>> Our distinguished guest of honor is the founder of the Vanguard Group and president of the Vanguard Global Financial Markets Research Center. He created Vanguard in 1974 and served as Chairman and Chief Executive Officer until 1996 and then as Senior Chairman until 2000. He entered the investment field immediately following his graduation from Princeton University Magna Cum Laude in Economics in 1951.

In 2004, Time Magazine named Mr. Bogo as one of the world's most powerful and influential people. An institutional investor, presented him with his Lifetime Achievement Award in 1999. Time Magazine designated him as one of the Investing Industries for Giants of the 20th Industry. In the same year, he received the Woodrow Wilson Award from Princeton University for Distinguished Achievement in the Nation's Service.

In 1997, he was named one of the financial leaders of the 20th century in leadership and financial services. In 1998, Mr. Bogo was presented the Award for Professional Excellence from the Association for Investment Management and Research, and in 1999, he was inducted into the Hall of Fame for the Fixed Income Security Analysis Society.

If I listed all his honors and achievements, we'd be out of time. So without further ado, I'll dispense with that and ask you to please welcome our very special guest of honor, Mr. Jack Bogo. There we go. Well, that says it all. It's so nice to be with all of you, and I'm so honored by your trust in me and your confidence in me.

And of course, in Vanguard, too, and just a terrific pleasure to be able to come and talk to all of you today. I'm a little embarrassed about all those awards. It doesn't really matter. I haven't gotten many recently. But we'll hang on and press on regardless, I guess. I'm happy you'll all be familiar with that phrase.

I'll probably take up pretty much the hour. I don't know how to time this. We were busy putting it all together, but I'm sure that we'll use a lot of time. And I presume that's what you want. So we'll do our best. You all honor me by your presence here this morning.

And yet another gathering of the Bogo heads. Obviously, I'm glad to be here with my 16th anniversary of a heart transplant coming up in February. Obviously, I'd be glad to be anywhere this morning. I'm pleased to say my longtime sidekick, so well-known to many of you, Kevin Laughlin, is here this morning.

And are you back there, Kev, somewhere? His fabulous work has moved in June into the Vanguard mainstream that not much of a career pad, but there are four people at the Bogo National Market Research Center. And I don't think I'm going to be replaced when I go. But the center is actually-- we supported Kevin to his ticket years.

So he's done gratis, like Mike Nolan, who's here with me this morning at the head table, who's Kevin's replacement. And Mike's doing a wonderful job. I started around June, June 1. And so a very short learning curve has already become especially important part of our tiny research unit, along with Emily Snyder.

I don't know if Emily's here now. She'll be here. Many of you know her. My longtime assistant of 25 years is Sarah Hoffman, who works with Emily. And that's the Bogo Financial Markets Research Center. And it's, in a way, encouraging to see all the new faces out in the audience this morning.

I understand there are 60 of you or so that are here for the first time. And I guess I'm a little disappointed. 60 people at the airport apparently didn't want to come back again. I do salute you for your courage. And a special welcome from Mel and also Tim Dempsey, who I think have been an amazing group, who I think have been at all nine previous BogoHead gatherings.

And I'm closely followed by Gail Cox, who has done eight. And I've already seen Gail this morning. And we have a number of BogoHeads who are on your program, as you know. Ed Tauro already spoke this morning. I didn't get a chance to get briefed on what he said.

So what I said, watch the base of anything you're doing. Well, we'll work that out in these two sessions. And you're going to hear from Bill Schultz. He's a long-term president. Bill Bernstein. Rick Perry just wrote a wonderful article for Forbes Hotline. He's out being interviewed with Christine Benz from Morningstar, which is something I just completed.

And Laura Dogu. And Alan Roth is here. And Mel Lindauer. I think they're all here. And also, I think he's here. If you raise your hand, you will. His first visit is my friend Eric Schoenberg, who is the former editor of Money. Is Eric here? Eric Schoenberg, we had to cancel the last one.

What the heck was that? So I'll be seeing you on the podium here. We're going to do a little break and then a Q&A. And if this ends prematurely, don't get any ominous by that. We can start the Q&A before it's over. And at the end, before we have a break.

And then I'll be with you for lunch. I brought some books that we're just going to give away. I'll let Mel or somebody work out who's going to get them. I've got 10 copies of Don't Count On It and 15 copies of the paperback edition of Enough, which has a board by Bill Clinton and an introduction by Tom Peters, the management group.

And so we'll be able to sign in after lunch. But I'm going to retreat and probably take a nap. And Bill, I will be with you at Vanguard later on in the afternoon. And then, as if you haven't had enough of me, I'll be with Bill Bernstein in the traditional fireside chat.

And tomorrow morning I always look forward to working with Bill. He and I have many, many ideas that are similar, if not identical, and a few, which might be interesting to talk about, a few differences along the way. So here we are. It's hard to believe it's 61 years.

I'm sorry, 51 years since my first heart attack in 1960. And on a tennis court wearing a cricket club, I did win. Coming up, of course, the anniversary of my heart transplant. I had kind of a hard summer, as some of you know from Jason's wife's interview. And stupidly, I broke four ribs and ripped my left side, hit the tail.

But, you know, time heals all wounds. And finally, you get over it. That's about that. I do notice at this stage in my life that I kind of divide it into two phases. One, the much more frequent times when my energy is summoning me. And the much less frequent times when I had to summon my energy.

And I had to do that before my heart transplant. I had to summon my energy after my tumble. But it's all back now. And now my energy is summoning me to be with you this morning. It's been a very busy year for me. I have another book that came out just after our last meeting, or at the same time, actually, of our meeting a year ago.

I'm counting on those couple of books here to be signed or whatever you'd like to say. I've done a bunch of op-eds, as many of you know, for the Wall Street Journal, the New York Times, the Financial Times. And they periodically ask me to send it in, and sometimes I do.

And I expect to do even more of that in 2012. I've also been very busy on the interview scene, as some of you know. The television demands seem almost insatiable. I think I've done six or eight of them in the last two or three weeks. And especially in this age of market turbulence, I do observe, for whatever it's worth, that they call me much more often at down markets than up markets.

I don't know what to say about that. It's so genie. All of this stuff is on my e-blog at johncbogle.com. I guess www.johncbogle.com. And it doesn't get a lot of traffic, I don't think. But in any mental way or anything you want to see that you miss, it's right there.

And Michael's doing a terrific job of keeping that posted and current. You probably wonder why it's called an e-blog. It's not a blog. It's because e-blog is an anagram for Bogle. Think of it. And also during this year I celebrated my 60th year at Vanguard, July 5, 2011. So that anniversary gives me kind of a nice segue into Vanguard Today, which is the first part of this talk.

