back to indexBogleheads® Conference 2010 - John C Bogle Keynote
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He's a giant among giants, a true American hero, and our group's now namesake. 00:00:10.560 |
He's a visionary who founded our beloved Vanguard and is considered the father of indexing. 00:00:18.000 |
His life's work has been to ensure that investors get, that we investors get our fair share. 00:00:24.120 |
As we send the dedication to our Bondman's Guide to Investing, while some mutual fund 00:00:29.080 |
founders chose to make billions, he chose to make a difference. 00:00:32.840 |
Please welcome our friend and mentor, Mr. Jack Brogan. 00:00:52.200 |
I don't know how many people get a welcome like that and walk into a big crowded room. 00:00:59.320 |
It's wonderful to be with you, and thank you also, not just for being here, not just for 00:01:07.160 |
being with you, but for all you do for helping other investors and obviously helping Vanguard 00:01:16.520 |
I don't get a chance, really don't have the time to read everything that appears on your 00:01:34.520 |
And we've been very busy trying to do this presentation, because as some of you know, 00:01:44.760 |
my wife got a knee on a Monday morning, and she insisted on coming home yesterday. 00:01:52.200 |
So, my days have been quite filled with being a caregiver for our family, instead of a care 00:01:59.720 |
So now I have a little bit more than what I offered in the last, well, 50 years. 00:02:09.400 |
In fact, I had my first heart attack in 1960, so that's 50 years ago. 00:02:15.880 |
So it's sort of amazing, I don't know how many I've had since then, maybe seven or eight. 00:02:20.920 |
And then I got my heart transplant 15 years ago, it was February 31st, and I have to say 00:02:29.400 |
that it's quite remarkable, quite stunning, to be able to live through these last 15 years 00:02:41.560 |
and see so many of the things that I hoped for and expected come true. 00:02:48.600 |
And you can't really think about how the world has changed in that 15 years. 00:02:52.920 |
You don't have to explain to anybody what their destiny is, you don't have to explain 00:02:59.560 |
There's a columnist in the Economist magazine, Bob Wood, and I read his columns and I'm like, 00:03:10.760 |
It's great PR for Vanguard, even though he doesn't mention Vanguard, they don't even 00:03:17.240 |
say anything about Vanguard, and still it has to be right in that, and that's the good PR 00:03:21.160 |
for Vanguard, their ideas get so deeply embedded that you don't need to have your name mentioned, 00:03:27.960 |
you can use the name or your own name mentioned. 00:03:31.160 |
So of course it works, these ideas that we've had, but it's because they have to work. 00:03:39.560 |
If you've got a man on your side, be careful, watch out, these are real trouble. 00:03:47.080 |
So let me just open up the Q&A, I've got three remarks, I can't read them all, so I'll just 00:03:55.880 |
say, and by the way, I just want to say thank you so much to Kevin, for all the work he's 00:04:00.760 |
done for me and now, for letting me get this chance, and for Emily, who's been working 00:04:07.880 |
for me ever since I ran, my sister who'll be here in no time, who's been with me for 00:04:12.680 |
20, I didn't go, "Okay, it's true, you've got 90 years," I ran, well, that was my reputation, 00:04:19.640 |
I hope, but it's my health, the last time I spoke to you, I was in the intensive care 00:04:30.200 |
unit at the Brigham and Women's Hospital, dealing with the second consecutive autism 00:04:35.080 |
really, you know, and I'll set up the issues, and my health is good now, I don't have much 00:04:41.320 |
energy, I used to, I'm kind of falling apart, but I'm happy to be up and running, and trying 00:04:47.640 |
to work a little bit less hard, but without any thought, really, of retiring, I don't 00:04:53.400 |
know how I can do that, actually, and my wife, she's an internist, and we work at 150% capacity, 00:05:01.800 |
so I cut back to maybe, what do you think, 80, 90, 205, I don't know, something like 00:05:12.760 |
that, but so, things are good, I'm up and running, whatever it is I'm going to be dealing 00:05:20.280 |
with, the kind of maladies I have, and what's going to happen next, but I don't worry about 00:05:23.960 |
