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Speaker 1: The future may not be clear, but our commitment is

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Speaker 1: so when you sit with an advisor at Mery Lynch,

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Speaker 1: we'll put your interests first. Visit mL dot com and

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Speaker 1: learn more about Mery Lynch. An affiliated Bank of America.

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Speaker 1: Mery Lynch makes available products and services offered by Merrill

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Speaker 1: Lynch Pierce Veteran Smith Incorporated or Register Broker Dealer remember

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Speaker 1: s I PC. This is Masters in Business with Barry

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Speaker 1: Ridholts on Bloomberg Radio. This week on the podcast, we

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Speaker 1: have an extra special guest. His name is Charlie Ellis,

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Speaker 1: and I spend some time going over his CV when

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Speaker 1: we actually do the show, so I won't um repeated,

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Speaker 1: but I'm going to tell a quick story about the

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Speaker 1: first time Charlie was a guest here. I was just

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Speaker 1: captivated by the combination of his intellect and integrity and

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Speaker 1: common sense. And the show ended and I had to

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Speaker 1: be somewhere, and he was walking down to Grand Central

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Speaker 1: station and I said, sure, I'm happy to walk with you,

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Speaker 1: and and we continue to conversation down twenty blocks or

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Speaker 1: so from the Bloomberg Building to UM to Grand Central

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Speaker 1: and I can't describe it any of the way. It

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Speaker 1: was just captivating it. It's a delight and a privilege

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Speaker 1: to be able to chat with someone of his experience, knowledge, wisdom.

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Speaker 1: It was just delightful and I sat and chatted with

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Speaker 1: him for this show for about an hour and a half.

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Speaker 1: If you are at all interested in anything having to

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Speaker 1: do with investment management, institutional investing, individual investing, indexing, retirement savings,

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Speaker 1: the list goes on and on, you will appreciate this conversation.

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Speaker 1: There there is no one else like Charlie Ellis. Um

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Speaker 1: he is one of the legends of finance. And so,

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Speaker 1: with no further ado, here is my conversation with Charlie Ellis.

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Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio. Today.

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Speaker 1: I have an extra special guest, a legend in the

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Speaker 1: world of finance. His name is Charlie Ellis. And if

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Speaker 1: you're unfamiliar with Mr Ellis, let me give you a

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Speaker 1: very short version of his curriculum. Vitae graduated from Yale

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Speaker 1: with a BA in history, ends up getting an NBA

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Speaker 1: from Harvard UH and UH PhD in finance from n YU.

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Speaker 1: Becomes a c F A charter holder in nineteen nine

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Speaker 1: on the faculty of the Harvest Business School, director of

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Speaker 1: the Vanguard Group on the Yale School of Management UH

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Speaker 1: as well as the Yale Endowment, Chairman of the board

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Speaker 1: of the c f A Institute, one of a dozen

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Speaker 1: people recognized for lifetime contributions to the investment profession by

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Speaker 1: the CFA Institute. Author of sixteen books on investing, and

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Speaker 1: we'll talk about a few of those shortly. Charlie Ellis,

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Speaker 1: welcome back to Bloomberg, glad to be here, and Barry,

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Speaker 1: thank you. So that's the short version of your curriculum, Vita.

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Speaker 1: We will spend some more time talking about your work

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Speaker 1: in the field in a little bit, but let's jump

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Speaker 1: right in to the new book that you just put out,

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Speaker 1: the title The Index Revolution, Why investors should join it.

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Speaker 1: Now you've already written sixteen books. What motivated you to

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Speaker 1: write yet another one. Well, I really believe in getting

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Speaker 1: the word out and I've had an unbelievable privilege as

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Speaker 1: an insider in the investment management world. Have had changed

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Speaker 1: to meet with people all over the world and talk

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Speaker 1: and talk and talk and talk with them about what's

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Speaker 1: going on. And once you get a really good idea

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Speaker 1: of what's going on, you realize Indexing makes so much

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Speaker 1: sense for so many people. Everybody should seriously consider it,

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Speaker 1: and most people should do it. So how do you

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Speaker 1: help write a short book that's easy to read and

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Speaker 1: see if you're gonna attract attention? So, so let's talk

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Speaker 1: about indexing. You spoke at a conference recently, the Evidence

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Speaker 1: Based Investing Conference. Bill McNabb, the CEO and chairman uh

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Speaker 1: of the conference, spoke and the two of you both

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Speaker 1: said the same thing. Gee, it's a shame indexing attracted

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Speaker 1: the word passive that that seems to be a problem.