And on that date, this last summer, I wrote a two-page memo to our veteran crew members who are 15 years or more, about 1,000 strong, and our Vanguard principals, which we now have 220 of them. So I send my stuff out to them, and it seems worth doing. And it's in a memo entitled "After 60 Years of Past Service, Looking to the Future," and that's also on my e-blog.

And rather than dwell on the past, however, there's not really much point to that. I wanted to look ahead to Vanguard's 100th anniversary, which will take place on December 28, 2028. That will be the 100th anniversary of our first fund, the Wellington Fund. And in this memo to the crew, I attached excerpts from a speech I gave way back in 1992, which was entitled "Vanguard, the First 100 Years," prematurely, of course.

And I also attached predicting that we'd still be around 100 years from now. Very few corporations are, but one of them happened to be IBM. And they, in June, published a nice pamphlet, two or three pages in the Wall Street Journal, entitled "IBM at 100," published on their 100th anniversary, describing a huge change in the world we live in.

And for IBM, since it was founded by Thomas J. Watson way back in 1911, closing with a conviction, quote, "A company can and must change everything about itself, everything about it except itself, about it, about itself, except its beliefs." And the final words in the IBM piece are "ever onward." And so it is with Vanguard.

As we look ahead to that, except that I end my memo with "not ever onward," but, of course, pressed on regardless. As I look at Vanguard today, those founding beliefs are pretty much intact. Simple investment strategies that apply to the core of our mission and the basic human values of fairness to our client owners.

That's you representing them all here today. And respect for one another who serve our crew. All our exponential growth puts terrible pressure on your ability to work in a nice human way. I have a statement that I made many, many years ago when I was running the place. We have an awful lot of crew members here that have posted on their little cubicles, which is, "For God's sake, let's always keep Vanguard a place where judgment has at least a fighting chance to triumph over process." And it's very difficult to do when you get big.

Everybody knows that. So we fight against it, and I fight against it wherever I can. I actually spend an hour in each award for excellence winners. It's probably six or eight every quarter or ten. And so I try and stay in touch and do what I can in my small way and keep Vanguard the same human values that I've always liked, enjoyed, and held high.

It's not to say that I agree, and we'll talk a little bit about it this morning, with all of Vanguard's policies and operating decisions. I couldn't possibly agree with everything. But I try and speak out what I do and act. I don't get much complaint about it at all, at least to my face.

But I do understand, as I think everybody explains, that our management team has to make tough choices, taking into account not only probabilities but consequences. And I'm free of those responsibilities. I don't have to worry about it. So it's probably a good thing that I am. And we have a fine management team.

Some of you will hear from me this afternoon, many of whom I know quite well. And I'm pretty sure you'll be impressed. So let's then go through a look at Vanguard today by going to our first slide. Our assets have grown enormously, 500 times over since 1980. Actually, it's more than that.

It's 1,000 times over if you go back to 1974, when we started 1.4 billion of assets, and now we're 1.6 trillion. Expenses also have soared up 350 times. But the point is that two points in this chart. One, if you're growing extremely rapidly, you can afford to spend an awful lot of money and still make sure that the growth of expenses, which are up 350 times, I think I said that, is less than the growth in assets.

And hence our expense ratio has come down way, way, way down and continues to double our competitors. You can see the number of crew members there on the chart per billion of assets. And we've done a great job on that. In fact, our 12,000 crew members today are almost the exact same number we had when Vanguard hit 800 billion, I guess, in about 2002 or 2003.

So that's been a great job that we've done, partly economies of scale, which are natural, partly a really good job, Paul Heller, Morgan, Bob, and Stefano, on technologies and technology. A lot of it's pretty impersonal, but that's the way it has to be done today, and I think people are getting more and more used to it.

So that's the theory of compounding I've talked a lot about. And if you want to go to the next chart, Michael, how big will Vanguard be in the future? And we grew in the early years, which is 25 years, 25% a year, a remarkable growth rate. Obviously it never continued.

In the last 11 years, we've grown a 10% growth rate. And even if we grow at, say, a 7% rate by 2025, it would be $4.1 trillion. And 7% is probably not unreasonable, provided we don't have the apocalypse or something like that, because these funds will have, of course, an internal rate of return and diminish, though it may be, from the past.

So we're going to get very big. And I tried when I was here. The speech I gave all those years ago was called "The Tyranny of Compounding," to be very conscious of how numbers grow as you grow in size and at any kind of a reasonable growth rate. And so I always was in favor of organic growth, letting our record and service speak for themselves and not forcing growth.

So as you can imagine, I'm a little bit skeptical about money spent on Vanguard-ing. The one caveat that-- it's one slogan that I--one turn of the English language-- that Merrill Lynch cannot use. So I'm still a small but beautiful guy. Small but beautiful guy. But nice that, in the face of this enormous growth, we picked at the very beginning-- and I'll talk much more about this later on-- an investment strategy that is basically scale-indexing and does not have the problems of size that, for example, a fair amount of capital group has.

You can't run a trillion and a half dollars on an active management basis and expect to get any more significant. So the problem is, on the human side of the business-- and I think everybody at Vanguard is trying to deal with it to the extent we can make it still a personal place where everybody feels respected and so much the better.

So growth--there it is. Here it comes. And measured, I guess, mostly by our share of industry assets. And you can see it just goes up and up and up. And I don't know what's going to stop it. So I've observed a couple of places. These are long-term funds. No, these are fall funds.

And county money market. Our long-term shares are around 16% or 17%. And no one in this business ever has had a market share that low. I say usually top out around 12% or 13%. But even as that share grows, I have to confess that I don't take any of it for granted.

I still love a good fight. And so I'm particularly amused by this next comparison. I want to throw that up my noose. These are long-term assets. That's 16.2% from 5.2% or actually up from 4%. While Fidelity is just going down and down. They've lost market share year after year after year.

And I wonder what they're thinking. We had a director at Fidelity who was a good friend of a Vanguard director. And I was known as "God" in their boardroom. Not as a compliment, by the way. It was like Ed Johnson saying, "What do you suppose God's going to do about this?" I don't know.

But it's an interesting competition, or was, between Fidelity and us. Because for them it's kind of war and bad feelings. With me it's kind of a happy competition in which whoever offers the best products at the lowest prices and the best service is going to win. And I think that's what we're seeing on this chart.

