Bogleheads® Conference 2018 - John Bogle Q & A

00:00:00.000 | One of the real highlights of our annual conference is that the Bogleheads get a chance to have

00:00:10.320 | their questions answered directly by Vanguard founder Jack Bogle.

00:00:15.440 | This year's moderator of the Q&A with Jack is a retired Mobil Oil Corporation human resource

00:00:21.080 | executive.

00:00:22.080 | He discovered the Bogleheads in 2001 and he and his wife Patty attended their first Bogleheads

00:00:28.980 | conference in Denver in 2004.

00:00:32.560 | They've both been active in the Bogleheads community since that time.

00:00:36.520 | They live in the Northern Virginia area and started the Washington, D.C. area Bogleheads

00:00:41.160 | local chapter.

00:00:42.720 | Please welcome my good friend and conference teammate, Ed Rager.

00:00:53.060 | Please give another very warm welcome to our very special guest of honor, Mr. Jack Bogle.

00:01:06.860 | Now, without further ado, let's get started with the Q&A.

00:01:22.020 | Take it in.

00:01:23.020 | Just let me say one quick thing.

00:01:25.840 | I spoke at the NASD, I had a big, long speech, NASD, National Association of Security Dealers,

00:01:32.060 | in Washington about a decade ago, and when I was introduced, they gave me a standing

00:01:35.740 | ovation.

00:01:36.740 | I looked at the audience and said, "Why didn't you say that until after I spoke?"

00:01:47.360 | We know this crowd loves you, and that's why we're here.

00:01:52.100 | So you'll probably get another one before the day's out.

00:01:56.420 | Okay, so I've got a number of questions, and we'll get to as many of them as we can.

00:02:03.260 | This first one is from an attendee named Fred Beery.

00:02:06.780 | He says, "The market has been up for years, and I have gained more than I expected.

00:02:13.340 | In setting up a donor-advisor fund for charitable giving over the next, say, 10 years, what

00:02:19.660 | allocation would you suggest between U.S. equities, bonds, dare I ask international,

00:02:26.980 | to maximize the returns for the charities I give to?"

00:02:31.380 | Well, first of all, if you're going to have a balanced program, which is what you laid

00:02:36.420 | out there, you're not going to maximize your return.

00:02:39.740 | The best way to maximize your return is to, in the long run, maybe not from here, is to

00:02:45.260 | buy the S&P 500 and leverage it.

00:02:49.020 | You don't want to do that.

00:02:50.020 | It's a prudent thing, so the real question is not to get maximum returns, but what is

00:02:54.180 | the best way to get prudent returns?

00:02:57.380 | I would stick with the balanced index fund formula of 60% stocks and 40% bonds, and maybe

00:03:07.220 | for a program like this, 65%, but you really can't make an argument over 65 or 60, because

00:03:13.900 | nobody knows, and God knows Bogle doesn't know.

00:03:17.180 | So should international non-U.S. be in that 60%, I don't think you need it, and I don't

00:03:23.940 | think the rest of the world will do as well as the U.S., but I'm wrong so often in my

00:03:27.760 | new book.

00:03:28.760 | I spend more time talking about the things I did wrong than the things I did right.

00:03:32.700 | So it's a matter of judgment, and I'd say maybe to honor the principle, let's call it

00:03:41.380 | Taylor's principle of three-fund portfolio, you might have 10% to 20% of the stock position.

00:03:47.660 | No more than that in non-U.S. stocks.

00:03:50.660 | Okay, thank you.

00:03:52.780 | This next one is from Adam Manwaran.

00:03:57.740 | Since attending the Bogle Heads Conference for the first time last year, I've been quickly

00:04:02.780 | moving my asset allocation toward Taylor Laramore's three-fund portfolio.

00:04:08.020 | Recently, I've been lured into the Vanguard Active Alpha Seeking ETFs.

00:04:15.820 | After rereading your article on reversion to the mean, am I just chasing my tail with

00:04:21.180 | that active ETF bet?

00:04:24.740 | Yes.

00:04:26.540 | I think that answer is fairly clear.

00:04:34.720 | So Adam, listen up.

00:04:38.220 | This next one is from Trey Parrish.

00:04:42.100 | As a retiree in mid-retirement, given your lower projections for stock market returns

00:04:48.700 | over the next 10 years, should I reduce my stock exposure in my portfolio since CD rates

00:04:55.940 | are rising and becoming more attractive, and how can I determine the appropriate stock

00:05:02.220 | allocation?

00:05:03.220 | Well, you know, I've said before this is a really hard time to invest.

00:05:08.020 | I would say as a general principle, with a stock market at these levels, it is probably

00:05:12.740 | a good idea to, as Baron Rothschild said, to sell to the sleeping point, to sell stocks

00:05:19.380 | where you're not worried about it.

00:05:21.140 | Maybe a 10% percentage point reduction in the stock position, maybe not.

00:05:25.700 | What makes this time so different is that bond yields are so low, and they're going

00:05:30.380 | up admittedly, the treasury is up to, I think someone said 3.2%, 25-year treasury, 30-year

00:05:36.300 | treasury, and the stock market is 1.8, so you get a higher yield, but these are not

00:05:41.660 | really super yields.

00:05:43.820 | And so it's really not a question, an easy question to answer, because it depends not

00:05:51.540 | only on your ability to withstand a market decline, your financial ability, but on your

00:05:58.180 | emotional ability to withstand a market decline.

00:06:00.860 | So you're asking me to do not only a financial analysis, but a psychological analysis, which

00:06:06.660 | I'm not prepared to do on the information contained in one or two sentences.

00:06:12.020 | But I would say the biggest mistake investors make is when they think the market is high.

00:06:20.060 | They get out.

00:06:21.060 | They go zero.

00:06:22.060 | That is the dumbest thing you can possibly do, because there's no certainty in this.

00:06:26.220 | So in my book, which I think, since I've signed so many, I don't feel badly about

00:06:32.060 | blacking it a little bit, The Little Book of Common Sense Investing, and I say never

00:06:37.100 | have less than 25% of inequities, and never more.

00:06:40.460 | There are exceptions to both of those, but I would kind of stick to that.

00:06:44.020 | Just make sure you've got a decent position.

00:06:46.260 | And I would think today would probably be a time to make a very, if this is the way

00:06:50.700 | the investor feels, this makes you more comfortable, makes you sleep better, to do some kind of

00:06:56.460 | a 5 or 10 percentage point reduction.

00:06:59.340 | So if he's at 65%, to go to 60 or 55.

00:07:07.260 | But there's no-- I don't know how to get across.

00:07:09.300 | People ask me these kinds of questions all the time.

00:07:11.320 | There's no certainty about this.

00:07:14.180 | You could be so terribly wrong that you don't want to do anything too big.

00:07:20.900 | But in general, I'd say if you're at 60, 40-- and I happen to be 50/50 myself.

00:07:26.820 | I told you that yesterday.

00:07:28.340 | And I spent half my time wondering why I have so much in stocks, and the other half wondering

00:07:32.780 | why I have so little.

00:07:35.020 | The investor's dilemma, I think I call it.

00:07:38.020 | But it gets to-- presumably, the financial ability to withstand risk is there, and the

00:07:43.340 | emotional ability there.

00:07:44.980 | You have to-- the investor has to ask for himself.

00:07:47.860 | But if you're really bothered, really scared, do something.

00:07:51.620 | I mean, life is too short.

00:07:54.580 | But are there precise answers to the question?

00:07:56.660 | No.

00:07:57.660 | There aren't precise answers to anything in the field of investing.

00:08:02.460 | OK.

00:08:04.220 | This is from Duncan Rankin.

00:08:07.420 | If all of your portfolio is inside Roth IRAs, is it better to use Taylor's three-fund portfolio

00:08:15.420 | or use an equivalent target date or life strategy fund?

00:08:22.340 | Nobody knows.

00:08:25.020 | Nobody knows.

00:08:26.020 | You know, the target date is an interesting kind of an idea.

00:08:31.620 | Your equities go down as your age goes up.

00:08:35.680 | Your bonds go up as your age goes up.

00:08:38.420 | And Taylor's three-fund portfolio is presumably a buy and hold.

00:08:42.980 | And that could easily do better, but could easily do worse.

00:08:47.620 | There's just no way that I could think of a balanced portfolio in any event.

00:08:52.980 | And there's no way that I could predict which will do better.

00:08:57.060 | But if it were me-- we are a funny, funny crowd, these investors, we investors.

00:09:03.460 | I would do the simple portfolio rather than the complex portfolio.

00:09:07.820 | Now that means you don't have as much fun game-playing.

00:09:12.100 | It's kind of boring to have all your money in the balanced index fund.

00:09:16.640 | What do you do?

00:09:17.640 | You don't look at it once a year, maybe, and take it from there.

00:09:23.260 | So there's just kind of, as the old saying goes, how many angels can dance on the head

00:09:29.700 | of a pin?

00:09:31.060 | And that's how much you should have in one or the other.

00:09:33.740 | I just can't answer the question.

00:09:37.300 | This is from Merrill Moore.

00:09:39.660 | What is the single best piece of advice or lesson that you want to pass on to your heirs?

00:09:53.100 | I'm thinking.

