>> Normally I would introduce them but I don't think that Jack or Bill Bernstein needs any introduction and we don't want to steal their time from their conversation. So, at this point, we-- well, this is a free-ranging, except non-political exchange. >> Why don't we break that one? >> Don't do that to me again, Jack.

You got me in a lot of trouble with that last time. So, anyway, this is called the Lower Side Chat and you guys hang at it. >> Well, good morning everyone. Jack, I'm going to start by asking you like a question that everyone wants to know, which is what does the retirement-- >> Can you hear me?

>> Can you hear me? >> What does the retirement of Gus mean to those of us who invest in using those portfolios? >> Well, first place, he's been a great guy, a fabulous friend, terrific mathematician, certainly one of Vanguard's priceless assets. But think about what he's doing. He's matching the market.

And that is not complex beyond belief. There are lots of nuances in it. But if you follow the performance of, well, let's say, I'm arguing here, S&P 500 index funds, they are all the same when you adjust for expense ratio. Their net returns are identical. In other words, everybody has picked up how to do this.

Heck, it may be that Gus taught them all. But I wouldn't spend 30 seconds worrying about what happens next. And, you know, an index fund is an index fund. And one of the great things about it is that when you buy an index fund, you're really investing for life without worrying about who the manager is.

I mean, think about this for a minute. First, if your life is maybe over a span of, say, 50 years, whatever it may be, some of us may not have quite that many left. But there we are. But over a lifetime, how many managers are going to be there for a lifetime?

And the answer is none. They're going to come and they're going to go. And funds come and go. Individual mutual funds come and go. Failure rate is about 50% every 10 years. Don't worry about that in an index fund. Regular funds, managers change every five years. So over, say, 25 years, I think I'm about right on the mat there, if you own four mutual funds, about 20 managers in 25 years, roughly a manager a year.

What is the possibility that 20 managers, a manager a year, can beat the index? It's zero. It's very close to zero. Maybe it's 100% to 1%. So all the index fund has to do is match the index. It has become a commodity. And for all of Gus's fabulous contributions to Vanguard, he was the one to say that he likes to say and I like to say, I was the architect and I picked a great builder.

And that's the truth of the matter. But his requirement will not trouble anybody in this room. And it's very good to trouble me, except as a friend. Yeah, I mean, I should mention that here, just to amplify a point that Jack made. It was always something that I had wondered about.

But we all know that over the long run, the odds of beating an index fund are 20%, which is not horrible. But the odds of your putting together a portfolio of active managers that would beat an indexed approach is much smaller than that. And Alan Roth finally did that study, an excellent study, and demonstrated exactly what Jack said, which is that you're the one percent when you're putting together a portfolio of active managers.

Do you have any comments, Jack, on the swishing away from the MSCI indexes? Do you think that has any significance at all? No, I think it's a kind of funny thing. It was a closely guarded secret. We were thinking about doing this at Vanguard. And while I have lots of contacts there and touch with a lot of people, a closely guarded secret is something they shouldn't tell me about.

And they didn't, and they shouldn't. And I listened, and the secret comes out in the paper. And my first reaction was to yawn. It doesn't matter. The idea that, say, an MSCI 500, if they have one, or a Russell 500, or a Vanguard 500, or a Dow Jones total stock market, all of them hold a Wilshire 5,000.

And there are probably half a dozen other indexes at that 500 level or total stock market level. And they're all going to have the same return over the long run, no matter which firm is managing them. Because large cap stocks are large cap stocks. The correlations between managers and index portfolios in that area is going to be 100.

And later on, I'll show you charts showing-- and it's sort of relevant here, but I don't want to get into it until I have the chart. But the idea, my idea has always been, for everything we do, including active management, I used to call it relative predictability. I'm going to call it, like I said, relative predictability.

And now, in this modern age of wants, we want to have my R-squares. But there's no change, except you can understand what relative predictability means. I mean, I think it's an interesting issue. I think it does matter a little bit, maybe, of the basis point range. I'd rather be indexing an obscure index, large cap index in the S&P 500, just from the view of the new Constitution and the expenses.