that, and I never will, never have worried about it, and I never expect to worry about 00:05:28.360 |
that, I should say, in the last couple of years, I've been feeling more comfortable 00:05:33.560 |
than ever, at Vanguard, maybe had some management issues, as they say, and very comfortable 00:05:46.840 |
with Bill and Ed, our new presidents, very fine person, who's been with us for probably 00:05:51.000 |
30 years, something like that, hired back, probably 1982 or '83, and he's come a long 00:06:00.440 |
way, he's a very good human being, and a good manager, and he's trying, I think, succeeding 00:06:08.040 |
in restoring some of the old Vanguard values, which had to do more with human treatment, 00:06:15.160 |
and a very important part of what's made us successful is this crew that's very close, 00:06:22.200 |
I've talked to crew members at Vanguard, some frequency, individually, I've talked to each 00:06:27.000 |
and each of the work reps, and put in about an hour, and then people ask me if I've worked 00:06:31.800 |
with them, or have a group, they want me to meet them, I do all that, and clients come 00:06:35.480 |
in very highly, and then whenever I say look, and it's not such a demanding part of my life, 00:06:41.640 |
but I can graduate, and stay very much in touch with people that are paying for our 00:06:47.400 |
service today, and I do talk to Bill and Ed, I give them my opinions, periodically, I don't 00:06:59.240 |
have to explain a lot of the time, they have better things to do, and I give them those 00:07:03.480 |
opinions, to be honest, and also to acknowledge that he can't, I don't have to worry, he can 00:07:11.800 |
speak, and speak, and speak, I do, I don't have to worry about the consequences of what 00:07:15.560 |
I said, nothing happens, but I think he needs a little bit of that kind of information, 00:07:28.440 |
and I think that's a big part of what we're able to do, and we're able to work on a very 00:07:38.520 |
positive infrastructure, I'm just a doer, I always have been, and I'm not a very consultative, 00:07:44.520 |
I'll be a dictator, would be a good, but I don't think you can build an awesome building 00:07:48.120 |
business without being some kind of a dictator, and we've all got that, the team works all 00:07:50.360 |
the time, and I agree that it's an important asset, and I had to do it, and that's fine, 00:07:57.480 |
but I should say on that point, that I want you to know very clearly that my relationship 00:08:08.440 |
with the Chamber of Management is very, very good, and I'm doing these conditions, and 00:08:13.560 |
I have a couple of medical things I've got to do, and I'll be able to see the mechanics, 00:08:21.160 |
but that's not some kind of a political statement, it's just that sometimes, I might get banned 00:08:28.200 |
from the board of business, and this is one of those times, and so I hope you understand 00:08:33.480 |
that, and I think you'll, I think you'll enjoy your visit, and I wish good luck to you, and 00:08:41.400 |
I'm going to say a couple of things in the first of my remarks, I don't mean any harm 00:08:45.880 |
to anybody, but I'm going to say a couple of things, but you may want to ask those of 00:08:51.960 |
you who are speaking to me tonight about it, because that's a concern, and that's something 00:08:55.240 |
I'm going to be doing, and I'm going to do this in vain, because I can tell you the truth 00:09:01.240 |
when I say it, so what we say, what we see at Vanguard today, I guess it's become kind 00:09:11.400 |
of normal, we're assuming, I think there would be a lot of followership, I think the leader, 00:09:16.680 |
I think the name of Vanguard, I think leader in their trend, and as a local accountant 00:09:21.800 |
a little bit, after a 35-year, 37-year run, taking us through the leadership of this industry, 00:09:29.480 |
the, I mean, I guess the funder of this company, and that gets to a very fundamental thing 00:09:35.800 |
about the mutual fund industry, and that is, it's run for the benefit of the managers, 00:09:40.040 |
it's not for the benefit of the investors, so the idea runs something for the benefit 00:09:44.600 |
of the investors, it is a pretty much unique idea, and that's what's good about Vanguard, 00:09:52.680 |