00:09:56.140 | Well, that's a very hard question, because getting-- when you get into-- I presume investment

00:10:04.620 | advice or not.

00:10:05.620 | Just say a single best piece of advice or lesson.

00:10:10.260 | Well, obviously, the best single advice is never lose your humanity.

00:10:20.620 | Be a good human being.

00:10:22.300 | Now presumably, this is actually aimed at an investment-- what do you do about investing?

00:10:28.060 | And a single word I'd say, minimize costs.

00:10:37.580 | And start early.

00:10:38.580 | That's the second piece of advice.

00:10:41.940 | And never stop your regular investment program, no matter whether times are good or bad.

00:10:48.180 | I mentioned low cost.

00:10:50.420 | Be diversified.

00:10:52.180 | And now I've gone over the single best piece of advice.

00:10:59.180 | It all counts.

00:11:01.340 | This is from Dion Stams.

00:11:03.780 | I like the statement that, quote, "In theory, practice and theory are the same.

00:11:10.140 | But in practice, they are not," end of quote.

00:11:13.700 | Do you have advice for us managing our portfolios on the difference between theory and practice?

00:11:20.020 | Well, let me say a couple of things about that.

00:11:25.620 | I read a lot of the Financial Analyst's Journal articles, and a lot of the Journal of Portfolio

00:11:32.060 | Management articles.

00:11:34.340 | And I can understand about 15% to 20% of them.

00:11:38.980 | They've got all these Greek formulas, and they make things very complicated.

00:11:45.420 | And they're looking backward always.

00:11:48.380 | So they're doing a lot of data mining.

00:11:50.740 | If you look backward and see something that doesn't work, throw it in the ash can and

00:11:54.420 | find something that does work.

00:11:55.940 | And believe me, if you do enough data mining, you can find a lot of things that work in

00:12:02.220 | the past, that have worked in the past, I should say.

00:12:05.900 | So a lot of the theory out there, I think, is cast in a very misleading and foolish light.

00:12:11.980 | It doesn't allow for cost.

00:12:14.560 | It doesn't talk about what strategies you should have, what you should do with that.

00:12:19.780 | And there's this backtesting, as it's called, that leaves me dubious about theory.

00:12:26.980 | Indeed, I wonder if anybody who writes these academic theory articles has ever followed

00:12:32.980 | his own advice.

00:12:35.100 | Think about that.

00:12:37.380 | And so, practice, I would favor over theory.

00:12:43.660 | But if you want to tell me that theory, gross return minus cost equals net return, I would

00:12:49.900 | follow that.

00:12:50.900 | Is that a formula?

00:12:51.900 | Is that a theory?

00:12:52.900 | Is that a practice?

00:12:53.900 | It's certainly a practice, and it's certainly a theory, too.

00:12:58.940 | There's this old saying about, if it works in practice, why the heck doesn't it work

00:13:03.900 | in theory?

00:13:05.900 | An interesting question.

00:13:12.420 | I think there's much too much, much too much, kind of the search for the holy grail in investing,

00:13:19.860 | the search for the consistently market-beating formula, without the knowledge that, as far

00:13:26.020 | as I know, in human history, the holy grail does not exist.

00:13:30.180 | So you don't want to spend an awful lot more time looking for it.

00:13:33.740 | Okay.

00:13:34.740 | Next, from Nuolf, I put my glasses on, Nuolf Fellenbaum, I'm sorry for the name-pronouncing.

00:13:45.620 | At what age did you introduce your kids to financial literacy concepts, and what methods

00:13:50.980 | did you find most effective?

00:13:53.620 | Well, I did it very differently.

00:13:58.080 | First, you can't answer that question very well, because all kids are different, and

00:14:05.220 | I'll give you an example of that.

00:14:08.460 | My oldest son happens to be a hedge fund manager, I mean a market-neutral hedge fund manager.

00:14:14.700 | He does very well for his clients and himself, unbelievably, because his fees are very low.

00:14:21.100 | He was kind of restless and not fun, and not getting much interest.

00:14:24.220 | This is when he was, say, 16, and not getting much interest in the world.

00:14:28.460 | So I said, "Why don't you take a look at the stock market, John, and I'll pick out a couple

00:14:32.780 | of stocks for you.

00:14:33.780 | You can pick out a couple of stocks that you like, and follow them and see what happens.

00:14:37.940 | We aren't going to buy them, just put them on paper."

00:14:41.140 | So he picked out about four stocks, and I didn't know how successful that advice was

00:14:45.620 | until I went into his bedroom one evening, and there they were all on little letters

00:14:50.260 | on his lampshade.

00:14:53.020 | So it was a way to get somebody interested in investing, and I detest these contests

00:15:05.100 | that schools and colleges have among kids to see who can pick the best portfolio and

00:15:10.420 | all that, because it suggests that that's the way you should invest, but that's just

00:15:14.620 | a game.

00:15:15.620 | It doesn't have anything to do with real investing.

00:15:18.100 | So at what age is a kid able enough, and all children are going to be different, able enough

00:15:24.340 | to understand the essential message that I give?

00:15:29.740 | And I should tell you that for 25 years, so let's use that one, probably the oldest child,

00:15:37.660 | well, the children probably, they're now in their, well, two of them at their 60th birthday.

00:15:46.180 | God, am I that old?

00:15:51.100 | So probably when they got into their early 20s, late teens, I told them I was going to

00:15:57.300 | put some money away for them every year, and I was going to put it in Vanguard, Balanced

00:16:00.860 | Index Fund, and that's a, and part of it's an administrative convenience.

00:16:08.860 | You know, I've got six kids, 12 grandchildren, how many great-grandchildren, I guess six

00:16:23.980 | great-grandchildren, is that right, Mike?

00:16:30.280 | I told you I relied on Mike for a lot.

00:16:34.460 | And so probably in their late teens or 20s, I told them what I was going to do was put

00:16:39.220 | it in a Balanced Index Fund, told them what that meant, wouldn't go up as much as the

00:16:43.420 | market, but it wouldn't go down, and you didn't have to worry about it.

00:16:47.340 | And then every once in a while a news clipping would come along, and I used one of them in

00:16:51.060 | my book, Little Book of Common Sense Investing, it showed how well a balanced fund had done,

00:16:55.780 | Balanced Index Fund, which isn't very sensational at all, but it had beaten the college endowment

00:17:00.940 | funds, I think it's very close to the chart that Gus Sorter showed you a little while

00:17:04.540 | ago.

00:17:05.820 | And so I said to Ian, just don't do anything, I put it away, it's in trust, they won't

00:17:11.140 | get it for, I guess like work, I can't remember, no, they don't even get it then, then their

00:17:15.900 | parents become the trustees, and then they can draw a capital, if they want to buy a

00:17:20.860 | new house or something like that, or put a down payment down on it.

00:17:25.020 | But you would be amazed at, I won't give you the numbers, but putting a large kind of gift

00:17:31.860 | that I can afford to do, every year, year after year, for 25 years, my, these damn kids

00:17:41.420 | are rich!

00:17:45.300 | And I don't give them valuations, I don't talk about it, I want them to make their own

00:17:50.020 | way in financial life, and when I cork, they're going to be very, very happy grandchildren,

00:17:58.340 | but I won't be there to hear the laughter, I guess, I'm not sure.

00:18:08.460 | Steve Floyd wants to know if the U.S. stock market suddenly went into an unexpected broad

00:18:15.240 | market decline of greater than 25% and still heading south, what would you tell us to help

00:18:22.820 | us stay the course?

00:18:24.300 | Well, the first thing I'd say was, who the heck knows whether it's still heading south?

00:18:30.820 | It may have stopped going down at 25%, and a lot of them do stop at the 20-25% range,

00:18:38.180 | but you know, it's an opportunity to buy more, and certainly, you know, there are a lot of

00:18:43.780 | funny ways, it's very hard to give advice on these kind of things, but the one piece

00:18:48.580 | of advice I would categorically give to everybody, for God's sake, don't stop a program of regular

00:18:53.900 | investing because the market goes down, you're killing the whole value of dollar cost averaging,

00:19:00.420 | and it may go down for a few more years, who really knows, but so much the better when

00:19:04.460 | you're putting money in every month, because it will come back, I think we're in a little

00:19:09.620 | dangerous territory now, as I tell people, and 25% drop, 35% drop, it's easily possible,

00:19:18.380 | it's always possible, just because markets are markets, so I think the questioner is

00:19:23.500 | right to say, you know, what should I do, and I guess the answer generally is, don't

00:19:30.420 | do something, just stand there.

00:19:34.020 | >> This is from Kathleen Ryan, what was the best advice you received from each of your

00:19:41.340 | parents?

00:19:44.180 | >> That was a long time ago, you know, I should remember, but I, you know, they always wanted

00:20:02.420 | me to do what was right, and we placed high value on telling the truth, which would be

00:20:08.140 | kind of an integrity thing, we were taught to behave like honorable human beings, but

00:20:16.980 | I can't remember any specific piece of advice that we got.

00:20:21.620 | >> Well I would think that everyone in this room and around the world would agree that

00:20:26.380 | you've done every one of those things.

00:20:28.980 | >> I hope so, I try my best.