And you can see their turn, if you look carefully. Came right at the time that the bubble in the stock market burst in 1999. That's their peak. And it's down 40%. That's a big loss of market share. A 40% decline to the 9% today. And it's only a matter of time until we'll be twice as big as they are in market share.

It's amazing. And these are long-term assets. You can see they're much bigger than we are in the money market. Funfield, which has been very quiet at the moment. And when you take that into account, and we're only, if that's the right word to use, $375 billion ahead of them.

So it's fun, and I like a good fight. But it's not just Fidelity. We're wearing the crown right now, the largest firm in the industry. As I mentioned, we're an all-time high in market share. And when you take it and compare it to the competitive landscape when Vanguard began, we didn't do 74.

It was easier to find the 1980 data. We'll do 74 shortly when we have time. And you can see what's happened to those market shares of the leaders in those days. And you can see that just about everybody has lost, in some cases a lot. You can see Putnam going from 4.2 to 0.6.

That's, as you tell me, an 80% loss in market share. And they earned every penny of it. And Capital Group just slowed that way down. I was afraid it was actually shrinking at the moment. It was the only significant one. The only one that went up in market share compared to Vanguard.

So the competitive landscape is saying, I think, that indexing is popular, that the demands in the marketplace, that the balance between bond funds and stock funds is much more oriented towards bonds. And most people in the industry have had a big help in the last decade. Our performance has been good.

We'll talk a little bit about that. People trust Vanguard, and I see this in that correspondence that I get literally every day. And so it's hard to see at the moment how that growth is going to be interrupted and where the real competition is coming from. There are a few big firms on this list.

You see Putnam, Capital, Merrill Lynch, BlackRock, that's a merger, and the rest of them. And Fidelity, of course. And then you go way down, and the next firm is probably really 3% or so of the industry assets, way down in leaders, and that has some implications that I hope everybody at Vanguard is thinking about.

And we've also become much more attractive to large investors, if you want to put up that chart. Way back in 1992, I had this idea that we should let the competitors know there was no point in their cutting costs, because we'd cut them further, and so they're just going to lose.

And so we did what we call "selective scale prices." That's what I called it then, back in 1992. We started our first Admiral Fund, which meant if you put in larger amounts of money, you got a lower expense ratio. Simply respecting a brilliant decision, but simply reflecting the reality of pricing in this business.

And that is a $100,000 account, and probably has the same cost to us, maybe even a lower cost to us, than a $2,000 account, and yet they were both paying pretty much the same expense ratio. So we decided to do what was proper, encourage the larger investors who are important to our being, and we'll reduce overall expense ratios for everybody.

So this was a kind of low-cost, attracting 31% of our assets now, our admiral shares. This, I think, speaks for itself. But unfortunately, the press doesn't seem to get it right. They think we're cutting costs for the admiral shares. Really, we're not cutting costs, we're operating costs. So when you reduce the cost on a certain group of funds, you're raising them, maybe immeasurably, more than someone else, but it's not a big gap.

It doesn't change our revenues one penny over the other. So it looks pretty good, Vanguard growing, and doing, I think, pretty much the right things. New York growth, of course, index funds, the driving force. Yes, we did start the first index mutual fund. There was a little controversy about this, which you all, some of their number, are quite close on this point, but there were a couple letters in the Wall Street Journal implying that somehow I didn't really start the first index fund.

Well, if there's anything that is clear in all this, that is the first index fund, period, the first index mutual fund. No one argues with that, but they say other people had the ideas. Even I had some back in my senior thesis in 1951, talking about how hard it was to beat the index.

And one thing I want to mention to you, because you get to a point in this life where all you have is your credibility, and I thought some of those letters suggested I wasn't telling the whole truth about the other people that worked on this issue. And the fact is, I've been telling the truth about it, the whole truth, about the truth, since about 1995 or '96 when indexing started to get popular, giving full credit to Jeremy Grantham, who tried to do indexing and failed back in 1971, and for his trouble was awarded by Pensions and Investment magazine, the worst idea in years.

Pensions and Investment described Jeremy's foray. And I talked about guys I know personally, like Bill Faust, and Macklepone, and Wells Fargo, they were pioneers in this area in a very sophisticated way. I don't do it in a sophisticated way. And other people that had come along the road. And so we did start the first index fund, and as I've often reminded our crew, in another context, totally irrelevant here, sure the ideas are out there, but what I've said is ideas are a dime a dozen, but implementation is everything.

And we didn't think about that term, implementation is everything. We did it, I'm not sure the landscape would be much different if we hadn't been first, if we'd been second, or third, or fourth, but the fact of the matter is, a recollection now, we started the fund, I know we started the fund in 1975, and I think the second index mutual fund was started by, I believe, Wells Fargo in 1982.

That's a great idea when nobody copies it for six years. So I wrote to the journal editors, did my piece with me, which was cut markedly, like a period, I sent it actually to the journal editors, I'll just tell you a little anecdote, because I wanted some observation of our 30th anniversary, and I got going a little bit late, I just had the idea one afternoon of writing this piece, and I wrote it and got it home to them.

At that time it was, I think maybe July, August 28th or something, and the date is August 31st, when the underwriting took place. And so I sent them this piece, the guys I know on the op-ed page don't know them well, and I said I want this to go into the review, it's too long for you guys.

So they looked at it and said, well why don't you give it to us first. So I sent it to them, it was 2,000 words, and I knew they just don't do 2,000 words op-eds. They said if you can get it to 1,400 words, we think we can use it.

So I was a sucker, I cut it to 1,400 words, and I said to somebody, doing that cutting reminded me of James Franco in 127 hours, cutting off his arm. That's what editing my own commentary is. And they come back with some more edits, we're now done with 1,000 words.

So it missed a lot, but it kept a lot, it kept the sense of it. I had the option of saying nope, that's too much, you're out. But then you get to that point and you say publish it the way it is. So it wasn't as complete as I'd like it, but I have the complete one on my website too.

So for whatever that's worth. But I am sensitive to anyone saying anything except yes, he did start the first index fund, and no, he wasn't the first one to have the idea, I freely concede that. Unless 1952, '51 was the first chance it met. So our strategies go far beyond the index fund.

And that's what I'm going to talk mostly about here. I'm going to talk about index funds, going to what I call virtual index funds. And that's a description that people in our bond department do not like. But the whole idea of some of the funds we consider active is to have them as much like an index as we can possibly make them when there isn't a suitable index around.

So indexing share of equity fund assets has converged, giving rise to this great paradox. The title of the speech I gave five or six, eight years ago, I can't remember. Converges to great paradox, even as active management reflected in higher R-squares gets more and more like indexing. So indexing gets more and more like active management.

