox and Polaroid, IBM, Avon, Extron.

00:09:36.880 | I remember all the Tron stocks, actually.

00:09:39.600 | These are the Facebooks and the Googles of the day, if you will.

00:09:43.440 | These were the Teslas of their day.

00:09:44.960 | And they were not in it at Wellington.

00:09:48.680 | And so they were trailing far behind the rest of the market and losing assets.

00:09:54.840 | But then when they brought in these other managers

00:09:57.800 | and they did load up Wellington with these stocks,

00:10:01.760 | unfortunately, if you are a Wellington investor,

00:10:04.480 | you not only did not keep up with the market during the '60s,

00:10:08.240 | but now you had all these other stocks.

00:10:10.560 | It's like buying ARK at the peak and then boom, down it comes.

00:10:14.480 | And you lost 40% when these stocks dropped.

00:10:19.360 | So you didn't get any of the upside.

00:10:20.720 | You got very little of the upside and you got all the downs.

00:10:22.560 | He must have been in some really deep trouble.

00:10:24.680 | Yeah, I imagine he felt he betrayed his boss, his mentor, and himself.

00:10:30.480 | And he was pissed off.

00:10:31.800 | And apparently, he was no picnic to deal with either.

00:10:33.760 | I can't say-- in his books, he sort of writes himself as the victim.

00:10:38.120 | And I guess there's some of that.

00:10:39.800 | Although he admits, I made a mistake hiring these guys or merging with them.

00:10:43.040 | And he gave them effective operating control of the board

00:10:45.320 | or voting control of the board.

00:10:46.840 | He gave away too much in the deal.

00:10:48.800 | Anyway, they had voting control of the board.

00:10:51.160 | And they were not into him.

00:10:52.280 | And they fired him.

00:10:54.320 | But then he realized that he was actually

00:10:57.120 | chairman of the funds themselves.

00:10:59.200 | Yeah, do explain that.

00:11:00.200 | Explain that a little bit.

00:11:02.040 | Yeah, it's a quirk in the system.

00:11:04.360 | Wellington's the investment advisor.

00:11:06.360 | And the funds are like shell companies themselves.

00:11:09.000 | So they hire out an administrator, an advisor.

00:11:12.480 | And so there's the board of the company, Wellington.

00:11:16.080 | And there's the board of each fund.

00:11:18.800 | And so Jack was chairman of the funds.

00:11:21.760 | And so he had some power.

00:11:23.680 | They didn't realize this.

00:11:25.240 | And so he decided to basically dig in and, as chairman of the funds,

00:11:28.600 | sort of fight to keep control of something versus Wellington the company.

00:11:34.360 | And it was actually a pretty brilliant move.

00:11:37.080 | He's basically starting a young family at this point.

00:11:39.320 | The pressure's on.

00:11:41.200 | So he had a lot going on.

00:11:42.480 | But he's a fighter.

00:11:44.000 | I mean, this guy is--

00:11:45.680 | he's not going to just go away.

00:11:48.400 | You tell the story in the book how he used to play squash.

00:11:52.360 | And he had a heart condition.

00:11:54.960 | And so he used to bring a defibrillator to the court.

00:11:58.760 | And he would tell his opponent that if he passed out,

00:12:02.800 | run and get the defibrillator and shock him back.

00:12:06.240 | Which I would assume he would continue to play at that point.

00:12:09.240 | I mean, this is the kind of person he was.

00:12:11.240 | Yeah, I mean, this guy was hardcore.

00:12:13.440 | And especially the issue with his heart.

00:12:15.480 | He was supposed to die like 10 times.

00:12:17.720 | He was told he wasn't going to live past 35, 40.

00:12:20.600 | I think being that close to death all the time

00:12:23.680 | probably gave him a jolt of life in a fight

00:12:26.120 | that maybe other people don't have.

00:12:28.320 | And it may be a sense of purpose.

00:12:30.120 | So back to the bifurcation period, you

00:12:32.640 | have Bogle on one side and the Thorndike guys on the other.

00:12:37.000 | Bogle and the board, and they all say, look,

00:12:39.440 | we have a mess on our hands.

00:12:41.080 | Bogle, why don't you come up with a way

00:12:43.680 | to basically come up with a solution in which your funds

00:12:47.840 | can live in harmony with Wellington the company?

00:12:51.240 | So Bogle and his two assistants, Jan Twardowski in particular,

00:12:55.480 | it seems like a scene from Jerry Maguire.

00:12:57.280 | They crammed and wrote this 250-page report

00:13:00.600 | with a couple solutions.

00:13:02.320 | They needed some kind of a solution

00:13:03.840 | where they could just work together

00:13:06.360 | even though they hated each other.

00:13:08.040 | And so the board of the funds, which actually had,

00:13:10.440 | I think, three people from the Thorndike crew,

00:13:13.320 | and I think seven or eight from the Philadelphia-Wellington

00:13:16.920 | side that were more friendly to Jack.

00:13:18.980 | But still, there were three on there from the Thorndike side.

00:13:21.480 | So they needed something, and the board

00:13:23.440 | wanted it to be unanimous.

00:13:25.480 | So basically, Jack had to propose something

00:13:27.320 | that would make it seem like he wasn't

00:13:28.900 | going to make out like a bandit or impose too much control

00:13:32.600 | and also mess with Wellington or Thorndike's desire

00:13:36.720 | to run money.

00:13:37.760 | So the solution was, you become a back office administrator

00:13:41.000 | for the funds, and we'll mutualize.

00:13:44.040 | Therefore, it doesn't look like I'm

00:13:45.600 | in this for money or anything.

00:13:47.120 | And so that's sort of how he was able to get

00:13:50.600 | the unanimous approval of the board and keep his job.

00:13:53.920 | And then he took about 25, 30 people with him,

00:13:55.960 | and he decided to call that company Vanguard.

00:13:58.680 | And just to clarify, you say back office administration.

00:14:01.920 | I mean, what does that cover?

00:14:04.200 | Basically, all the funds have holdings,

00:14:06.620 | and you have to calculate what the value is every day.

00:14:09.920 | Basically, all the operational details

00:14:12.400 | that go into sending out the NAV, the numbers,

00:14:16.200 | keeping track of it, probably working with the custodian.

00:14:20.160 | Basically, all the not fun stuff,

00:14:22.440 | Wellington, the company that Thorndike was now running,

00:14:25.600 | they would still be the investment advisor.

00:14:27.440 | So they would run the money and do the investments,

00:14:29.520 | which is what they liked anyway.

00:14:31.520 | So the back office is an unsung job.

00:14:34.480 | It's necessary for any fund to operate.

00:14:37.640 | But I mean, I think most people would find

00:14:39.240 | accounting and administrative tasks pretty boring.

00:14:41.840 | So they went ahead and went with that.

00:14:42.920 | So Vanguard got started.

00:14:44.000 | It was kind of a non-event, if you will.

00:14:45.660 | The media didn't really even pick it up.

00:14:47.160 | It was not a big deal.

00:14:48.200 | It was just, okay, Wellington is gonna offload

00:14:51.160 | this back office administrative stuff

00:14:53.160 | to this new entity that they formed.

00:14:55.800 | It's not a profit center, if you will.

00:14:57.440 | It's just at cost.

00:14:59.920 | And it's called Vanguard.

00:15:01.120 | I mean, it probably didn't even make the last page

00:15:03.120 | of the Wall Street Journal at the time.

00:15:05.240 | That's right.

00:15:06.200 | And that was a way to sell it to the Thorndike side,

00:15:09.700 | because they thought, okay, fine, you do the back office.

00:15:13.160 | We'll run money.

00:15:14.000 | That's what we're good at anyway.

00:15:15.200 | That's what we wanna do.

00:15:16.480 | And we can now move forward together,

00:15:18.980 | even though we're not friends.

00:15:20.800 | And that was the deal they made.

00:15:23.040 | But then something happened, right?

00:15:25.280 | How did they end up starting the S&P 500 fund

00:15:28.480 | if they can't run money?

00:15:30.280 | Yeah, again, and the serendipity in that story

00:15:32.800 | is ridiculous, right?

00:15:33.740 | Like the amount of things that had to happen

00:15:35.600 | just for Vanguard, the mutual to be born were crazy.

00:15:38.200 | Then for Vanguard to launch an index fund,

00:15:40.560 | it was also a crazy serendipitous situation

00:15:43.200 | because you read an article by Paul Samuelson

00:15:46.240 | right after he started Vanguard.

00:15:47.520 | So good timing.

00:15:48.880 | And Paul Samuelson was saying,

00:15:50.480 | someone should just set up an index fund

00:15:52.800 | just so we can benchmark

00:15:54.560 | all these gunslinging active managers

00:15:56.080 | and see what they're really worth.