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Speaker 1: What's the issue with passive? Well, when I was growing up,

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Speaker 1: we read The Little Engine that Could, and we were

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Speaker 1: told if you study harder, you'll get better grades. And

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Speaker 1: when I got a job, I was told, if you

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Speaker 1: work hard, you'll get a raise, you might even get

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Speaker 1: a bonus. Everything about our lives. You want to learn

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Speaker 1: the piano, spend time practicing, You want to learn how

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Speaker 1: to play tennis, practice, practice, practice, Everything has to do

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Speaker 1: with do more, work harder, and you'll do better. So

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Speaker 1: we come to investing and say, fine, I'm ready to go.

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Speaker 1: Where do I get a chance to do better? I'm

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Speaker 1: gonna work hard and somebody says he. You know, I

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Speaker 1: wouldn't bother doing that. Why don't you just settle for aver?

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Speaker 1: Nobody wants to be average. Nobody wants to settle. And

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Speaker 1: the word passive is a horrible negative. Can you imagine

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Speaker 1: your wife or husband introducing you as this is my spouse.

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Speaker 1: Passive sounds terrible. So what is the better phrase to

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Speaker 1: describe what people should think of when they think of indexing. Well,

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Speaker 1: to one is indexing and the second is winning winning,

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Speaker 1: So explain that. Why is um? Why is winning? As

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Speaker 1: Charlie Sheen would say, why does that leave us to

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Speaker 1: lead us to indexing? Well, one thing that I would

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Speaker 1: use to describe winning is doing better than most of

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Speaker 1: the other people at whatever it is you're trying to

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Speaker 1: do operationally, year after year after year. Over the long term,

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Speaker 1: indexing does better today than active investing. That wasn't the

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Speaker 1: case twenty five or thirty years ago, but it is

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Speaker 1: the case today. What what accounts for that change? Massive

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Speaker 1: change in virtually every variable. Just for an example, if

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Speaker 1: you go back fifty years ago, there might have been

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Speaker 1: five thousand people involved in active investing. Now they're at

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Speaker 1: least a million people involved, and they're smart. Well, educated.

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Speaker 1: They've all got exactly the same tools, computers, access to

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Speaker 1: the Internet, Bloomberg terminals, and they've all got access to

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Speaker 1: the same information because the SEC requires public companies to

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Speaker 1: give everybody all the information they give to anybody. So

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Speaker 1: it's not like the old days where whoever got that

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Speaker 1: first call, Hey, that was a money maker. If you

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Speaker 1: found it out before all your competitors did, it was wonderful.

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Speaker 1: And the second thing that's big, big change is it

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Speaker 1: used to be it was professionals who had access to

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Speaker 1: really good research, a small fraction of the market, competing

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Speaker 1: against large numbers of amateurs who bought and sold once

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Speaker 1: every year or two and didn't candidly no one awful lot.

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Speaker 1: Now it's been reversed. Now or more of trading on

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Speaker 1: the New York Exchange is either machines or professional people,

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Speaker 1: and they're playing to win. Michael Mobisock calls this the

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Speaker 1: paradox of skill. It's not that the compet editors are bad,

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Speaker 1: it's that everybody else is so good. How is there

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Speaker 1: any room to to beat them when you're playing at

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Speaker 1: such high levels, so very good, and so many of them,

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Speaker 1: and they have the tools, they have the technology, it's fabulous.

