Bogleheads® Conference 2017 - John Bogle Keynote
00:00:00.000 | our distinguished guest of honor is the founder of the Vanguard Group and president of Vanguard's
00:00:18.800 | Bogle Financial Markets Research Center. He created Vanguard in 1974 and served as chairman
00:00:27.240 | until 2000. He entered the investment field immediately following his graduation from
00:00:32.960 | Princeton University Magna Cum Laude with a degree in economics in 1951. If I listed
00:00:40.000 | all of his honors and achievements, which most of you already know, we wouldn't have
00:00:44.360 | any time left. So I'll dispense with that and ask you to please welcome our very special
00:00:49.720 | guest of honor, Mr. Jack Bogle.
00:01:18.720 | Is it ever enough? I wrote a book about that. Thank you all so very much. It's great to
00:01:27.600 | see some very familiar faces here that I've been seeing for years and years and years.
00:01:31.840 | I appreciate that, even as I wonder why you keep coming back. But it's nice. And I hope
00:01:39.080 | you, those of you, about half of you, I think, who are joining us for the first time, will
00:01:44.160 | get the same kind of enjoyment that your fellow Bogleheads have gotten.
00:01:49.560 | I've already spoiled my opening, which is to say, the first thing I want to say is Taylor
00:01:57.360 | Laramore. He's our founder of the Bogleheads, a wonderful human being. He can't be with
00:02:02.760 | us this year. He was with us last year. But he is the creator of this crazy idea and even
00:02:09.560 | the namer of it, which is a little odd. What does a Boglehead, people say to me? I'm not
00:02:14.400 | sure yet. But they're nice people, that's for sure.
00:02:19.400 | The second word was going to be, divided by two, a tie, was going to be Emily Snyder,
00:02:27.240 | my wonderful assistant of 26 years, been at Vanguard for 32. I know she did not join us
00:02:35.320 | when she was one, but you'll see her over there. She still has all the energy of a schoolgirl
00:02:43.040 | and couldn't do my job without her. And a close tie, we have Michael Nolan, who's kind
00:02:51.160 | of a short-termer at Vanguard, only 10 1/2 years, 16 1/2 years, excuse me, and he's been
00:02:57.400 | with me a little over six. If you think there are too many slides, blame him, although I'm
00:03:02.960 | the one that deserves the blame. Is that fair, Mike?
00:03:05.840 | Fair enough.
00:03:06.840 | And Mike has been a wonderful asset to me. And the three of us constitute the powerful
00:03:11.420 | Bogle Financial Markets Research Center. And my God, we crank out a lot of stuff.
00:03:17.240 | So we'll go to the first slide. It's going to set the stage for this. A couple of comments
00:03:25.600 | about my year, I guess, and my career. Larry Siegel is the CFA's Director of Research,
00:03:33.560 | Chartered Financial Analyst. And he wrote quite an article. We're going to send it out
00:03:37.040 | one of these days. And he calls me, which is a nice reward for what I've done, the most
00:03:42.720 | visible advocate of indexing investing as a winning strategy. And I think that's accurate.
00:03:49.560 | I'm not sure this one is accurate, but I sure loved it. Henry Ford of the automobile, Shakespeare
00:03:55.400 | of the English language, Bogle of finance. Well, that's all right. Bill, step it up a
00:03:59.480 | little bit for your next blurb, will you? You can do better.
00:04:05.080 | And I wouldn't have the temerity, I guess is the word, to give you the other blurbs
00:04:13.360 | in the back of the book. But they're not quite that great. I keep wondering who they're talking
00:04:19.720 | about. In any event, once in a while, I think about my legacy. I do, with apologies. And
00:04:31.240 | my place in history, such as it may be. And on these two scores, this has been a really
00:04:37.040 | remarkable year. I just have two slides that will give you the remarkability when you get
00:04:43.560 | into history and impact. First is this cartoon in the Wall Street Journal. And if you can't
00:04:50.600 | read the caption, it's Jason Zweig in the front left. You know who-- well, let's go
00:04:55.440 | around the other way. Benjamin Franklin, Benjamin Graham, Sir Isaac Newton-- I mean, really--
00:05:04.960 | Danny Kahneman, Princeton guy, Aristotle-- we could do better than that-- Charlie Munger
00:05:12.120 | and Warren Buffet, and then yours truly.
00:05:15.800 | And so it's a matter of, to me-- I'll get to a business thing in a minute. But I really
00:05:26.760 | like the intellectual side of what I do every day, at least as much and maybe even more
00:05:33.840 | than the business side. I don't consider myself much of a businessman. But I do try and keep
00:05:39.040 | it. I'm not as smart as him. I'm the dumbest guy at that table, I'm sure. But I still value
00:05:45.280 | a place that puts me in the context of thought and wisdom.
00:05:53.040 | And I also value-- if you want to flip that to the next one-- the only other slide I have
00:05:58.320 | for background-- who was the father of passive investing? Well, it turns out the answer to
00:06:02.600 | that-- I'm glad you're all sitting down-- is me. So that was a nice thing to read in
00:06:10.480 | the Wall Street Journal. And that is a role that I would like to be known for in life.
00:06:14.360 | I think it's true. There are a lot of claimants to that, particularly to Throne. But it's
00:06:17.840 | a nice compliment. And it made me feel very good when I saw that there.
00:06:25.120 | So we'll now go to getting the boost. How did we get here? How did we get to that name
00:06:35.320 | and reputation? And the first one can be pretty obvious. The second possible highest source
00:06:45.280 | for getting a boost for me is-- I want to be clear-- it is someone who is up there who
00:06:52.160 | ranks far above me. But other than that, the second possible source is our friend Warren
00:06:58.800 | Buffett. And I'm going to give you a few quotes from him. He's been champion index fund for
00:07:03.480 | a long time. "Indexers are sure to beat the net results after fees delivered by the great
00:07:10.120 | majority of investment professionals." And that goes all the way back to 1996. That's
00:07:15.560 | 20 years ago, 21 years ago. Somewhere along the way-- or actually, in 1991, I met Warren
00:07:22.280 | Buffett for the first time. We were sitting in the lobby of a hotel in San Diego, California,
00:07:29.560 | where I was there to lecture the state securities commissions. And he was there to persuade
00:07:33.520 | California to let Salomon Brothers, which was about to go bankrupt, still do business
00:07:37.480 | out there. And we were both up early. We were both in the lobby there, knowing nobody else.
00:07:43.200 | So I made so bold as to go and pay my respects to him and said I didn't want to bother him,
00:07:46.440 | just wanted to meet him. And we talked for about an hour, mostly about the letters we
00:07:50.560 | get about how we aren't good dressers. He got one that said, you look like Joes ready
00:07:58.820 | to wear. So we had that in common. And I guess we went from there. Warren again, 2013. You
00:08:08.880 | know about this, his bequest to his wife and the trustees for his wife's bequest, 10% of
00:08:15.760 | the cash in short-term governments, 90% in the very low cost 500 index fund. I recommend
00:08:22.600 | Vanguard's. And it goes on. The hedge fund bet-- a lot more text there than you need.
00:08:33.340 | But we're going to have these slides available, so I put it all up. And he offered to bet
00:08:37.840 | in a group he could beat with the S&P 500, a group of five hedge funds. And he challenged
00:08:45.920 | people to give him the bet. Well, these hedge fund guys who have billions and billions and
00:08:49.360 | billions, well, it's a good business to be in if you're not a client, actually.
00:08:55.160 | And nobody but Ted Sides answered the call, the sound of silence, as Warren says here.
00:09:02.320 | And so the bet is just about over. The funds have delivered a 2.2% return compounded. That's
00:09:14.080 | a million dollars. Would have gained $220,000. And the index fund was returned with 7.1%.
00:09:22.400 | And that investment would have gained $854,000. That is 4 to 1, roughly.
00:09:30.820 | So the bottom line, as he said in his annual report, when trillions of dollars are managed
00:09:36.300 | by Wall Street charging high fees, it will usually be-- usually be, always almost-- the
00:09:41.540 | managers who reap upside profits and not the clients. Both large investors and small, again,
00:09:48.860 | should stick to low-cost index fund.
00:09:51.600 | So he then goes beyond being the index champion to being the Bogle champion. And I obviously
00:09:57.500 | enjoy this. He had the famous one last year, famous to Vanguard people, and put up a statue
00:10:03.940 | for me. By the way, just for the record, there is a statue of me in our courtyard out there.
00:10:08.300 | But he had not seen it. But it was a nice thought.
00:10:11.420 | And it's fine to say he had managed-- I'm certainly a wealthy person by any standard.
00:10:17.940 | But he's, in fact, right by the fact that it's only a tiny percentage of wealth that
00:10:23.820 | typically goes to managers who have promised their investors large rewards while delivering
00:10:29.380 | them nothing.
00:10:31.300 | So he talks about the fact I was mocked by the investment industry. It's very satisfying.
00:10:37.500 | He does have-- in fact, he does have the satisfaction of knowing that he's helped millions of investors
00:10:43.020 | to realize better returns on their savings than they otherwise would have earned. He
00:10:47.220 | is a hero to them and to me. Can't do any better than that from that high source.
00:10:52.420 | And then a friend of mine took me out to his annual meeting in Omaha this year. And I'm
00:10:56.620 | sitting there with Eve, my wife, Steve Galbraith, who took me out, and his wife, my daughter,
00:11:02.620 | and my son-in-law came out, and my youngest son, his young lady, also came out. So we
00:11:07.540 | were sitting there. And I guess I should have figured something funny was going to go on.
00:11:13.740 | But all of a sudden, Warren looks up and says, I want to say something about Jack Boat. Are
00:11:18.500 | you here in the audience? Yes, I am. And so I stood up and everybody applauded. And they
00:11:23.100 | took, in the course of those couple of days-- I didn't keep exact count, but I think 725
00:11:30.940 | photographs, including 190 selfies. And to the point it got Eve a little bothered. But
00:11:42.980 | she was fine. They were a little aggressive, some of them. So you see all in here, not
00:11:48.900 | in the interest. Truth is, it was not in the interest of the investment industry of Wall
00:11:52.180 | Street to actually have the development of the index fund, because it brought down fees
00:11:56.820 | dramatically. Index funds have delivered for shareholders a result that has been better
00:12:01.300 | than Wall Street professionals. And part of the reason for that is down with the cost.