00:15:57.920 | Also Burton Malkiel, who was talking about

00:16:01.160 | if there isn't an S&P 500 index fund, there should be.

00:16:03.920 | And that was quoted in his

00:16:06.240 | "Random Walk Down Wall Street" book,

00:16:08.440 | which was published in 1973.

00:16:11.120 | And there were some other people as well,

00:16:12.360 | like Charles Ellis and other folks

00:16:15.360 | who were alluding to the fact

00:16:17.360 | that there should be index funds.

00:16:19.380 | And Bogle just like, you know what?

00:16:21.240 | I'll do it.

00:16:22.120 | And that, I won't be running money.

00:16:24.680 | We can actually try to sell it to our board

00:16:27.360 | by saying this isn't running money 'cause it's passive.

00:16:30.000 | So he actually got it through,

00:16:31.560 | as he says later in the interview,

00:16:33.040 | they actually bought it.

00:16:34.240 | 'Cause even, I think he thought,

00:16:36.720 | well, this is a real,

00:16:38.720 | this is a big technicality

00:16:40.560 | I'm trying to drive a truck through.

00:16:41.560 | But he got it through.

00:16:43.040 | And that was a way for him to sort of follow.

00:16:45.200 | He liked the idea.

00:16:46.040 | He saw the returns were pretty good

00:16:47.520 | versus the group of active funds.

00:16:49.920 | The data was there.

00:16:51.120 | Paul Samuelson buying in helped him a lot

00:16:52.960 | because he has academic credentials.

00:16:54.560 | Like I work for Kennedy.

00:16:56.000 | And so Bogle was able to get that idea through the board.

00:16:59.840 | And then they filed for the first,

00:17:02.080 | I think it was called the first investment trust.

00:17:03.680 | It wasn't Vanguard at first.

00:17:05.160 | And then that was in, I believe '75.

00:17:08.240 | In fact, there were attempts at doing index funds

00:17:12.840 | in the early '70s before Vanguard

00:17:15.920 | through Wells Fargo and Battery March Financial

00:17:21.000 | and American National Bank in Chicago.

00:17:24.240 | So there were other attempts at this.

00:17:26.520 | This is, if you will, not Jack Bogle's idea, correct?

00:17:30.120 | No, I don't think it was.

00:17:31.320 | And I don't think anybody would debate that.

00:17:32.680 | And in the book,

00:17:33.520 | I have a small section called the origins of indexing.

00:17:37.000 | And I go back to MIT, Chicago,

00:17:40.280 | John Mack McGowan, who worked at Wells Fargo.

00:17:43.160 | It kind of reminded me of the PC and Steve Jobs.

00:17:46.800 | Steve Jobs did not invent the PC or personal computing,

00:17:50.960 | but in every business,

00:17:52.680 | there's usually somebody who's able to bring it to the masses

00:17:54.600 | and that's a whole different ballgame.

00:17:56.800 | The other thing is,

00:17:57.920 | even though people could have an ideal idea of this

00:18:01.080 | and think about it and buying the S&P,

00:18:04.400 | it's a different story when you have to sell it

00:18:06.520 | to your big boss at the bank or whatever.

00:18:08.720 | Well, I'm not gonna sell a fund for three basis points

00:18:12.520 | or whatever, 20.

00:18:14.680 | They wanna make money.

00:18:16.160 | And so to me, again,

00:18:17.800 | this brought me back to why I really focused on Bogle

00:18:21.040 | because none of this really happens to any extent

00:18:24.280 | like it has happened without it, the mutual structure.

00:18:27.760 | And that structure is why indexing is popular.

00:18:31.480 | It was because it's cheap.

00:18:33.480 | The index just happened to be the perfect vehicle

00:18:36.720 | for the mutual ownership structure

00:18:38.760 | and an idea whose time was ready.

00:18:41.000 | So Bogle was in the right place, right time.

00:18:43.160 | And the index fund was.

00:18:44.680 | Honestly, I actually have this statement in the book,

00:18:48.160 | which is that indexing and index funds needed Vanguard

00:18:52.400 | more than Vanguard needed index funds,

00:18:54.720 | if that makes any sense.

00:18:56.040 | Yeah, it was the structure of Vanguard

00:18:57.600 | and the nonprofit nature of it,

00:18:59.520 | which allowed this to eventually grow.

00:19:04.520 | Although it didn't at first, right?

00:19:09.640 | I mean, the mistake that was made

00:19:13.200 | was they tried to raise their initial capital

00:19:17.040 | through the brokerage industry.

00:19:18.440 | And that did not go well.

00:19:20.160 | No, there were stories about them going out

00:19:23.400 | and the pitch they used was,

00:19:24.240 | "Well, what if I could tell you

00:19:25.280 | "you could go out in a golf course and shoot par?

00:19:26.720 | "Would you lock into par?"

00:19:28.880 | And they said that played okay,

00:19:30.240 | but basically they wouldn't pay brokers.

00:19:32.680 | That was problem number one.

00:19:34.320 | And number two is it really is a hard concept to understand.

00:19:37.040 | It's counterintuitive to think that

00:19:39.120 | just buying all the stocks in a market cap weight

00:19:42.800 | would actually be good.

00:19:44.160 | So I spend a good chunk of the chapter on the index fund,

00:19:47.200 | not essentially on why indexing makes sense or doesn't,

00:19:51.000 | but just how Bogle sold it.

00:19:52.920 | And he had to sell it outside of the system,

00:19:55.360 | which makes it even harder.

00:19:56.360 | It's like making a movie

00:19:57.960 | and no cable channel will carry you.

00:20:00.600 | No movie theater will carry you.

00:20:02.480 | You basically have to sell it outside of the entire system.

00:20:05.080 | And it took a long time because of that.

00:20:07.480 | And it took a long time

00:20:08.480 | because of the counterintuitive nature of it.

00:20:10.120 | So he was very creative.

00:20:11.720 | I think some of the ways he did it

00:20:12.800 | was to show the growth of $10,000.

00:20:16.080 | If you get 5% versus 7%.

00:20:19.000 | But he had to take that direct to the public.

00:20:21.000 | And so the idea of going through the brokerage industry

00:20:23.680 | to raise capital, like they were,

00:20:25.960 | according to Jack Bogle,

00:20:28.000 | they were trying to raise 150 million.

00:20:29.880 | That's what he said in my interview

00:20:31.640 | before they launched this fund,

00:20:34.280 | which ultimately did launch in 1976.

00:20:36.600 | But they ended up only raising

00:20:38.160 | through the brokerage industry, $11 million.

00:20:41.000 | In fact, in my interview with Jack,

00:20:44.760 | you should not even launch the fund

00:20:46.720 | if all you have is 11 million.

00:20:48.200 | I mean, it should never have existed.

00:20:50.320 | Yeah, you know, it gives the story some drama

00:20:53.560 | because here you have this flop.

00:20:55.880 | Everybody knows it's a big deal today, but it flopped.

00:20:57.600 | And so, but you have to put yourself in the time and place

00:21:00.400 | and wonder, would you have kept it going?

00:21:02.320 | Plus, keep in mind,

00:21:03.160 | they launched it when Wellington, again,

00:21:05.000 | those funds were within an 80 month streak of outflows.

00:21:08.800 | It was just a brutal time, but they hung in there.

00:21:11.400 | I think he just believed in the idea.

00:21:13.240 | It took Vanguard 25 years to even get 10% market share.

00:21:18.240 | That is a long time.

00:21:19.280 | And if you look at a chart

00:21:20.520 | of all the people who ran Vanguard,

00:21:22.640 | Jack's time is the line of assets

00:21:25.280 | is all the way at the bottom for his whole tenor.

00:21:28.040 | It only starts to go up after he passed it off.

00:21:30.640 | But that groundwork was so major.

00:21:34.360 | And the blood, sweat, and tears of hanging in there.

00:21:36.880 | And if you read his book, "Character Counts,"

00:21:38.720 | it's all his speeches from like speech in '81, '82.

00:21:42.120 | It's like the Christmas party speeches.

00:21:43.960 | And each one, he's like, "Hey, we got to 3 billion.

00:21:47.160 | "Can you believe it?"

00:21:48.040 | And every billion is like this huge victory.

00:21:50.560 | Now they've taken a billion, over a billion a day.

00:21:53.040 | It's wild.

00:21:54.640 | Interesting you say that

00:21:55.720 | because the Vanguard S&P 500 is going back

00:21:58.840 | to the story of the Vanguard S&P 500.

00:22:04.320 | The first investor trust being launched in 1976

00:22:07.880 | and with only 11 million.

00:22:10.680 | They couldn't even buy 500 stocks.