00:20:33.740 | >> Yvette Sirlucho, again, forgive me on the pronunciation, what are your thoughts on ways

00:20:41.300 | a new retiree can protect their portfolio from inflation?

00:20:46.820 | >> Well, protecting yourself from inflation in the stock market is a very difficult thing,

00:20:55.500 | there is very little correlation over, even over intermediate term periods, with stock

00:21:00.940 | prices and inflation.

00:21:02.740 | There is a direct correlation, a very high correlation, between dividend payments and

00:21:08.980 | inflation, and those lines almost overlap each other, curiously enough, I think I had

00:21:14.060 | one of those charts in that ancient Princeton thesis, but dividends are highly correlated,

00:21:21.540 | and I think we should spend more time thinking about dividends rather than market values,

00:21:28.180 | because market values are all over the place, and dividends are pretty reliable to go up

00:21:32.900 | a little bit each year, like inflation is.

00:21:36.020 | And now, someone mentioned the other day, I think it was Jonathan, maybe, that in 19,

00:21:42.460 | what was that year, 1979 or 80, dividends went down 22% on the S&P 500, that's an extraordinary

00:21:51.340 | event.

00:21:52.340 | It was the biggest decline in dividends since 1929-1933, so it just doesn't happen over

00:21:59.260 | and over again.

00:22:00.260 | And in that case, what was most extraordinary about it, it didn't reflect a general drop

00:22:05.100 | in dividends, it reflected the elimination of dividends by almost all the banks.

00:22:10.420 | They had to stop paying their dividends, so I wouldn't give that much credence.

00:22:13.940 | I think dividends are fairly secure, and you should be worried not about the value of your

00:22:19.900 | estate, but about the income-producing capacity of your estate or your retirement plan, because

00:22:27.900 | that's where you go out, once a month you go out to the mailbox and get your mutual

00:22:32.420 | fund dividends and your Social Security check, and then you come home and have a nice dinner,

00:22:36.540 | live in a nice house, whatever else you want to do.

00:22:40.540 | So we should focus, I really believe this so strongly, we should focus more on the inherent

00:22:47.220 | value of our investment program than on the market value, because markets are crazy things,

00:22:52.420 | and that's what makes investing so difficult, and if you want to look at it that way, so

00:22:56.580 | much fun.

00:23:01.540 | This is from John Allen, "I would like to know more about you as an individual.

00:23:08.020 | What do you like to do that is not related to investing, and what places do you and your

00:23:13.740 | family find most enjoyable to visit?"

00:23:18.420 | Well, I hate those questions, because I'm in fact kind of a jerk, and that is, I have

00:23:28.540 | gotten so wrapped up in my career and my crusade and my mission that I am not nearly as well-balanced

00:23:38.340 | a human being as I should be.

00:23:41.660 | I try and read three or four good books a year, when someone that has a good education,

00:23:47.660 | which I certainly got, should be reading a dozen books a year.

00:23:51.460 | I do read the New Yorker, that's my one claim to omniscient, omnibus kind of reading.

00:23:58.740 | It's a great magazine, greatly written, and great subject matter, you just can't beat

00:24:03.220 | it.

00:24:04.220 | But a few books a year, and I'm talking about good books, I sometimes throw out a junk book.

00:24:09.500 | I read The Woman in the Window, that popular book a few years ago.

00:24:12.140 | I'm still not quite sure what happened at the end, but of course now I'm not the man

00:24:22.180 | I used to be, and don't say, "No, you never were."

00:24:27.440 | But I can't do much in the way I used to play a lot of tennis, squash, had to pick up golf

00:24:35.180 | after I had my first heart attack, which was when I was 31 years old, I guess that was

00:24:40.660 | 1960, and so I had to give up the racquet sports, and then I finally found a doctor

00:24:45.420 | who said, "Get back to racquet sports," which was nice, although it turned out to be something

00:24:50.540 | I shouldn't be doing with my peculiar form of heart disease.

00:24:53.900 | I actually collapsed once on a squash court and died, and my opponent didn't know what

00:25:01.180 | to do.

00:25:02.180 | You may have heard this story, ran to the locker room, the guy said, "Call for help,

00:25:07.780 | Mr. Fogel is down, I think he's dead," and the guy said, "Well, yeah, we don't really

00:25:13.180 | have a system for that."

00:25:18.040 | And so the guy came back and went, "Clunk, clunk, clunk," that's already good in my

00:25:25.620 | heart, and that turns out to be quite a brilliant thing to do, particularly in that case, because

00:25:30.420 | it actually started.

00:25:31.420 | When the emergency people got there, they said, "Do you think you need to go to a hospital?

00:25:41.300 | You can't make this stuff up, right, Mike?"

00:25:43.340 | And I said, "Yeah, probably a good idea."

00:25:49.980 | So I can't do the athletic things, I have a lot, you can see it here, I can't do even

00:25:55.140 | much walking now, I'm very shaky in my balance, I'm taking some physical therapy, I hope it

00:26:00.020 | will get better, but time is not on my side.

00:26:05.500 | But I think my kids would tell you I've been a good father, and you can be a good father

00:26:15.340 | in my fashion by, I always thought my job was not to lecture the kids, but to show them

00:26:22.180 | how I behaved.

00:26:24.620 | So they weren't saying when something happened, "You told us not to do that, daddy."

00:26:30.620 | We don't get much of that because I tried to live to the standards that I would have

00:26:33.740 | lectured them on.

00:26:35.500 | And so we're close in a lot of ways, children, grandchildren, I'm a very happy, nicest thing

00:26:42.380 | for a family is to have the cousins all interact together, and we don't do that 100%, we do

00:26:48.100 | it a very high percentage, we all get together and have great times as a family.

00:26:53.060 | So I don't feel too guilty.

00:26:54.860 | But the prime reason I was able to be a less than perfect father, I don't know how to explain

00:27:03.540 | this, but you get consumed with a mission, and you also get a reputation.

00:27:13.020 | And sometimes I think half of my life is spent trying to live up to my reputation, and this

00:27:18.640 | I think is not uncommon at all.

00:27:20.780 | It's sort of like Adam Smith's Invisible Spectator, is it Invisible?

00:27:27.200 | Impartial Spectator, thank you, I depend on him for everything.

00:27:30.620 | Impartial Spectator, you read about that in some of my works, and you'll read a little

00:27:34.420 | bit about it in my new book.

00:27:36.700 | But I have a fantastic wife, she was a great mother, is a great mother, great grandmother.

00:27:45.540 | She's a complete workhorse, and now she has, she's about five years younger than I am,

00:27:52.160 | and now she has the task of taking care of this poor doddering old fool.

00:27:58.220 | And it's hard for me to get around the house even, so she really steps up to the plate

00:28:03.260 | and does that too.

00:28:04.740 | One more task, she's in charge of me and the dogs.

00:28:11.020 | So I don't mean to make this too apologetic, there's an old saying, if you had to do over

00:28:19.460 | again would you do it differently?

00:28:20.820 | No, why the hell would I do it differently?

00:28:24.660 | I'm happy with what I've done, in a small way proud of what I've done, and a lot of

00:28:31.260 | it's because of people like you in this room.

00:28:34.940 | People have been helped by my simple ideas, and I'd say my high moral values.

00:28:43.540 | You mentioned your book, there was a question, we're eager to read your new book, is it coming

00:28:49.300 | out in November?

00:28:52.700 | I think so, it's really funny, if you can stand a little by play here, Mike has been

00:29:00.620 | the lead horse in trying to get all the proofs done and all that.

00:29:05.900 | We got the final proofs and I looked at them over the weekend, a couple of weeks ago, and

00:29:13.940 | we only had four days to look at them.

00:29:17.300 | I decided that chapter 17 should not be chapter 17, it should be three different chapters,

00:29:23.860 | 17, 18 and 19.

00:29:26.260 | So I separated the three, rewrote the third, and brought it in on Monday morning, and I

00:29:32.180 | thought Michael was going to faint, and I thought the editor of Wiley was going to die,

00:29:38.900 | so I turned that over to Mike to deal with it.

00:29:43.700 | It's a better book because of it, but it didn't hold up the publication, the reason I mention

00:29:49.540 | it here.

00:29:50.540 | So it should be out around November 15th, the note on Amazon says November 29th, that's

00:29:55.780 | a special distribution problem for Amazon.

00:30:01.420 | I read you that part that I like so much, you, me and the universe, I'm sorry, the universe,

00:30:06.340 | you and me, no, it was you, me and the universe, got my alphabet wrong, wonder why, so there's

00:30:16.820 | a lot of moralizing in it, and increasingly I find that life is kind of simple, draw on

00:30:27.540 | your humanity, try and get the hell out of this world as a decent human being, and you've

00:30:36.020 | been lucky in your education, in your family, the family that I grew up with and the family

00:30:44.180 | that I have now, and have also had a career that's amounted to more than nothing.

00:30:50.580 | I don't know, I shouldn't be satisfied, and I will never be totally satisfied, but I feel

00:30:56.040 | pretty good about my life so far, so far.

00:31:00.700 | Okay, Bob Ronan wants to know, "Do you think bobbleheads are too thrifty so that they end

00:31:10.220 | up leaving too much money for someone else to spend?