and that's one of the reasons it's successful, it's amazing that we've had in Vanguard's 00:10:01.160 |
history an incredible change in the whole investment environment, and yet the human 00:10:08.280 |
values, basic human values have been part of what we've done since our founding, and 00:10:13.480 |
the simple investment strategies we've followed since our founding are still largely intact, 00:10:19.240 |
and low-cost wins, duh, long-term investing wins over speculation, duh, investors who 00:10:31.000 |
invest for the long-term become shareholders, and win, duh, and no one wants to compete 00:10:38.040 |
with some price, and we'll talk a little bit about that later on, and so there we are, 00:10:45.720 |
so it's been a great privilege to see it all happen, and what a privilege that is, 00:10:52.920 |
I didn't want to be happy anyway, of course, but it's nice to see, I guess you could say, 00:11:01.080 |
the ideals come true, and I'd love to put that next slide up, this is just a story of 00:11:09.320 |
Daniel and I's growth from that low point when we were pulling ourselves together in 00:11:14.360 |
1982, when our assets began, 1.4 billion on that chart, grew up to 5.6 billion in 1982, 00:11:24.040 |
400 billion, it was 6.7% there in 1998 or so, and now, 1.4 trillion, a thousand times 00:11:33.640 |
our initial assets, 1.4 billion more, one might say, just a few, almost two or else, 00:11:44.360 |
to deal with, and this is an important point about that which I'll talk about, and the 00:11:50.120 |
industry rivalry, with Fidelity, is the next chart, and you can see that chart sends quite 00:11:59.400 |
a message, doesn't it, you can't miss it, you might as well go on to the next one, but 00:12:03.400 |
we won't for a sec, this is their share of monetary compliance since 1998, and ours has 00:12:12.040 |
been rising, these are the long term assets, I'll talk about most of what we've been doing 00:12:16.360 |
now, it's long term assets, because the money market funds kind of cloud things, capital 00:12:22.600 |
groups are a major factor in the business, but none of the capital is in the money market 00:12:26.360 |
fund, and Merrill Lynch was led by their money market funds for a long time, they're not 00:12:31.160 |
in leadership anymore, and Fidelity is a huge money market business, and the reality is, 00:12:38.760 |
and we've seen this stuff, I mean I've seen it in the press, that Vanguard is now 75 billion 00:12:43.560 |
dollars ahead of Fidelity, and the reality is that the number is 285 billion ahead, Fidelity 00:12:51.560 |
is a billion 175, or a billion 390, a trillion 390, excuse me, a trillion 175, we're talking 00:13:01.160 |
about zeros, so by that measure we're at 250 billion dollars ahead of Fidelity, if you look 00:13:07.960 |
at long term assets charted here, Vanguard is at a trillion 225, and Fidelity is at 725 00:13:17.560 |
billion dollars, a 500 billion dollar difference from its once industry leader, and it doesn't 00:13:25.720 |
seem to be getting any better, in the last three years Vanguard has taken in 350 billion 00:13:31.960 |
dollars in shareholder purchases, and Fidelity has lost 15 billion in shareholder purchases, 00:13:39.960 |
so I'll talk about that in a little more detail in a second, but there is one respect in which 00:13:45.960 |
Fidelity is still a champion, last year earnings of Vanguard's management company were zero, 00:13:53.960 |
and Fidelity's earnings were 2.6 billion dollars, 2.6 billion dollars, so we're not competing 00:14:03.160 |
too well, naturally, I don't want to give you all a hard advantage, right, but a little 00:14:11.960 |
historical perspective might be interesting, if you go to this next chart here, and so 00:14:16.760 |
we're in the 80s decade, and we're leaders in mutual funding, and you'll see in 1950, 00:14:23.960 |
the year before I got into this business, I was a well-earned man, and we were a good 00:14:27.960 |
sized firm, although that's 6.1 percent, we're up in an asset base of 146 million dollars, 00:14:35.160 |
I think about that, 140 million dollars, 20 minutes of cash flow today I think, and by 00:14:41.560 |
the way, Columbia, in serious, was then investors first, I served a big direct selling organization 00:14:49.560 |