00:22:13.600 | They could only buy about 275 stocks.

00:22:17.120 | And another thing was,

00:22:19.440 | and I had asked him this on my podcast

00:22:21.280 | and I really was mind blowing,

00:22:24.900 | is that the first fund manager,

00:22:27.840 | the one who did the trading in that account

00:22:30.680 | was one of his assistants who was run part-time,

00:22:35.680 | this is his quote,

00:22:38.920 | by a young woman whose full-time job

00:22:41.760 | was to work with her husband

00:22:43.400 | at her husband's furniture store in Wilmington, Delaware.

00:22:46.840 | I mean, you can't make this stuff up.

00:22:49.160 | Yeah, I remember my second time I interviewed Jack

00:22:51.360 | and when he told me that story, I almost fell over.

00:22:53.720 | I was like, "Really?"

00:22:54.600 | It speaks to the sort of small business,

00:22:57.480 | upstart kind of atmosphere that was happening at the time

00:23:00.960 | and how, again, big ideas sometimes seem

00:23:03.760 | so not a big idea at the time.

00:23:06.040 | You make a good point.

00:23:07.400 | By not having all the stocks and having a high fee,

00:23:10.320 | I think it launched in like 45, 50 basis points.

00:23:13.280 | The tracking was pretty bad.

00:23:14.720 | I think it might've missed the index by 60, 70 basis points,

00:23:18.200 | which today would be like a horror show.

00:23:20.120 | If you look at a chart, over time,

00:23:22.120 | the fee came down and the tracking got better.

00:23:24.160 | They brought in Gus Sauter to really sort of

00:23:26.760 | bring his math skills in and his ability to trade

00:23:30.680 | and he really, really tightened up the tracking.

00:23:33.280 | And so again, today, it's not just that

00:23:35.840 | like the total market fund is three basis points,

00:23:37.760 | but it's actually zero

00:23:39.400 | because they're able to use securities lending

00:23:41.160 | and some passive management acumen

00:23:43.960 | to make up a couple of bits.

00:23:46.120 | And that is, again, that's a modern miracle

00:23:49.200 | that you can get free exposure even beyond the fee.

00:23:52.720 | It's funny when they first tried to pass

00:23:55.960 | the idea of an index fund to the board,

00:23:58.240 | they couldn't call the person running it

00:24:00.200 | a portfolio manager.

00:24:01.040 | So they called Jay Antwardowsky, a portfolio administrator.

00:24:04.440 | They didn't have any money in the fund.

00:24:07.080 | They couldn't buy all 500 stocks until I believe it was 1977

00:24:12.080 | when Wellington merged one of their funds,

00:24:16.240 | one of their large cap funds into the S&P 500,

00:24:19.880 | which brought the assets up enough

00:24:22.800 | to be able to buy all 500 stocks.

00:24:25.160 | And then this was now the true replication of the S&P 500.

00:24:29.560 | And they also fired all the brokers.

00:24:32.040 | They went to a no load direct

00:24:34.480 | to the consumer product with this fund.

00:24:37.480 | And even then though, it took years, I think,

00:24:40.720 | till they first got a billion dollars.

00:24:42.200 | And it was something like at least 10 more years

00:24:45.040 | before that fund actually took in

00:24:46.480 | a billion dollars in assets.

00:24:48.320 | Yeah, the amount of time it took

00:24:50.160 | was another thing that drew me to the story.

00:24:52.400 | The other thing that I found interesting

00:24:54.400 | was not only everything you just said,

00:24:56.760 | but as it did get a little traction,

00:24:58.920 | they would turn down money regularly.

00:25:01.000 | I was shocked by that.

00:25:02.200 | Gus Sauter told me that on multiple occasions,

00:25:05.280 | they'd have a big institution wanting to come in

00:25:08.040 | for like a month.

00:25:09.320 | But they were like, get out of here,

00:25:10.320 | we don't want your money.

00:25:11.320 | And turning down money is something

00:25:13.320 | that a private equity manager would do,

00:25:15.040 | or perhaps you're in an area of the market

00:25:17.200 | that isn't liquid, like small caps.

00:25:19.720 | But for a young, large cap fund to turn down money

00:25:23.360 | is really shocking.

00:25:24.760 | And I think it speaks to the walk the walk.

00:25:27.280 | This guy was all in and was able to sort of

00:25:30.800 | really discipline himself in a way

00:25:33.200 | that's so difficult in this industry.

00:25:35.000 | People lose their minds, they want money,

00:25:37.480 | they wanna get rich.

00:25:38.320 | And I get it, it's what draws people to Wall Street.

00:25:41.320 | And this guy just seemed to not have any of that bug

00:25:45.400 | or any of those sort of tendencies,

00:25:47.640 | which enabled him, I think,

00:25:49.120 | to walk this really straight line,

00:25:51.960 | even if it meant slowing their growth rate.

00:25:54.680 | He just seemed to be somebody who almost was miscast

00:25:58.400 | in the whole industry.

00:25:59.720 | There was so many stories like that,

00:26:01.320 | which are just the opposite of what the natural tendency is

00:26:05.040 | for people in asset management to do.

00:26:07.680 | And that's, I think, what it took to last all that time.

00:26:12.000 | I think also the pain of working with the Thorndike guys

00:26:16.160 | and the idea of selling your soul during a bull market

00:26:20.200 | only to lose out.

00:26:21.640 | I think that lesson allowed him to walk that straight line

00:26:26.560 | through many cycles and through many opportunities

00:26:30.200 | where he could have taken a faster route to higher assets.

00:26:34.160 | It was purposely taking the slower, more prudent route.

00:26:37.680 | And that core of investors that is long-term

00:26:40.360 | and his absolute protection of them

00:26:43.200 | is really, in my opinion, why today, when there's a sell-off

00:26:47.320 | you still see money going into Vanguard funds.

00:26:50.000 | People are like, "How come Vanguard can take in

00:26:51.440 | "all this money when everybody else is losing money

00:26:54.000 | "'cause the market's down?"

00:26:55.320 | And I'm like, "You have to go to the core

00:26:56.920 | "and how it was built and how people found it

00:26:59.520 | "and the trust gained."

00:27:01.240 | And that's why I wanted to tell the story

00:27:03.240 | was it explained so much today.

00:27:05.920 | - I wanna circle back a minute to mid-1970s

00:27:10.840 | when the first index fund was formed.

00:27:13.760 | There was this whole academia thing going on

00:27:16.480 | called Efficient Market Hypothesis.

00:27:19.360 | And people sometimes link indexing

00:27:23.000 | to the Efficient Market Hypothesis,

00:27:25.320 | saying, "Well, you can't beat the market.

00:27:28.400 | "The market is the most efficient way to invest."

00:27:31.560 | That's what Bogle believed

00:27:32.920 | and that's why index funds were formed.

00:27:34.680 | But none of that is true.

00:27:35.600 | I mean, he didn't even know

00:27:37.280 | that the Efficient Market Hypothesis was going on,

00:27:40.160 | or even what it was,

00:27:41.560 | until long after he created the first index fund.

00:27:45.640 | And this whole idea of you can't beat the market

00:27:48.680 | because the markets are efficient.

00:27:49.960 | I mean, Jack Bogle never said that.

00:27:52.360 | He was not anti-active.

00:27:55.840 | - No, not at all.

00:27:56.960 | Vanguard is the third biggest active manager today.

00:27:59.720 | Bogle took almost more pride in the Wellington Fund

00:28:02.360 | in his books than any other fund, and that's active.

00:28:04.960 | He loved the Prime Cap Fund.

00:28:06.760 | I will say that the way he talks about

00:28:09.480 | why those funds are successful,

00:28:11.240 | it reminds me of the book "Moneyball" and "Sabermetrics."

00:28:15.360 | Whereas most active managers are like,

00:28:16.720 | "I've found this perfect formula.

00:28:18.760 | I've found this premium and they got all this.

00:28:21.000 | I've got all," you know,

00:28:21.840 | and maybe they're highly educated

00:28:23.200 | and they are able to sort of sell that.

00:28:26.640 | Bogle basically gave credit

00:28:28.400 | for why his active funds outperformed because of the costs.

00:28:32.000 | He was able to keep eliminating basis points

00:28:34.640 | from their costs.

00:28:35.520 | He also had, in some cases, multiple managers.

00:28:37.800 | He wanted them to be more conservative, not trade a lot.

00:28:40.840 | And I think those, I call them Bogle metrics.

00:28:43.480 | Those data points,

00:28:45.120 | he attributed to why his active funds were so good.

00:28:47.320 | So he was okay with active,

00:28:49.360 | but he thought that costs really brought down

00:28:52.080 | most of the managers.