00:31:14.540 | Should we splurge a little more?"

00:31:16.020 | Say that once again, I missed the middle.

00:31:19.000 | Do you think we end up leaving too much money for someone else to spend?

00:31:24.220 | Should we splurge a little bit more?

00:31:28.500 | Well you asked that question of the cheapest guy in the United States.

00:31:35.100 | I hate shopping, I don't even go into a store, I get most of my stuff, including everything

00:31:41.680 | I'm wearing at this moment, from L.L. Bean, because they have like a little catalog, and

00:31:49.100 | you just check off a few things, or call them by phone, and they send them to you, it's

00:31:53.780 | kind of wonderful, and they're not very expensive, but everything, I mean, I give

00:32:01.780 | a what, I don't know if I really should say this, but I will tell you it's the truth,

00:32:06.020 | I might take a couple of families out to dinner, and I get worried about the bill, do you really

00:32:13.100 | have to have steak, what's the matter with chicken?

00:32:15.980 | No, I don't say that, but I think that.

00:32:22.860 | You really need a salad course, you have a nice big dinner, what's this about dessert?

00:32:29.700 | And yeah, I can give a very large donation to a charity, and not even think about it,

00:32:36.060 | not even think about it, so that's kind of weird, but it's a lot more fun to give away

00:32:41.820 | to people that have less than you do, than getting accustomed to a high way of living,

00:32:50.180 | going out for dinner, for example.

00:32:52.580 | We like to sort of, although we have this nice place in Lake Placid, very nice, we've

00:32:57.460 | been there for 50 years now, and bought by my wife's parents, and if I ever say to the

00:33:04.220 | kids up there, would you like to go out to dinner tonight, they always say, it's nicer

00:33:09.420 | than it is here, and we don't go out for dinner, and no place on earth nicer than that.

00:33:16.080 | We also had multiple questions from people out on the Boglehead website that weren't

00:33:23.060 | able to attend, and I thought I wanted to mix some of those into the questions as well.

00:33:29.400 | Start off with one, what major changes or trends do you foresee coming in the next decade

00:33:36.180 | or two?

00:33:37.900 | Well, I'll give you, with reasonable brevity, the three that I write out of the book.

00:33:46.020 | Chapter 17 is now part two, with three chapters, and the part three of the book is called The

00:33:57.020 | Future of Investment Management, and the three chapters are, number one, the mutualization

00:34:04.140 | of the mutual fund industry, and there's no way that at some point other firms will adopt

00:34:13.260 | the Vanguard shareholder first strategy.

00:34:16.620 | They may not want to, but when costs get driven down and up, when the directors wake up to

00:34:21.900 | paying huge fees for bad performance, it will finally happen, and I do tell the story in

00:34:28.620 | there of my two big attempts to mutualize.

00:34:31.980 | I tried to try to mutualize Putnam, and I tried to mutualize a subsidiary of IBM that

00:34:38.180 | ran their money, and in both cases, I failed, but on the other hand, you're not out until

00:34:44.220 | you have three strikes, and that's only two.

00:34:47.180 | So I believe that the industry will be forced economically to run itself for the fund shareholders

00:34:53.620 | and not for management shareholders.

00:34:56.180 | That's number one.

00:34:57.740 | Number two is the fight to save the S&P 500 index.

00:35:03.420 | There are all kinds of forces against it, and it's, in a sense, its own worst enemy.

00:35:09.180 | It's so successful that assets are concentrated, and the index funds own very large portions

00:35:16.340 | of every company in America and pretty much around the world, and for U.S. companies,

00:35:23.260 | Vanguard owns, I think, around 8%, BlackRock owns almost 8%, that's 16, I think I used

00:35:29.580 | these numbers earlier, and State Street about 4%, just those index funds, and that's 20%,

00:35:36.340 | and if you throw in American funds, they probably own 3%, and then you go way down from there.

00:35:41.620 | But the concentration of governing power, the first issue is the number of competitors,

00:35:52.340 | like should you own all seven airlines, and a very serious attempt to say that no mutual

00:35:57.380 | fund index or otherwise, but it applies mainly to the index fund, can own more than one company

00:36:01.900 | in a given industry.

00:36:02.900 | I talked about this briefly the other day, and that is a fight that somebody better be

00:36:09.980 | making.

00:36:10.980 | I'm doing it now myself to say it, because I think by commons agreement, the S&P 500

00:36:19.700 | index fund that we started in 1975 was the greatest advance for serving investors in

00:36:27.220 | the history of finance.

00:36:28.220 | It seems a little broad, but nobody else can think of any other, and so we cannot let that

00:36:34.660 | go, but there may be things that have to happen, because the other part of the problem, and

00:36:39.860 | that is concentration of voting power, and there's an article by Dr. John Coates, professor

00:36:48.020 | of Harvard Law School, who says, "Do we really want a country where 12 people, 12 individuals

00:36:54.180 | control the entire corporate America?"

00:36:57.980 | I think he's wrong.

00:36:58.980 | It's more like 6 that are going to end up here, not 12, and he says 12 is just a number

00:37:06.220 | he picked out of the air, but a very small number of individuals, the chief executives

00:37:10.980 | of big money management firms, are going to be able to run corporate America unless something

00:37:15.660 | changes.

00:37:17.580 | Something will change.

00:37:18.580 | There will be change in governing responsibilities, maybe change in the law.

00:37:23.860 | Right now it says that no mutual fund can own more than 10% of any security, voting

00:37:32.420 | stock of any company, but it only applies to the mutual fund, not to the complex, so

00:37:38.020 | it eats the law very easy to get around, which gets me to the third part of the third issue,

00:37:46.900 | which is what I call in the book the Investment Company, the Financial Institutions Act of

00:37:53.660 | 2030, a number picked out of the air, and that is the Investment Company Act is written

00:38:00.940 | basically to regulate closed-end investment companies, and it doesn't regulate institutional

00:38:06.380 | investors.

00:38:07.380 | It regulates mutual funds in incremental ways.

00:38:13.580 | Mutual funds were never the focus of that act, so they were things that were designed

00:38:17.140 | for sort of Procrustean bed, things that were designed for closed-end funds were applied

00:38:23.860 | to open-end funds, and it also relates to this litany of problems.

00:38:30.860 | It relates to a mutual fund.

00:38:32.860 | Well, this isn't a mutual fund, because it was in 1940.

00:38:37.380 | Most people had just one fund, and now people have a lot of funds.

00:38:42.820 | The regulatory unit should be the mutual fund complex or the management company and not

00:38:47.740 | the mutual fund itself, in my opinion, so that will be a big change.

00:38:52.420 | It's going to happen.

00:38:53.420 | All these things are going to happen, and I can't tell you why.

00:38:57.340 | I can't tell you how, and I certainly can't tell you when, but I can guarantee you, you

00:39:02.700 | younger people in the room who will be here to see it, mark my words.

00:39:08.980 | Okay.

00:39:10.460 | Thank you.

00:39:11.460 | Jack, do you think the market has become more efficient than it was 10 or 20 years ago or

00:39:17.740 | less efficient?

00:39:20.180 | I believe the market is precisely as efficient as it was 70 years ago, and I picked that

00:39:27.260 | 70 years for a reason, and that is I showed the one in my proposal to start an index fund.

00:39:35.660 | I showed directors that the performance of the average mutual fund, they were all large

00:39:40.260 | cap funds then compared to the S&P 500, and the mutual fund lost for the S&P 500 won by

00:39:50.660 | 1.6% a year.

00:39:51.660 | The article I wrote, which I mentioned to the Financial Analyst Journal about index

00:39:56.000 | funds, I brought it up to date to the previous 35 years to 2015 probably, and the gap was

00:40:05.380 | exactly the same, 1.6 percentage points.

00:40:13.420 | That may be just a happy accident that they're exactly the same number, but it suggests that

00:40:18.460 | whatever efficiencies there were then, there are now.

00:40:22.080 | Whatever management ability was able to overcome it now, it's the same as it was then.

00:40:29.340 | There's no evidence that this institutional market of today is much different than the

00:40:36.540 | individual-dominated market of the '30s and '40s and '50s.

00:40:42.100 | Why would there be a difference when all these institutions are just composed of human beings

00:40:51.080 | and they want to do better than one another, and whether they're human beings or institutions

00:40:55.620 | or real human beings, the market is going to be quite efficient, but never perfectly

00:41:02.380 | efficient.

00:41:03.380 | This is true for the whole every year of the past 70 years and even before that.

00:41:10.500 | The efficient market hypothesis is right some of the time and wrong some of the time, which

00:41:16.580 | I think means it's a lousy hypothesis.

00:41:21.540 | I don't see any evidence that the market is less efficient or more efficient now.

00:41:27.380 | None.

00:41:28.380 | Did I make my position clear?

00:41:32.820 | If you could travel back in time to give some advice to the 21-year-old Jack Bogle, what

00:41:38.720 | would it be?

00:41:41.940 | Get into the mutual fund business as soon as you get out of college.

00:41:51.180 | Yesterday you mentioned China rising.

00:41:55.100 | Could you please talk more about this?