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Speaker 1: They are so much better than managers where twenty years

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Speaker 1: ago it's night and day. So the first index fund

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Speaker 1: that comes out by Jack Bogel, they were hoping to sell,

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Speaker 1: you write in the book a hundred and fifty million

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Speaker 1: dollars worth and they could barely get it over ten

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Speaker 1: million dollars when they first launched it. It was a flop.

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Speaker 1: Why did the first index fund do so poorly? It

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Speaker 1: wasn't a flop. It was a big flop. A whole

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Speaker 1: bunch of different things. Number One, nobody knew anything about

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Speaker 1: indexing to speak of, and the idea wasn't out, and

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Speaker 1: everybody was looking for beat the market rates of return.

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Speaker 1: That was big. Second is there was a sales load

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Speaker 1: in order to attract the sales force at the retail

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Speaker 1: brokerage firms. What was that sales load? It was I

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Speaker 1: think six and a half percent. Could bet that's a lot.

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Speaker 1: When you're offering I'm gonna give you average and I'm

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Speaker 1: going to charge you a big entry fee to get started.

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Speaker 1: That wasn't an annual fee. It was a one time

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Speaker 1: load for the purchase one time, but you drop eight

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Speaker 1: and a half off the top of your money. And

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Speaker 1: your start behind the line of scrimmage pretty far so.

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Speaker 1: One of the other things that you mentioned the book

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Speaker 1: that I think is fascinating. Over the past fifty years,

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Speaker 1: the trading volume on the New York Stock Exchange increased

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Speaker 1: from three million shares a day to five billion a day.

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Speaker 1: That's a fifteen hundred not all on the New York

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Speaker 1: Stock Exchange, some of us off the board trading in

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Speaker 1: New York Stock Exchange listed, And honestly, five million is

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Speaker 1: an average. It ferries up and down depending on what

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Speaker 1: the machines are doing. I'm Barry Ridolts. You're listening to

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Speaker 1: Masters in Business on Bloomberg Radio today. My special guest

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Speaker 1: is Charlie allis a legend in Wall Street. He has

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Speaker 1: written and I shouldn't just say Wall Street, but a

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Speaker 1: legend in all of finance. He has written sixteen books,

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Speaker 1: out of which I think is quite fascinating. It's called

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Speaker 1: Falling Short The Coming Retirement Crisis. What is the looming

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Speaker 1: retirement crisis that the United States faces. It's a complex

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Speaker 1: of several different items. Let's just pick out the really

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Speaker 1: big ones. Number One, people are living longer than they

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Speaker 1: used to live. Longevity certainly is an ongoing shift, from

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Speaker 1: which means people are going to be in retirement for

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Speaker 1: more years than they might have actually been planning on. Secondly,

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Speaker 1: a fairly large fraction half of any couple who are

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Speaker 1: in there late sixties, early seventies, half of them will

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Speaker 1: need assisted living at Sometimes that's fairly expensive stuff you are,

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Speaker 1: particularly if you're not prepared for it. About a third

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Speaker 1: of American workers have no retirement plan whatsoever. Zero zero

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Speaker 1: social Security or nothing. Social Security is not enough, it's sure. Uh.

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Speaker 1: Then if you say, well, let's look at the people

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Speaker 1: who got coverage. It used to be that we had

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Speaker 1: to find benefit plans that the company did everything. All

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Speaker 1: you had to do was tell them what your address

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Speaker 1: was so they can mail the checks. Now virtually every

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Speaker 1: decision has to be made by the individual. Many people

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Speaker 1: are not well prepared for making those decisions. Then you

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Speaker 1: look at all the different decisions. Are you going to

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Speaker 1: be in the plan or not? Are you going to

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Speaker 1: match the match? Are you going to escalate your contributions

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Speaker 1: over time so that you're saving enough to actually cover

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Speaker 1: your cost in retirement? How are you going to do

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Speaker 1: the investing? How are you going to do the distributions

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Speaker 1: from your investments when you do retire, and you start

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Speaker 1: with just one of the most obvious things that drives

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Speaker 1: me crazy. If you ask people broadly, ask people here

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Speaker 1: at Bloomberg, ask people who really know quite a lot