00:28:52.920 | And in his book, he says they're all highly,

00:28:55.320 | you know, a lot of them are highly educated.

00:28:56.640 | They're nice, they're honorable people,

00:28:58.400 | but they have math working against them.

00:29:00.520 | They have cost working against them.

00:29:02.360 | And the efficient market hypothesis,

00:29:05.080 | I put in here that I get it.

00:29:07.320 | And I think you could argue that like,

00:29:08.600 | okay, there's all these people covering Amazon stock.

00:29:10.320 | What could you possibly know?

00:29:11.520 | So for some big stocks,

00:29:12.560 | I think it does pass the sniff test.

00:29:15.120 | Of course, Amazon is properly priced

00:29:16.680 | because there's all this information.

00:29:17.960 | Everybody knows everything.

00:29:19.240 | But the sniff test in a holistic sense doesn't work.

00:29:22.480 | People probably would argue Tesla's overvalued.

00:29:24.840 | It doesn't seem efficient right now.

00:29:26.480 | Meme stocks, the market never seems perfectly efficient.

00:29:30.040 | What Bogle came up with,

00:29:31.120 | he riffed off of that and said,

00:29:32.480 | "I'm gonna do something called the cost matters hypothesis."

00:29:35.560 | And he wrote a journal indexing article on it.

00:29:38.480 | That does pass the sniff test.

00:29:40.200 | I think when people think about how much cost eat up,

00:29:43.800 | especially in a compounding way,

00:29:46.320 | and they see charts of dollars and cents,

00:29:48.400 | I think that passes their sniff test.

00:29:51.400 | So I think Bogle was actually good,

00:29:55.200 | smart to avoid attaching himself with EMH

00:29:59.520 | and way better to focus on the cost,

00:30:02.120 | which are, it's not as sexy.

00:30:03.720 | It's not as interesting.

00:30:04.720 | Probably not gonna get any like Nobel prizes,

00:30:07.240 | but it really, that's where the trillions in savings

00:30:10.160 | has come from, is just the costs.

00:30:12.440 | And that's what he honed in on.

00:30:14.320 | And that was probably his number one thing overall,

00:30:17.040 | beyond indexing, even beyond trading.

00:30:18.920 | I think, and his son told me this.

00:30:21.560 | He said, "He was preaching low cost from the day I was born

00:30:25.240 | until the day he died."

00:30:26.960 | - Vanguard was able to launch the S&P 500

00:30:29.240 | because it wasn't managed.

00:30:30.920 | They were just administering it.

00:30:33.160 | But when they did get permission to manage money,

00:30:35.680 | some of the first funds that they launched

00:30:37.320 | were actively managed funds.

00:30:38.840 | - Yeah.

00:30:39.680 | - And they experimented with quant funds

00:30:42.040 | and they experimented with thematic funds

00:30:44.960 | and they experimented with style funds, correct?

00:30:48.960 | And value, they had the first value and growth funds.

00:30:52.120 | I mean, this was not an indexing shop per se.

00:30:56.680 | - Yeah, this is one of the most fascinating things

00:30:58.960 | about Bogle is he spearheaded all of these things.

00:31:02.120 | He innovated all over the place.

00:31:04.040 | Those growth value funds were innovative at the time.

00:31:06.600 | He had a quantitative fund in '87.

00:31:08.720 | That sounds normal today, but it was not normal back then.

00:31:12.320 | Bond funds, he innovated there, international,

00:31:15.320 | and even themes.

00:31:16.160 | Vanguard did have a couple of theme funds.

00:31:18.920 | What I found interesting is he would later in life

00:31:20.960 | come to trash all of it.

00:31:22.080 | - Right, yeah.

00:31:23.520 | - He would trash things he innovated

00:31:26.720 | and launched over and over and over.

00:31:29.760 | And I think over his life, he just came to the conclusion

00:31:32.520 | that you just can't do better than buying the total market.

00:31:37.120 | That was his true love, I think, the total market,

00:31:39.000 | even beyond the S&P.

00:31:40.560 | Buy the total market and just wait 50 years.

00:31:44.400 | And I think anything outside of that,

00:31:46.400 | he came to just say, "It's just not worth it.

00:31:49.040 | "It's going to mess you up.

00:31:50.640 | "It's not necessary."

00:31:52.000 | And so I have a big theme in my book

00:31:54.920 | where I talk about this concept of addition by subtraction.

00:31:58.200 | And to me, that was almost the name of the book,

00:32:01.120 | because if you took Bogle's life work,

00:32:03.400 | I think it was taking this industry

00:32:04.840 | and just subtracting and subtracting and subtracting

00:32:07.880 | all the stuff you don't need

00:32:09.640 | to your left with basically frictionless exposure

00:32:12.520 | that's the most efficient way to grow wealth

00:32:14.240 | over 40, 50 years.

00:32:15.640 | And for him, that was the total market fund.

00:32:17.840 | Once you block into that,

00:32:19.720 | you start to look at your past innovations and funds

00:32:22.080 | and you're like, "Why did I even launch this?"

00:32:24.720 | And so there was a lot of conflict at the end,

00:32:27.080 | especially between Bogle trashing stuff at Vanguard

00:32:29.680 | that was actually doing quite well and taking in money.

00:32:31.280 | It was really, it's kind of weird.

00:32:33.840 | Studying Bogle and listening to him over 25 years

00:32:37.800 | and kind of dedicating my professional life

00:32:41.280 | towards that idea,

00:32:42.760 | I came to this four-step process that people go through.

00:32:46.480 | And the first step is called darkness,

00:32:49.440 | where you don't know what's going on,

00:32:52.000 | or you're trying to beat the market,

00:32:53.440 | and you're out chasing dreams, if you will,

00:32:58.080 | and that's darkness.

00:32:59.440 | And then you have enlightenment.

00:33:01.000 | And enlightenment is when you discover indexing.

00:33:03.280 | And for Jack Bogle, that happened in 1975,

00:33:06.680 | and they launched the first fund in 1976.

00:33:09.040 | He discovered the basic concept of indexing

00:33:11.280 | as a better solution, low fee, this is the way to do it.

00:33:14.720 | But then you get into the next phase, which is complexity.

00:33:18.440 | And as I look at John Bogle's life and Vanguard

00:33:20.400 | and what they did,

00:33:21.400 | they took indexing to a different level

00:33:23.720 | with many of these quant funds,

00:33:25.280 | sort of a type of an index fund, if you will,

00:33:27.320 | 'cause all they were doing was eliminating

00:33:28.640 | what they thought were the high-cost stocks

00:33:30.240 | in one of their quant funds.

00:33:31.320 | And it's complexity.

00:33:32.480 | You take something that's very simple,

00:33:34.360 | and you just make it more complex,

00:33:36.360 | value investing, growth investing,

00:33:38.160 | factor investing, all of this.

00:33:39.920 | And then finally, if you've done that enough,

00:33:43.400 | you get to the last stage, which is simplicity.

00:33:46.520 | And what you just described,

00:33:48.720 | what I noticed in watching Jack Bogle's evolution

00:33:51.280 | over the 35-year period of my own evolution

00:33:53.720 | in this industry was you do eventually get to simplicity.

00:33:57.440 | Total stock market is the place to be.

00:33:59.920 | Total bond market, total international.

00:34:02.320 | This is all you need.

00:34:03.400 | And once you get to that phase,

00:34:05.360 | you're at the fourth and final nirvana stage, if you will.

00:34:08.760 | And that's what I learned from Bogle

00:34:10.600 | in at least his final years.

00:34:11.840 | It finally occurred to me that this is what he was doing.

00:34:14.640 | In fact, by the time Jack Bogle retired in 1996,

00:34:19.480 | he had the four funds, if you will,

00:34:22.240 | that were necessary for this.

00:34:24.120 | He had developed a total stock market index fund.

00:34:26.560 | He had developed a total international stock index fund.

00:34:29.440 | He had developed a total bond market index fund.

00:34:32.080 | And then he had another one for real estate.

00:34:34.280 | And I throw that in because real estate

00:34:36.120 | is a big part of the economy,

00:34:37.440 | but not a very big part of the stock market.

00:34:39.560 | And so he had the essentials to do a simple investing

00:34:43.280 | using just a few three-fund or perhaps four-fund portfolio.

00:34:48.040 | A lot of people I interviewed are fans of international,

00:34:50.600 | and he wasn't.

00:34:51.440 | He would actually say almost like half of the stuff

00:34:54.120 | you just named, you don't need.

00:34:56.160 | Again, he actually started to cut away stuff

00:34:58.000 | that would, I think, traditionally be looked at

00:34:59.960 | as a main core holding for most people.

00:35:03.480 | International is probably the biggest area.