And so I'm a kind of, what have they done to my song, mom? Tied it up in a plastic bag and turned it upside down. And much of the growth of indexing, you can see it there, coming from exchange traded funds. But indexing was 25%, 24% of equity fund assets.

If you go back five years, you think of the real importance of indexing and how it's taken over. Cash flows into index funds, index mutual funds in the last five years were $630 million. And cash flow into actively managed equity funds was $7.6 million. That's a big difference, and that impact is going to continue.

Indexing is going to be more important, and people kind of don't recognize it, but they're starting to recognize it more, almost every day. You see it in the financial analyst journals, you see it in the economist newspaper, you see it in a buttonwood column there. It's become an accepted thing, you don't have to explain it anymore.

But beyond that, indexing, our great strategy from the beginning, I struggled for years and years to find the right words to describe it. What I described in the beginning is having funds that have relative predictability. There must be relative predictability to their categories. And the idea is you can reduce behavioral problems of investors jumping on the hottest of things when buying it.

If you kind of tie, anchor your funds to a certain standard and have a high relative predictability. So not pure indexing, but virtual indexing, which has high correlation with a target, which has low turnover, low cost of course, very low cost, and specific maturity standards in the case of compound funds.

And it's also true, I'll talk a little bit about this later on, it's also true of our multi-manager strategy. I've always liked the multi-manager strategy. Not because we can pick great managers, because we can't, and I couldn't. I'm not casting any spurts, I think I batted 510, which I will say is probably better than Ted Williams, 406.

But not very good, and I don't know if we're batting 510 or 490 now. But conceptually it's going to be, if you pick five managers of fund, they're going to end up being pretty much average. So when you go over to our market share, we totally dominate the index fund market.

And relatively small factor so far, ETS, and that's like 14% active fund share in the industry. Now I want to talk a little bit about this idea of correlations relative predictability. So we can put this next chart up, and show you here the correlation of our, over on the far right, the correlations of our funds in each category with their targets.

Index funds, the correlation is 93, you look at virtual index funds, the index funds are 99, I'm surprised not 100. Balanced funds are 100, meaning we match the index very closely. The virtual index funds are very high, 93. The bond funds usually explain by, those are our municipals mostly, usually explain by small differences in maturity or strategy compared to the industry.

And balanced funds, those Wellington funds, way up there, 98 I think, or 96 correlation. On average, balanced funds are 99, and the actives, even so with multi-manager, particularly in balance and equity, are 92 correlations. And the idea is that don't have something that gets hot, like where Mr. Berkowitz is down 30% this year, I'm a last year's hero, it happens all the time.

I was talking to Christine Benz, the Morning Star lady, a little while ago, and I said, you know, you probably ought to stop picking managers of the year. Every one of them turns out, ultimately, every one of them turns out to be, a phrase I've often used, you think they're stars, but they turn out to be comets.

Lighting up the firmament for a moment in time. They're then burning out, their ashes drifting gently down. (laughter) Not a bad phrase, right? (laughter) So, we do this with multi-manager, we do it with municipal bond funds, with specific maturities, and give that relative predictability that we see. A, with low cost, it's a perfect strategy.

Because if your correlation is perfect and you have lower cost, you're going to win. And so, that's what it's all about, and we continue to do that. I'll talk a little bit later about some places where I'm not so sure. We haven't lost sight of that centrality of that goal, but there's not any point in having a hot manager.

Good for a year, good for two years, maybe good for ten, but in the long run, it doesn't work so well. So, we can, oh I guess this is a repeat. What have you got next there? What are we showing, did I just talk about that? Oh, those are some individual funds.

And you'll see Wellington there, '96 was their correlation. Windsor '96, amazing, Windsor too. Strategic equity even surprised me. '98 prime cap, '93. And so, you'll see those individual funds are very, very tightly tied to their targets and their best fit indexes, and they win because of that column. Oh, they're on the right, low expenses.

This is not complicated, and it looks little on a year-to-year basis. These are annual expense ratios. When they compound over the years, there's all the difference in the world. So, we see that growing, and see a growing part, portion of bank arts assets, and you'll see what I call virtual.

Again, they don't like that term in the office. They think they're active managers. In terms of muni bonds, which is sort of an issue here, they are in their own way active managers. We have very definite maturity standards, very definite quality standards, and they're not to be violated, and they don't change all the time.

So, in any event, active share is very, very high. It's dwindling half what it was in 1990, roughly half, and the virtual share is now up to about 82%. These aren't foreign numbers or anything like that, but just to give you an idea of the direction in which we're going.

So, the idea is not to disappoint, or as the subtitle of my 2005 book said, "The only way to guarantee your fair share of stock market returns," and it is. So, in all this, the equity funds are kind of a wild card, and I'll show that next time. Can we do this here?

Yeah, I guess we can do that here. You can see how important cost is to this whole equation. It's not the ability to pick great managers. Not me either, as I said, but it's about keeping cost in, and you'll see things from Vanguard that give you those blue bars there, the extent to which our 10-year performance outpaces those of our competitors.

And you can see we're 100% in the bond area, 100% in the money market area, almost 90% in the balanced area, 61% in the stock area, meaning we have performance for our competitors. But the reality is we're there because we have no low cost. So, if you look at stock funds, we're below average manager picker.

X cost, just a little bit above average in bonds, which I don't think is a material thing in one way or the other. Below average would just mean we have higher quality. In balanced funds, money market funds, balanced funds maintain pretty well, and money market funds, of course, drop radically.

And that drop in the money market is simply because we've stayed with higher quality, and I'd never regret that. This is not a definitive chart. This is a directional chart. So, just a reality check. So, it's not a good idea to brag about our ability to pick great managers because when you see the 61% or the 100% or the 89%, you're ignoring the fact that most of our advantage is in cost.

We had a guy that worked in our municipal department, a senior person, Jerry Jacobs, who had a superb record. He ran the intermediate term municipal bond fund. He was hired away for many millions of dollars a year by Putnam. And all of a sudden, this top manager became a bottom manager.

Did he lose all his intelligence? No. He went to work for a municipal bond fund and charged one and a quarter percent instead of two-tenths of one percent, and there went his record. I don't know why Putnam didn't examine it this way. They might have done a little bit better.

They had a lot of problems there. But in any event, it's a very growing impact on its cost, and it affects everything we do. I now want to turn to ETS as such. I mentioned that before. I'll give you a little presentation here. I mentioned what have they done to my song.