I mean, I'm much happier with the large cap index fund than I am with the index trust 500 fund. I want to index that particular area. Chuck, let me ask you-- Yeah, actually, let me basically agree with you on that. I was making this point to talk about total stock market index funds, total international funds, all with very heavy large cap bias.

There could easily be differences between the S&P-- what is it-- 400 or something down there, whatever the small cap index-- 600 for the small cap index. And the Russell, they have different ways of reconstituting this. Or worse, you try to get around a lot of that by using different indexers.

But as a broad generalization, and when you can save as much as we are saving-- I don't know the exact number, but it's significant-- these guys get away with murder for calculating. I mean, you saw the stock at MSCI. Why an index provider is publicly held is another real question.

But their stock dropped 33% or something the day we made this announcement. We saved money. They lost money. And so hats off to Vanguard for doing what we-- eating what we-- what do we say-- eating what we preach or something, eating what we cook. And so-- but it doesn't-- I think you do have to be, I agree with Bill here, to feel more careful, if not a lot more careful, in the lower areas.

But a firm like Vanguard or another big indexer like Fidelity or BlackRock is going to be very much able to do these things in the right way. And if they aren't, time will emerge and tell them that, and they'll have to change. So it's-- I've made-- I've never done this before.

I've made two brands of generalization. Well, maybe almost never. Almost never. That segues, Jack, into another question that I have. And this is sort of a personal interest of mine. And I apologize for indulging in front of this audience. But it's a very interesting issue. I mean, Vanguard is a nonprofit.

And it's a nonprofit which is slowly gaining market share on those companies that supposedly should be benefiting from the invisible hand. And it's not the only area in our society in which nonprofits outpace for-profit sector. I'd much rather be in a hospital, for example, that's run by a nonprofit than one that's run by the HCA of Nevada.

I'd rather-- how many great for-profit universities can you mention? University of Phoenix is the biggest one. I don't think it has the best reputation in this country. And so there are some areas that hidden hand doesn't do as well as a nonprofit. And you've written, of course, about performance of mutual funds depending on their corporate structure and their corporate ownership.

I'm wondering if you have any reflections on that. Well, let's look at it this way. The one thing that distinguishes the mutual fund industry from other industries is the relationship between cost and return, dollar for dollar. In other words, you would not necessarily-- cost determines return. But if you get return x and deduct 20 basis points from it or 10, you're going to have a big advantage on someone who provides the exact same performance and charges the exact same kind of fund and charges 100 or 200 basis points.

There's no way around the math. So as long as gross return in the markets or in your fund minus cost equals net return, whoever has the lowest cost has the highest return. This is not complicated. And our industry is just finally trying to catch up with it. And they don't know how to.

And the problem is very simple. They are in business to make money for themselves or to make money for the financial conglomerates that own the management companies. And for those of you who've read my book with great care, if these aren't the numbers that are in the book, forgive me.

But of the 50 largest mutual fund management companies, around 36, I believe, are owned by great big financial conglomerates, unlike Canada right down the line, Deutsche Bank, and so on. And those companies have bought mutual fund firms to earn a return on their capital, their corporate capital of, say, Deutsche Bank.

And the interest of the shareholders in that fund is to earn a return on their capital. And that's a conflict of interest right there. When you're in business to make money for yourself, and the people that you're investing for think you're in business to make money for them. And so they have a great difficulty in competing.

Another six or seven firms in this industry are publicly held. There's their own stockholders around. And so I think that leaves about six firms that are privately held, six big firms, which, of course, would be Fidelity, Capital Group, California American Funds, and Dodge and Cox. There aren't a lot of them.

And then Vanguard, which is sort of privately held by its own shareholders, if you want to look at it that way. So we have a tremendous advantage, because this business not only has cost everything, but cost can be measured with precision. I mean, if somebody else's-- I don't know-- Lincoln Continental is more valuable than somebody else's Mercedes, Benz, or Jaguar, all that benefit is in the mind, in style.