00:12:06.780 | When Jack started, very few people applauded him. He was subject of derision, Vogel's folly
00:12:12.620 | being one, that's me. A lot of attacks, and it saved investors hundreds and hundreds of
00:12:18.620 | billions of dollars over time. So it's Jack's 88th birthday. I like this one, on Monday.
00:12:26.020 | So I just say, looking at me, happy birthday, Jack, and thank you on behalf of American
00:12:32.100 | investors. And then after a nice roll of applause, he said, Jack, I've got some great news for
00:12:37.060 | you. You're going to be 88 on Monday in only two years. You will be 90, and you'll be ready
00:12:43.260 | for an eligible, for an executive position at Berkshire. So he closes his remarks. Hang
00:12:53.100 | in there, buddy.
00:12:55.580 | And finally, for Warren, the Vogel champion, is the new book. And the cover says from Warren,
00:13:04.020 | that's where you put them, rather than, I knew that Chinese red was difficult to read
00:13:12.560 | with white on it. And you reduce this in size, Mike, you're making it impossible for me.
00:13:19.660 | Rather than listen to the siren song from investment managers, investors, large and
00:13:26.940 | small, should instead read Jack Vogel's little book of common sense investing. And that's
00:13:34.380 | what's on the cover of the little book that's going to be available today, I think.
00:13:39.900 | So it's a pretty priceless endorsement. And modesty precludes, I'm very well known for
00:13:48.380 | modesty and humility, precludes showing the three other blurbs in the back cover, in addition
00:13:57.780 | to Bill Bernstein's, which you saw on the cover.
00:14:00.460 | But I now want to turn, while I'm bragging, forgive me, to one of my main missions today,
00:14:10.540 | which is spreading the word. But before, I do want to add that when I say one of my main
00:14:15.780 | missions, my other main mission, and I have a lot if I thought about it, is to work directly
00:14:21.820 | with our crew, the 16,000 people at Vanguard, honest to God, human beings, down to earth
00:14:28.300 | human beings, all with their own hopes and fears and career goals. And it's hard to do
00:14:34.540 | this. It's so easy to do when you have 27 associates, crew members, which is where we
00:14:39.860 | started, and so difficult to do it when you get to 16,000. So I've just tried to carve
00:14:45.740 | out that role. Everybody else is too busy to do it. And spent a lot of time, spent an
00:14:50.660 | hour for each award for excellence winner. I do probably pretty close to one a week celebrations
00:14:57.380 | of 25, 30 years of service at Vanguard. We've got quite a few of them now. And retirements,
00:15:07.300 | which leave us poorer than we were before the person retired. So we have, I think it's
00:15:13.580 | 3,500 crew members who have run my veterans list to get my mailings. And to be on that
00:15:21.060 | list, you've got to be with Vanguard for 15 years. So that's a big part of what I do,
00:15:26.500 | and it really doesn't serve well. It's not easily illustrated. So I'm now going to go
00:15:31.260 | to spreading the word and begin with awards. Lots of them in 2017. Number one, I guess
00:15:42.220 | most recent is the Forbes tabulation of the world's 100 greatest living business minds.
00:15:51.620 | And unfortunately for Forbes, I should have told them that before. I don't really have
00:15:54.260 | a business mind. I have a mind that is designed to be a missionary, to serve, to understand
00:16:01.980 | simple math, and if it works out to be good business, that's a nice byproduct. So who
00:16:08.140 | are these winning business minds? Well, you'll notice them all on the cover. I like the Bs,
00:16:14.780 | Buffett, Bezos, Bloomberg, and Bogle. Murderers Row, and the other group in those two columns,
00:16:23.540 | Mark Zuckerberg, Meg Whitman, Rupert Murdoch, Ted Turner, and me are all, I think, in some
00:16:31.180 | ways legitimate candidates for that. I think that Forbes kind of let us down by leaving
00:16:39.700 | out as one of their criteria, creating durable value for society. That doesn't seem to be
00:16:50.620 | in there, and I've listed some people, not to get too personal, who I'm not sure have
00:16:55.860 | created enduring value for society. Sheldon Adelson and Steve Wynn made all their money
00:17:01.140 | in casinos, a socially negative thing involving payoffs to regulatory authorities, and that's
00:17:08.100 | what gets them there, more power to them, I guess. And Donald Trump, I'm not in politics
00:17:14.060 | here, but his record as a businessman was cutting off and paying all his suppliers that
00:17:19.420 | are putting up the buildings, and stopped paying them, and they have to sue them, and
00:17:23.460 | they have what they're entitled to. What a great case for a businessman. So I wonder
00:17:30.140 | about them. They were all selected. And I will tell you this story about a certain person
00:17:35.660 | there, because when they were taking the photograph, and I think maybe 45 or 50 of the 100 actually
00:17:42.620 | showed up at this big party. I was going to have Mike Nolan stand in for somebody for
00:17:48.140 | the photo, but I said to this young woman, I've always had this attractive young woman
00:17:53.980 | at these things, I know, and I said, "You know, I feel like I'm a little boy with a
00:18:01.980 | bunch of giants." And she said, "Oh, Mr. Vogel, I'm sure everybody in the room feels that
00:18:06.980 | way." And I said, "I'll bet Jack Welch doesn't." His claim to fame is he's created the biggest
00:18:19.020 | loss of shareholder capital market cap of any businessman in history, $400 billion.
00:18:25.980 | Gee, he's gone down. But he's irrepressible, I'll tell you that. He has a girlfriend, his
00:18:31.880 | young wife, whatever. So that's another award. Then we get to the icons from Philadelphia
00:18:40.980 | Inquirer, or from Investment News, I should say, first. And the other winner was Charles
00:18:45.900 | Schwab, who I think probably deserves it. And there were just the two of us, and he
00:18:49.660 | didn't show up, so I got an extra five minutes to talk, which was nice. And then we had icons
00:18:55.940 | again here in Philadelphia. Philadelphia Business Hall of Fame, five leaders of impact has stretched
00:19:04.580 | beyond the city. And there they are. You'll see the fellow over on the left. So that was
00:19:10.940 | very nice. Well, I keep thinking, "Icon, isn't that one of those things on your computer
00:19:14.860 | that you go click?" So maybe that's what it's about. And that resulted in a nice article,
00:19:22.060 | which you can see quickly here, a nice picture from the Inquirer. And then that was the third
00:19:29.020 | award. And the fourth one is coming up. And this award, I like the Forbes award, which
00:19:37.300 | I thought was interesting. And not only the creative idea, but the impact that practical
00:19:43.260 | application of the idea has made in improving the economic well-being of individuals and
00:19:51.460 | industry or a nation. And that's the kind of award I would like to win. My wife said
00:19:57.100 | I couldn't go to Florida to get it, and I shouldn't have done it anyway. But then they
00:20:02.060 | said they'd send a plane. We'll just send a plane, that's all. And so we're still negotiating.
00:20:10.420 | So whether I will have to do it by video, and I kind of like to do it there, because
00:20:14.940 | I'm receiving it with Matt McQuown, who was big in the thinking of this product out of
00:20:20.780 | Wells Fargo. And so I'd like to do it, and I guess that we probably will do it. But I
00:20:27.980 | don't travel alone. I don't mean to talk about my weaknesses, but I have trouble getting
00:20:32.060 | around a lot. And so if Eve doesn't do it, and we have a good time together, don't we,
00:20:45.300 | Mike? Absolutely, of course. I like that. Okay, that's enough awards, I think, for the
00:20:50.060 | moment, for a year. I don't know. For someone who wrote the book called Enough. And so the
00:20:58.180 | big part of spreading the word is what I do myself, not what others do for me. And so
00:21:03.820 | I include articles, editorials, speeches, and books that I've done, and we'll just review
00:21:07.420 | them very quickly. The articles is the cover story. You've probably seen it in Bloomberg
00:21:12.900 | Markets. And you'll see over on the right that I'm praying for somebody. I don't know
00:21:18.540 | who that is. You, you. And so it was nice to see the cover story. It was a decent interview.
00:21:26.140 | I probably said a few things I shouldn't have, which is what makes it decent. And then, I
00:21:32.580 | mean, there are so many of these articles, I mean, you can't even keep up with them.
00:21:37.900 | But another one that was particularly nice was from BBC Britain, about 50 Inventions
00:21:43.320 | that Shaped the Modern Economy. And this is a, it's obviously an index fund. And obviously,
00:21:51.340 | I did it. But what happened, this is the text of the article, I'm just going to go through
00:21:55.420 | a little bit. A practical businessman paid attention to an academic economist's suggestion.
00:22:01.860 | He then tells the story. What could be simpler and cheaper than an index fund recommended
00:22:06.340 | by the world's most expensive, most respected economist? And that would be Paul Samuelson,
00:22:11.580 | Nobel Laureate. And he says, you've heard this quote, ranks this Bogle invention along
00:22:18.020 | with the invention of the wheel. You're right, this is right up here with you, Bill Bernstein.
00:22:22.500 | The alphabet, Gutenberg printing and wine and cheese. And so that may even be better,
00:22:28.260 | Bill, I don't know. But truly something new under the sun. And Paul Samuelson was a truly
00:22:35.180 | great man. It's really odd, weird to have him thinking, you know, be in the same room
00:22:41.180 | with him, because he says intelligence overwhelms you. But he just liked what I was doing, wrote
00:22:48.980 | columns about it in Newsweek. We got to know each other. He did the introduction to my
00:22:56.260 | first book, which I don't think I've told you this story before, but I sent Dr. Samuelson
00:23:03.660 | to me the manuscript for my first book, Bogle and Mutual Funds. And I said, it'd really
00:23:12.620 | be nice if you could do an endorsement for it. And I get this phone call about two days
00:23:19.580 | later. John, this is Paul Samuelson. I don't do blurbs anymore. The blurb has been devalued,
00:23:31.820 | a coin that has been devalued. However, I would like to do the introduction. And when
00:23:38.100 | I was picked up off the floor, I said, well, can I have a day to think about that? Not
00:23:45.660 | quite true. So that's, I think, pretty good. Some are around the world now. Millionaire,
00:23:53.940 | German. Bonka, John. That's me. Plugging the books. Is Bill Faloon here? Are we doing business
00:24:00.140 | in Germany? I hope so. And then here's the article. Nice article, nice pictures. Meister
00:24:05.660 | Bogle. I guess that means Mr. Bogle. I don't know. And Article 4 over there is from Japan.