This is the answer. This is my idea of buying and holding forever. And then if you look back on the history of exchange-traded funds, it's going to be probably the greatest marketing strategy of the first decade of the 21st century. Has it been the greatest investment strategy? Absolutely not.

How can we have a great marketing strategy for its investors? Well, they won't figure it out. Okay. There's nothing the matter, to be clear, about buying an ETF and holding it forever. You will do just as well if you do the total stock market, Vanguard total stock market. If you buy the ETF, hold it as if you buy the regular fund.

I always thought when I came into this business, "My God, you can get your money back on any given day?" This was 1951. I thought that was a miracle. And now it's in any given second. And it does hold out the temptation to trade and is used to trade.

So we see ETFs now coming in for a certain amount of attention. The New York Times had a headline the other day, "Volatility. Thy name is ETF." So I named the ETFs, particularly these triple, double, reverse lattes. Or whatever they are. I hear people arming those things. I don't know what they are.

But we'll fancy it up. Double leverage wasn't enough, so now it's triple leverage. Going up was not fun. Now I've got to get it to go down. And it's not any question it played a big role in the flash crash a couple of years ago. It is playing a big role in these wild gyrations.

We get closing hours in the market--closing hour in the marketplace. And it doesn't seem to be part of the high-frequency trading syndrome, but that's another cause of all this volatility. ETFs have also been at the center of a number of frauds and market manipulations, including that $2 billion loss taken by United UBS out of Switzerland, including a Goldman Sachs partner who was doing something illicit, which I can't remember.

And I'm sure a lot more is done in the ETF area. I was struck the other day--I'll open this one up for a second. My wife and I were out shopping or something on a Saturday morning. I looked at the license plate on a car, on the car in front of me, and here's what it said.

"Oh, gee." She said--Eve said, "What does that mean?" I said, "Oh, my God, my idea. It's highest form. Index trader." And, of course, the guy was driving a Jaguar. That's the world we have. Vanguard has become a very strong entrant in the ETF market, I think, in a better way.

As far as I can tell, in a better way. While our market share is creeping up at 12%--we actually did 33%-- that's creeping up from 4% to 12%, a triple in years. It's pretty good. Five years would be good. Or, I'm sorry. Yeah, it's five years. And we're actually now doing 33% of all the cash flow on the ETFs.

So that's going to grow and grow. And I just hope--and I have no way of knowing this. You'll see that they'll be over there this afternoon, the guys that run our ETF business. But I don't have to know. And I've introduced myself to one of them. I hope to see you this afternoon.

I hope they won't be nice. But I think, deep down, there honestly isn't a big difference between management's view and mine. Implementation, again, may be different. But nobody at Vanguard thinks trading ETFs for this kind of rapidity is a good idea. You just can't believe that. And so we try and avoid that.

Yet, there's a lot of volatility in what we do and what everybody else does. You can see this turnover is unbelievable. If you want to go to the next chart. The ProShares and Ultra SP flip, turns over at 17,669% a year. An average holding period of 2.1 days. Spiders typically run around 10,000% a year.

And Ultra Short, now that's popular. And take a guess at what the market's going to do. Magnified by three. 10,000% a year. And then the more speculated index is Spiders via Qs. Other ones that are hot periodically. China. Look at Brazil. 2,146 holding period, 12 days. iShares emerging markets, 2,500.

Spider Gold shares, 1,500. IFA index, more conservative than most, but still 1,000% a year. 36-day holding period. Vanguard is obviously doing better than that. But probably not better to suit May. I think we're doing it right. For example, our emerging markets index turns over at about 750% a year.

And that's a quarter, or whatever one wants to say, of what the MSCI is. 757%, still an awful lot of turnover. Our total stock market is better. The quality at 300% a year, that's better. I'm a guy that believes 20% turnover is pushing the envelope. So I look at these things and I think, what the hell?

What the heck is going on? But it raises the issue of is all this turnover good for investors? And a number of Vogelhead posts on this comment, you've probably seen many of them, saying that the idea that I have, they don't refer to any of these posts at all, that we want to be examining investor returns, returns those investors are making in these various ETF categories compared to the returns the fund makes.

To take an easy one, the large cap ETF investment funds have produced, obviously not a very good return over the last 10 years of 3.2% a year. But the average investor in those funds has earned 1.7%. So that's a cumulative loss over a decade of 18% of your capital, just by all I've traded.

In business small cap, the cap is 48% over a decade. Add your money lost to the index standard. International developed markets, these are what you know about, we'll talk more about that later. 91% of the capital gets lost. And in individual countries, it's 223.2. We didn't have emerging markets in individual countries.

The international developed was a lot of cold market. And then we go to individual countries. So people are betting on things like Brazil, or Nepal, or wherever else they are. And you can see that a 10% return is enormously different from compounding. 4% and the investor grows to 56%, a very nice return, I admit.

14% is fund earns. And it's regular time-weighted. Unit-weighted, if you will. Return at 280%. It's a huge gap. We don't have these inverse and leveraged equity funds for 10 years. So we used to look at five years, if you could put them in the above chart. And you can see they're not starting off so very well.

Emerging markets lost 20% of your capital. Inverse equity, 7%. But look at how good the people were picking the inverse times. If you stayed in that fund for five years, you lost 56% of your capital. Yeah, you lost just 56% compared to only 49% for the return by the fund in that period of leverage.

So you just see this. Time-weighted returns are a little controversial. I mean, sorry, investor returns, dollar-weighted returns. So uncontroversial. I first started talking about them. We should have funds report them. Way back in 1996, one of my first speeches after getting out of the hospital. And everybody thought it was the dumbest idea they'd ever heard.

Because everybody knows what the fact is. If you want to look at the return, the fund says, "Here's what we earned." You know in almost every case the investor earned less. A little less, or a lot less, but less. And you look at standard mutual funds, not ETS, the gaps are there, but much, much smaller.

So it's part of the business, but I don't think we should be in the business of taking advantage of people's shortcomings and behavioral problems. So you commented, and that's an interesting subject, that one of the reforms I would like to see is that all mutual funds, ETS or otherwise, actually be required to report the returns their investors earned, and not just the returns the funds earned.

It's well within our technological capability. And you see these gaps shown in the next chart. I just didn't, so dramatically, what I did was take the right-hand section of the other chart and grabbed it, made a graphic. And it's really quite startling, some of these are quite startling. And so the ETS is getting more and more extreme, it's good marketing.