00:35:05.360 | I found three things that he thought

00:35:08.200 | that almost everybody who loved him disagreed with.

00:35:10.680 | ETFs, international, and the idea

00:35:13.760 | that the asset management industry

00:35:15.160 | will ultimately all go or mutualize.

00:35:18.040 | Almost everybody I spoke with basically said,

00:35:21.960 | "I love him, but I disagree with him on those issues."

00:35:25.480 | But you have to take them all seriously

00:35:29.480 | and at least consider them.

00:35:30.720 | And I think, you know, I talked to Dan Egan of Betterment

00:35:32.880 | about the international.

00:35:33.800 | I think he put it best when he said,

00:35:36.200 | "Well, Rome fell," and that you can't argue with that.

00:35:41.080 | And I think that's one area where I kind of agree

00:35:44.080 | with Dan and not Bogle.

00:35:46.360 | I think international is good to own,

00:35:48.080 | just in case for that diversification purposes.

00:35:51.680 | But Bogle would probably argue,

00:35:52.520 | "Well, you know, 40% of U.S. stocks

00:35:54.680 | "get the revenue from overseas.

00:35:56.200 | "Therefore, you're already exposed."

00:35:57.920 | But anyway, that's, again, if simplification

00:36:01.800 | is those four things you named,

00:36:03.520 | he's beyond Nirvana, I guess,

00:36:06.000 | 'cause he got it down to just basically the total market.

00:36:09.120 | And, you know, I think he did own some bonds on the side,

00:36:13.440 | like some, I think he had some munis and stuff

00:36:15.440 | for tax purposes, though.

00:36:17.320 | But beyond that, that was mainly-

00:36:18.800 | Sure, sure.

00:36:19.640 | And once he locked into that utter, utter simplicity

00:36:23.040 | of like one holding, it was just hard for him.

00:36:27.160 | You know, he can't, like, it's not Bogle's nature

00:36:29.640 | to not speak his mind.

00:36:31.440 | So that had him, again, at the end of his career,

00:36:34.320 | kind of bashing and dumping on a lot of stuff

00:36:36.280 | that was taking in money at Vanguard.

00:36:38.040 | So I used to have this chart back in the day

00:36:39.560 | when I would go around to presentations,

00:36:41.800 | and I'm like, "Vanguard is so in the zone right now

00:36:44.600 | "that they're taking in cash and stuff

00:36:46.080 | "that Bogle trashes regularly."

00:36:48.080 | Smart beta, international.

00:36:49.880 | And I'm like, "That's how powerful Vanguard has gotten,

00:36:52.160 | "is that the founder is dumping on these areas

00:36:55.000 | "and they're crushing."

00:36:56.400 | So let's get into the Bogle effect.

00:36:59.240 | Okay, so we've talked just about Vanguard

00:37:00.960 | and what Vanguard did and how they grew

00:37:02.760 | and the different things that Jack Bogle tried

00:37:05.000 | and ultimately getting to, you know,

00:37:07.800 | the total market, portfolios.

00:37:10.160 | But it's just not Vanguard.

00:37:11.640 | I mean, the Bogle effect is throughout the entire industry,

00:37:16.640 | I would say throughout much of the economy,

00:37:19.200 | and globally, this effect that he created

00:37:23.480 | through low fee or cost matter hypothesis,

00:37:27.400 | just grabbed hold.

00:37:28.800 | You know, I wrote a book about ETFs back a few years ago,

00:37:31.480 | and the bottom line is it all has Bogle in it.

00:37:35.520 | The whole ETF industry has Bogle in it,

00:37:38.840 | even though he hated ETFs.

00:37:41.080 | Yeah, so this was fascinating.

00:37:43.280 | And I remember when Vanguard cut their commissions

00:37:45.680 | on their trading platform, maybe five years ago,

00:37:49.480 | they had a commission-free ETFs.

00:37:50.840 | They were really the first major one

00:37:52.720 | to go to commission-free trading ETFs.

00:37:54.960 | Everybody followed.

00:37:56.120 | And it was at that point I said,

00:37:57.080 | "Wait, Vanguard's actually leading in that."

00:37:59.960 | And then I really started to unpack

00:38:01.320 | where their impact is coming from.

00:38:02.800 | So you have the trading platforms largely followed Vanguard

00:38:06.400 | going commission-free.

00:38:08.040 | Then you've got other people launching index funds and ETFs

00:38:10.920 | at the same price points as Vanguard funds,

00:38:13.680 | because Vanguard has 50% of the passive market share,

00:38:17.280 | but the other 50% are people who basically copy them.

00:38:20.280 | And a lot of people in the book would say something

00:38:22.600 | like they did it kicking and screaming.

00:38:24.800 | Vanguard did it because they wanted to,

00:38:26.800 | and that mattered to them.

00:38:27.960 | But they all acknowledged

00:38:28.960 | that Vanguard was probably the reason

00:38:30.840 | those other firms came in at those low price points.

00:38:34.280 | And then you look at something

00:38:35.440 | like the advisor world and behavior.

00:38:39.480 | And I know this is a great topic you love,

00:38:41.680 | but I would also argue

00:38:43.440 | that the Bogle effect is huge in behavior,

00:38:45.280 | not just because Bogle railed against trading.

00:38:48.520 | We know that trading was right up there

00:38:50.040 | on his deadly sins.

00:38:51.840 | But that the index fund gave people something worth holding.

00:38:56.840 | A cheap index fund was such an innovation and such a,

00:39:00.560 | as you call it, like the value proposition was so high.

00:39:03.640 | And people who lock into an index fund,

00:39:06.280 | I think if you ask them, they would say,

00:39:07.720 | "Well, even if the market's down, what am I gonna do?

00:39:10.120 | "Jump on some fund that might have had a good year?

00:39:12.520 | "Uh-uh, I'm in a good spot."

00:39:15.040 | That makes behavior so much easier.

00:39:17.000 | So I know people preach behavior

00:39:18.400 | and they give credit to some of these studies,

00:39:19.860 | but honestly, behavior's gotten way easier

00:39:23.720 | because of the cheap index fund.

00:39:25.160 | So that tool has really allowed for this whole birth

00:39:29.240 | of this new generation of advisors

00:39:30.720 | who are very behaviorally focused.

00:39:32.760 | And it's helped their clients save

00:39:34.480 | and build their wealth over the years.

00:39:36.720 | There's been a lot of sell-offs over the past 12 years.

00:39:38.920 | And if you basically dumped everything,

00:39:40.880 | you have lost out on a lot of future gains.

00:39:44.360 | So behavior is something I think Vanguard had a role

00:39:48.000 | in two parts, just the preaching of don't trade,

00:39:51.600 | and it's the idea that you now have something worth holding.

00:39:54.920 | And I think there's a resignation,

00:39:58.720 | a positive resignation by a lot of people

00:40:00.560 | who own a cheap index fund that I'm done.

00:40:04.960 | I'm just not gonna run around

00:40:06.960 | trying to find something better.

00:40:08.520 | And that's why you see them taking flows

00:40:10.280 | even during sell-offs.

00:40:11.500 | Well, that's interesting because I've been an advisor

00:40:15.240 | for almost 35 years now.

00:40:17.520 | And so I've lived through this evolution.

00:40:20.160 | And advisors didn't wanna do the indexing thing at first.

00:40:24.640 | Back in the 1990s, when I converted over to indexing,

00:40:28.040 | they didn't wanna do it.

00:40:31.080 | They were the masters, if you will.

00:40:34.540 | They would take these mutual funds

00:40:36.000 | and mix them and match them

00:40:37.100 | and try to outperform the market

00:40:38.860 | and find the active managers

00:40:40.080 | that were gonna outperform and so forth.

00:40:42.400 | But as they began to see flows going out

00:40:46.320 | and as more and more studies were published

00:40:48.680 | showing that indexing was in fact outperforming,

00:40:51.560 | they finally came into it.

00:40:52.800 | And then you had the evolution of ETFs,

00:40:55.800 | which made it easier to trade these index funds.

00:40:59.080 | It was hard being at, let's say at Charles Schwab

00:41:03.240 | or someplace and trying to trade vanguard index funds

00:41:06.200 | because sometimes they didn't allow you

00:41:08.080 | to trade certain class shares

00:41:09.820 | and they were high commission to buy them.

00:41:12.600 | So when ETFs came along,

00:41:14.680 | for advisors who weren't custodying at Vanguard,

00:41:18.160 | it just made indexing so much easier.

00:41:21.320 | And even the brokerage industry now,

00:41:23.040 | when I was a broker where I started out,

00:41:25.400 | the only thing I could buy was SPY, the S&P 500

00:41:29.020 | and MDY, the S&P 400 mid cap.