00:24:14.620 | And then Article 5 is American, U.S. Investment Advisors. Is your firm one that Jack Bogle
00:24:22.740 | would respect? I mean, that's implicitly a high praise, I think. And then ARP. You probably
00:24:29.620 | have seen this or heard about it. An extensive article with Jack Otter. And ARP, you hear
00:24:36.980 | a lot about ARP when something like that comes out. You realize how small most publications
00:24:40.820 | are in circulation. ARP has 23 million readers. And I've only heard from 22 million of them.
00:24:51.260 | And then there was that great article in the Sunday Times of London. And in case you can't
00:24:58.340 | recognize me, I'm the one with the dog. Right there. Seems like a long time ago. And there's
00:25:04.300 | my beautiful mother, who I think about just about every day. And then The Economist of
00:25:08.940 | London, a great place to be. Actually, not so much from a business standpoint. A nice
00:25:13.020 | article about index funds. And let's see what comes next here. Oh, this is the fun one.
00:25:21.600 | This is the last article. Somebody sent me Fidelity's Daily Bullet, and they send that
00:25:27.340 | to investors. And the first thing they say is highlighting an article that's attached.
00:25:34.580 | The reason Jack Bogle doesn't apply first class says everything you need to know about
00:25:38.020 | his investing legacy. Well, that's not bad. They're telling their own customers this.
00:25:42.660 | Are they mad? Did Abby know about it? What did she say? I don't know. But our former
00:25:52.580 | rival is struggling a bit. They had a very good year this year, by the way, to give them
00:25:58.700 | their credit. They'll go back and forth. I just love helping out anybody who needs help
00:26:03.220 | like Fidelity. And then we had another editorial in the New York Times. This is about the fiduciary
00:26:11.060 | duty rule and, quote, putting clients second. And that ran early last year, February 9th.
00:26:20.200 | You've probably seen that. I won't attempt to even-- I mean, they say, why let Wall Street
00:26:24.740 | profit at the expense of retirement investors? And that was good. I worked in close coordination
00:26:29.780 | because it's a little bit contentious at Vanguard what kind of a position we should take on
00:26:34.780 | fiduciary duty. I'm strongly in favor. And everybody's in favor of it, intellectually
00:26:41.860 | in favor of it. But sometimes the rules-- people think the rules are too tough for things
00:26:46.660 | of that nature. So that's number one editorial. And number two is Investment News, an article
00:26:53.900 | by me on fiduciary rule, ready or not, an expanded fiduciary rule is coming. And I like
00:27:00.900 | the line they put in there that I put in there from a press report that I received. Finally,
00:27:10.780 | John Bogle goes, the dream of fiduciary standard will come true. And I hope that will be. It's
00:27:17.060 | good for everybody except people who have taken too much money out of the system.
00:27:21.060 | And then two more editorials in the Financial Analyst Journal, Balancing Business and Professional
00:27:30.620 | Values. They asked for 4,000 words. And I gave them 8,000 words and told them they couldn't
00:27:35.020 | cut it. But I thought it was unusual they would pile on with me to ask me of all people
00:27:41.700 | to write an article about the industry, and broader than just the mutual fund industry.
00:27:46.740 | But I had fun doing it, a lot of work. And the result was, I think, good.
00:27:52.220 | And that was my 11th FAJ article. And my 16th Journal of Portfolio Management article was
00:27:59.180 | called The Road Not Taken. That's the speech I gave at Morningstar. And I should tell you,
00:28:06.380 | the reason I gave it at Morningstar was that a story in the London Times recommended that
00:28:13.660 | the ICI, Investment Company Institute, our trade association, that they have just kind
00:28:20.900 | of ignored me for all these years. And they said, why don't you tell them you should speak
00:28:25.740 | at this year's ICI annual meeting? So I wrote in to the head of the ICI. And he didn't write
00:28:34.340 | back. You don't want anything on the record here. And he said, no. He did say it. He said
00:28:42.180 | it in a nice way, Paul Stevens, in a sort of nice way.
00:28:45.340 | So I immediately picked up the phone and called Morningstar and said, I'd like to give you
00:28:50.780 | a speech at your regular industry meeting two weeks from now. And they said, that would
00:28:59.380 | be great. Plenty of room in the schedule for you, even with two weeks. And they gave me
00:29:03.580 | a nice slot. And then I told them that I couldn't deliver it in person because I'm just not
00:29:07.860 | about to fly to Chicago to do it. So we did it by video. And it was OK. And then we had
00:29:12.500 | a live Q&A after. And that became The Road Not Taken. It turned into an article for Journal
00:29:18.820 | of Portfolio Management. This is called multi-tasking.
00:29:24.900 | So writing a lot. I really love this article. I wrote it myself. But it was one of my particular
00:29:31.780 | favorites. David and Goliath for the FHA. That was in a previous edition. I'm sorry
00:29:37.260 | for the JPM. And one award for outstanding article on JPM. There's the award. It's huge.
00:29:45.140 | I wish they'd make it a little smaller because I don't have that much room in my walls anymore.
00:29:49.620 | But I was really proud of that article. And the nice thing about it is you've got a chance
00:29:54.260 | when you're-- this is my-- what did we say? Was that my third or fourth outstanding?
00:30:00.340 | Third outstanding article. And that's judged by the readers. And so you get to write a
00:30:09.020 | retrospective of it five years later. And that's really fun. I'm writing it right now.
00:30:13.940 | It's only been out there for two years. And I've got two of them in my-- it's fun to look
00:30:20.620 | at what you did earlier and critique it, say where you were right, where you were wrong,
00:30:26.020 | what you left out, what you might have overemphasized, and so on.
00:30:29.660 | So the writing is a big-- I mean, I write and write and write. And I'm not so sure I'm
00:30:34.860 | any good, which will bring me to-- whether I'm any good or not-- to the books that I've
00:30:42.420 | written. And the publication date is right upon us for a 10th anniversary edition of
00:30:49.220 | Little Book of Common Sense Investing. And its predecessor-- this is the one with the
00:30:54.180 | Buffett blurb-- its predecessor, been the number one bestseller on Amazon almost every
00:31:03.540 | day since the publication 10 years ago. I mean, you get little-- every once in a while,
00:31:08.660 | a daily thing kind of flashes up. And I got a call from Joe DiStefano, the chief financial
00:31:17.100 | guy at the Philadelphia Inquirer. And he said, you're not number one anymore. So I looked
00:31:23.460 | myself up. And there, this book has leaped into the number one position. And it was called
00:31:29.100 | Jackass Investing. So a little flash in the pan there.
00:31:35.780 | And so I said, Joe, check it out tomorrow, would you? And it was gone. So the book is
00:31:43.780 | short and simple and obviously persuasive. 565 Amazon reviews. That's huge. And with
00:31:50.220 | an average rating of 4.6. I said it was 4.7. But Mike rounded off 4 point something-- 4.55
00:31:57.580 | and 4.65, just 4.6. And I rounded it up. And this is the new edition. It's really quite
00:32:06.620 | different. And I should tell you this story about whether I'm a good writer. And I went
00:32:11.060 | over the book, the original edition, preparatory to bring out the new edition, which has quite
00:32:15.300 | a bit changed. And I thought, what idiot wrote this book? And where was his editor? And I
00:32:23.020 | was both the idiot and the editor. And it really was not very good. So I tried to make
00:32:29.660 | it a little better written, even the stuff that was there. And then I added these chapters
00:32:34.140 | on asset allocation and on retirement plan investing and on dividends.
00:32:39.980 | But that little book only begins with the impact. I mean, I couldn't believe this when
00:32:43.900 | we started to count them all up. 848,000 books, beginning with Bogle on mutual funds, 250,000.
00:32:52.940 | That's the one that had a new perspective called indexing. And Common Sense on Mutual
00:32:57.220 | Funds, later edition by David Swenson there, forwarded by David Swenson in 2010. And so
00:33:07.140 | it sold 102,000 copies. And it's quite amazing, the book enough. I'm pretty sure that when
00:33:17.240 | I cork, there'll be a lot of demand for it. And I hope to be over 100,000. And Mike, could
00:33:22.020 | you cable me up there when we get there?
00:33:26.620 | And so I really feel good about the acceptance of these books in the marketplace. And so
00:33:31.980 | good that the little book updated with book 11. And now we're going to book 12. Is the
00:33:43.900 | man mad? Yes. And it's going to be kind of a history of Vanguard with some things that
00:33:51.820 | I've written and haven't been published. And I didn't want a financial kind of title because
00:33:59.220 | it goes beyond finance. So I took a line, a little couplet by Johnny Cash. The trees
00:34:09.380 | I planted still are young. The songs I sang will still be sung. Now, I would sing that
00:34:16.060 | to you, but I only have one note. But I think that my tentative title is going to be the
00:34:21.380 | songs I sang will still be sung. And they will be, no question about that.
00:34:26.460 | Now, big year for speeches. It's ridiculous. I mean, look at that list. April 26th, April
00:34:35.400 | 27th, May 23rd, September 24th, October 24th, November 9th, I still got to do that one,
00:34:44.220 | Puritan Boston, Quaker Philadelphia to the Society of Friends here. Then the Council
00:34:49.380 | for Foreign Relations, which is the Q&A. That's no work. And then something for the Public
00:34:55.160 | Accounting Company Oversight Board in Washington. And that's about it.