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Speaker 1: about investing. What is the delta? What is the difference

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Speaker 1: between how much you get from Social Security if you

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Speaker 1: claim as soon as you can sixty two or you

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Speaker 1: wait until you're seventy and a half when you have

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Speaker 1: to claim, Well, it must be a lot, and I

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Speaker 1: usually get somewhere between twenty is an increase That is

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Speaker 1: not true if you don't claim at sixty two and

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Speaker 1: do claim to defer until you get to seventy and

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Speaker 1: a half, the increase every year for the rest of

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Speaker 1: your life, as long as you live and it's inflation protected,

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Speaker 1: is an increase of seventy six. Really, that's giant. That's

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Speaker 1: a giant payout. And all I would like is that

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Speaker 1: everybody knew and would tell everybody they know more every

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Speaker 1: effing year. So there's no reason to unless you have

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Speaker 1: no choice. If you could wait till seventy and a half,

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Speaker 1: that's clearly the better. Unless you're planning to die in

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Speaker 1: your late sixties or early seventies, in which case you

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Speaker 1: should take the money. But most people are not planning

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Speaker 1: to make a note of that. So there's a data

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Speaker 1: point in the book that that I find mind blowing

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Speaker 1: as and and this data is a few years old,

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Speaker 1: but I looked it up since and I know it

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Speaker 1: hasn't changed dramatically. As of the median household approaching retirement

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Speaker 1: only had a undred and eleven thousand dollars in four

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Speaker 1: oh one k and IRA holdings. And if you do

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Speaker 1: what financial advisors suggest you withdrew a four percent a year,

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Speaker 1: that put that creates less than five thousand dollars in

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Speaker 1: annual income house less than four and a half thousand.

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Speaker 1: That's now the numbers have gone up, but I think

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Speaker 1: it's now a hundred and thirteen thousand UM. I forgot

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Speaker 1: the UM not the investment company Institute. That the e

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Speaker 1: B I R dot org one of those, so so

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Speaker 1: e B R I right, So that's where I got

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Speaker 1: the one thirteen number. But still it's it's an insignificant

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Speaker 1: amount of amount of money. Yeah, we could argue about

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Speaker 1: the specific details. It doesn't matter. For people going into

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Speaker 1: retirement with usually something like twenty years to go a

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Speaker 1: hundred hundred and ten hundred twenty even a hundred thirty

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Speaker 1: thousand is no help at all to covering the costs

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Speaker 1: that they're going to be living with, no no help

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Speaker 1: at all. Well, it's not quite that bad. So it's

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Speaker 1: a you looks like you've got a lot of money.

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Speaker 1: You imagine what it's like if you're a working guy,

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Speaker 1: Joe six pack, and you have been working along and

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Speaker 1: you look at your account. You see, Berry, I got

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Speaker 1: more money every dreamed I would have that. It's in

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Speaker 1: my own name. I've got a hundred and ten hundred

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Speaker 1: and fifteen thousand smackers. That's thirty years right, run. Even

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Speaker 1: if you retire at seventy and you live to fifteen years,

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Speaker 1: is still a long time to not be having any income.

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Speaker 1: And it's not just individuals. The other data point from

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Speaker 1: the book, the public sector is just as bad. The

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Speaker 1: Congressional Budget Office stated by any measure, just about every

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Speaker 1: single state and local pension plan is underfunded. How how

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Speaker 1: did that come about? Well, that's the defined benefit plans

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Speaker 1: in almost every case. So these are public employees, teachers,

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Speaker 1: what I like to say, real Americans. These are the

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Speaker 1: crowd of people who have put in a good long

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Speaker 1: term serving the public, okay, and where are they now?