00:41:31.920 | And that was in the, let's say 1996, 1997,

00:41:34.920 | when I started using those.

00:41:36.320 | That was it.

00:41:37.160 | That was the only thing that was available.

00:41:39.320 | But by the early 2000s,

00:41:41.800 | you had a much more variety of ETFs

00:41:45.520 | that advisors could use both in the brokerage industry

00:41:48.720 | and independent advisors.

00:41:50.840 | And I think this then helped them move their business models

00:41:54.320 | more to a core and satellite.

00:41:57.200 | They weren't ready to give up on active management just yet.

00:42:00.420 | They went to a core indexing and then satellite of,

00:42:05.420 | okay, now we're gonna pick a few areas

00:42:07.200 | where we think we're gonna outperform.

00:42:08.520 | That didn't really work,

00:42:09.680 | but that's where the first phase was for the advisors.

00:42:13.740 | - It's also interesting.

00:42:15.960 | And I explore this a little.

00:42:17.120 | I have your story and some other people's stories in there.

00:42:19.840 | In terms of the other side of the mountain,

00:42:22.000 | as Michael Kitsis puts it in the 80s and 90s,

00:42:25.000 | I think advisors deserve a lot of credit

00:42:27.320 | in really helping to build vanguard.

00:42:29.800 | Because once they went from the,

00:42:31.920 | I'm getting paid by the mutual fund

00:42:33.380 | to I'm gonna get a percentage of assets,

00:42:36.400 | all of a sudden they're now shoulder to shoulder

00:42:38.800 | with the client.

00:42:39.800 | And they're gonna obviously pick things they think are good

00:42:43.080 | and that are cheap and will benefit them too.

00:42:44.720 | 'Cause now they're gonna draw from that same pool of money.

00:42:48.800 | And that really was major.

00:42:49.960 | If you were to chart the growth of Vanguard's assets

00:42:53.720 | and that move to the fee-based fiduciary advisor,

00:42:57.700 | I think there's a strong correlation there.

00:43:00.480 | And the amount of money, and it's growing,

00:43:02.440 | certainly has great stats showing that,

00:43:04.200 | I believe 71% of the assets now

00:43:06.960 | in the brokerage advisor worlds are fee-based fiduciary

00:43:10.120 | type assets.

00:43:11.360 | But it was interesting.

00:43:12.200 | And I tried to see if maybe Bogle actually,

00:43:14.680 | by actually building Vanguard and putting Vanguard

00:43:17.460 | on the other side of the mountain,

00:43:18.900 | where most brokers couldn't get to it

00:43:21.200 | unless they left where they were.

00:43:23.160 | Remember, you're outside of the system.

00:43:24.640 | So you gotta get people to leave the system.

00:43:26.480 | - Right.

00:43:27.480 | That's what he wanted to do.

00:43:28.720 | That's exactly what he wanted.

00:43:30.240 | That's correct.

00:43:31.080 | - And they did.

00:43:32.320 | And I asked a few people whether Bogle should get credit

00:43:36.120 | for actually getting people to leave the system

00:43:38.760 | and become RIAs.

00:43:39.840 | And some people were like, "Definitely."

00:43:42.960 | And some people were like,

00:43:43.800 | "No, there was all these other things going on."

00:43:46.000 | And I tried to be nuanced.

00:43:47.380 | But I have to think that the idea of not being able

00:43:51.200 | to get this amazing vehicle for your clients

00:43:54.880 | where you were might be one of the reasons

00:43:57.440 | you were inspired to leave.

00:43:58.480 | Maybe also the weighing on the conscious

00:44:00.760 | that I'm putting my clients in stuff

00:44:02.320 | that I would never invest in.

00:44:03.420 | And maybe over time that right the weight on them.

00:44:08.200 | But I try to think, let's say there was no index fund,

00:44:11.360 | cheap index fund or something

00:44:13.120 | on the other side of the mountain.

00:44:14.360 | Would brokers have left the droves and become RIAs?

00:44:17.240 | And I don't know, I'd ask you that.

00:44:19.040 | - No, I probably personally.

00:44:20.940 | Personally, I probably would have become an airline pilot

00:44:23.440 | because I was a pilot in the military

00:44:25.360 | and I was really just couldn't stand

00:44:29.360 | the brokerage industry anymore.

00:44:31.280 | Once I learned about, well, let me say,

00:44:34.300 | if the indexing didn't exist,

00:44:35.620 | I probably wouldn't be in the investment industry anymore

00:44:37.980 | because I was so disgusted with what was passing

00:44:42.980 | for investment advice in the brokerage world

00:44:46.060 | that I was ready to leave it anyway.

00:44:47.780 | But then I discovered Jack Bogle and discovered indexing

00:44:52.140 | and realized that if I left and started my own company

00:44:54.820 | that I could have access to all these things for my clients.

00:44:57.460 | And yeah, that was the reason I left.

00:44:59.220 | And then I also, I think,

00:45:02.700 | helped start driving down advisor costs

00:45:05.920 | because as soon as I left,

00:45:07.220 | I realized advisors were charging

00:45:09.780 | too much money for this too.

00:45:11.180 | So I started a low fee advisory company back then.

00:45:15.900 | But yeah, and I completely agree with you.

00:45:18.600 | I think a lot of advisors left the brokerage industry

00:45:20.820 | so that they could put their clients,

00:45:22.380 | they're being fiduciaries and put their clients

00:45:24.500 | into the things that they thought

00:45:25.680 | that their clients would benefit from

00:45:27.060 | and indexing was one of them.

00:45:29.180 | And ETFs were another one.

00:45:31.980 | And I told Jack this before he died.

00:45:34.700 | I said, "You know, I know you don't like ETFs,

00:45:36.180 | but I think that there's nothing that has happened

00:45:39.740 | in the last 25 years have advanced your beliefs

00:45:44.180 | more than ETFs have."

00:45:46.500 | And he goes, "Eh," you know, he didn't wanna believe that,

00:45:48.700 | but I think it's true, don't you?

00:45:50.820 | Yes, ETFs have done a lot to get people low cost

00:45:54.580 | than indexing and not all ETFs trade a lot.

00:45:57.220 | The Vanguard ETFs in particular are basically bought and held

00:46:00.300 | I mean, they're not really trading tools.

00:46:02.060 | And he did acknowledge that.

00:46:03.340 | I also had a revelation in the book that I did not know.

00:46:06.260 | And I interviewed Gus Sauter,

00:46:07.460 | who was probably one of the best interviews of the book

00:46:09.900 | because he was there.

00:46:10.740 | And he said that the reason he pushed to launch the ETF

00:46:13.880 | was because he was trying to figure out a way

00:46:16.500 | that if the next crash came,

00:46:18.180 | he could protect the index fund investors

00:46:20.580 | from people who wanna trade or go in and out.

00:46:23.780 | And so he didn't do it to increase distribution,

00:46:25.980 | which is what Bogle seemed to insinuate

00:46:28.180 | when I met with him.

00:46:29.340 | It was more to protect the investor,

00:46:31.940 | which is right up Bogle's alley.

00:46:33.780 | Now it did increase distribution,

00:46:35.900 | but Sauter said he caught up with Bogle in 2014-ish,

00:46:39.420 | or 14 years after they launched the first ETF

00:46:41.420 | and told him this.

00:46:42.740 | And he said, "Bogle didn't quite know that."

00:46:45.580 | And so I think that's why towards the end of his life,

00:46:48.100 | he did soften.

00:46:49.380 | And in my last, very last interview with him,

00:46:52.060 | we asked about the ETF again.

00:46:53.740 | And he said, "You know, if I was running the place,

00:46:56.940 | "I probably would have done it too."

00:46:58.900 | And I know he wouldn't have,

00:47:00.460 | but the fact that he threw that line out,

00:47:02.300 | I thought he'd come to some general peace with it.

00:47:05.580 | But after he says that, there's a dot, dot, dot,

00:47:08.580 | "But look at all these people chasing returns and trading.

00:47:12.040 | "We still don't know.

00:47:13.060 | "And all the fruit cases and nut jobs and marketing."

00:47:15.460 | So he's talking about the other side of ETFs,

00:47:18.940 | the dark side of ETFs.

00:47:21.020 | I think the ETF industry is a big tent.

00:47:23.140 | And I think there's a section in that tent

00:47:24.700 | for Puritan index investors that are up Bogle's alley.

00:47:28.140 | But then there's maybe 50% of the tent

00:47:29.820 | that wild and crazy and the opposite,

00:47:32.100 | people and doing things that he wants no part of.

00:47:34.660 | And so that's why I call that chapter, "It's Complicated."

00:47:38.180 | The metaphor I use is that

00:47:39.500 | it's like Bogle's firstborn daughter,

00:47:42.220 | like the index fund, marrying the tatted up bad boy.