00:35:01.780 | But the biggest one was, I think the biggest one, not necessarily the best, was when I
00:35:07.060 | got the gold medal of Pennsylvania Society, which meets every year in New York. Don't
00:35:12.300 | ask me to explain that. They can't even explain it. And they got about 1,500 black tie politicians
00:35:19.220 | and their brides, and they have a big celebration, and they have to give somebody a gold medal.
00:35:27.160 | And so I have it. By the way, it must weigh about five ounces. Five ounces of what gold?
00:35:33.220 | 1,200, 1,300? I got it under lock and key. So to give a little break in the proceedings,
00:35:41.060 | we're now going to, I hope, try this.
00:35:45.900 | The gold medal of the Pennsylvania Society was first presented in 1909 on the occasion
00:35:52.280 | of the Society's 10th anniversary. Since then, the medal has been presented to leaders in
00:35:57.860 | art, education, entertainment, sports, politics, science, and business. In addition to the
00:36:04.220 | medal itself, the Society presents $50,000 to the Pennsylvania Society Scholarship Program
00:36:10.780 | with the McGuire Foundation in honor of our gold medalist.
00:36:15.180 | This year, the Society is honored to present the gold medal to an innovative leader in
00:36:20.800 | finance and investment, a man who is widely admired and respected for his courage, his
00:36:27.580 | dedication, and his commitment to the rights of investors, the founder of the Vanguard
00:36:32.820 | Group, Mr. John C. Bogle. I invite you to turn your attention to the large screens positioned
00:36:47.900 | around the room in order to view a biographical video presentation saluting the life and achievements
00:36:56.060 | of Jack Bogle.
00:37:19.300 | He was born less than six months before the stock market crash of 1929 forever altered
00:37:25.140 | the financial and social landscape of America. He grew up during the Great Depression when
00:37:31.420 | the aftermath of an economic collapse erased the fortunes and clouded the futures of millions.
00:37:38.900 | He overcame obstacles and succeeded against odds and under circumstances that might have
00:37:44.140 | defeated a less determined and dedicated man. John Clifton Bogle came into the world on
00:37:50.740 | May 8th, 1929. Jack, as he was commonly called, and his twin brother, David, were the second
00:37:57.660 | and third sons of William Yates Bogle Jr. and Josephine Lorraine Hipkins. Their father
00:38:03.740 | flew with the British Royal Flying Corps in World War I and worked for the American Brick
00:38:08.420 | Corporation, a company founded by his own father. Along with their older brother, Bill,
00:38:13.940 | the twins grew up in Montclair, New Jersey, a suburb just 20 or so miles to the west of
00:38:19.260 | New York City. If not for the market crash, theirs would have been a comfortable and affluent
00:38:25.140 | existence, but the fortunes of the Bogle family were not immune to the economic fallout that
00:38:30.740 | spread over America and the entire globe. To help support the family, all three boys
00:38:36.360 | took on multiple jobs while attending school. By the age of 10, Jack was delivering newspapers
00:38:42.740 | and magazines and working in an ice cream parlor. The lessons learned in those years
00:38:47.860 | made a lasting impression upon him. They shaped his character, his personal beliefs, and the
00:38:53.620 | professional code he would carry throughout his life. Josephine Bogle wanted a first-class
00:38:59.660 | education for her sons. She managed to get them enrolled in Blair Academy, a nearby private
00:39:05.900 | boarding school for their junior and senior years. Although the tuition was beyond the
00:39:10.260 | family's means, Josephine's investment banker brother was able to help, and Blair offered
00:39:15.740 | them scholarships and campus jobs. Gifted from the start, with an aptitude for math,
00:39:22.460 | Jack thrived at Blair. His classmates voted him most likely to succeed and best student,
00:39:29.460 | and he graduated second in his class. He was disappointed that he failed to be the valedictorian,
00:39:34.900 | having set that as his goal, but his gratitude and support for Blair would continue throughout
00:39:40.620 | his life. At Princeton, as at Blair, his education was funded with university scholarships and
00:39:47.380 | he worked a host of different student jobs. He majored in economics, and for his required
00:39:52.740 | senior thesis, he chose to research and report on the fledgling mutual fund industry, a relatively
00:39:58.740 | new and unexplored field, but one that Jack Bogle recognized as having great potential.
00:40:06.480 | This thesis was titled "The Economic Role of the Investment Company." It was 123 pages
00:40:13.740 | long, and he earned an A+ for his work, graduating magna cum laude. That distinction, and the
00:40:21.380 | in-depth work he had done to earn it, would lead indirectly to his first job after graduating
00:40:26.740 | from Princeton in 1951. The document was so highly regarded that it found its way to the
00:40:33.580 | eyes of Walter Morgan, Princeton class of 1920, the founder and CEO of the fourth largest
00:40:40.460 | mutual fund in the country, the Wellington Fund. Morgan was so impressed by Jack's thesis
00:40:46.300 | that he wanted all of his employees to read it, too, and he printed copies for all 50
00:40:51.540 | of them. "He knows more about the fund business than we do," Morgan was quoted as saying.
00:40:57.180 | Although Jack had other career options, he was excited by the possibilities inherent
00:41:02.140 | in the emerging mutual fund industry. He joined Wellington, and over the next few years made
00:41:07.940 | it his mission to learn as much as he could about all aspects of the business. By 1955,
00:41:14.100 | he had officially been named Walter Morgan's assistant, and by 1958, he probably knew as
00:41:20.300 | much about the mutual fund business as anybody in his field. By the summer of 1956, Jack
00:41:27.820 | Bogle had developed an interest in something besides mutual funds. Her name was Eve Sherrod.
00:41:34.820 | She was the younger sister of Bogle's Princeton friend, Jay Sherrod. Eve was a 1955 Smith
00:41:40.860 | College graduate and lived in Marion, Pennsylvania. The two were married in September 1956. Their
00:41:47.580 | union has lasted 60 years and counting. Parents of six children and 12 grandchildren, they
00:41:56.320 | have lived in the greater Philadelphia area ever since. As Bogle's confidence and understanding
00:42:03.200 | of the industry grew, he assumed a more active role in the company's strategy. He advocated
00:42:09.940 | adding growth, income, and bond funds under the Wellington ambit. By the end of the decade,
00:42:17.220 | with Bogle's encouragement, a second fund was created at Wellington, this one devoted
00:42:22.860 | specifically to stocks. In 1958, the Wellington Equity Fund was introduced, changing its name
00:42:30.680 | in 1963 to the Windsor Fund. In the midst of these developments, Jack's unsuspected
00:42:38.500 | health problems began to reveal themselves. Until the age of 31, he had enjoyed good health.
00:42:45.220 | But while playing tennis with his brother-in-law one afternoon in the late summer of 1960,
00:42:50.500 | he suffered the first of six heart attacks. The attack led to a six-week stay in the hospital,
00:42:57.780 | where Bogle was diagnosed with a condition known as ventricular arrhythmia. The outlook
00:43:04.300 | was bleak. The cardiologists gave him little chance of living past the age of 40. None
00:43:10.960 | of them thought he should or could return to work. But his personal drive, his commitment
00:43:17.280 | to excel, and his will to survive, the "Bogle factor" as one of his cardiologists would
00:43:23.020 | call it, proved them all wrong. Bogle was not about to give up. In 1965, the mutual
00:43:32.240 | fund business began to change. Conservative investing, Wellington Fund's métier, went
00:43:39.120 | out of style. And aggressive, high-risk investing took center stage. To add an aggressive fund
00:43:45.680 | to Wellington's line, and to bring in new managers, Bogle negotiated a merger with Thorndike,
00:43:50.980 | Doran, Payne, and Lewis, an investment counseling firm based in Boston. The merger became official
00:43:57.180 | in 1966, and things went well at the outset. Jack was named president and CEO of the newly
00:44:04.340 | created firm, but disagreements between the partners about the firm's investment strategies
00:44:09.380 | led to a parting of the ways during the 1973-1974 stock market crash. The new merger failed,
00:44:17.220 | and they decided to fire Bogle from the firm. On September 24, 1974, John Bogle formed a
00:44:25.560 | new corporation. He named it the Vanguard Group, after Admiral Nelson's flagship HMS
00:44:32.100 | Vanguard at the Battle of the Nile during the Napoleonic Wars. Vanguard would give Bogle
00:44:37.520 | the opportunity to put his own beliefs and an innovative investment strategy into practice.
00:44:44.120 | Vanguard's first index investment trust was created in 1976 with a mere $11.3 million
00:44:51.080 | in assets. But his work was met with scorn and ridicule. Some called the index fund "Bogle's
00:44:58.760 | Folly," and relentlessly criticized it, labeling it "un-American." It took two decades until
00:45:07.080 | the mid-1990s for index funds to catch on with the public, but their growth now dominates
00:45:13.960 | the industry. In 1989, Mr. Morgan, then 91 years of age, he would live to be 100, looked
00:45:22.320 | back with delight on Bogle's successful leadership of the firm. He stated, "The best thing I
00:45:29.260 | ever did was to persuade Jack to join our organization." Despite continued heart problems,
00:45:36.360 | John Bogle remained at Vanguard's helm as chairman and CEO. Finally, in 1996, he received
00:45:43.020 | a successful heart transplant, a procedure that in large part restored his physical vigor.
00:45:49.320 | He stepped down as CEO that same year, but continued as chairman of Wellington Fund and
00:45:54.200 | the other Vanguard funds until 1998. After leaving the Vanguard Board of Directors in
00:45:59.600 | 2000, he concentrated on writing and advocating on behalf of the rights of investors and fund
00:46:05.520 | shareholders and the benefits of long-term investment strategies. He authored numerous
00:46:11.080 | articles and 10 books, including the 2007 bestseller, "The Little Book of Common Sense
00:46:18.280 | Investing," along with "The Clash of the Cultures," "Enough," and "The Battle for the Soul of
00:46:24.520 | Capitalism." In 1999, Fortune magazine named John Bogle one of the "Four Investment Giants
00:46:32.920 | of the 20th Century." Today, at the age of 87, John Bogle is president of Vanguard's
00:46:41.600 | Bogle Financial Markets Research Center in Malvern, Pennsylvania. He continues to promote
00:46:47.360 | the investment principles he had laid out 65 years earlier in his senior thesis at Princeton.