00:41:57.500 | Well, I'm not an expert on China, but what we see out there is continued population growth,

00:42:05.580 | continued substantial GDP growth, which ran up in the 11 or 12 percent annual GDP growth

00:42:14.500 | for a while, and now it's down to, I believe, 6 or 7 percent.

00:42:18.140 | Very healthy growth continually.

00:42:19.780 | I think those numbers are about right.

00:42:23.540 | I see a more enlightened, in some ways, Chinese government that's prepared to let entrepreneurship

00:42:29.940 | play its own role, let business play its own role.

00:42:34.820 | What could get in the way?

00:42:35.820 | Those are things.

00:42:37.400 | They basically have a stronger base, economic base, population base, than the U.S., and

00:42:44.700 | they will gradually catch up and pass us.

00:42:47.820 | I don't think there's really any question about that.

00:42:51.280 | They have dragging down a tremendous amount of regulation and, what do I want to say,

00:43:01.620 | maybe mind control.

00:43:04.420 | You really have to sign on to the Chinese Communist Party if you want to get anywhere,

00:43:08.900 | one party, and they're giving that a certain amount of continuity by having a leader who,

00:43:15.020 | I think they suspended the rules, that the leaders change every six years, to give them

00:43:22.100 | lifetime.

00:43:23.100 | Then I heard some of them taking it away, so I'm not sure exactly where we are on that.

00:43:30.140 | It's a very regimented society, a very debt-ridden society.

00:43:36.580 | They have big economic issues and a lot of building that goes on with huge debt, and

00:43:43.340 | nobody moves into the buildings.

00:43:45.700 | This is a problem that we face in America from time to time, and it seems to be a serious

00:43:49.740 | problem.

00:43:50.740 | Probably the most serious problem is what do we know about China, and that is we don't

00:43:56.700 | know a heck of a lot.

00:43:58.580 | They guard their information.

00:44:00.420 | They would give you misinformation if they could, and they do give you some misinformation,

00:44:05.900 | but sooner or later, when you're playing with a half a dozen or a half a hundred different

00:44:10.420 | economic indicators, it'll be pretty clear which ones have been fussed with and which

00:44:14.340 | ones have not.

00:44:15.620 | So I think they're coming around a little bit, but I think they're powerful potential

00:44:21.260 | short-term problems and a real risk to world stability.

00:44:27.340 | Do you like Vanguard's target retirement funds, and would you recommend them to most investors

00:44:36.900 | for their tax-advantaged accounts?

00:44:40.460 | Well, take the easy part.

00:44:44.540 | If you want a target date retirement fund, I would lean strongly in favor of Vanguard's.

00:44:50.100 | Why?

00:44:51.100 | Because our costs are a fraction -- you knew this was coming -- a fraction of what the

00:44:55.140 | others are charging.

00:44:57.860 | It's a curious paradox.

00:45:00.020 | I believe, and I've said this before and I'll say it again, I believe 40% of the equity

00:45:09.040 | position outside the U.S. is not the right thing to do, and to do it, I think if you're

00:45:16.900 | not sure, non-U.S. will do better than U.S.

00:45:22.180 | Give people a choice.

00:45:23.180 | Say we're going to start a whole series of international target date funds.

00:45:26.260 | God knows we've got enough funds already, another 15 or 20 of them won't matter, 12

00:45:31.580 | of them, I guess, and you decide instead of just saying, "Here's what we're doing," in

00:45:39.620 | a notice that nobody read, because people don't read notices.

00:45:44.220 | That said, we are not particularly out of line compared to the other target date funds.

00:45:51.380 | T. Rowe Price, American Funds, I guess are the next two competitors, and they have heavy

00:45:58.500 | international components.

00:45:59.500 | I'm not sure it's 40%, maybe a little more, maybe a little less, but we're all following

00:46:04.460 | pretty much the same strategy.

00:46:06.980 | What this makes me reflect on is from the very beginning, I thought the best strategy

00:46:13.360 | for investors and for Vanguard, the firm, was to have funds with relative predictability.

00:46:21.060 | You are never way out of line with your competitors, and you will win on cost if you really are

00:46:30.460 | right in line with your competitors.

00:46:31.880 | If you look at a fund like Windsor and look at other large-cap value funds, say, and this

00:46:36.900 | is maybe not the best example in the world, you're going to find a 99% correlation between

00:46:42.500 | our returns, and if you have a 1.5% cost advantage, when you take a lower turnover, lower expense

00:46:49.980 | ratio, and no sales load, the 1.5% is easy, it's probably too conservative.

00:46:56.300 | You'll win by 20% over 10 years, probably 20% over 10 years.

00:47:02.860 | If 20% doing 20% better than the average fund isn't good enough for you, I don't know how

00:47:08.660 | to help you, honestly, and you don't get money pouring in at the top when your performance

00:47:15.200 | is great.

00:47:16.200 | I mean, just think about Magellan, the Magellan Fund, Fidelity Magellan, had this great performance,

00:47:21.660 | the money poured in, it got to $110 billion, paying the Johnson family a couple of billion

00:47:28.540 | a year.

00:47:29.540 | I don't think they need it that badly, but then they do if they're going to cut their

00:47:32.860 | prices on their index funds to zero, couldn't resist that, and then it stopped doing well,

00:47:41.580 | and now Magellan Fund is, I think, $9 billion, about right, Mike, $12?

00:47:47.000 | Okay, let's call it $10 billion.

00:47:50.140 | You could have just said yes.

00:47:56.140 | You know, Mike is such a treasure, I've got to say that again.

00:47:59.880 | We had such a great time together, and he and I, he takes that in the same sense of

00:48:05.260 | humor that I offered it out, but that's $100 billion that's left Magellan Fund, probably

00:48:14.920 | more than that, because the market has been going up during this period, even though their

00:48:18.540 | performance has been bad, $100 billion worth of disappointed investors.

00:48:23.780 | No wonder Fidelity is thinking more about indexing, and so the idea of being really

00:48:33.240 | good must come with the knowledge, certain, that when you're really good in some periods,

00:48:41.380 | you're going to be really bad in others.

00:48:43.860 | That's the way of the markets.

00:48:46.040 | So that's a terrible strategy, because the money comes in, as I said, high, and then

00:48:52.920 | when you let the investor down, it goes out, and you've got a dissatisfied investor,

00:48:56.940 | and probably a dissatisfied general public who knows your company.

00:49:01.380 | So that has worked out well with index funds, there are other funds that have, I've talked

00:49:05.260 | about this before, high relative predictability.

00:49:08.660 | And so, to focus this particular point on Ed's question, is this relative predictability

00:49:19.620 | for our target date funds relative to our competitors, who all have heavy international

00:49:25.820 | positions, or is it relative to a simple U.S. stock/bond position?

00:49:30.940 | Our investors are going to relate to that.

00:49:33.420 | A lot depends on how international does, international I should say, not U.S., and the fact that

00:49:40.140 | I wouldn't do it, wouldn't have done it, or wouldn't have done it to such extent,

00:49:45.540 | really means nothing, because I'm often wrong, if never in doubt, just that.

00:49:57.700 | And there's also no magic in a target date fund, I mean, it all looks so simple, but

00:50:02.500 | it isn't.

00:50:03.500 | There will be periods when you'd be better off having a very high percentage in bonds

00:50:08.580 | when you're starting off, and a very high percentage in stocks when you're finishing.

00:50:12.300 | I mean, that's just the way the market is, you just don't know it.

00:50:16.220 | It's so logical and sensible, and so smart as a way to think about things, but I think

00:50:21.620 | not maybe, I wonder at the end of the trail, whether the target date fund won't prove to

00:50:27.740 | have been offered kind of as a panacea, and the investment business, and the mutual fund

00:50:34.300 | business, there are no panaceas, let me assure you of that, a lifetime of learning, no panaceas.

00:50:43.620 | Okay, the next question is, "What are your proudest accomplishments?"

00:50:49.940 | Well, I think I said this the other day, quoting Sophocles, did I tell you Sophocles?

00:50:58.260 | Well, if you don't remember, I guess I didn't tell you, or maybe you weren't paying attention.

00:51:03.700 | Oh, we were paying attention.

00:51:05.340 | But he said, "One must wait until the evening to enjoy the splendor of the day," and so

00:51:14.280 | you're asking me, in effect, how do I feel about the splendor of the day, what's my biggest

00:51:20.060 | accomplishment?

00:51:21.500 | But my evening isn't here yet, so I'm going to wait until, I call it a day in this business,

00:51:28.860 | and I don't know when that will be, I'm going to hang on as long as I can, I will, as you'll

00:51:36.300 | see in the book, I will keep right on to the end of the road, and though your day be long,

00:51:41.580 | let your heart be strong, keep right on to the end, if you're tired and weary, still

00:51:49.780 | carry on till you come to your happy abode, and all you've loved and been waiting for

00:51:56.260 | will be there at the end of the road, period.

00:52:01.420 | Very nice.

00:52:03.460 | Next question is, "What strategies would you use to avoid the sequence of return risk?"

00:52:13.580 | There's no way to avoid the sequence of returns.