Maybe a little bit in construction, but whatever it is. Diamonds, they may be a girl's best friend, but it's very hard to measure precise value. But in this business, you can do it. You can do the math. You can see the math. You can see just where it comes out.

You do have to estimate things like turnover costs. We always ignore sales commission, which is still a very big part, sales load, a big part of it. And Vanguard has, because of our structure and the kind of funds we choose to run, we have a very low portfolio turnover.

The cost of that is essentially zero. We have no sales loads. So when you compare our, say, 18, 20 basis point overall fee, sometimes as low as five basis points. With others who are, on average in this industry, used to call it 100 basis points for a month, just have this huge advantage, but they can't compete.

The example I use is, if I can just rattle on for one more minute here, is that-- so we're up in Fidelico, and there's Ned Johnson. And he says, Vanguard is eating our lunch. Do something about it. Get everybody in the room and say, what are we going to do?

Vanguard is eating our lunch. I'm a little humorated, aren't I? And so they all come back a week later and say, we got it. We can get the expense ratio down by eliminating your profits. I'm not sure that's going to make the guy happy. Cutting out the marketing budget.

No more green lines running across your television screen. Becoming much more efficient, taking big bonuses away from managers who don't perform. And I think if we do all these things-- no marketing, no profits, much more efficient on the investment side and on the administrative side, negotiate with the custodians, the whole works-- we can get down to 50 basis points.

I won't try to emulate Mr. Johnson's accent here. He says, 50 basis points? Boy, we'll be 250% higher than Vanguard. Why would we do that? So what is his option? He cannot do that. He will not do that. People don't like to cut their own throats. Right. So he's going to keep milking that cash cow, which will probably last 20 or 30 years.

And that is the most, without any measure at all, the most intelligent business decision he could possibly make. He's doing the right thing from his personal standpoint, the standpoint of that firm. So if he was doing it as a fiduciary and not a businessman, he would do just the opposite.

And it's a problem Vanguard has. If we've gotten such scale now, $2 trillion. Oh my god, OMG. Is no one can get to our scale. So is someone operating exactly the way we do, which is really impossible, because no one's going to be pretty close to 95% index. I'll talk about that later.

So you've got to pay the money manager something. But if you just paid him on performance, paid the firm on performance, that would be a good thing for the clients, but a bad thing for the manager. But you could probably get to, let me say, if you get to 40 basis points.

So what? As a wise man named Abraham Lincoln once said, the world will know if you're a longer member. Yeah, I mean, it's interesting you brought up Met Johnson to a wonderful, long accent, probably. Is that Met Johnson will do what is infidelity's long-term best interest. And he may be able to play it out for decades ahead, determine his heirs and heiresses.

But that's still a better-case scenario than what you've also written about, which is what happens to publicly-traded companies, where they are managing next quarter's profits, which is a recipe for disaster. There's also a moral angle to something I think is worth-- you're probably not going to learn more on this.

People become second-rate teachers and marines and joint diplomatic corps not for the money. They do it for moral reasons. They think the world will serve a useful purpose. And I think that the people at Vanguard go to work in the morning and realize that they are serving a socially useful purpose.

You saw it in that tradition, of course. You saw it as a useful social enterprise. And I think you certainly inculcated that corporate culture, just that everybody who works at Vanguard can be working for somewhere else for a lot more money. That could be you. Say it isn't so.

You didn't have one helicopter, but you own two helicopters, as I think someone pointed out. And I think that's the issue, is why are we doing this? And I think the people who work at the big Wall Street firms are in it for the bucks. And the people who work at Vanguard are in it because they want to be able to look at themselves in the mirror.

And I think there's some activities that are socially useful. I can provide inexpensive investment products, safe investment products, as one of them. But making widgets is not. I mean, you're not going to get non-profit art companies. You need the municipal band to make those. Yeah, well, alternatives. David Swenson's had a rough five years of it.