00:46:54.240 | The Pennsylvania Society is proud to present its 2016 Gold Medal for Distinguished Achievement
00:47:02.040 | to John C. Bogle.
00:47:04.720 | [applause]
00:47:14.720 | [applause]
00:47:24.720 | [applause]
00:47:34.720 | [applause]
00:47:49.720 | I can't tell you how many people have complimented the Society on selecting Jack Bogle for this
00:47:55.720 | award. There isn't a person that I haven't talked to on any given day since we announced
00:48:00.320 | it that don't tell me that you are their hero.
00:48:02.960 | All right.
00:48:03.960 | [laughter]
00:48:04.960 | I'm so pleased on behalf of the Society to present you with our Gold Medal Award. Well
00:48:11.760 | deserved.
00:48:12.760 | [applause]
00:48:13.760 | Thank you.
00:48:14.760 | Thank you.
00:48:15.760 | [applause]
00:48:15.760 | It's mine, Nick. Where are you?
00:48:33.800 | [laughter]
00:48:35.480 | Thank you so much, Roger. I'm deeply honored. And thank you, Carol Fitzgerald, for all your
00:48:41.200 | work in organizing this evening. What a big job.
00:48:44.960 | And it's great to be here with all of you, and I particularly am honored to be with this
00:48:49.160 | wonderful head table. So many people. Those are the people we call the big shots back
00:48:54.120 | in my corner of the world.
00:48:56.560 | And to all of you, thank you for being here tonight, and particularly those of you who
00:49:01.520 | are here who are Vanguard shareholders.
00:49:08.200 | [laughter]
00:49:13.000 | I want to thank you for paying my salary for all these years.
00:49:19.160 | Most of you, I imagine, know the story of Acres of Diamonds, a lecture first given 132
00:49:25.440 | years ago by Pennsylvanian Russell Conwell, founder of Temple University. It's the story
00:49:31.840 | of a wealthy lord in ancient Persia who leaves his estate to seek even greater wealth, spending
00:49:39.120 | the rest of his life in a fruitless search for a perhaps mythical diamond mine.
00:49:47.040 | Years later, far from home, frustrated, unhappy, a pauper, he throws himself into the sea and
00:49:56.120 | dies. And at almost the same moment, the very same moment, the fabulous Golconda mine is
00:50:03.920 | found back in Persia in a stream on his very own property. Think about that.
00:50:11.080 | Dr. Conwell thought the moral of the story was obvious. Quote, "Your diamonds are not
00:50:18.000 | in far distant mountains or in yonder seas. They are in your own backyard if you but dig
00:50:25.840 | for them." His insight is my story. I first set foot in our great commonwealth of Pennsylvania
00:50:34.720 | just before Christmas of 1945. My twin brother David, bless his soul, was with me, two 16-year-old
00:50:43.120 | boys from Blair Academy arriving in Pennsylvania to celebrate the holiday with our parents.
00:50:50.400 | They had just moved here from New Jersey and we lived on the third floor of a home in Ardmore.
00:50:56.120 | The space was enough for all of us, at least during the holidays.
00:51:01.040 | It was in the city of brotherly love that I began to find my own acres of diamonds.
00:51:05.320 | That first diamond was Walter L. Morgan. You saw him up there in a number of places, wonderful
00:51:09.000 | man, my great mentor, founder of Wellington Fund. Immediately after my graduation from
00:51:15.760 | Princeton University, by the way, thank you Nasoons, he hired me. Five years later I found
00:51:21.960 | another diamond. She's with us tonight, a diamond right on Pennsylvania's green acres,
00:51:28.920 | my beloved Eve, wife of 60 years. Some 21 diamonds followed. Six wonderful children,
00:51:47.480 | 12 grandchildren, and now three great-grandchildren. All of those diamonds alone would make a grand
00:51:53.880 | crown, wouldn't they? But there were many more diamonds to come, yes, all in my own
00:51:59.640 | backyard. During those early years at Wellington, however, the diamonds lying before me were
00:52:05.360 | deeply hidden. The company fell into trouble at times. In 1965, when I was about 35 years
00:52:13.840 | old, self-confident and more than a little arrogant, Mr. Morgan told me to run his firm
00:52:20.080 | and do whatever it takes, that's a quote, "whatever it takes" to solve our investment
00:52:24.360 | management and marketing challenges. As that lovely video tribute suggests, my effort to
00:52:30.840 | save the firm resulted in my getting fired as Wellington's CEO in January 1974, and my
00:52:40.560 | adversaries intended to move all of Wellington to Boston. I was not about to let that happen.
00:52:50.240 | I love Philadelphia, my adopted city, the home of my family, the home of my firm. I
00:52:57.000 | intended to keep those diamonds right here. After a tough struggle, that determination
00:53:03.040 | paid off. I created a new company that would do just that, inspired by HMS Vanguard, Lord
00:53:10.520 | Nelson's flagship. Check your medallion, everybody, it's a very nice representation of it there.
00:53:17.240 | I named the firm the Vanguard Group with Wellington Fund as our largest fund. Look, guys, Benjamin
00:53:25.640 | Franklin got it right. The diamonds aren't going to Boston, Boston is going to Philadelphia.
00:53:39.040 | To be here for good, right where they belong, in the birthplace of Wellington Fund in 1928
00:53:46.040 | and of Vanguard in 1974. I described our new firm as the Vanguard experiment in corporate
00:53:52.560 | governance designed to serve our mutual fund shareholders. A faint echo, at least, of William
00:54:00.260 | Penn's description of the Pennsylvania colony as his holy experiment in freedom for its
00:54:07.520 | citizens. A nice parallel. The new firm was founded on two innovations that you've just
00:54:14.480 | heard about and described, both without precedent in the mutual fund field. Two more diamonds.
00:54:20.420 | One diamond was our mutual structure, designed to serve its own shareholders. The other,
00:54:26.200 | our strategy. The world's first index fund, a simple, economical way to give investors
00:54:32.980 | their fair share of market returns. Together, these two diamonds would become far more valuable
00:54:38.460 | even than that fabulous Golconda that I mentioned at the beginning. Fabulous values for investors.
00:54:47.360 | These ideas are changing the world of finance in favor of investors, of Main Street rather
00:54:53.680 | than Wall Street. That trend is just beginning, and I'm sorry in a certain way about this
00:54:59.440 | Wall Street, but it's going to get even worse for you and better for investors. It's all
00:55:05.320 | about who gets those returns. So Vanguard has become the largest mutual fund management
00:55:13.800 | in the world as a result of those ideas, starting from a career of tragedy, followed by triumph,
00:55:21.700 | to which I would add, "Oh, ye of little faith." I continued to dig in my own backyard and
00:55:29.480 | discovered still more diamonds. In 1996, I found another diamond that was a new heart,
00:55:36.520 | a diamond that was a heart, transplanted at Philadelphia's Hahnemann University. For the
00:55:41.680 | past two-plus decades, I've been treated at Pennsylvania Hospital, Hospital of University
00:55:46.280 | of Pennsylvania, HUP, by another diamond, my cardiologist for all that time, Dr. Susan
00:55:53.080 | Barzina. The transplant was a success, yes, from another diamond, and this one was in
00:56:01.800 | Pittsburgh. Hello, Allegheny County. Dr. Thomas Starzl of the University of Pittsburgh led
00:56:14.400 | the development of anti-rejection drugs that were essential to survival for patients who
00:56:19.400 | were lucky enough to have successful transplants. Not a moment too soon, only in the late '80s,
00:56:25.120 | did that discover, and I got my transplant in '96. That heart that I got now, 46 years
00:56:30.160 | of age, keeps on ticking. It just keeps on ticking. And that's all right, that's all
00:56:37.640 | right. A second chance at life is a miracle, and don't think I don't know it, pal. Lucky
00:56:50.480 | enough to find all those diamonds in Pennsylvania, I was determined to give some diamonds back
00:56:54.320 | to Pennsylvania. One of my favorite causes has been supporting and helping lead the National
00:56:59.840 | Constitution Center that caps off Philadelphia's Independence Mall. For the three decades since
00:57:10.680 | its inception, I've served as a trustee, and in 1988, I was asked to serve as chairman
00:57:18.200 | by its then chairman and former governor, Ed Rendell, and its then president, and now
00:57:24.600 | treasurer-elect of our commonwealth, Joe Torricella. I warned them that I wouldn't be too good
00:57:34.920 | at it and would only serve for a short time until they found a real chairman. But working
00:57:40.600 | with Joe was a thrill, and the challenge of turning an idea into a reality, you could
00:57:45.980 | even say again, I served for chairman for nine more years. That was my short time. The
00:57:55.320 | National Constitution Center continues to serve its noble mission, bringing the Constitution
00:58:00.280 | of the United States of America into the mainstream of our citizens' lives. Let me wrap this up,
00:58:08.320 | probably a little bit long already, but in retrospect, it occurs to me that my design
00:58:13.760 | for Vanguard reflects many of the basic Quaker values that William Penn fostered, simplicity,
00:58:23.040 | economy, efficiency, service to others, and the conviction that the truth is the way.
00:58:33.080 | Now, I'm not so strong on other values of the Quakers, like consensus, patience, and
00:58:47.980 | of course, silence. William Penn has been a constant inspiration for me, and I close
00:58:54.720 | tonight with delight to be with all of you with the 1620 quotation attributed to Pennsylvania's
00:59:03.160 | founder, a goal that I strive to honor, but as a flawed human being will never fully measure.
00:59:12.640 | You know this quote, many of you. I expect to pass through this world, but once, any
00:59:18.720 | good, therefore, that I can do, or any kindness that I can show to any fellow creature, let
00:59:26.480 | me do it now. Let me do it now, for I shall not pass this way again. Thank you for the
00:59:32.800 | honor you've bestowed on me.