00:52:19.620 | There is one thing that I would advise everybody, which is at least tangentially related to

00:52:26.140 | this, and that is when you look at a fund's record, look at this, I mentioned this the

00:52:31.700 | other day in connection with the international and the growth in value, put a dollar in the

00:52:36.480 | fund, and put a dollar in the market, and accumulate those dollars each year, and then

00:52:43.220 | do a one-into-one chart, so you're not looking at a single unit, like the 10-year, 20-year,

00:52:49.660 | 30-year performance, you're looking at how it was achieved, and if you see this at the

00:52:54.140 | beginning, you'll see it jump right out at you.

00:52:58.220 | Probably somebody started a fund with $100,000 and put a whole lot of new issues in it, and

00:53:03.060 | got way ahead and stayed ahead, fell back from that high, but is still way ahead at

00:53:08.140 | the end of the game.

00:53:13.220 | The market is going to do what the market does when the market does, and sometimes rationally,

00:53:19.780 | and sometimes irrationally.

00:53:22.220 | The reality is, and again, coming back to my idea about dividends, and this is a slightly

00:53:27.700 | different one, the market is a terrible thing to think about, because it has this speculative

00:53:32.380 | element in it, which means sometimes it's selling too cheap, and sometimes it's selling

00:53:37.940 | too dear.

00:53:39.860 | What we do know, know, know, is that ultimately, the return on the stock market, S&P 500, matches

00:53:50.860 | the fundamental return of the S&P 500, the dividends, yields, plus the earnings growth

00:53:56.220 | it has.

00:53:57.900 | Speculation goes, that extra speculation, but you always come back, sooner or later,

00:54:04.380 | it may take a while, to the fundamental return that is the return created by business, and

00:54:10.620 | that is dividends and earnings growth.

00:54:15.420 | We can look at the market today and say, "It doesn't look so good," and using that particular

00:54:20.360 | formula, or that particular concept, you're probably right, but it could be ... I didn't

00:54:28.660 | say when on any of these things, and it could be a few years, I don't think much more than

00:54:34.820 | that, before the market comes down to its speculative, its fundamental value, but right

00:54:40.300 | now it's higher, and we know that, but nobody knows when, so you want to be very careful

00:54:48.980 | about doing anything about it.

00:54:51.160 | What happens is people look at it now and say it's going to go down to its ... probably

00:54:56.460 | take about a 25% drop or something, to get to its normalized value, fundamental value,

00:55:02.460 | value of the earnings and dividends, and someone looks at it, "Well, I'm going to get out now,"

00:55:09.740 | and then a month passes, and two months passes, and three months pass, and a year, two years,

00:55:17.300 | and five years, and somewhere along the way the investor says, "I was wrong, so I'm going

00:55:24.020 | to go back in."

00:55:25.220 | That's usually the time to get out, so if someone ... the market is the market.

00:55:36.020 | It's based on opinions of people who are smart and people who are dumb, of institutions that

00:55:41.020 | were smart and institutions that were dumb, of investors who are lucky and investors who

00:55:45.660 | are unlucky, and they all come out as a group with the market return, and there's just no

00:55:50.820 | predicting the sequence that I know of, and if there were, we wouldn't all be gathered

00:55:57.100 | here.

00:55:58.100 | There wouldn't be anything to do.

00:56:01.180 | The answers would be easy, but the answers in the market are never easy, and it's very

00:56:05.580 | frustrating.

00:56:09.300 | Two-part question, what is the best and worst personal financial decision you've made in

00:56:16.780 | your life?

00:56:18.780 | Well, that's it.

00:56:25.900 | I confess that when I got out of college and started to make a little more than my initial

00:56:31.440 | pay of $250 a month, and I was able to save a little, I did some investing in individual

00:56:37.300 | stock, and they all had great stories, and none of them panned out, and when I had a

00:56:45.940 | little more money, and I'm not talking about big league money here at all, I had a broker,

00:56:51.500 | a friend of mine from Smith Morning, and he liked to call me up and tell me to get out

00:56:57.260 | of this and into that, and it wasn't the fact that every single time I should have got into

00:57:02.720 | that and out of that, which is the way the world works, but it was the damn phone calls.

00:57:09.980 | I was wasting my time talking to a stockbroker when I had much better things to do in the

00:57:15.040 | office yet, so the biggest mistake I was was letting that go on too long, which is probably

00:57:20.860 | 10 years.

00:57:23.300 | I do own some equities now, always have, and basically dominated by, I've been director

00:57:31.260 | of any number of companies, maybe five, and I've gotten option stock from each of those,

00:57:38.620 | and so I've kept those stocks that I've accumulated there and not sold them, but other than that,

00:57:44.080 | I really have very little to do.

00:57:46.700 | I did, let me just full disclosure, being full disclosure, I did, to show my confidence

00:57:51.860 | in my son's small cap growth fund, I made a pretty decent investment, and it's really

00:57:59.340 | done well, and I think you could say, Ed, that is it really a mistake?

00:58:09.780 | A mistake is something you learn from with a small amount of money.

00:58:16.980 | It's probably the most brilliant thing that ever happened to you, so that would be it.

00:58:23.100 | I didn't get the religion adequately.

00:58:25.540 | Well, the final question that I have, Jack, is would you please run for president?

00:58:33.460 | There's an old joke about a, it's a Boston joke about a guy's little lisp, and I won't

00:58:46.860 | bother you with the whole joke, but his answer was, "I won't say yet, and I won't say no,

00:58:52.780 | but I will say that that's the best over I've had today."

00:58:59.780 | All right, we can open up to the audience if anybody else has any additional questions.

00:59:05.100 | We've got a few more minutes.

00:59:11.340 | Hold on until we get a mic back to you.

00:59:15.140 | Jack, thank you so much.

00:59:22.540 | Yesterday we had a great time at Vanguard, and so impressive.

00:59:27.420 | I think everyone agrees.

00:59:29.140 | Everybody's been talking about it, and the crew members in particular are what make this

00:59:35.220 | place so impressive, and they talked again and again about how much they love working

00:59:40.540 | at Vanguard and how much they love you as the founder.

00:59:44.260 | Could you share, because many of the people here work in business or business leaders,

00:59:49.020 | how you were able to start that culture that lives on today?

00:59:54.300 | Well, that's really a nice question, because it comes a little bit out of what the events

01:00:02.120 | that transpired in my book, and that is, I think I started to say this to you yesterday,

01:00:07.820 | and it was originally about landmarks.

01:00:10.500 | Each step along the way that got Vanguard from a little skeleton company, the biggest

01:00:14.420 | company in the world.

01:00:15.420 | I never ran 12 of them, and I read the book, and I thought it was a stinking book.

01:00:23.260 | But instead of throwing it away, I added a chapter about human beings, and it's called

01:00:30.140 | Caring the Founder's Legacy.

01:00:33.620 | In that I tell the story of when we were probably around, let me just say, 200 crew members.

01:00:42.420 | We started with 28.

01:00:43.420 | It occurred to me that we should have a personnel function.

01:00:50.000 | It's called HR today, human relations.

01:00:53.500 | And we were not about, in those days, oh, no, we're not about to hire anybody.

01:00:57.700 | We didn't have any money to hire anybody.

01:01:00.820 | So I decided to get an individual in the company to be the head of personnel.

01:01:09.820 | Her name was Eleanor St. Graft.

01:01:11.420 | She worked in the legal department.

01:01:13.500 | I cleared it with her boss, said, "You should do it."

01:01:17.420 | I came in and said, I tell the story in the book, I say, "Eleanor, we want to start

01:01:24.020 | a personnel kind of function.

01:01:27.240 | Your boss tells me that you would be good at it and could do it, and would you be willing

01:01:33.140 | to do that?"

01:01:34.140 | "Whatever you want, Mr. Vogel."

01:01:35.140 | This was not, in those days, an answer I got with some frequency.

01:01:39.820 | And I don't get quite that much anymore.

01:01:41.900 | Uh-oh, I shouldn't have said that.

01:01:47.020 | And so I said, "Well, that's great.

01:01:50.700 | Thank you."

01:01:51.700 | And she goes out the door, and then she comes back in, and she says, "I want to do whatever

01:01:57.060 | you want me to do, Mr. Vogel, but what is it you want me to do?"

01:02:02.860 | And I said, "Well, you know, that's a really good question, and I haven't thought

01:02:06.820 | much about what I want you to do.

01:02:08.580 | So let me try this.

01:02:10.380 | I want you to hire nice people, and make sure they hire nice people."

01:02:15.900 | And out she went and did that.

01:02:18.800 | So the key is to have people that have at least a touch of niceness, of human goodness,

01:02:30.420 | and even more than that.

01:02:31.980 | And yes, you have to have people with no technology, particularly in today.

01:02:35.140 | That wasn't much at the time, and so you need the technical, which requires very brilliant

01:02:39.980 | people.

01:02:41.580 | But even then, you should try and get people who are at least fun to be around, who are

01:02:46.100 | committed to the company, committed to their jobs, committed to their fellow crew members.

01:02:51.300 | You know, it's amazing how many of these people—I mean, I talk to a lot of 25th

01:02:56.180 | anniversaries, retirements, Award for Excellence winners.

01:02:59.100 | I'm still spending a lot of time, which I love, talking to individual crew members

01:03:04.540 | or groups of crew members.

01:03:05.940 | What do we call those things, Mike?

01:03:09.260 | I do team meetings.

01:03:10.260 | Team meetings.