And so it's very disruptive to the markets, particularly these inverse equities, leverage equities. And we shall see, but I don't like what I see so far. In addition to these specialty areas, ETS has become the vehicle. When you've got some amazing new investment idea, you go the ETF route rather than the regular fund route.

Because the idea of ETS is a hot marketing idea. And so you'd never probably hear of people like Rafi 100, Rob Arnott's thing, or Jeremy Siegel's wisdom total dividend thing, if they just did it in the conventional way. So they do the ETS, and they have the answers, these fundamental indexes.

Do you want to go to that? And you can see that Jeremy Siegel was quoted as saying, "We're the pernickets of the new age, who buys the rules of the heavens." It's all going to be different now, and it's not. You can see in the blue, that's Arnott's thing.

It's much more volatile, produces a return, a point different from the Vanguard total stock market. Not much difference, and that's a very short period. I'm confident that the differences will just exist in a very small level, and maybe a losing level in the long run because these funds cost not just their expense ratios, which are high by my standards, but because of the turnover it takes to do that.

And curiously enough, I like that Jeremy Siegel's wisdom tree fund based on index, the total amount of dividends paid, so a big dividend pair would be larger on the list. And if that was basically a total bomb, and that total dividend fund is now 1% of wisdom tree's total assets.

1% is about 170 million out of 13 billion, and they've got more things for trading currencies. I have a list of them here, but I won't take your time to read it. But you look like you're reading a lunatic's map of the world. Who wants to buy or sell Indian rupees?

But it's a strategy. But in any event, if you took out of that chart over there, the fact that Barnum and Ratley is significantly more volatile than, like, 15% more volatile than Vanguard's whole stock market, it really accounts for the entire difference. So it's much value. He's the greatest salesman since P.T.

Barnum, I think, and he still believes it's working. But even I'm looking at this record. So there we are, industry headed off in the wrong direction. In my opinion, and that's a big growth part of the industry. It has to taper off, and investors have to get wise about the fact there's no trading.

There's no money in trading rapidly in the stock markets. And eventually, of course, like the gamblers in Las Vegas, they will have no money left. And so that will be the end of the ETF. I'm saying that a little hyperbolically. But just use properly the right kind of funds, help in the long term, very diversified funds, bonds, stock, develop markets, maybe even emerging markets.

We'll talk about that later. It's okay. But if that accounts for 5% of the use of ETFs, it might be absolutely amazing. And no one knows how to count that. So let me talk now about, first, books. And then some closing reflections on my lifetime. And I have copies of, I think I've brought about 10 copies of, don't count on it.

If you flew here, don't buy one. I'm giving them away, so. Mel, you'll have to figure out how to get rid of them. I'll be glad to sign, as I said this afternoon. I've had 15 copies of paper backing up, which is fine for the airplane travelers. And I'll sign them after lunch.

So I just thought it might be interesting to reflect on the books. Which, you know, I don't know. I keep thinking that there must be something terribly the matter with me. Because I don't know anybody else in the industry except for Peter Lynch who has written one book or two.

And there may be other people. But I don't know them, so don't correct me if I'm wrong. So I'm wondering, as an old expression, everybody is out of step but me. So maybe it's stupid. In any event, they now go back to 1993. Which, tragically, tragically, I was the best seller of the whole bunch.

And I've gone downhill from there. But they all do pretty well. And in particular, Little Book of Common Sense, the best thing is it's a small book. And the only way to guarantee your fair share is Hop Market, which continues to do extremely well. And even though it's now four years old, and we go by sales, we go by Amazon, we go by comments.

They get great comments on Amazon, mostly. Four and a half stars. There's always somebody that doesn't like your books on Amazon. It's very humbling to read that. And my favorite comment was, "This author has a real problem. He writes more like a novelist than an economist." And I thought, "Well, if that's my problem, I'm feeling pretty good." And someone wrote about Vogel and Mutual Funds way back among those years.

You never forget the nasty comments. You forget the good ones pretty quickly. But good analysis, poor conclusions. Just what you'd expect from an MBA. I was heartened by the fact I didn't have an MBA. So, and even that great big orange tone, really did pretty well. I can't tell you the numbers, but maybe 25,000 copies or something a typical business book sells, about 5,000.

And you know, it's not Michael Lewis territory, that I can assure you. But I feel pretty good. I want someone to look at these things and feel pretty good about what I've written, what I've written. And I think they will stand. Someone wants to look at them and get a picture of this whole group of books on the development of the financial industry and the mutual fund industry in its great growth phase in the '20s to the end of the '20s century.

And sort of consolidating phrase, "The phase that begins thereafter." I think they will get a good picture. What life really was. Not in retrospect, but what I was thinking and saying then. Does anybody really care about that? I have absolutely no idea, but I care about it. And that's good enough for me.

I'm working on my next book. And you've seen, I think, the original essay, which was turned into a speech at the Museum of Financial History. The book is titled the same as the speech, "The Clash of Cultures, Investment vs. Speculation." And I don't know, I think I only published it under the orange cover.

But that's where we are. They left that to me. But that will be coming out. I had to postpone it a little bit until February '28. I had such a big setback in my health and my ability to sum up my energy for that matter. It just took a little longer.

It will take a little longer. I'm not really deeply into it yet. But once I get through this thing today, I will be back to it pretty much full-time for the rest of the year. As much as I can. So, I mentioned that first speech. And I just want to give you this one example of how much speculation has taken over to the detriment of our society.

And that is, if you look at investment as we conventionally do, capitalism, capital formation. That's directing capital to its highest and best uses. Companies that are growing, companies that are providing better products and services at lower and lower prices. That's what investing in is, putting money in those companies.

And every year, the American financial system directs about $200 billion into IPOs and into additional middle core frames of existing companies. How much is speculation? If you take share turnover in the markets and multiply it by the price of shares, it is $40 trillion. So that's 200 times, if I may, of speculation as we do investment.

And that's just a big waste for everybody except the croupiers and Wall Street. They aren't too happy being quoted as croupiers. They don't complain directly. So that's going to be the first chapter. The second one is very tandem. I'm talking about the happy conspiracy between corporate managers and fund managers.

In this, there's been nothing written about this. The problem is based on what I call a dual agency society. Agents always have problems putting their principal's interest before their own. Whether it's money managers or corporations. But now we have agents of agents. And that is to say these corporations are not owned by individuals.

That would be the conventional agency problem. But corporations that are controlled by corporations that represent individuals. And that's institutional investors and mostly mutual funds, the largest segment of that. And these institutions own 70% of all the stock in America. So this is a tremendous conflict of interest. And many, many other things arise from this dual agency society.