00:47:45.340 | And Bogle, there's nothing he can do about it.

00:47:47.500 | He's got to learn to deal with this guy and his family.

00:47:49.940 | Yeah, and that was how he spent 20 years of his life.

00:47:53.260 | And that's why him and Vanguard

00:47:54.900 | had this really interesting relationship

00:47:56.780 | where Bogle's sitting over here

00:47:58.300 | in his research center on campus,

00:48:00.980 | only a hundred yards from where upper management is.

00:48:03.940 | And he's sort of constantly dropping bombs.

00:48:06.460 | He's lobbing mortars over there.

00:48:09.100 | Yeah, and I have found that very interesting,

00:48:11.980 | sometimes funny.

00:48:13.420 | I think when the ETF came out, Jim Wyatt told me,

00:48:15.420 | and I didn't know this,

00:48:16.500 | that Vanguard put a press release out

00:48:18.260 | and then Bogle put another one out.

00:48:19.660 | So I was like, "Gosh, this sucks."

00:48:22.660 | So he's a character.

00:48:24.500 | Interesting that Warren Buffett is one of his biggest fans.

00:48:28.180 | Yeah, I wanted to interview Warren Buffett for the book.

00:48:31.140 | I interviewed about 50 people

00:48:32.900 | and I asked our people in TV if I could get his email.

00:48:35.460 | And they were like, "Okay, here's his assistant's email,

00:48:37.460 | "but look, he's not going to reply.

00:48:39.060 | "If you really want to bother, go ahead and try it.

00:48:40.600 | "Just be nice, but don't expect anything."

00:48:43.140 | I sent him an email.

00:48:44.740 | I got a reply, I don't know,

00:48:46.020 | within about six, seven hours from Warren,

00:48:49.500 | who said, "Look, I'm swamped,

00:48:50.780 | "but I'm going to help on a couple items about Jack."

00:48:53.540 | And he answered every question I had.

00:48:55.180 | Warren Buffett is interesting one

00:48:56.580 | because he's the most popular active manager

00:48:58.620 | who's ever lived.

00:48:59.940 | And yet he has this interesting kinship with Bogle.

00:49:02.260 | And I think what they really do share

00:49:03.540 | is the Great Depression, World War II generation attitude.

00:49:06.980 | They're both very frugal.

00:49:08.700 | They don't need a lot.

00:49:09.900 | Bogle's son was saying,

00:49:10.740 | "You wore the same khakis for 46 years."

00:49:12.620 | That's something you might read about Warren Buffett doing.

00:49:15.820 | And it was almost like they were cut from the same cloth,

00:49:18.220 | where, ironically, one is the king of active

00:49:20.180 | and one's the king of passive.

00:49:21.660 | But they're very similar in every other way, I thought,

00:49:25.140 | when reading about him.

00:49:26.340 | I think that's what Warren Buffett was responding to.

00:49:28.460 | And I think, as Jason Zweig said,

00:49:31.340 | Buffett and Bogle also fought against

00:49:33.420 | some of the same forces of overcharging for undervalue.

00:49:37.920 | And I think Buffett was famous

00:49:39.820 | for betting against hedge fund performance.

00:49:41.660 | And in some of his letters,

00:49:43.380 | he's pretty adamant against how little value

00:49:45.700 | some active can actually produce.

00:49:48.140 | And so they were aligned on that issue, I think.

00:49:51.340 | And Buffett, again, was really, I guess, generous to respond,

00:49:55.900 | but I definitely was happy he did.

00:49:58.660 | - I'm just gonna go into one more section,

00:50:00.140 | and then we're gonna wrap it up.

00:50:01.460 | And that has to do with takeoffs on indexing

00:50:04.620 | and things that aren't really indexing,

00:50:06.920 | but are being called indexing,

00:50:08.260 | to try to jump on the coattails here.

00:50:10.780 | Thank you for mentioning Spindexing.

00:50:13.300 | In your book, a phrase I came up with,

00:50:15.820 | it stands for?

00:50:17.060 | - Special Purpose Indexing, or Spindexing,

00:50:19.860 | which is everything's an index now.

00:50:22.220 | Because Bogle made indexing

00:50:23.580 | and Vanguard made indexing so popular,

00:50:25.260 | why not just call whatever it is you're doing indexing?

00:50:28.140 | Even if it isn't indexing, call it that anyway.

00:50:30.860 | Because then you might get assets.

00:50:32.740 | - For example?

00:50:33.860 | - Smart beta, right?

00:50:36.180 | And direct indexing, and ESG,

00:50:38.860 | and all these things are now indexing.

00:50:40.340 | Could you speak to sort of people

00:50:42.080 | jumping on the coattails of Bogle,

00:50:43.780 | even though it really isn't what he was all about?

00:50:47.000 | - Absolutely.

00:50:47.840 | There's two points I wanna make here.

00:50:49.060 | One is, you're right, Bogle was not into this.

00:50:51.860 | There's one quote where he said,

00:50:54.060 | "No wonder I wake up some mornings

00:50:55.420 | "feeling like Dr. Frankenstein.

00:50:57.140 | "What have I created?"

00:50:58.900 | And so he definitely battled against that.

00:51:01.660 | Again, that 50% of the ETF tent

00:51:03.260 | that's pretty wild and crazy.

00:51:04.620 | That said, this is another interesting part of the book,

00:51:07.060 | which is that he kind of created it

00:51:09.020 | in a way that's not really, I think,

00:51:11.900 | appreciated or understood yet,

00:51:13.340 | which is that by taking over the core of portfolios,

00:51:17.720 | a lot of people have now sold out

00:51:19.300 | of their legacy active mutual fund

00:51:20.940 | and now have a cheap index fund or cheap ETF in the core.

00:51:24.740 | By being so successful with that concept,

00:51:27.660 | he then pushed active and ways to be active

00:51:31.420 | to a complete extreme.

00:51:34.060 | So now people who have a boring vanilla core,

00:51:37.100 | which is highly effective, not all people,

00:51:39.500 | I think you're maybe in that nirvana stage

00:51:41.300 | that you can actually not take the bait on some of that.

00:51:44.900 | Some people look for things to decorate with.

00:51:48.280 | And that's why spindexing and themes are no joke.

00:51:51.140 | They seem like they're crazy and who cares?

00:51:53.820 | But you have crypto, ARK, ESG, thematic investing,

00:51:57.700 | some smart beta.

00:51:59.220 | A lot of this, honestly, is to compliment that core now.

00:52:03.340 | And that's why you see the number of holdings

00:52:05.220 | in new ETFs come down and down.

00:52:07.140 | Portfolios are getting more concentrated.

00:52:08.980 | It's again, it's really, again, part of the Bogle effect.

00:52:12.460 | By confiscating the core of the portfolio,

00:52:15.540 | it's then made active have to get more creative

00:52:18.180 | and more active.

00:52:19.340 | - So a barbell type of a thing.

00:52:21.300 | - Yes, and I have a whole chapter that looks at that.

00:52:23.940 | And so while he would have hated it, again,

00:52:25.500 | I think he had a hand in creating it

00:52:26.980 | by being so successful in the core.

00:52:28.900 | He would say, just use the core and be a monk

00:52:31.900 | and basically have the total index.

00:52:33.400 | But some of us are human.

00:52:34.740 | And I also think there's arguably a behavioral hack.

00:52:37.660 | If you have a cheap core and it's vanilla

00:52:39.940 | and you're just the kind of person

00:52:40.980 | whose mind's buzzing all the time,

00:52:43.020 | maybe you want 10% in the crazy stuff,

00:52:45.580 | stuff that has amazing possible asymmetric return

00:52:48.340 | down the road that's exciting, that's entertaining,

00:52:51.180 | that's a narrative driven,

00:52:52.480 | just to keep your hands off the core.

00:52:53.980 | If it keeps your hands busy,

00:52:55.220 | it's actually potentially Bogley

00:52:57.400 | in that it's helping you behaviorally to do that.

00:53:00.760 | I'm not sure he would buy that.

00:53:03.400 | - I wrote about this in my very first book

00:53:06.340 | called "Serious Money."

00:53:07.220 | It's like you do your core indexing

00:53:09.100 | and then you can have what I call bingo money on the side,

00:53:12.500 | which is your fund money as small,

00:53:14.940 | maybe up to 10% of your portfolio, but that's it.

00:53:17.980 | But I have to tell you,

00:53:18.940 | working with individual investors and myself

00:53:21.300 | now that I'm in my mid-60s,

00:53:24.000 | it just doesn't appeal to me anymore.

00:53:25.900 | In other words, it's, yeah, okay,

00:53:28.220 | I was interested in it in the past and all that.