01:03:11.260 | I do probably three team meetings a week where somebody finds that they want to bring their

01:03:17.860 | investment team or whatever team it is in to see me, or they get a bigger room and maybe

01:03:23.580 | as many as 20 people.

01:03:25.780 | And just I talk to them about anything they want to talk about.

01:03:30.220 | But I think, to the extent, Patti, that what you're saying is a valid reflection.

01:03:40.500 | I think never underrate the power of trying to be a decent human being.

01:03:52.220 | And it's really easy.

01:03:53.220 | You know, don't lord it over people.

01:03:55.540 | Don't yell at people.

01:03:56.540 | I don't usually—Mike's laughing, I never do, really, almost never, hardly ever.

01:04:07.420 | And for me, the standard is, really, you build up a reputation for being a decent human being.

01:04:17.420 | There's a lot of admiration, even love, from our crew members.

01:04:23.060 | And we human beings then try to live up to that reputation.

01:04:30.260 | So it's constantly—I mean, I'm making bigger demands of myself every day because

01:04:34.820 | the reputation grows.

01:04:37.100 | But I think it's just trying to be a decent human being who cares about other human beings,

01:04:44.860 | whether they're crew members or, for that matter, whether they're all the people sitting

01:04:48.940 | here in this room.

01:04:50.820 | And if you like other people, I'm not a big political guy at all.

01:04:55.220 | I'm not a big handshaker at all.

01:04:57.220 | I'm very introverted.

01:05:00.020 | But I enjoy the company of people that share my values, particularly within the company.

01:05:07.940 | And if you can build that kind of a culture—and I never did it, like, consciously.

01:05:13.380 | I never thought I have to build a culture.

01:05:15.640 | I did what seemed like a natural thing to do, hire people, be nice people, give them

01:05:22.840 | good compensation, have them figure out what it is to do.

01:05:27.640 | And a lot of them work on the same teams, have worked on the same teams for 25 years.

01:05:32.480 | And I really like that.

01:05:33.480 | They get along well.

01:05:34.480 | They come to work.

01:05:35.480 | They're happy to go to work on Monday.

01:05:36.480 | And sometimes, even, they had to leave on Friday.

01:05:39.920 | So it comes down to, as human beings, if we want to do what's right for ourselves and

01:05:50.760 | for society, just try and be good to the people around you and make sure that they pick that

01:05:57.880 | up from you.

01:05:58.880 | It's very easy, because they see what happens.

01:06:01.800 | And have them handle other people, higher or lower in the pecking order, with humility

01:06:08.920 | and respect and confidence and trust.

01:06:13.240 | And you know, I haven't really tried to explain that before, Patty, but that's the

01:06:17.120 | best I can do at the moment.

01:06:19.040 | Can I add something to that?

01:06:20.880 | As a firsthand witness, when we had our first conference with Jack in 2000 in Miami, I was

01:06:29.880 | a snowbird, and Jack knew that I had a business in this area.

01:06:33.840 | And he invited me to join him when I came back for lunch, which I did.

01:06:41.000 | And Jack's office is, what, a block or so from the galley.

01:06:48.880 | And as we were walking across from Jack's office to the galley, we had 12,000 employees

01:06:55.560 | at that time.

01:06:56.560 | Something like that.

01:06:57.560 | He seems like he knew everyone as we were walking.

01:07:01.240 | He was approachable.

01:07:03.120 | He seemed to know their names.

01:07:04.680 | He asked how Mary was, or how Joe was.

01:07:08.860 | And when we got to the galley, there is no executive dining room.

01:07:15.880 | Absolutely not.

01:07:17.640 | Jack finds an empty table with all of the other employees and sits there.

01:07:21.960 | And I think that is exactly what we're talking about, what you're talking about, Patty.

01:07:28.920 | And can I add one little thing?

01:07:30.720 | Jack talked about how frugal he was.

01:07:33.280 | In the galley, you go through the buffet, through the line, and you pick out your lunch.

01:07:42.120 | And we were going to have a salad, and Jack told me to get the lightest plate you could

01:07:47.520 | find because they charge by the pound.

01:07:54.960 | I had to throw that in.

01:07:59.800 | Tell me this is actually true.

01:08:03.400 | Jack, thanks for everything you've been doing and being such a great man.

01:08:11.600 | I'm nervous to ask this question to you.

01:08:13.800 | Here's a quote I'm going to have.

01:08:16.400 | You said, "I said, 'Stay the course' a thousand times, and I meant it every time.

01:08:23.600 | It's the most important single piece of investment wisdom I can give to you."

01:08:28.320 | Of course, you've written the book, "Stay the Course."

01:08:30.640 | But around the year 2000, I think you cut back your equity investments from 70%, 80%

01:08:38.520 | to 20%, 30%, something like that.

01:08:41.640 | And you said that in extreme valuations, people should consider similar actions.

01:08:48.520 | So at that time, the stocks were up 40 times earnings and yielding about 1%, and bond yields

01:08:54.040 | were at 7%.

01:08:55.840 | My question is, what measures of extreme valuations should we make to change the course

01:09:03.320 | or change our investments?

01:09:05.720 | And how am I supposed to know?

01:09:07.120 | A layman like me, how am I supposed to know that?

01:09:11.720 | It's not easy to know.

01:09:12.720 | Those opportunities don't come along very often.

01:09:16.160 | What happened in 2000 was something I don't know that ever particularly happened before.

01:09:23.600 | The yield on the stock market cut to 1%, and that's not a sustainable stock market level

01:09:30.320 | at 1%.

01:09:31.320 | Japan got to 1%, Japan got a half to 1%.

01:09:35.460 | But dividend yield is a very important point, a very important point in my reasoning.

01:09:41.700 | So here we have the stock market looking high, and the yield in the bond market was 7%.

01:09:48.700 | So that meant you doubled your money in 10 years in bonds.

01:09:52.560 | And you could double your money or triple your money in stocks from 1%, but it just

01:09:57.000 | didn't seem like a good idea.

01:09:59.840 | So I can't remember exactly what I did, but I think I cut back from around 75% in the

01:10:08.440 | stock to around 50%.

01:10:10.280 | Very unusual, something I would probably advise people not to do.

01:10:14.680 | It worked well, of course, and I don't want to get too much sentiment into this, but don't

01:10:26.400 | forget I had gone through little bits of hell, health-wise, and my heart was not working

01:10:33.040 | well.

01:10:34.040 | I wanted to make sure that if I departed this orb that my portfolio was fairly conservative

01:10:43.120 | for my family.

01:10:45.040 | And so I even, I was having an ablation, which is a long process where they run stuff into

01:10:52.920 | your heart to try and get it beating properly.

01:10:55.380 | It took 10 hours.

01:10:58.280 | Before I called my lawyer from the operating room and said, "Could you please get down

01:11:04.520 | to me?

01:11:05.520 | You never sent me the things I should sign to change my will the way I did the other

01:11:08.360 | day, and I want to sign them before I get this procedure done."

01:11:12.180 | So down she came, and I signed them, and so there is the subtle pressure of an uncertain

01:11:19.760 | life that has dictated more of my investment changes than you might think.

01:11:29.720 | And that's probably stupid, but it is understandable, because you're thinking about those that are

01:11:36.280 | coming behind you.

01:11:41.280 | Anybody else?

01:11:42.740 | While we wait, as I walk over there, I'll tell you a story I haven't told everybody

01:11:46.200 | here before.

01:11:47.200 | An airline pilot flying from one place to another, I don't know where it was, Florida,

01:11:52.220 | got off the trip.

01:11:53.220 | The flight attendant is, "We're organizing everybody to get on the van to go somewhere."

01:11:57.620 | And he goes, "Yeah, some guy was in a coach seat, was sitting in the back of the galley,

01:12:02.760 | and he was giving me investment advice."

01:12:04.460 | And I said, "Oh, no, it's a stockbroker, insurance salesman, or somebody like that."

01:12:07.900 | He says, "Yeah, give me his card."

01:12:09.620 | And he pulled it out, and it said, "John C. Boll on it."

01:12:14.860 | So I'm thinking about, now, how do I get that card, or should I tell him who it is?

01:12:21.460 | So anyway, I said, "Hey, if you don't want that card, you know, I'll go ahead and take

01:12:24.920 | it."

01:12:25.920 | And I took it, and then I told him who it was.

01:12:26.920 | But on the back of it was life strategy, moderate growth.

01:12:30.300 | He was advising a flight attendant in the back of the airplane.

01:12:33.540 | So that's a story I've never told that here before.

01:12:36.340 | That's probably what we call apocryphal.

01:12:39.780 | - Jack, I have a question for you.

01:12:44.500 | All of us have been following your mission.

01:12:48.580 | We've been trying to get it out to more and more people.

01:12:52.060 | We've been following it ourselves.

01:12:56.460 | Are we doing the right thing?

01:12:58.860 | Is this what you want us to do as Bogleheads?

01:13:02.060 | If you could elaborate to all of us, if you were going to give us a mission, what would

01:13:07.660 | it be?

01:13:08.660 | - Well, you know, that's a hard question to answer, because I think it's unwise for anyone

01:13:17.200 | here, including me, to give anybody real advice, because we don't know what's going to happen.