out of Minneapolis, and then it became American Express, and then it became American Wiles, 00:14:55.960 |
a good resource, and at the same time, it evolved with name changes, but it was the 00:15:01.160 |
second biggest firm the business had, up to 1960, and Columbia, I.E.I.E.S., was the biggest 00:15:08.360 |
firm, and mass financials lost its lead, back to that, and so on down, 1970, still Columbia, 00:15:17.560 |
so I.E.I.E.S., and then Fidelity comes in, I'll talk about that, and Vanguard still hasn't 00:15:22.760 |
appeared in this chart, and that's what we'll talk about in the next one, somewhere here, 00:15:27.960 |
lost in trouble, I guess I'll probably have to look here or something once I'm out of here, 00:15:39.560 |
but there it is, right, we have 1990, Fidelity still in there, I have one more, 1988, actually 00:15:46.360 |
Merrill was the last firm in this industry, and then of course there's mutual fund activities, 00:15:50.760 |
the long, or the background, and I.E.I.E.S., Vanguard, 1998, and it gets into the top group, 00:15:57.960 |
and we start moving up, 2000, and second, Fidelity, coming in 2000, same current date, 00:16:05.560 |
and with industry assets up to 7.9 trillion, long-term assets, here we are at 15.7%, and 00:16:15.560 |
we've been driven, and to that point, I think first, my investor trust, surveys have done this, 00:16:25.560 |
I don't need to read the surveys, all I need to do is read the letters I get from shareholders, 00:16:29.160 |
and read the newspapers, the trust, there's no company in this industry, I've measured that 00:16:34.360 |
from independent sources, but at the same time, we're already at a plus, it's kind of a funny scale, 00:16:41.560 |
we're at plus 50 to 60, and second firm's maybe plus 30, mutual fund act, Fidelity's minus 00:16:49.560 |
two or three, I think, for trust, and the industry average is about minus 12%, minus 12% trust ratio, 00:16:58.760 |
I won't get into that, but that's not good, and we're at the top of that list, I imagine, 00:17:03.160 |
hopefully, other reasons include, not negative, but ordered, there's an interest in bonds, 00:17:10.760 |
and it's amazing, I've always been interested in bonds, and to the point where, in 1972, 00:17:18.760 |
when I was at Wellington, I went on to start a bond fund, I got these notes from my broker, 00:17:24.360 |
you must be nuts, bonds are yesterday, stocks are tomorrow, I went on to start a bond fund, 00:17:29.960 |
the first half convinced me not all the time, (audience laughs) 00:17:34.360 |
the official investor actually had it covered, entitled, "Bonds are dead," and then I knew it was time, 00:17:41.960 |
and I couldn't get it done, broker actually didn't support me, broker actually didn't manage it, 00:17:46.360 |
I needed his support, and so I conveniently created a fund that was two-thirds in bonds, 00:17:52.360 |
and a third income, producing stocks, and that would be the Wealthy Income Fund, 00:17:55.960 |
so the fund would be acquired, and the Wealthy Income Fund would build up from there, 00:18:00.760 |
so bonds go back a long way, service, no question, credit, I'm not a writer, I'm a shareholder, 00:18:09.160 |
they're telling me what good service we have in Calgary, and I kind of think about it, 00:18:13.160 |
the first bond situation began, so I was looking for more, and next, I guess I'd say, importantly, 00:18:19.160 |
we deliver what we promise, which is not much, but we'll give you our fair share for whatever returns 00:18:25.960 |
the bond stock market generally does provide. It's not a grand claim, but it's the only realistic claim 00:18:31.960 |
in this business, and so that's been an important part of it. 00:18:35.960 |
Another part of it, I don't know if any of you saw that, but one of the things we had going for us, 00:18:42.360 |
and I realized this at the beginning, that there's no point in building a firm that's ever so big, 00:18:50.760 |
that can't manage the assets it has, and I knew we would get big, because we had a man on our side, 00:18:57.960 |
and it's not complicated, 4 minus 2 is 2, and we're okay, 4 minus 0.1, 0.2, 0.2, 00:19:08.360 |
and if you get big, you can't manage the assets, and that's what happened, and I think the capital group, 00:19:14.360 |