Not bad. He's not great. Yeah, not bad, just not great. Do you think that he-- why do you think that has happened? Do you think the ground's just gotten too covered? Do you think that he has a different approach? I mean, obviously, he's very ill right now. But do you think it's possible to sustain that sort of performance?

Well, I never believed he could sustain that kind of performance. And I said that to David, who is a great, great human being. I mean, he is a straight arrow. I mean, there's nobody any better as a human being in the combined money matter. He's just a wonderful guy, even though he went to Yale.

He went to Yale. I guess he didn't go there. And so I have great respect for him. But I said, how can he go on like this in the future? And he said, Jack, you'd be amazed how many stupid investors there are out there. And I think there are probably fewer than you expected, Bill.

Fewer than you expected. But there is-- the advantages these university endowments funds have is no conflicts of interest, infinite time horizons, no worry about a massive redemptions, and no daily reporting, weekly reporting, monthly reporting, quarterly reporting. God, they haven't even got out their report. They're just getting it out now, in October, for their fiscal years, which always end on June 30th, academic year.

And they're just getting it out now. And it doesn't look so good for last year. I think it's probably going to be about a 0% return. College endowment funds and a combined-- it's so hard to deal with. My poor aging brain has a great deal of trouble going from college fiscal years to calendar years.

So when I tell you what the return on a bond stock portfolio, I say, well, I can find a balanced index fund. It was in the year ended June 30th. I frankly had no idea what that 0% compared with. Well, it turns out to be about 6%. It's the average for a 60/40 index endowment fund last year.

Roughly that. So the colleges aren't going to come up to that. And the disadvantages, I'm giving you the advantage. And they have terrific research guys. And they're all over the world. They're innovative. They understand some of these complex instruments that the rest of us really don't have a fighting chance.

Speaking only for myself, don't have a fighting chance of understanding. So they're good. But what gets in their way now, they've been doing that for quite a few years, basically the Swenson model. They do it at Princeton. Princeton is right up there with Yale. I kind of wonder why this is so.

But very similar returns year after year in the last 10 or 15 years. I think Yale is about, I don't know, 20 basis points ahead. Let me say 12% a year compared to 12.2, something like that now. And so they're terrific long-term records. But what happens in the market is other people copy you.

And the market gets more efficient. There's a lot more price discovery and high-frequency trading. There's a lot to do with that, making the markets more efficient. And when there's nobody playing your game, as it was when A.W. Jones started the first hedge fund in, I think, 1950 or '60, he had a good idea.

When everybody does it, all hedge fund managers cannot, will not, and are not above average. They're all average. And then you take that 20%, 2%, 20% of the gains, and 2% you're talking probably 4% or 5% a year. Nobody can overcome that in the long run. So it's costs are a big negative.

Efficiency, the relative efficiency of the markets is a big negative. People are just getting wise to the fact that these private equity things and hedge funds are great compensation devices for managers. And private equity, I won't mention that I have a certain firm whose president is running for president of the United States.

You better watch it. I mean, Nelson Mandela's holstering up his daughter. But they rip people off. They borrow all this money, over-leverage the thing, and they pay it to themselves. And it's pretty seamy stuff. And I tell everybody to avoid it unless you're sure you can pick the right hedge fund manager, whatever it is.

So when everybody's looking for, let's say, acres of diamonds in their own backyard, there's only one diamond there. And so the price of it goes up and up as people discover that. So it's competition. These guys, the general run of people that are running these hedge funds and these quants is brilliant.

I mean, they are fantastic, some of the smartest people I've ever met in my life. And if I was to draw the scale here, I would put my intelligence at the baseboard level over there. And there it's right at that top ceiling level. There's a big gap there. But when everybody is doing it, they can't all win.

This is not complicated. And this is not Lake Woba going either. There's always so much alpha out there. My operating principle is something that's called Raikenthaler's rule, which is named after John Raikenthaler who works at Morningstar. Slip of the lip. Yeah, right. He wishes, I guess. And Raikenthaler's rule for 20 years has been if the bozos know about it, it doesn't work anymore.