01:13:24.620 | And you're judging the questioner, the person asking the question or asking the advice.

01:13:32.460 | You don't understand who that person is, how could you possibly do that?

01:13:36.260 | So I like the idea of the Bogleheads Forum, where all ideas can be integrated and people

01:13:41.020 | that disagree can do this and that.

01:13:43.420 | So I think it's participating in a group exercise, and I must say I'm astonished and delighted

01:13:49.620 | with the success of the Bogleheads website, and investors love it.

01:13:53.880 | They love Taylor's book, and they love my books, too, which are pretty much the same

01:13:59.700 | as Taylor's, except longer.

01:14:04.100 | And so I think your mission is to do what's right for yourself, and if someone comes to

01:14:11.180 | you in need, just give them a course that goes down the middle with the knowledge, knowledge,

01:14:17.620 | always the knowledge certain, that you don't know what--nobody knows what lies ahead.

01:14:22.540 | What worries me about this 25-year, 45-year bull market, which Vanguard has existed, 12%

01:14:30.740 | return.

01:14:31.740 | It's not going to happen again, I don't believe, and I think there's too much--too many people

01:14:40.260 | believe that the past is prologue, the future will continue to get these high returns.

01:14:45.700 | But think about that chart I showed you yesterday, showing the difference between a 4% return

01:14:51.080 | on stocks and a 12% return, where your money doubles in the 12% return every six years

01:14:58.300 | and a 4% return every 18 years, and look at those lines spread apart.

01:15:04.380 | Don't expect it to happen again.

01:15:06.540 | Underplay, always underplay, the chance to make big money.

01:15:16.180 | Investing is a matter of putting to work money with corporations, and I have a lot of worries

01:15:21.860 | about our corporations today.

01:15:24.340 | So I say this advisedly, I just don't know what else to do.

01:15:28.500 | I worry about the merger trend somebody has, about the shrinkage of companies in the U.S.

01:15:33.700 | Bill Bernstein did yesterday, and that's a serious problem, not a major serious problem,

01:15:39.140 | but a serious problem.

01:15:41.540 | And so the future is always uncertain.

01:15:44.460 | So whatever you--I guess I would like to sum up by saying, whatever you say to anybody

01:15:49.060 | about anything at any time, just make sure to say, "But nobody really knows," or "Investing

01:15:57.420 | is really a hard business," because our emotions get mixed up with our reality, with our mathematics,

01:16:04.820 | the dollars we have in our retirement plans, and I think you should not be quite blunt

01:16:13.420 | about it.

01:16:14.420 | Try to give investment advice to anybody else without those hedging words.

01:16:19.580 | - Okay, here's a chance to talk to your financial hero, or a financial hero--let me make my

01:16:27.780 | way to the front.

01:16:35.780 | - First, I wanted to thank Mike for being such a great help to Jack and to all of us.

01:16:49.180 | - Jack, you mentioned that you read a couple good books a year.

01:16:57.260 | Which of the recent good books would you recommend to us?

01:17:01.620 | - Well, I'm right in the middle of a biography of Andrew Jackson by John Meacham called American

01:17:10.220 | Lion, and I don't get a chance to catch up with it very long.

01:17:21.260 | And the last really great book I read was--I'm not talking about the last book, the last

01:17:27.500 | really sensational book--was Doris Kearns Goodwin's Theodore Roosevelt, William Howard

01:17:34.020 | Taft, and the New Age of Journalism.

01:17:36.860 | And it's a compelling book, but particularly--a little disclaimer here--particularly for me,

01:17:43.040 | because I studied and wrote a paper about the New Age of Journalism back at the turn

01:17:46.620 | of the century.

01:17:47.620 | Ida Tarbell, and I can't remember the name of the magazine that printed all this stuff.

01:17:53.740 | But journalism was active then, and people listened to journalism then.

01:18:00.020 | And they had a powerful role in the public.

01:18:03.140 | And so that combination of two really interesting characters--I mean, there's nobody more interesting,

01:18:10.100 | I don't think, than Theodore Roosevelt--just meant for a very compelling read.

01:18:15.620 | And I like biographies, but I wouldn't know where to begin.

01:18:20.580 | And people send me books all the time, investment books, and I'm asked to endorse them.

01:18:29.380 | And I got one the other day, and I decided I'd give it a shot.

01:18:32.300 | I won't mention the name of the author.

01:18:34.980 | And I got to about page 150, and it was 550 pages.

01:18:42.020 | So I wrote back to him and told him my rule.

01:18:43.860 | I never endorse a book without reading it.

01:18:45.740 | And I was sorry.

01:18:47.020 | He just wrote too big a book for me to read.

01:18:50.900 | He didn't seem very happy.

01:18:52.260 | I also warned him, by the way, that my endorsement has never been known--my blurb--has never

01:18:58.740 | been known to add a single copy of Extra Sales, not one book, ever.

01:19:05.940 | >> Got one on the other side.

01:19:12.380 | And also on the personal touch, after we finished the conference last year, I got home and received

01:19:16.940 | a note from Jack himself.

01:19:18.460 | Very impressive.

01:19:19.460 | You talk about the personal touch.

01:19:22.260 | Jack, we know how much you enjoy eating peanut butter and jelly sandwiches.

01:19:27.660 | And other than whatever's on sale, what is your favorite kind of jelly?

01:19:32.540 | >> Grape.

01:19:34.380 | >> Well, I think that wraps up the Q&A.

01:19:43.620 | On that note, is Jason going to put that in the journal?

01:19:48.300 | >> Yeah.

01:19:49.300 | >> Okay.

01:19:50.300 | Thanks.

01:19:51.300 | >> I was just going to ask you, Jack, as a new father, and with our second child on

01:19:57.860 | the way, my wife graciously allowed us to call him Jack, call him Little Jack.

01:20:04.380 | This is Big Jack, as he's referred to.

01:20:07.300 | But I just wanted to ask if you could give us a little advice on--especially as a father,

01:20:13.660 | but you had six kids of your own, and you elaborated the relationship that you have

01:20:18.140 | with them.

01:20:19.140 | That's not something that happens by accident.

01:20:22.780 | You have to be an intentional parent.

01:20:24.740 | And you don't really see that in society, but in talking with many of you as a first-time

01:20:28.780 | attendee, that's something that's pervasive, and my compliments to all of you and to you,

01:20:34.140 | Jack.

01:20:35.140 | But if you could just give the next generation of parents your advice, and what worked for

01:20:45.900 | you in developing that relationship with your kids?

01:20:48.740 | >> Well, I've already told you I was an imperfect parent, so I don't know that I'm a good person

01:20:54.420 | to answer that.

01:20:55.420 | I mean, I'd say, as I do in so many ways, the simple things that matter, Ben.

01:21:04.220 | First, love the child, no matter good or bad.

01:21:08.940 | Two, set an example.

01:21:11.940 | Don't have to explain yourself away.

01:21:15.220 | Three, be prepared for some real bumps along the way, because almost every child has them,

01:21:22.460 | particularly as teenagers.

01:21:24.580 | And four, when it comes to time to drive a car, don't let them.

01:21:32.140 | >> Well, Jack, the Bogo Heads appreciate your--every year, attending and being and sharing your

01:21:41.420 | time with us, we cherish your friendship.

01:21:45.140 | Every year, we look for some meaningful gift to commemorate your appearance here.

01:21:50.620 | And it gets tougher and tougher.

01:21:52.620 | I know you don't have any room.

01:21:55.860 | Just to tell the tale, when I was in Jack's office a few years ago, he had honorary doctorate

01:22:01.620 | degrees on the floor, so I know you don't have a lot of room.

01:22:06.180 | But this year, from the American Revolutionary War Museum, I think we found something that's

01:22:14.280 | meaningful and small.

01:22:16.980 | This is a letter opener in the shape of an American Revolutionary War sword.

01:22:24.060 | And the inscription reads, "To Jack Bogo, who revolutionized the mutual fund industry

01:22:30.980 | by slashing costs, saving investors billions, the 2018 Bogo Heads Conference."

01:22:37.620 | [ Applause ]

01:22:44.620 | >> Thank you all.

01:23:11.940 | You make me happier than ever that I was able to make it and be with you today.

01:23:17.300 | And the one thing I want to say, of course, it's a highlight of all your admiration and

01:23:25.700 | good words and good wishes and selfies and signed books and standing ovations.

01:23:33.460 | All that means a tremendous amount to me.

01:23:35.900 | But what means the most to me, at least it's on my mind now, is one of you came up to me

01:23:40.220 | and said, I think one of the visitors for the first time, "What a wonderful group of

01:23:45.580 | human beings you are."

01:23:47.220 | They came here, they felt comfortable, they felt welcomed, they felt part of the group,

01:23:52.940 | they felt there was an openness, everybody was treated as equals.

01:23:57.860 | And I think that is an incredible tribute to all of you in this Bogo Heads crowd.

01:24:05.420 | And that's what really life is all about.

01:24:09.100 | So it's a wonderful moment I'm looking out there and thinking, wow, what a nice group.

01:24:15.220 | So until next year, God bless you all.

01:24:19.620 | [Applause]

Bogleheads® Conference 2018 - John Bogle Q & A

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