00:59:52.480 | Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
01:00:19.920 | You are truly a treasure of the Commonwealth of Pennsylvania, and I'm so proud to have
01:00:24.120 | you with us tonight. Let's see, a couple of chores here. Apparently, in the introductions
01:00:32.640 | earlier this evening, we failed to advise that Auditor General Eugene D. Pasquale is
01:00:41.880 | here this evening. I'm sorry. Sorry about that. And because our honored guest is so
01:00:50.880 | impressive, we're honoring a request that you just made to have the Soons come back
01:01:01.560 | and sing "Old Nassau," one verse. So, thank you, Jack. Thank you. Are they getting it?
01:01:23.680 | They're getting it. I know it.
01:01:34.040 | Every boy and every boy, in every care withdraw, let all in one accord rejoice in praise of
01:01:47.120 | old Nassau. In praise of old Nassau, my boy, hurrah, hurrah, hurrah. Her sons will give,
01:02:01.760 | while they shall live three cheers for old Nassau. Thank you, Jack.
01:02:27.200 | Ladies and gentlemen, I invite you to rise and join the Princeton Nassoons and Trooper
01:02:34.120 | Kevin Pierce in singing a traditional Pennsylvania society favorite, "God Bless America."
01:02:55.440 | God bless America, land that I love. Stand beside her and guide her, through the night
01:03:09.000 | with the light from above. From the mountains to the prairies, to the oceans, where it flows.
01:03:21.400 | God bless America, my home sweet home. God bless America, my home sweet home.
01:03:38.720 | God bless America, land that I love. Stand beside her and guide her, through the night
01:03:52.240 | with the light from above. From the mountains to the prairies, to the oceans, where it flows.
01:04:04.720 | God bless America, my home sweet home. God bless America, my home sweet home.
01:04:26.720 | Thanks, Mike. That was a great job. So, okay, it was an enchanted evening, and to hell with
01:04:46.800 | it. It was really, really nice, and we had a great time. A lot of my family came, and
01:04:54.600 | so that was really a highlight of the year, and if you've got to get an award, that's
01:04:59.520 | probably as good a response as you can make. I'm not quite at my top speaking style there,
01:05:06.600 | but I was okay, I think. Now we're going to go back to work, and I have, how much time?
01:05:13.320 | Half an hour? And we're going to do a little data thing, and we're going to start with
01:05:20.120 | an industry in transition, how this industry has changed. We're going to rip through these
01:05:23.280 | fairly quickly, and again, the slides will be available to anybody that wants them.
01:05:28.000 | So I was there, and I am here, thank goodness, as a tiny industry grew into a behemoth. A
01:05:36.440 | lot of bumps along the way, but an industry that grows since I joined it in 1951 at 14%
01:05:43.060 | a year is a pretty good industry to pick as a choice from your ancient senior thesis at
01:05:50.880 | Princeton University. And you'll see we're an equity industry when I came in, 78% stock
01:05:55.800 | funds, still a stronger equity industry at 1972, 87% stock funds. Then we had the market
01:06:03.360 | crash of '73, '74, and by 1981, money market and bond funds were 83% of this business.
01:06:12.360 | And now we're back to a more normal equity funds, 52%, balance funds 8%, and bond funds
01:06:19.920 | 22%, and money market funds about 17% way down, that combination being 39% compared
01:06:28.440 | to 83%. But we've had a firm that could ride with those punches because I've always been
01:06:34.360 | interested in all those areas.
01:06:36.400 | But the biggest change of all was the obvious one, the indexing revolution. And you can
01:06:44.880 | see indexing share of mutual fund assets has gone to 41% now. It's amazing of equity fund
01:06:51.240 | assets and to 23% of bond fund assets, and it keeps on growing. Yes, it is the index
01:06:58.840 | revolution, and you can see that chart there. I'll go quickly through it. I don't want to
01:07:05.440 | waste a lot of time on it, but there's nothing quite like in all financial history the way
01:07:13.440 | the index fund has changed an entire industry and even an entire financial industry. You'll
01:07:18.960 | see there that when the index 2017 is $7 trillion has gone up, regular funds have gone up, I'm
01:07:31.240 | sorry, index funds have gone up 1.7 times, and the index funds have gone up 6 times from
01:07:44.780 | the beginning. Compound growth rate, the industry, non-equity industry, 14%, 37% a year for index
01:07:55.120 | funds. So it's quite a remarkable thing, that little idea of 1974.
01:08:03.240 | There are big changes in mutual fund industry leadership. I'm not sure this chart is very
01:08:08.000 | easy to read, but I took a look at the big funds back in 1980 when the industry had reached
01:08:12.680 | sort of a mature stage after the '74 crash, and you can see the leaders there. We ranked
01:08:19.720 | number seven in 1980, advanced the clock to 2017, Vanguard ranks number one with a 2,005-fold
01:08:30.240 | increase in assets. Vanilla didn't do badly, 588-fold increase in assets, but only about
01:08:36.640 | a fourth of what Vanguard did. And then we have new entrants, BlackRock, State Street,
01:08:42.640 | both indexers, J.P. Morgan, Franklin Templeton, Dimensional Fund, they were these firms, and
01:08:50.000 | PIMCO, where they were not in business in 1980, were very, very small. And so now those
01:08:58.760 | 10 firms are 62% of industry assets as compared to 55%, so a little more concentration.
01:09:11.680 | You also see the ones that have dropped out of the top 10, are they in blue? No. Well,
01:09:21.300 | the funds that have dropped out of the top 10 in 1980 are IDS now, Columbia or whatever
01:09:26.240 | it's called, the largest firm in the business then, Mass Financial, Putnam, a tragic story,
01:09:37.040 | Fort Abbott Affiliated Fund, and Union Service, which is the, I'm not even sure what the name
01:09:42.200 | of it is anymore, but they all dropped. That's a lot of change in industry leadership.
01:09:48.120 | Expense ratios, very interesting thing that's going on here. I may have shown you this chart
01:09:52.960 | last year or two, but if you look at the traditional industry and go back to when I came into this
01:09:57.440 | business in 1951, the average fund in this group of actively managed funds had a 0.62
01:10:05.920 | expense ratio, and by 2016, that had risen to 1.06% or up 72%, and this upstart called
01:10:14.880 | Vanguard dropped from 55, a little below average, to 0.15, you'll see that in the red line a
01:10:21.280 | little bit up from the bottom, or down 73%. I can't imagine how this can persist in a
01:10:28.240 | competitive framework when one group of funds goes up 72% in cost ratios and the other one
01:10:35.280 | goes down 73%. Well, I don't think I did a very good job
01:10:39.640 | on explaining it all. What I'm trying to say here is that if we were run, we run the firm
01:10:46.760 | for around $4 billion a year, and if we were running at that conventional mode above, the
01:10:51.760 | cost would be $25 billion a year, $21 billion of savings every year for shareholders, and
01:10:59.800 | happily, lower cost means stronger returns, and we'll, I guess, get that a little bit
01:11:06.360 | later. So, I've seen all this happen firsthand. An
01:11:11.160 | industry that sells what it makes, it's the old industry, became an industry that made
01:11:17.240 | what would sell. We've gone through public ownership, a really catastrophic thing in
01:11:25.000 | the industry, it still persists, public ownership of advisors, where the idea is to make as
01:11:30.280 | much money for the owners as you possibly can at the expense of the fund shareholders.
01:11:36.120 | We've gone through the go-go era, a whole lot of junk, false accounting, story stocks,
01:11:42.240 | and that came and went. We had the rise and fall of the so-called nifty-fifty, 25 stocks
01:11:47.920 | or 50 stocks, I guess, you could buy and hold forever, and they were all pretty good stocks,
01:11:52.760 | Xerox, IBM, except the prices that were paid have never been seen again. So, it's not just
01:12:01.960 | the value of the company, it's the price you pay for it.
01:12:04.480 | Then we went through a whole new industry created, money market funds, saw back there,
01:12:09.920 | I think it was 80%, 83% maybe of industry assets, and then we get to the information
01:12:17.480 | age, the rise and fall of technology funds, catastrophic to investors in them. We had
01:12:22.680 | done away with ours years before, one of the smarter moves, sometimes doing nothing or
01:12:28.200 | reversing a decision is better than making the decision itself.
01:12:33.680 | Then we get to the age of the traditional index fund, TIF. I'm trying to get that damn
01:12:38.600 | thing accepted as a way of art, speaking like we talk about ETFs as if there's nothing else,
01:12:44.200 | but the TIF is a traditional index fund, and the one that kind of started a broad market,
01:12:51.160 | S&P 500, for example, low cost, and designed to be held forever. I'll talk a little bit
01:12:59.520 | about that in a few minutes.
01:13:01.800 | Then we come to where we are right now, and it's an interesting thing, which I'll talk
01:13:05.320 | about in a few minutes, the exchange-traded fund era, which we have today. Now, in the
01:13:12.040 | next decade, the return to what I will call a new normalcy, which is the triumph of traditional
01:13:17.880 | index investing, not ETF investing. I was accused in the press, I guess I said this,
01:13:24.240 | of saying I think BlackRock, which is entirely ETFs, is betting on the wrong horse, and we
01:13:30.000 | betting on TIFs are betting on the right horse, but we will see.
01:13:35.060 | But in each era, I tried to deal with it when I ran the company, and even after I ran the
01:13:40.320 | company, and for each error for that matter, I did my best to build a better industry and
01:13:46.480 | preach about my convictions.
01:13:49.080 | So how's it doing? Well, in 2017, Vanguard is shooting the lights out, giving new meaning
01:13:58.520 | to - I worry about it, and I worry about what is enough for a $4.5 trillion company on its
01:14:07.320 | way to $5 trillion. Think of that. I mean, I don't even like it. I'm sorry about that,
01:14:13.120 | but I'm a small company guy.
01:14:16.480 | So there are the industry cash flows Mike has up there, and you'll see that in the last
01:14:22.840 | - what is that - five years, roughly, Vanguard has taken in $793 billion of cash - think
01:14:32.240 | of that - from new investors, and the total industry has taken in $815 billion. That means
01:14:41.080 | the other firms, compared to one firm, $793 billion of additional capital. Everybody else
01:14:47.400 | put together has taken in $22 billion. It's 97% of the industry's cash flow for five years.