And I see the bozos now investing in the Yale model. We see people coming to us at our firm saying, gosh, we just got shown this by this big investment company or that big investment company. And it's the Yale model. It's one half stocks and bonds, conventional, and one half alternatives.

And what's alternatives? Well, it's hedge funds and private real estate and-- Timber. --commodity. I love timber. I worked for 30 years in a place that produced nothing but timber. And what's happening in that area, in rural Oregon, is these old families who've been in the business who certainly don't have to value their cash flow, who sent their sons to work, are now selling out to people in Greenwich, Connecticut, who have smooth hands.

Where do you think the information asymmetry is there? If you don't know your way around a 50-inch chainsaw and a choker cable, you probably shouldn't be working in the forest or investing in forest products. And so the Yale model is the conventional wisdom now. There's a wonderful section in David Swensen's book where he says if you're invested in the conventional wisdom, you will have your head handed to you.

Well, he's the conventional wisdom now. And I have to believe he's a smart enough man that he's doing something good right now. Well, let me put a little icing on that cake by saying, before I love this phrase, all new ideas go through these three phases-- first, the innovator; second, the imitator; third, the idiot.

So I warn investors not to be the idiots. Another great innovator was John Templeton. John Templeton, of course, invested in foreign stocks, particularly Japanese stocks. Back in the late '40s, when you couldn't even take good stocks out of the country, he was a brilliant, incisive man. And when he saw people piling into Japanese stocks starting to do so in the late '70s, he sold out to the US market.

And so the most important word, the title of David Swensen's book, Pioneering Portfolio Management-- it's not portfolio management. Pioneering is the most important word. If you're not a pioneer, and you're not first, you're probably in the wrong game. And that's something a lot of people don't realize. The other thing that I think we all know-- I mean, if these guys can't get it right, if all the college endowments-- I see Rick Furry sitting down at the back.

He wrote a marvelous article for Forbes about this very subject. If they're not getting it right, what odds does the average client of J.P. Morgan Stanley have who's being put into all these private investments? Not very good, I would suggest. The crisis-- we're now four years. I remember you talking about the Lehman Index at this conference in September of 2000-- I think it was in San Diego.

And just about when you used the word "Lehman Index," you just about shrieked the word "Lehman." We now have four years' perspective on this, Jack. And we've seen how things have gone down. Do you think that we got out of that as well as we could have out of it?

And the segue, the follow-up to that question is, if you had been Hank Paulson, if you had had this position, in September 16, 2008, knowing what we did now, would you have done things differently than what you would have done? Well, let me say, answering the first part of the question, that when you're confronted with a possible financial catastrophe, which is what we're confronted with, that system is so overlinked, so overleveraged, so misaligned in terms of its incentive, that we just got totally out of whack.

And it should have been easy to see. I, unfortunately, did not see as much of it as I should. If I had spent a week on the West Coast with a countrywide mortgage salesman, I would have come back and said, out. Because you could see the way those things were building up.

I don't call it mortgage companies, Washington Mutuals, and so on. Never have. But I had no idea how much out of hand their lending had gotten. But it's so, I guess, really obvious that when you've got a bunch of salesmen trying to give you a $250,000 mortgage for a $150,000 house, and you've got $100,000 left over to yourself.

And that's what happens, or what did happen in some cases. And in some cases, the people are making $30,000 a year. Some story about a great picker that was making $16,000 a year, and he bought a $200,000 house. That's got to end badly, right? And so then you break the link between borrower and seller.

And that's what happened in the mortgage business. The banks would take those mortgages, make their fees to mortgage banks, sell them to banks who didn't care. They probably didn't even look at them, because they were going to sell them to some kind of a new underwriting of mortgage-backed security, securitization.

So the risk holders were completely two levels removed from the risk-takers and the homeowners back there who have been borrowing the money. And that just-- it's only a question of when. And maybe I was just not alert enough, and I really feel pretty stupid about it personally, because I didn't think it would amount to that much.