I'm going to try and think of a better term for that. I like to term happy conspiracy. I used the title "The Silence of the Lambs" before. It was taken when "The Silence of the Lambs" was in the news. It was an evil movie. And I want to get into the implications of all this trading and all these agency problems.

Into the lack of interest in corporate governance. You've heard about that from me. About our failure to do anything about the sane executive compensation. Our unwillingness to stand up and be counted on corporate political contributions. One of America's great outrages. I know I'm not supposed to talk politics, but I said it and here it is.

I changed character in the mutual fund industry. In ETF chapter, index fund for investment or index fund for speculation. I spent a lot of time talking about fiduciary duty and in fact have some work I've done earlier. A measurement system. Fiduciary duty, whether your manager is observing it or not.

Our retirement system. The basic fundamental part of America, making sure we don't have everybody on a leaf when they retire. And it's failing us. And I have a lot of ideas for fixing that. I have some simple investment advice. And then a chapter I'm really happy with and I am actually working on this now.

Is an example of what happens when a fund turns from investment to speculation. And that is what happened in the case of Wellington Fund. And I do that chapter first because we pay more attention to history. And it's all gone. And when I'm gone, I don't think anyone is even going to know the history that I'm describing in that chapter.

It's amazing. But I've been in Wellington for 60 years, if it's 80 years, 83 year existence. And I'm kind of the last guy that has the knowledge to do it. So I think I have an obligation to do it. I also have an obligation to honor my great mentor, Walter Morgan.

Who picked me up out of the air and made me into something I probably never would have been otherwise. And that's a fun chapter. It's like the real message. Because the fall came, we did the merger back in 1967. And in the following 10 years, the fund had the worst record relative to its competitors in its entire history.

You can see it. Because we compromised on quality. We had a slightly higher turnover. And we took funds, a beta measurement to the market. Which in Wellington should be about a 65, has been. We took it to 104. We made Wellington into a stock fund. And it was only with a 73 or 74% equity ratio higher than we ever had.

When the stocks are more speculative, you take that risk right up. And then everything fell apart. Fund drops. It's really a great story. Fund assets dropped from $2 billion to $400 million. And now it's back to $52 or $53 billion. And leading the balanced fund segment in the industry once again.

So it's a fun story. It's a story with a real lesson. It's a story which is the very least of what I ought to be writing anywhere. And I don't know what I'll do about looking ahead. I'll think of something by then. So now a few reflections on the market and a few investment principles.

Or at least reminders of the same. What should I do now? Keep going. This should be maybe five more minutes. The Asian market is 2011. We've had bear markets all over the world, even in the U.S. They don't tell us we had a bear market, but some genius once said it was a 20% decline.

500 didn't go up, 500 didn't develop, a good performer this year. Total stock market index in fact was down 20%. Developed market index is 25, 26. Emerging dropped to 30. And total international, combining the two, dropped to 27. So we had this huge recovery. I'll talk about that in a minute.

Since then, I've been very comfortable. The first big crash came, everyone wanted to know what to do. And I said, "My advice is do nothing." Don't just stand there. The old rule is don't just stand there, do something. That's what we always do in times of crisis. And I said, "Don't do something, just stand there." You know, it takes a little, I guess, guts or stupidity to say that.

Because nobody knows, least of all, what's going to happen in the next days and weeks and months. It turned out to be very good advice throughout all of this. Because right now, we're back, I don't know how much I've updated. Yeah, this is updated as of yesterday. Okay, so you can see we've had an enormous recovery.

500 index is not too far up to the year. Emerging markets down 17%. Total international down 12. And then, of course, bonds giving a nice protective element. All I have to say is this doesn't fit in the chart at all. But I had to say it anyway. But interestingly enough, it's been a great year for the bond market index fund.

Not because it's great. It's very heavily weighted toward treasuries, U.S. treasuries, mortgage-backed bonds. 70% or something like that. Where that's a, you know, you'd say over-weighted in treasuries, except that's the market weight. And so that made us very good in 2008, very bad in 2009. Okay in 2010, now excellent in 2011.

And I just can't resist noting that the genius, and he is a genius, by the way, Bill Gross. I don't mean to take anything away from him. But even the best generals make mistakes. His bet against the treasuries proved to be wrong. So we picked up 500 basis points.

Very, very unusual for the year. Now, we have a bear market. Working on this new world has come back as well as after it. And I was trying to make the point that sometimes in history, I always like to take a historical perspective, bear markets stop around 20% when you get over there.

And at some point, they continue to go down. And we never know which is which. But here's what this one looks like. These are all the bear markets in the post-war period. And you can see that you probably can't count them too quickly, but post-World War II, there were 12 such bear markets.

I counted that 19 as a 20. Three got much worse, and nine didn't. And we had no idea whether this was a pause, an interregnum, or whether it was going to get worse. But I have to say, I'm always comforted when things start to consolidate and level out. I don't like these bear markets.

They make me nervous, not so much nervous because I'm predicting the market, but nervous because at some point in which you have huge behavioral problems when the market does a certain thing, or it redeems their shares, and that makes it worse. So I think maybe it's a slightly hopeful sign.

We shouldn't be looking so much at a chart like this, but rather what rational expectations are for the future. And that brings me to a rule that you've heard from me a long time, if you read all my stuff, nobody could. And that is the idea is to stay the course if you're on the right course for you.

And that may involve being conservative for some and aggressive for others, depending on age and other factors. But control what you can. You can control time in two senses. Start investing as early as you can, for example. The difference between investing early and late is enormous. And then use long-term managers, not use short-term speculative managers.

Tax impact. Risk, you can control. If the fund controls it, and I mentioned Wellington Fund, you control risk at Wellington Fund back in the late '60s and early '70s. Wellington Fund didn't control its own risk. So keep an eye on fund base. And you can, of course, control costs, low-cost providers.

Use low-cost providers, use low-turnover funds, use no-over funds. And when you can't control, which is returns, have rational expectations. Let me just give you a quick gander at these rational expectations. You've seen this in my stuff. And this is the way to look at markets. I mean, it's unequivocal that the source of market returns are dividends, earnings growth, and P/E change.

Any period you want to look at, days, weeks, months, that's all that happens. So this is kind of a rough guess of 2% dividend yield today, maybe 6% or 7% earnings growth, maybe 5%. But in any event, maybe it's slightly over P/E. Because P/E, as I mentioned to Christine, I don't think too much out of line, a little bit on my side.