00:53:30.220 | Now, and I can see Bogle, see this with Bogle.

00:53:33.100 | I mean, it's just something that as you kind of get on

00:53:35.660 | to pre-retirement and retirement,

00:53:38.660 | that stuff doesn't interest you anymore.

00:53:40.540 | So you end up going to this pure core, pure core.

00:53:45.540 | - Yeah, I think you're right.

00:53:47.580 | I think that there's probably gonna be some correlation

00:53:50.300 | with age, crypto, ARK.

00:53:52.760 | I bet their investors are on the younger side.

00:53:54.620 | And maybe as you get older, you get over that stuff.

00:53:57.420 | I will say on the flip side,

00:53:58.580 | there were people like Michael Lewis,

00:54:00.220 | who I interviewed for the book.

00:54:01.540 | And he said something that I thought was really, again,

00:54:04.940 | another amazing by-product of the Bogle effect.

00:54:07.380 | He said, "Once I got my portfolio into index funds,

00:54:11.800 | "I had way more time on my hands.

00:54:14.120 | "I didn't have to think about this stuff.

00:54:15.960 | "And that really helped me as a writer,

00:54:18.460 | "'cause I could just go into my writing head all the time."

00:54:21.060 | And I guess because he was in the financial world,

00:54:23.740 | he would think about where to put money.

00:54:25.580 | But once he got the index fund, it freed up time.

00:54:28.700 | Dan Egan said the same thing.

00:54:29.900 | He now, as an advisor, doesn't have to worry about portfolio.

00:54:32.360 | He can worry about the other stuff,

00:54:33.920 | planning, taxes, behavior.

00:54:36.120 | And that time freedom,

00:54:38.800 | I think for really evolved investors, is big.

00:54:42.640 | I just think there are probably some maybe

00:54:44.340 | who like the cheap index fund, but do wanna dabble.

00:54:47.240 | And they actually like following the market and stuff.

00:54:49.160 | And for them, I think spindexing is sort of,

00:54:52.160 | that's why it exists,

00:54:53.480 | because you do have some people buying it.

00:54:55.640 | And perhaps there's just some people

00:54:56.760 | who are all in on the crazy stuff,

00:54:58.360 | and they'll learn the hard way.

00:54:59.280 | I have a chapter called "The Art of Doing Nothing."

00:55:01.960 | And I talk about the Robinhood and the trading.

00:55:03.640 | And my thesis there is that

00:55:05.320 | this is just a generational thing.

00:55:06.840 | The '90s had the same thing.

00:55:08.320 | You're young, you don't know, you go through this.

00:55:11.160 | The Robinhood army is Vanguard investors waiting to happen.

00:55:14.600 | - That is absolutely correct.

00:55:16.400 | The people who are trading dot-com companies

00:55:19.600 | in the early, mid-1990s and late 1990s

00:55:22.520 | are the Vanguard investors of today.

00:55:24.360 | - Yes, and I think there's a line in war games,

00:55:27.120 | which I think about a lot as myself,

00:55:29.880 | which is the only winning move is to not play.

00:55:32.800 | - To close, you wrote that Bogle realized

00:55:36.520 | that making money was rewarding.

00:55:39.480 | And he realized that, making money is rewarding,

00:55:41.840 | but the thanks and admiration

00:55:44.480 | that he received from investors

00:55:46.440 | was much more rewarding to him.

00:55:48.840 | And it was actually, in my view, intoxicating to him.

00:55:51.960 | I knew Jack for probably, oh, I don't know, 20 years.

00:55:56.080 | I saw him a lot at the Bogle Heads conferences.

00:55:58.800 | And we're starting that up again, by the way, in October.

00:56:02.080 | But he felt that it was much more important to him

00:56:06.360 | personally, professionally, spiritually,

00:56:09.600 | to be appreciated for what he did helping people

00:56:13.200 | than any amount of money that he could have made

00:56:15.720 | as the CEO of a mutual fund company.

00:56:18.160 | We say around the Bogle Heads,

00:56:19.880 | Jack Bogle knew he could make a lot of money,

00:56:23.120 | but he chose to make a difference.

00:56:25.680 | And that was Jack Bogle.

00:56:27.480 | He wrote a book called "Enough."

00:56:29.440 | And he clearly had some gene in him

00:56:32.120 | that wasn't attracted to the sort of thirst for more

00:56:36.440 | that a lot of people who go to Wall Street have in them.

00:56:40.480 | And it's just a natural gene.

00:56:42.160 | It's like fire in your belly stuff.

00:56:43.600 | He just didn't have that.

00:56:44.480 | He was immune to it.

00:56:45.800 | But what he could never get enough of

00:56:47.320 | was appreciation and adulation.

00:56:49.120 | And his son was saying that his whole family

00:56:51.640 | never quite understood that part of him.

00:56:53.400 | He could never get enough of hearing,

00:56:55.680 | you know, like the guy on the street saying,

00:56:57.200 | you saved me money, whatever.

00:56:58.480 | He saved almost every letter.

00:57:00.280 | You know, he was, Aaron Arvillan from the Philippine Choir

00:57:03.800 | said he would read letters to her in his office

00:57:06.160 | from doormen who put the other kid through college.

00:57:08.680 | And that's why I say that in a weird way,

00:57:10.680 | he might've been miscast.

00:57:12.320 | It's almost like somebody who wants adulation

00:57:14.360 | and appreciation would go into the arts

00:57:16.280 | or acting or something, or be a physician.

00:57:19.320 | Bogle was, it's a good miss.

00:57:21.480 | Sometimes it's good to have somebody miscast in an industry.

00:57:24.360 | And it's also interesting back to Princeton

00:57:26.520 | to go full circle with this,

00:57:28.120 | that I found it just crazy

00:57:29.840 | that the whole reason he did all this

00:57:31.920 | is he's in the Princeton library looking for a thesis,

00:57:34.360 | something to write his thesis on.

00:57:36.000 | And he's just flipping through magazines

00:57:37.360 | and he happens to find Fortune.

00:57:39.360 | And in the magazine,

00:57:40.200 | there's this article on mutual funds in Boston

00:57:42.480 | when he decides, okay, I'll do this.

00:57:44.200 | Well, I looked and the cover of Time,

00:57:46.280 | which was probably laying right next to it,

00:57:48.320 | was Conrad Hilton.

00:57:50.440 | This is December, 1949 and had a hotel business.

00:57:53.240 | And I thought, it's just as easy.

00:57:55.320 | Could have picked that up and been like the hotel guy.

00:57:58.760 | And it's interesting.

00:58:00.360 | It's almost like fate nudged him to this

00:58:02.760 | because between that and the crazy Wellington story

00:58:05.960 | that had like four things that had to go exactly perfectly.

00:58:08.880 | And then the index fund isn't managed.

00:58:11.480 | You realize the amount of serendipity,

00:58:13.800 | you almost feel like there was some kind of

00:58:16.320 | fate nudging this to happen.

00:58:18.120 | It's really crazy.

00:58:19.280 | And I didn't realize it all until I dove into it,

00:58:22.440 | just how serendipitous the whole thing was.

00:58:24.960 | - Well, the name of the book is called

00:58:27.000 | "The Bogle Effect" by Eric Balchun.

00:58:29.360 | It's coming out April 26th.

00:58:31.880 | Eric, I thank you so much for coming on

00:58:33.880 | the Bogle Heads on Investing podcast.

00:58:35.880 | - Thank you, Rick, for having me.

00:58:36.920 | And as you know, I am a big fan of the podcast

00:58:39.120 | and it's quoted several times in the book.

00:58:41.240 | You really, through your interviews,

00:58:42.480 | you've got some gems that came in handy

00:58:44.360 | in my writing there.

00:58:45.720 | So thank you for that.

00:58:47.360 | - This concludes this edition of Bogle Heads on Investing.

00:58:50.280 | Join us each month as we interview a new guest.

00:58:53.200 | In the meantime, visit boglecenter.net, bogleheads.org,

00:58:57.480 | the Bogle Heads Wiki, Bogle Heads Twitter.

00:58:59.960 | Listen live each week to Bogle Heads Live on Twitter Spaces,

00:59:03.400 | the Bogle Heads YouTube channel,

00:59:04.920 | Bogle Heads Facebook, Bogle Heads Reddit.

00:59:07.840 | Join one of your local Bogle Heads chapters

00:59:10.760 | and get others to join.

00:59:12.120 | Thanks for listening.

00:59:14.040 | (upbeat music)

00:59:16.640 | (upbeat music)

00:59:19.220 | [MUSIC PLAYING]

Bogleheads® on Investing Podcast Episode 044: Eric Balchunas on the Bogle Effect, host Rick Ferri

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