But if I'd known how much was going on, you would've been alarmed immediately, just seeing what happens on the ground. And a lot of us are a little more elevated than we should be from the real-world existence. And you don't get in the ground. I don't nearly enough. And that's not my business anyway, but it's such a big thing that somebody shouldn't be looking at it somewhere.

I think Bill Gross might have been looking at it and had some people doing exactly the same thing. See what's actually happening. I mean, it's really important. Don't take anybody else's word for anything. So the crisis was going to come, and it was going to be terrible. And I think-- what would I have done if I were Hank Paulson?

I think I just would have tried to do a more comprehensive job. I thought he was-- I said to somebody, I thought he was a little bit punch-drunk, because there was a punch here, and then a few days later, a punch there, and then another punch. And I'm not sure that the greatest credentials for a Treasury Secretary is to be an investment banker.

He's a very good guy, very smart guy, and a very strong guy. And without the strength, not much is going to happen. So I commend him for all that, but I still think we could have done a better job. We finally get the so-called TARP, which was to buy bad assets.

And TARP never did buy any bad assets. It was so funny. We called it, I think, TARP, which is something blah, blah about getting the bad assets out of the banks, buying them back from them. And that hasn't happened. What happened was a whole lot of other very different things that TARP money was used for.

And probably had to be used again. I think I would have done more. I'm more of a Keynesian than ever. And not perfectly, because none of those things work perfectly. But I would have done, if I was the king, two or three steps, and say at least two or three trillion steps from a throne.

Done more stimulation. More stimulation in the infrastructure side, where we put people back to work. And we may yet have to do that, or try and do it. Because the greatest price an economy pays for all of this, ultimately, is the lack of full utilization of its productive power.

People are out of work. So I think Ben Bernanke was very good. I'm not sure what Hank would have amounted to without him. Ben Bernanke aside, Ben Bernanke-- actually, he was a Princeton professor. He's extremely smart. We all are. I'm kidding. So I think he's doing what he can.

But he's trying to do the impossible. And that is, he's trying to solve this problem with monetary policy, with a money supply. Buying securities with QE2, which I always thought was an ocean liner. I forget what the other one, the newest one, is called. Twist, Operation Twist. Getting out of the short-term securities, but that ends with buying long-term securities.

And monetary policy-- I mean, sorry, fiscal policy. Monetary policy can only do so much. And that's one of the big things behind the blow-up in Europe. The idea of monetary policy is, basically, European-wide, because it's based on the market. But the idea of fiscal policy is each government's responsibility.

And you separate those two. And we sure have to separate it here, just because of the nature of our system. The government's in charge of both, finally. But the legislative side is just so stymied, unable to do almost anything. I'll give you an example to show you how dumb it's gotten.

But I hope that's not too political. But we're trying to have monetary policy carry the burden. And yet, monetary policy unequivocally cannot do it all. So we've got to do some fiscal stuff. God alone knows what's going to come out of this so-called fiscal cliff. It's not going to go on the way it is, for sure, because the EU just can't be sustained.

But it is horrifying to me. This is not a politically slanted conversation. But this deadlock between the parties means no material legislation can get done in Washington, DC. And the only thing, the only piece of legislation the two sides have been able to agree on is probably the worst piece of securities legislation ever designed by the amount of demand.

And that is the so-called Jobs Act. Put jobs in it if you want to get it passed. And it's supposed to increase jobs by giving small businesses access to public capital. So all the constraints on very small companies going public and prospectuses, all that kind of thing, all those are taken down, limited.

And it's much easier to raise capital out there. But there are a lot of swindlers out there. And they are going to come and swindle an awful lot of people from going to control it. So we get the Jobs Act. Both parties think it's wonderful. And it's going to have to be repealed one day because it may be, as far as I know, it hasn't created one job.

But it's just a symbol of something that really lies at the root of many of the problems we're dealing with in this country. And that is a political system that is in chaos, unable to move. And oftentimes, it's a good idea for the Congress to do nothing. You could say one of the great blessings is Congress can't act.