01:14:56.840 | And it's good, I guess. It's a tribute to the good idea, but it also somehow leaves
01:15:01.560 | me wondering what's the end game or something, and I don't have to worry about that now.
01:15:09.000 | But guess what? I still worry about it. And you'll see the cash flows here, growing and
01:15:15.240 | growing and growing. Indexing totally driving it. That's the blue line. And so I ask again,
01:15:22.960 | what is enough? And I don't know the answer to that, but don't think I don't think about
01:15:26.760 | it, and don't think about the challenges that indexing faces in the years ahead.
01:15:32.040 | Now how are we doing with the competition? Well, here we are with the large managers,
01:15:37.560 | and you can see we're all clustered pretty closely, all except that State Street was
01:15:42.200 | very small then, from around $300 billion to around $700 billion. And the turning point
01:15:50.720 | came in 2006, when Vanguard's assets topped Fidelity's. Vanguard assets $1.123 billion.
01:16:01.400 | Fidelity's assets $1.111 billion. That was a very close race. But you can see it wasn't
01:16:07.960 | close. That was in 2006. And look at the lines go from there, just totally separate. And
01:16:15.240 | I'm not sure very many businesses have ever experienced a period of leadership like that.
01:16:20.160 | And again, I'm not sure what I think about them. I'm glad to have the ideas, my ideas,
01:16:26.000 | given such acceptance by the public, but I still worry about, I won't say it again, worry
01:16:31.600 | about size and what it does to a company, and what it does to challenges like regulatory
01:16:38.320 | authorities and things of that nature.
01:16:40.440 | So our market share is at a new high again of 24.2, up from a low of 4.1, and we lost,
01:16:49.720 | was at a third of our market share in our first, that's 1986. In our first 12 years,
01:16:57.480 | we lost a third of our market share. There's a tribute to a great company. And then I actually,
01:17:04.960 | this may not surprise you, I loved those days. I loved the days of struggle. I loved the
01:17:10.840 | days where you were the first one in the office every day, and everybody's trying to do their
01:17:15.000 | best and trying to find a piece of good news. We had 83 months of net redemptions, and people
01:17:22.200 | say, "How'd you deal with that?" To which I would say, "Well, look, we lost $22 million
01:17:28.080 | of redemptions last month, but the previous month we lost $24 million. So think of that
01:17:34.360 | improvement. Keep a stiff upper lip."
01:17:37.480 | But when you get big, I gave a speech on this subject, "Uneasy lies the head that wears
01:17:43.280 | the crown," and this chart just shows the changing leadership in the company. First
01:17:49.040 | MFS, Mass Investors Trust, is the firm written up in my senior thesis at college, and they
01:17:56.280 | got to about a 15% market share, the lowest cost provider in the industry at that time.
01:18:01.400 | And then IDS, which is a big, it's called Columbia I think now or something, but big
01:18:06.680 | direct distributor, direct distribution, overwhelmed broker distribution for a short period of
01:18:11.520 | time, well, for about 20 some years. And they got to about 15% and then fell back.
01:18:19.160 | Then along comes Fidelity with their hot performance, and they got to almost 14% back in 1999, fell
01:18:25.720 | back. And that putative natural high, which you can see there, it's like 15% is the limit.
01:18:32.880 | History has established that. And here we are at 24.2, and it's not going to be lower
01:18:38.680 | than that next year or the year after that.
01:18:41.640 | The reason for all that, of course, is the index funds. And you will see right in this
01:18:46.040 | chart that if you are one of these leaders, Vanguard, BlackRock, and State Street, really
01:18:53.080 | an oligopoly, which is worrisome in some ways. Nobody wants to compete in that area. And
01:19:00.200 | so I think we are going to, indexing is going to continue to take over. We are going to
01:19:08.840 | continue to hold our market share leadership. But if we broaden the term index funds, this
01:19:15.320 | is an interesting byplay, if we broaden the term index funds to talk about indexed assets,
01:19:22.180 | we get an even stronger picture for Vanguard's 73% in index funds.
01:19:28.740 | In the very beginning of Vanguard, even before the index fund, they used to talk about relative
01:19:34.540 | predictability. We wanted relative predictability from our funds, because if you get very good,
01:19:40.100 | you know you are going to get bad if you got any brains at all. And then the money comes
01:19:43.620 | in when you are good, and the money goes out when you are bad. And the shareholders do
01:19:46.980 | much worse than the fund. That's a characteristic of this business. It costs investors about
01:19:52.060 | 1.5% in return every year, a huge deficit over time. And so relative predictability
01:19:59.580 | dominates Vanguard funds. For an astonishing way, if you put virtual index funds that are
01:20:06.100 | driven by indexes, track indexes, with our index funds, pure index funds, you are talking
01:20:14.400 | 99% of Vanguard's assets. I don't know why that 88 is there. I might strike that.
01:20:24.940 | So here is how we examine that on the next page, and you will see exactly what I mean.
01:20:32.220 | And that is when you get to relative predictability of 1974, with all the changes in academic
01:20:45.260 | kind of stuff, it is now high R-squared. And R-squared is the amount of your fund's return
01:20:55.460 | is determined by the returns of the index or indexes that the fund uses as its objective.
01:21:04.140 | The best example I have for that is Wellington Fund. Our baseline is 65% S&P 500, 35% long
01:21:15.860 | term corporate bond index, and if you put those two together, those two indexes explain
01:21:30.140 | 98% of Wellington's performance. So if you want to look at it this way, and maybe people
01:21:36.140 | do not want to look at it this way, on a $100 billion fund, which Wellington is again after
01:21:41.500 | all these years, no, its previous high was $2 billion, sorry, you are going to say that
01:21:48.540 | 2% of that is from activity, active management, so that would be $2 billion, and $98 billion
01:21:57.060 | would be tied to the index. So that is the 98 R-squared, and you look at these others,
01:22:03.500 | high R-squared business, and you put it all together and just multiply through these R-squares
01:22:09.980 | on the index to the fund's assets, and that is where the 23% comes from.
01:22:19.020 | So that is just what I want to happen, just the way I designed when I redid Wellington
01:22:25.420 | Fund in 1980, and it has worked very well. There is a fund that went from $2 billion
01:22:32.940 | to $450 million, then I tried to fix it, did my best to fix it in 1980, and now it is $102
01:22:40.460 | billion. It is amazing what you can do if you just put a little thought into something.
01:22:44.740 | So put it all together, Vanguard's dominance is no mystery. Why are we a leader? I will
01:22:51.980 | tell you why. One is our structure, low cost. Two is our strategy, virtual index funds and
01:22:58.500 | indexing. They turn out to have consistent, solid returns for the owners, and that turns
01:23:05.580 | out to be outstanding performance, and it is quite remarkable. I probably showed you
01:23:11.100 | this chart. I whittled it down a little bit. I probably should have done it a little bit
01:23:14.420 | more. Just let me take you through a little bit of it, and that is when you rank on August
01:23:21.100 | 17, rank the various fund leaders by the number of funds they have, how many are 1 and 2 star,
01:23:29.180 | low rated funds, and how many are 4 or 5 star, high rated funds, and what the net difference
01:23:34.300 | between the low rated is. Vanguard has, as far as I can remember, been at the top of
01:23:40.060 | this list forever. For a few years we were tied with T. Rowe Price, but what this says
01:23:46.540 | is 2% of our funds were low rated, 73% were high rated, and 71% net. One thing that causes
01:23:56.340 | that, which is why it is right in the next column, is the lowest expense ratio by far
01:24:01.300 | on that whole page, .17. It is going to go down. It can't go down a lot further, so we
01:24:08.140 | are still going to be tough. T. Rowe Price is often a very tough competitor. I haven't
01:24:15.820 | tracked it enough to figure out why they have dropped down on this. They are 10%, 66%, and
01:24:21.380 | net 56%, so they are 15 points behind us. Look at how those net returns, let's concentrate
01:24:28.020 | on that column saying net, getting 71.50, and look at how it goes down. You should be,
01:24:36.060 | the average is probably 28, something like that. I guess it is 19 when you take all of
01:24:40.180 | the firms. Look at the firms that are even in negative territory when you get down to
01:24:45.100 | the bottom. Look at Goldman Sachs. The one thing you want to know is that Goldman Sachs
01:24:52.460 | faithfully and eternally puts the client first. That is what they say. They have 36% compared
01:25:05.220 | to our two low rated funds, even less, 28% in high rated funds for a negative of 7%.
01:25:11.820 | They are the champion, as it were. They have a very high expense ratio. I will just make
01:25:18.140 | one more observation. You can look at this when you see the charts if you want to. It
01:25:21.860 | is amazing. I went back 10 years, we have been doing this for about 10 years, to August
01:25:26.660 | of 2007, and it is amazing how the top funds with the lowest cost by and large maintain
01:25:34.860 | their position, Vanguard 1, T. Rowe Price 4, TIAA 6, Dimensional 3, Janus 2, American
01:25:45.420 | Funds 5, and JP Morgan, I guess it is 7. No, it is American 7. Schwab didn't mention Schwab.
01:25:56.620 | At the bottom, 10 years ago, Legg Mason ranked 40, now they rank 42. Putnam ranked 50, and
01:26:06.380 | they have leaped up to 45. Goldman Sachs had a really solid improvement there. They went
01:26:13.780 | up from rank 45, did not have an improvement, but a deterioration. Not easy to get worse
01:26:20.140 | when you are at 45 out of 50, but they slipped back to 46.
01:26:26.980 | So you can measure what we are doing pretty well.
01:26:32.060 | Next slide. You win the way we did, and then the question is, how do funds generally do,
01:26:45.340 | beating the market and beating the competition? I am going to try and wrap this up without
01:26:51.060 | being too long.
01:26:53.140 | So the first slide is for the first time this spring, SPIVA, Standard & Poor's Investment
01:27:00.060 | Performance something valuation, for the first time they did 15 years, and here are the results.