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Speaker 1: Their retirement depends on two things. How much money has

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Speaker 1: already been set aside, and how much money is going

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Speaker 1: to be earned by the investment on that money that

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Speaker 1: was set aside. And you look through the eighties and nineties,

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Speaker 1: people would have said, boy, you know, we can earn

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Speaker 1: a lot, ten percent, twelve percent, fourteen percent. Years came

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Speaker 1: ruing through. We all had a great time. If you

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Speaker 1: assume that's what you could earn, and you say, well,

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Speaker 1: I want to be conservative, so I'm only going to

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Speaker 1: assume eight percent. Track it out over time. That's your pension. Now,

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Speaker 1: what if somebody comes along and says, Barry, that was

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Speaker 1: an unusual time period. Interest rates went from thirteen percent

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Speaker 1: to two percent. That changed everything, made everything look like

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Speaker 1: a hire rate to return. You're not going to see

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Speaker 1: that again. What are you going to see? Well, we've

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Speaker 1: got two percent three percent in fixed income and it

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Speaker 1: looks like six seven percent in equity investments. What's the

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Speaker 1: mixed seven and you end up with ten percent. So

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Speaker 1: we've got what's called an unfunded obligation that's on paper,

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Speaker 1: we've signed up for it, but it hasn't been paid

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Speaker 1: in yet because we assume we're going to get a

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Speaker 1: great rate of return. Now we're assuming we're going to

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Speaker 1: get a much lower rate of return. How much do

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Speaker 1: we have to put up a lot so that blended

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Speaker 1: rate to return. I'm joking about adding three and seven,

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Speaker 1: But you take the sixty forty portfolio seven equity three bonds,

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Speaker 1: you're really looking at a five and a half six percent.

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Speaker 1: A five and a half six percent return a three

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Speaker 1: in bonds would be a little optimistic. Well, I'm taking

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Speaker 1: the average over the next thirty years. But if you

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Speaker 1: look at the path and you look at the long

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Speaker 1: term average and bonds that that said, you're so, if

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Speaker 1: we're looking at a much lower rate of return, who's

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Speaker 1: going to have to make up that shortfall? Because these

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Speaker 1: are contractually guaranteed payouts as part of public employees in

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Speaker 1: ployment contract, who's on the hook for that balance? Drop

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Speaker 1: back to your really serious negotiations. Their three parties of interest,

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Speaker 1: the government, the mayor, the Senate, the governor, mayor whoever

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Speaker 1: it was, the public MHM, and the workers. The workers

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Speaker 1: are represented by a union. The union guys are pretty smart.

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Speaker 1: They've studied this stuff. For years. They pay a lot

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Speaker 1: of attention. The political people are focused on their next election,

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Speaker 1: and they're pretty good at that sort of thing. The

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Speaker 1: party that's going to have to pay up any difference

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Speaker 1: doesn't get to come to the meetings. I'm Barry rid Holtz.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: special guest today is Charlie Ellis. He has been on

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Speaker 1: the faculty of the Harvard Business School. He has served

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Speaker 1: on the Yale Endowment Board of directors of Vanguard. UH

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Speaker 1: the list goes on and on. Author of sixteen books

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Speaker 1: on finance. I want to start discussing your history in

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Speaker 1: financial services with a quote of yours that that I

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Speaker 1: really should have frames and it's this the investment management

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Speaker 1: business should not should be a profession, but is not

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Speaker 1: explain that well. Profession is defined by the service by

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Speaker 1: the experts on behalf of individuals who don't happen to

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Speaker 1: know very much about what the experts are experts in.

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Speaker 1: That's why law is a profession, that's why medicine is

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Speaker 1: a profession, and investment management used to be entirely a profession.

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Speaker 1: It didn't pay very well, but you could do some

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Speaker 1: really nice work for individual people and help them through

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Speaker 1: the solution to the various problems they might face. Wait

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Speaker 1: that this profession didn't pay very well in the old days.

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Speaker 1: My assumption is it was a big money maker on

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Speaker 1: the nineteen fifties. It wasn't nineteen forties. It certainly wasn't

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Speaker 1: nineteen thirties. Was terrible. Nobody went into investment management in

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Speaker 1: those days. Huh, that's quite that's quite fascinating. Out of

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Speaker 1: my class at Harvard Business School in nineteen sixty three,

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Speaker 1: only three of us went into investment management. And I

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Speaker 1: got into it accidentally. So let's tell that story. That's

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Speaker 1: a fascinating story. How did you stumble into investment matter?