And there is something to that. But none under these circumstances. So we'll have to see what comes out of the election and see if sides can somehow reason together and produce what's best for the country instead of what's best for their own individual interests. I know that's idealistic. And I hope it's not too political for Mallory to approach that subject.

- My favorite economist of all time is Heinlein-Minsky, who wrote about the instability inherent in our financial system. And it touches on exactly what Jack was talking about, which is that if your primary instrument is monetary policy, then what you do is you get into this cycle where you stimulate Wall Street.

But you don't stimulate Main Street, which is what Ben Bernanke is doing. There's been a lot of stimulation of Wall Street. Stocks have been on its air. All the city assets have been on its air. But it hasn't done a great deal. It's done something, but not a great deal for the economy.

If you want to do that, you have to do it on the fiscal side. And so you wind up with a-- it was more of a map, but you wind up with this very unstable fiscal system, where you just get financial boom and bust. And that does-- of all the things that frighten me, that frightens me the most is this chronic instability we have on the financial system.

We started out with four banks that were too big for bail. Now we've got three that are bigger. And I think it's a very frightening situation. It's why I've always believed from the portfolio side that you want to separate out your risky and riskless assets and stay away from things that are in the middle, like corporate bonds and bond bonds and the most large bids like that, unless you're getting paid to avoid these little risk premiums.

It's an interesting example of congressional failure, I think, in that we've got the Dodd-Frank Act. They've got all these, I think, 194 regulations that were going on down there. All of them did what they could have done with one stroke of the pen by saying, bring back Glass-Steagall Act, and we'll run that out.

It's about the so-called capitalism of 2005. And all we ever say-- I mean, it seems so simple to me. You can be in the deposit-taking business, or you can be in the investment-banking business, but you can't be in both. We'll call it the mobile law. Another question that's important-- and I'll offer what we were talking about before-- but I think it's important to this group, which is, what do you see as the long-term function of this organization of the nine parties?

What would you like to be seen as doing 10, 20 years from now? Well, first of all, I think it's unbelievable how it has emerged. And I think it's quite remarkable what wonderful people you guys all are, trying to help others. It's good human beings, the backbone of America.

You forget that in too many places. And people are doing all the nation's hard work. And we're trying to be intelligent investors in a market that is just the opposite of intelligent. So I feel very good about the message. It cannot be the wrong message. Find another mutual fund manager in America that says, if you do what I tell you, you can't go wrong.

There's no one who can say that. I think Peter Lynch-- he was great in 1992. He left Magellan Fund, and it's dropped. I'm going to mention this later on, from $105 billion to around $9 billion. That's a lot of disappointment for investors. Very mediocre. Actually, worse than mediocre. So to the extent people are looking, people are looking all over the country for unbiased financial advice, investment advice, particularly.

And you find it in the actual owners. There's nothing any better than the owner of a product, car, service, say, I've done this, and it works. And so I see this thing spreading, like an infectious disease, if you will. And pretty soon, everybody's going to be affected with it.

So I see it getting bigger and bigger. And I don't know the logistics of putting together your site. I see some of the stuff. And Mike Nolan, my assistant, sees some and gives it to me. I imagine we have some full-time person at Vanguard who sees it. And I believe that the management tries to respond when they see something significant.

We're full on stage with that kind of thing. And I still get letters from shareholders asking me to correct these things. I can't do that. But I answer them and send them to someone at Vanguard who will, or at least is supposed to. And so I think it's an idea, an independent body of self-educated investors who have learned the right thing in an industry that's going the wrong way.

So next year, we should hire Madison Square Garden. Well, that leads to just one other very fast question to one or two people in the audience. Susan is-- I don't know if Alex is around. What's happening to website traffic? It's-- I haven't-- I haven't ever really done the numbers.

But, I mean, there's lulls in activity. And then I can't answer that overall. But I think it's increasing. The increase is also in the wiki side. Because I think-- but not only from traffic, but I'm getting a lot of comments here from people who don't have-- aren't forum members.

And they're saying, thank you. So it's not just the web traffic. It's the people who are reading the forum and not-- I mean, if you look at the stats of the views of the-- the views of the topic and how many people post, you might have 10 posts, but 100 views.