they're not bad, they're nice people, very nice people, but they've just gotten too big, 00:19:19.560 |
and now they have this huge amount of money under their best supervision, which includes 00:19:22.760 |
a very large consulting operation, and a wealth management operation, 00:19:26.360 |
so being sized in a different kind of investment strategy, that's happened. 00:19:30.360 |
It doesn't really matter how big you are, you can still implement your strategy, 00:19:34.760 |
at the same kind of influence, at a trillion dollars, as you could at a hundred million dollars, 00:19:43.960 |
or a million dollars, it would be better there than a million dollars. 00:19:47.160 |
So that's another big asset, and of course, an excellent cost, and I feel bad about it, 00:19:52.760 |
because I don't think most people realize how incredibly important a cost is in this equation, 00:20:00.360 |
that we have, as compared to performance, so if you want to draw that next chart, 00:20:05.560 |
oh, I'm sorry, I don't want to draw it myself, in fact, you're all set. 00:20:15.560 |
And just look at that, MIT, Macedonial, 1950 largest firm, 00:20:21.960 |
I've been with the largest firm in this industry for 23 years, think about that. 00:20:27.160 |
IDS/Columbia, direct marketing firm, was the largest firm in this industry for 27 years, 00:20:35.160 |
Fidelity was the largest firm in this industry for 21 years, 00:20:40.760 |
and now here we are in our first year of a blank year cycle, 00:20:45.560 |
will it be 20 years, will it be 5, will it be 100, who knows, I don't know, 00:20:51.560 |
but I do know, quote, Shakespeare, "If you're more polite, money's your last head, where's the crown?" 00:20:57.560 |
You know, here you are, a party full, and there's certainly no room to go ahead with your first day, 00:21:04.360 |
and no room for complacency, what do you think of, you know, dropping from a 15% market share to less than 1%, 00:21:12.360 |
and what I don't read, I've got a very small portion of the industry now, 0.7, 00:21:18.760 |
they certainly have their fair share of publicity, but they say causing that flash crash, 00:21:23.560 |
you know, I think I gave the one firm that caused that flash crash, trying to get some serve, 00:21:33.160 |
So why is the market that fragile, I don't think, 00:21:37.560 |
and even if you have a well-managed firm producing really good performance, 00:21:41.960 |
we've in recent years had a lot of market shares, 00:21:45.160 |
I mean, hey, time we came to look at it, time we came to visit it, 00:21:49.160 |
and Franklin, even though they merged with Templeton, 00:21:54.360 |
has lost half its market share, and fell 20% so far, 00:22:03.160 |
I want to just come back to Colossus Act, and talk about Colossus, 00:22:13.160 |
and we put out, you've probably seen it in the Vanguard, 00:22:19.160 |
we have a little calculation that says how our funds do, 00:22:31.160 |
how we do it is by doing this chart, since way back in the 80s, 00:22:37.160 |
a lot of people thought Colossus was a brilliant manager, 00:22:39.160 |
but then I looked up the numbers for Colossus, 00:22:43.160 |
and they were not going to look like so again, 00:23:04.160 |
and they said what happened to all your management ability, 00:23:18.160 |
so what we see, what you see, and what we report, 00:23:24.160 |
bond funds 100, balance funds 89, money market 100, 00:23:42.160 |
from somewhat above average, to somewhat below average, 00:24:05.160 |
and you're telling me you've also got an advantage, 00:24:17.160 |
is that bad to be 40 in the money market area, 00:24:25.160 |
and that is I don't mind being below average, 00:24:58.160 |
and so I'm going to move on to chart number eight, 00:25:02.160 |
which is all about our growth and efficiency, 00:25:19.160 |
and we get a lot of credit for reducing expense ratios, 00:25:24.160 |
and I want to see our expenses grow up 400 fold, 00:25:34.160 |
and so the expense ratio comes down by a little over half, 00:26:15.160 |
you have to take all the funds and parse them out, 00:26:21.160 |
but it's not a number that appears in any funds report, 00:26:31.160 |
it's easy to adjust about a third of the basis point, 00:27:04.160 |
how is it possible you can have the best service, 00:28:31.160 |
I don't want to say that this is being recorded,