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Speaker 1: I was looking for a job and a friend of

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Speaker 1: mine father, was looking for somebody to come and work

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Speaker 1: in a junior position, and so I thought it would

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Speaker 1: be a really interesting conversation. I thought that he was

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Speaker 1: talking for the Rockefeller Foundation. It turned out he was

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Speaker 1: talking about the Rockefeller family office, a tiny little investment

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Speaker 1: team that managed investments for the family and also for

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Speaker 1: some of their great philanthropic institutions like Rockefeller University, Rockefeller

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Speaker 1: Brothers Fund. Stuff like that. When you say a tiny

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Speaker 1: little team the Rockefeller Family office. That was not an

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Speaker 1: insignificant sum of money, a lot of money, but the

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Speaker 1: number of people was small, only six of us. Okay,

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Speaker 1: so you thought you were going into some philanthropic already

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Speaker 1: sort of job. And I gotta start an interview with

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Speaker 1: a guy, and I realized, this man is really smart.

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Speaker 1: He knows a lot, and I need to learn a lot.

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Speaker 1: I could learn a lot with him. I better go

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Speaker 1: there because I don't know enough. So there's there's a

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Speaker 1: legend that Goldman Sachs offered you a job and you said, no, thanks.

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Speaker 1: What is that any truth to that? It's totally true,

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Speaker 1: but they didn't actually offer the job. They had it

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Speaker 1: printed on a piece of paper, and I'm looking at

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Speaker 1: it realizing, you know, Dad always thought Goldman Sacks was

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Speaker 1: a great firm. I'd love to go with a great firm,

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Speaker 1: but I need to earn at least six thousand dollars

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Speaker 1: so I can pay off my wife's loans for going

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Speaker 1: to college. She'd going to college on a scholarship and

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Speaker 1: a loan package, and I needed to pay that off.

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Speaker 1: So I had figured I could stave a thousand dollars

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Speaker 1: out of six thousand, I can't take a job ford

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Speaker 1: never occurred to me. You might get a raised. Never

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Speaker 1: occurred to me, you might earn a bonus. So it

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Speaker 1: ended up working out anyway with with the Rockefellers and

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Speaker 1: and eventually granteds associates. Uh the farm you did? You

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Speaker 1: you you co founded founded. I was the only one,

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Speaker 1: the other one who founded it. So how did you

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Speaker 1: What did you learn from working with the Rockefellers. I

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Speaker 1: would think a family office sitting on a giant pool

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Speaker 1: of business, but giant pool of capital would really teach

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Speaker 1: you the business from the inside out. What what did

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Speaker 1: you learn from that experience? I learned a lot. Number

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Speaker 1: one is that most people have not thought through what

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Speaker 1: they ought to be doing with their investments over the

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Speaker 1: long term, and they have not settled on a policy

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Speaker 1: that really makes sense to them individually. Second, there's a

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Speaker 1: lot of information and if you don't have that information,

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Speaker 1: you're in trouble. And third that investment management is a wonderful, interesting, fascinating,

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Speaker 1: exciting and filled with all kinds of experiences, wonderful place

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Speaker 1: to work. So so all told, that was a positive experience, lucky,

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Speaker 1: lucky and very positive. But by the way, that's a

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Speaker 1: theme that comes up on the people I sit with

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Speaker 1: and have these conversations with over and over again, the

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Speaker 1: role of just being in the right place at the

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Speaker 1: right time and getting a little hey, smartest good, But

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Speaker 1: sometimes lucky is better, much much better. And you'll find

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Speaker 1: that those who've been around for a long time, it's

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Speaker 1: all luck. Those that are around only recently, they're paying

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Speaker 1: attention how much you can get paid, because it is

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Speaker 1: the best paid line of work in the world today.

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Speaker 1: By the way, back to back to some quotes from

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Speaker 1: the book, the most obvious success factor for us was luck, luck,

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Speaker 1: and luck. So how is that an exaggeration or is

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Speaker 1: do you think luck really serendipity a roll of the

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Speaker 1: dice really has a big impact on the lives we lead.