That means I'm helping 100 people, not the 10 who post in there. So a lot of the education I try to give is for those people, not just answering the question directly. Because what-- did you all hear that answer? Can you repeat that, please? OK. Basically, what Susan said-- that's Lady Geek-- what Susan said was that she's not sure about website traffic.

A lot of people are lurking, basically, and not posting. And then the wiki is also getting a lot of traffic. But Jack's comment, I think, is well-taken, which is that maybe the most useful thing we do is the website. There's a lot of good that goes on on that website.

It's very high-level, I'm very proud of it. And I think we are helping a lot of people. And maybe, just maybe in this era, that is really where the action's going to be. I don't know. I think it's something that's worth looking at. Finally, one more question on that.

Let me just add one little thing to that, if I may. I was asked to write the introduction to Fogelhead Guide to Investing. And I came up with a quote for him, Alexis de Tocqueville, Democracy in America. And he talked about-- I have the quote from the book-- about the tendency of Americans in the year 1818 or something, a long time ago, the tendency of Americans to gather together to work on issues and to fix them.

And this is, obviously, if de Tocqueville were around today, he would say, man, did I hit that one right out of the park. Of course, Robert Putnam has written a counterpoint to that. He says that we're not doing as much. But this may be the answer to that. He's willing to admit that.

He said, it's an interesting question. Robert Putnam's the guy who wrote the book, of course, on the loss of social capital in the United States. Finally, one last question, and then I'll get out of your way. Jack, I've never been able to convince you to think about-- or other people, I have been trying to do it, but now other people-- not to lose capital, because it doesn't produce a dividend.

It's just an asset. It's not productive. So we can't convince you about that as a standalone asset. We can't probably convince you even in terms of portfolio ability. What about insurance? OK, we're looking at an environment in which we don't know what is going to be happening to the inflation supply of money, the inflation rate of the money supply, and the velocity of money.

If someone came to you and said, look, I just want to own a few gold coins as insurance. I'm going to buy them. And I hope they're going to use them. I'd say, be my guest. We live in a totally uncertain world. And if you believe in the likelihood that gold would be a good performing asset in a bad performing world, I wouldn't hesitate to add it to your portfolio as a diversifier.

Now, 5% probably is not a bad working number to me, in my opinion, and recognizing that it's strictly a supply and demand equation. When you buy, you get no return on your money. You buy it with the hope you can sell it, if you ever do, for a larger amount of money.

And you pay for it. And so it's just another commodity with this peculiar, almost universal use since the beginning of time. And so I wouldn't try and talk anybody out of it. I don't have to do it in my personal accounts at all. But I would think about it in a long-term account, just because we don't know what's coming along.

And there is the possibility of, in all ways, the possibility of kind of a black swan event. And that would be a helpful diversifier. And unfortunately, one of the things, Bill, you know this, is that whenever somebody comes up with a diversifier, someone with a hot performing asset, gold in this case, and says a great diversifier, it should be at an all-time high.

No one called gold a great diversifier 15 years ago. Forbes called it a great diversifier, I don't know, maybe in 1960. And then they forgot about it because it didn't perform well. So either it is a great diversifier, or it isn't. But there's a huge tendency of our financial markets to rely on, or financial promoters, to rely on-- they know you want to just kind of secretly watch that price of gold, and it goes up, and you want it.

So they try and intellectually justify it by saying it's a diversifier. So I'd say do gold. Do it in very small accounts, and do it all. And with great caution. This is a risk-use time, most difficult time to invest, I know. And not so much the risk, but the terrible returns-- I'll talk about this a little bit later-- the terrible returns on bonds.

The customary-- and inevitably, the customary diversifier for an equity portfolio. Yeah, you know, there's the famous Eagle song for Rast Resort with a great line in it called, "Someplace Paradise Kissed Goodbye." And I think that's the basic story of all diversifying and asking questions. Well, with that, I will thank you, Jack, and get out of your way.