And maybe 7% on stocks, which is doubling your money. And bond returns are 2% on the 10-year Treasury, the benchmark. But I think you almost have to be more aggressive than that now, because the benchmark is so short-term. It's probably got a 5- or 6-year duration. And 70% U.S.

Treasuries. And so it's probably a little more aggressive in your portfolio composition, I mean, a level of the bond market. And I'm certainly not eliminating my position in the bond market. I mean, if you look at these seemingly modest returns, 100% for stocks, possibly 50% for bonds, that's 3.5%.

Those returns aren't bad, but they're not gross returns. So give your bond manager 100 basis points, and all of a sudden you get 3.5%, all of a sudden you're at 2.5%. Give your stock manager a portfolio turnover, sales loads. And then calculation, don't forget inflation. These are nominal returns.

And they really don't look very good. But should you very prematurely leave the market standard, you can't handle the low returns, I don't recommend that. You're bound by the market returns, ultimately, all of us as investors are. No secret about that. But think about inflation when you look at that chart.

And then think about the fact those returns are before costs. Costs matter. Yields are hard to come by today in that next chart. There are the yields on our funds, and they're kind of funny. I'm not sure exactly how we calculate them. But those are what you'll see if you go to our website.

But we know that the yields in recent years have ranged, bond yields, from 4% to 7%. And now they're coming up with 2% to 3% these last couple of years. So they're way below historical standards. But I still don't believe in reaching. But if you want to go toward the long and toward the corporate as compared to governments, municipal bonds are quite attractive on a tax-adjusted basis.

And it's your own call. And I don't do it, but people ought to be aware that those yields are really pretty pathetic. How much should it be in international? I think this is my kind of closing comments here. I tried to say, and I did it dramatically this year, don't talk about international.

Just look at the international, look at what you're buying. So we want to put that next chart up. You can see that if you want 55% of your money in Japan, which is not doing so well, in Britain, which austerity is costing them a lot, in France, which still doesn't work, that's 55% of your assets.

If that's what you want, do it. But don't put it under some idea that you have to be in international. You have to be in those countries is what you're really saying. It's half of the developed market index. So think about that. When you get to the emerging markets, good or bad, realize that half of it is in China, Korea, and Brazil.

As we all know in recent years is so-called BRICS. Brazil, China, India, and Russia have been very good performers. Inevitably, when the value goes, they're not going to do well. Think about what you're buying when you buy international. I don't do international. I've told you my reasons before. I don't think it's going to matter much in the long run, and the record would show that there are short-term fluctuations, but not long-term.

The main message I want to leave you is think about what you're getting. Don't just say international is good. And the correlation is, of course, with U.S. markets. It's bad and almost 100% 100. In international diversification, the wise man set lets us down just when we need it the most, and that's true.

Finally, you have a bunch of posts on the board. Our target of change and our target of retirement funds. I just took this example for the 2005 to show you how much it's changed. First, to increase the equity ratio, probably back in 2004 or '05, significantly increase it from the 60% it was at our inception, and then today 12% international for each U.S., and then recently from 73% with the additional international and the additional change back in 2004 and '05.

73%--that's a big change. 73% and 22% international compared to '12, and the international change was made just recently. And I don't--you know, I'm on the inside track, but I'd love to know the rationale for that. There are people who are going to tell you. You tell us, as a matter of fact, yourselves.

It looks like we just do things to be competitive. You also tell us that we couldn't have picked a worse time at international. It happens to be true. I showed you we just left the darn thing alone. The cumulative return would have been 51%, 51.5% total return, and then the fund actually delivered 37.9.

Now, is that a prediction that we did the wrong thing? Please, no. I have no idea whether they've done exactly the right thing or not, but I do think maybe it would be worthwhile to have a little more explanation of why it gets done, because it's very important. All right, now I have--that's it for the charts and numbers.

They're not there for themselves, all these numbers. Underline--try and explain--underlie and explain the concept to apply my absolute conviction that mathematics and simplicity and economy and efficiency are the keys to successful investing for a lifetime. Ultimately, I'm going to ask after I'm gone, those principles will in fact change the world of investing, and much more parenthetically.

We'll finally get the institutional money managers, who I mentioned control 70% of every public corporation in America, off their darn duffel bags, honor their fiduciary duty, and assume their full responsibility for citizenship. That's not happening. And the index funds are at the bottom of the deck in terms of--ours and others--are at the bottom of the deck in terms of activity and corporate governance.

It's easy to measure how you work on compensation plans. That's a leadership vacuum that for the good of our country, I think, has to be filled. The obvious leader is the index fund--should be, must be-- because they buy and hold forever, and they can't follow the Wall Street rule, which is if you don't like the management, sell the stock.

Benjamin Graham, in his initial books, was very strong in recommending much more activism on the part of institutional investors when it was only a small portion of what it is now. And we should assume that wisdom and get back where we ought to be as corporate citizens. So here I stand at age 82.

I can't believe it. Just a few simple innovations to my credit, I guess. Mutual structure, the index fund, the defined maturity bond fund, changes that as modest as they seem and as simple as they in fact are, are central to a mission with a giant goal--my giant goal-- to make the world a better place for the investors who are earnestly seeking to save for their financial futures.

That's what's important about the financial system. Compared to Steve Jobs--I guess I want to mention him and everybody else does-- who simplified, packaged, and marketing "insanely great" products that changed all of our lives, my accomplishments, if I dare to even compare them, are modest to a fault. I am struck with both the unfairness of life that enabled me, thanks to the miracles of modern technology and care, to outlive a man who was born four years after I graduated from college.

It's very, very sad. Nonetheless, as I read the stories about his amazing life, truly amazing life, I'm really struck by some of the similarities we share. Let me give you these couple. Comment by venture capitals, Arthur Brock and Steve Jobs. He got ideas in his head, and the hell with what anybody else wanted to do.

Steve Jobs himself--getting fired, in his case, from Apple, in my case, from Wellington--was the best thing that ever happened to me. Steve again--I never asked customers what they wanted. If it's something truly revolutionary, they won't be able to help you. Simplify, simplify, simplify. And finally, great companies must have a noble cause.

It's the leader's job to transfer that noble cause into an inspiring vision. I'm sure you see the parallels, even I acknowledge the comparisons, self-serving and very rewarding. But whatever the elusive truth would tell us, it's not yesterday's accomplishments that interest me. It's tomorrow's challenges in changing the way we think about investing, even as I wait patiently--well, not really patiently, actually.

But I'll press on, regardless. So thank you for your patience. Sorry to run over. We'll take a little break to catch our breath, and then I'll answer your questions. Thank you all so much. you