01:27:08.600 | In large growth, the index was outperformed by 5%. I will do it the other way around.
01:27:14.380 | The index outperformed 95% of all large growth funds, the proper growth index.
01:27:21.060 | Large core, the index outperformed, looks like 96%, 7%. In large value, the index only
01:27:30.640 | outperformed about 17%.
01:27:34.220 | In mid-cap growth, the index outperformed about 3%. Mid-core the same. Mid-value, 14%.
01:27:46.780 | Only 14% do better, and so on down the line.
01:27:51.660 | So the average of all of those is 7.8%. I am sorry, 78%. And so the index outperformed
01:28:00.900 | 7.8%, right. I got you, thank you. 7.8% outperformed the universe.
01:28:14.540 | So it just isn't a good bet to go with an actively managed fund.
01:28:21.740 | So what do you do? You pick winning funds, right?
01:28:27.660 | Let me tell you a little bit about that. Reversion to the mean, you have heard that before.
01:28:33.100 | What happens to the winning funds after you buy them? We did this test, we have done it
01:28:38.700 | for a lot of different periods, and this is pretty representational of the total, but
01:28:42.980 | we took the highest returns, the highest quintile of returns in the period 2006-2011, and then
01:28:51.020 | compared that fund's rank in 2011-2016. The highest quintile had 14% in the recurred and
01:29:06.260 | in the highest return group, highest quintile, and 14% in the high quintile group, and twice
01:29:12.180 | as many, twice as many funds, more than twice as many actually, no, just about twice as
01:29:18.340 | many, in the low and lowest categories, 27% in 30 years. So we had 28% in the first two
01:29:26.780 | categories that repeated, and 57 funds that went to the bottom of the deck.
01:29:35.580 | And it is a strange parallel, if you go down to the bottom, lowest return, you have 49%
01:29:41.100 | of the winners in the two top quintiles, 24 and 25, and they drop all the way down, rise
01:29:47.840 | all the way down, I'm sorry, drop down to the 30th percentile as losers. So the winners
01:29:54.180 | don't repeat, they revert to the mean and beyond, and the losers do the same thing,
01:30:02.060 | they revert to the mean and do better. So they only have 49% in the top quintile, the
01:30:09.020 | top two quintiles, and 30% in the bottom two. So when you think about the parallelism, for
01:30:15.340 | the highest returns, 28% good, 57% bad, and lowest quintiles, 49% good and only 30% bad,
01:30:26.900 | just the reverse. And if you look at the middle ones, they are pretty much concentrated around
01:30:31.140 | 20, you'll see that number appear a lot. So it's just the way it is. And this is a little
01:30:39.380 | complicated chart, but it bears the same message it's always been. Now, I'm just going to,
01:30:45.620 | I forgot this, we have to do this. Traditional index funds, TIFs again, and ETFs and their
01:30:51.940 | intramural competition. The rise of the index fund, particularly in more recent years, last
01:30:57.300 | 20 years, has been driven by the rise in ETFs. You can see that right here. ETFs have grown
01:31:04.940 | at 35% growth rate, and traditional index funds at only, maybe the right word, a 16%
01:31:14.380 | growth rate, and active funds at an 8% growth rate. So when you look at TIFs and ETFs together,
01:31:23.020 | I don't want to take too much time, but here's the difference. First index mutual fund, TIF,
01:31:31.140 | principles, own the stock market, diversify to the nth degree, minimize transaction costs,
01:31:35.380 | tiny expense ratio, bought to be held forever. Exchange traded funds, principles, pick your
01:31:40.620 | own index, there are only 1,900 now available. Diversify in any sector you choose, lower
01:31:48.140 | your expenses, lower expenses generally, but not very low, like 50 basis points. They operate
01:31:57.420 | at fringe ETFs, very narrowly determined. I think we will skip this next chart, Mike,
01:32:05.980 | in the interest of time, and we will just check this next one and get to really what
01:32:12.260 | I thought was one of the more interesting research events. I was fooling around with
01:32:17.660 | some numbers one day, and I took the growth of the ETF business, and since 2004 to 2016,
01:32:31.540 | you can see a very interesting thing goes on. They have both grown very rapidly, the
01:32:38.500 | TIF and the ETF. But in the ETF, three quarters of it was in cash flow. I'm sorry, I'm going
01:32:48.780 | to correct myself. $800 billion was about half of the cash flow growth, was half of
01:32:58.380 | the increase in assets, and $500 billion from market appreciation, that is performance.
01:33:09.700 | While the numbers were very different for traditional index funds, $800 billion compared
01:33:16.540 | to $500 billion from performance, and $400 billion from net cash flow only half as much.
01:33:23.140 | So what we see there, and we tried this experiment, I will show you a little tiny bit more. What
01:33:28.180 | we see there is the investor return on TIFs in this period was 7.4% a year, and the investor
01:33:35.680 | return, this is ex-dividends, the investor return on ETFs was 4.6%, only a little, a
01:33:45.260 | third less, roughly, and active, it is even better than ETFs. So it all depends on what
01:33:50.460 | you are comparing it with. So we took this further, and did it for each year in the period,
01:33:56.340 | make sure we were doing okay, and just a kind of a test. There is the 7.4 for TIFs, there
01:34:02.100 | is the 4.6 for ETFs. And they correlate very, very highly with the returns you get from
01:34:08.100 | Morningstar, which would be the correlation of 96, the R squared, and 99 is for the TIF.
01:34:16.860 | In other words, that seems to verify that TIFs are not doing nearly as well for their
01:34:23.740 | investors, that ETFs are not doing nearly as well for their investors.
01:34:28.220 | I am going to skip the next couple of charts on future returns, I think you know what I
01:34:31.500 | said about them, they are going to be lower than the past, and so investors are going
01:34:38.020 | to, I am using 4% for stocks, you will see it all in there, 4% for stocks and 3% for
01:34:43.500 | bonds, and so it is not going to be what we have had in the past, I don't think, and investors
01:34:50.820 | will have to save more, you will have to save more to get to your objective, to keep the
01:34:54.420 | objective the same, or reduce your objective, and find that low costs are more important
01:34:59.020 | than ever. Now, I am going to close with words to live
01:35:04.340 | by, Matthew, 21 AD, no man can serve two masters, for either he will hate the one and love the
01:35:22.860 | other, or hold to the one and despise the other. That is the problem that Vanguard tried
01:35:27.660 | to solve by only having one master, the bond shareholder and not the investment advisor,
01:35:32.340 | and it has worked out pretty well. Adam Smith, the fundamental principle of economics,
01:35:40.140 | the interest of the producer ought to be attended to only so far as it may be necessary for
01:35:44.660 | promoting that of the consumer. That maxim is so perfectly self-evident that it would
01:35:50.040 | be absurd to attempt to prove it, the interest of the consumer must be the ultimate end and
01:35:56.540 | object of all industry and commerce. Paraphrasing it in my own words, the interest of bond shareholders,
01:36:03.180 | that is, consumers, must finally triumph over the interest of fund managers, that is to
01:36:09.140 | say the producers. And then a final quote, which is a little
01:36:13.940 | philosophical, and before we get to that, I want to say I have gotten a little philosophical
01:36:22.700 | in my age, and I think a lot about a place in history, which is where we started today,
01:36:31.860 | and what I really want to accomplish, what all this noise about my accomplishments that
01:36:38.300 | I have given you this morning means, and it probably doesn't mean very much, to be honest
01:36:42.380 | with you, and nice but not necessary, but I think, curiously enough, I summed all this
01:36:52.620 | up in 1973 A.D. Notice the similarity in years as we go through these. And this was the dedication
01:37:01.540 | of what was then the Wellington Management Building in Valley Forge, first move out of
01:37:05.300 | the city, and I am going to read you this in its entirety.
01:37:11.200 | Today, America is again being tested, and it is hardly an exaggeration to say that every
01:37:15.940 | institution in our society, from the White House on down the line, is being challenged,
01:37:21.580 | challenged to reassess its goals, its values, its contributions to our society. The White
01:37:28.300 | House was an issue even then, and here we are today. All those years later, 45 years
01:37:33.740 | later, whatever, 40 years later, despite the billions of dollars entrusted to us, our company
01:37:40.620 | is small and fragile and perhaps even unimportant in the vast context of space and time. Nonetheless,
01:37:48.120 | by doing our work as best we can, we can be better and stronger as individuals and make
01:37:53.380 | this ambitious and interesting organization, which was about to get more ambitious and
01:37:57.540 | more interesting, better and stronger too. Each of us can, in a small way, be a positive
01:38:02.460 | force in helping, typo, to make this land just a little bit better. In short, I believe
01:38:09.400 | even one person can make a difference.
01:38:12.700 | So what caught my mind, this came to my mind when we were talking about, when I was thinking
01:38:17.940 | about what I want to leave behind, and I looked at, I mean, I certainly profoundly believe
01:38:23.620 | in the importance of the individual, but I also looked at the fact that we are all important
01:38:28.600 | in the vast context of space and time. Eve and I were watching 60 Minutes on CBS about
01:38:36.860 | a month ago, and they had a program part, section, on the universe. Here is our part
01:38:48.420 | in the universe. One, we are part of the Milky Way galaxy. It is 13.6 billion years old.
01:38:58.820 | Its diameter is 150,000 light years. It has 200 billion stars and 100 billion planets.
01:39:09.260 | How important are we in all that? And then the punchline, our galaxy is but one of two
01:39:18.380 | trillion galaxies out there. That is how important I feel at this moment. Thank you all very
01:39:24.780 | much.
01:39:25.780 | [Applause]
01:39:25.780 | Thank you, Jack.
01:39:49.860 | [Applause]
01:39:50.860 | Thank you.
01:39:50.860 | [Applause]
01:39:51.860 | Thank you.
01:39:52.860 | [Applause]
01:39:52.860 | Thank you.
01:39:53.860 | [Applause]
01:39:54.860 | Thank you.
01:39:54.860 | Thank you.
01:39:55.860 | Thank you.
01:39:56.860 | Thank you.
01:39:57.860 | Thank you.
01:39:58.860 | Thank you.