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Speaker 1: I know it had a huge impact on my life.

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Speaker 1: I doubt it head anywhere near that big an impact

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Speaker 1: on most of the other people who have been around.

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Speaker 1: But anybody who has been in the investment management area

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Speaker 1: for the last fifty years, it doesn't think that was

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Speaker 1: really lucky, either kidding himself or kidding you. So we're

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Speaker 1: gonna talk later about um winning the losers game. But

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Speaker 1: how often do investors confuse luck for skill all the time,

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Speaker 1: all the time normal human beings. That's when human beings do.

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Speaker 1: If it works out well, I was smart. If it

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Speaker 1: doesn't work out well, I was unlucky. I'm Barry rid Hilts.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. Our

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Speaker 1: special guest today is Charlie Ellis. He is a legend

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Speaker 1: in the world of finance, having served on the board

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Speaker 1: of directors of Vanguard as well as the Yale Endowmond Funds.

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Speaker 1: Let's talk a little bit about a paper you wrote

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Speaker 1: in that I think has a fascinating history um both

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Speaker 1: where it came from and where it went. You authored

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Speaker 1: The Losers Game in ninety five as an article for

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Speaker 1: the Financial Analysts Journal after reading a book about tennis.

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Speaker 1: Tell us about that. Well, the hero of the story

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Speaker 1: is really a brilliant guy named Simon Ramo, who was

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Speaker 1: the founder of what was called Thompson Ramo Wooldridge and

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Speaker 1: then what's called t r W and is in fact

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Speaker 1: the organization that helped America with its entire space program.

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Speaker 1: He was a gifted amateur athlete, and he also was

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Speaker 1: a gifted musician. He used to play in a quartet

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Speaker 1: with three members of the Los Angeles Professional Symphony Orchestra.

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Speaker 1: Real Renaissance man, he sure was, and he must have

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Speaker 1: had a wonderful life. And along the way he decided

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Speaker 1: to write this little bitty book which is the best

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Speaker 1: guide to how you could do better in tennis I've

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Speaker 1: ever heard of. But it also included a definition that

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Speaker 1: was very, very helpful to me, said, there's a whole

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Speaker 1: lot of people that play tennis. To three percent of

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Speaker 1: them play a kind of tennis that's completely different from

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Speaker 1: everybody else. They play winners tennis. They are absolutely fabulous.

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Speaker 1: The shots are always right near the line. They never

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Speaker 1: hit in that, they never hit it out to speak of.

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Speaker 1: The placements are terrific, their strategies are brilliant. They are wonderful.

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Speaker 1: For most of most of the rest of us play

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Speaker 1: a different game. Yeah, I know, same rules, same scoring,

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Speaker 1: same clothes, same core, same facilities, maybe even at the

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Speaker 1: same club. But we play a completely different game. The

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Speaker 1: game we play is the game not to lose, where

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Speaker 1: the control of the game is in the hands not

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Speaker 1: of the winner, but are the loser. So in other words,

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Speaker 1: it's it's people lose by making unforced errors and other

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Speaker 1: such foibles as opposed to winning by scoring points. If

429
00:24:23,119 --> 00:24:26,199
Speaker 1: you lose less, you'll be the winner. Lose less will

430
00:24:26,200 --> 00:24:27,639
Speaker 1: be And by the way, the name of that book

431
00:24:27,640 --> 00:24:32,760
Speaker 1: by Simon Ramo is Extraordinary Tennis for the ordinary tennis player.

432
00:24:33,119 --> 00:24:38,560
Speaker 1: So how does that manifest itself as the loser's game

433
00:24:38,720 --> 00:24:41,840
Speaker 1: about invest them? There are two kinds of problems in investing.

434
00:24:41,920 --> 00:24:44,119
Speaker 1: One is the long term policy problem. The other is

435
00:24:44,160 --> 00:24:48,600
Speaker 1: the operational problem. People at all of us are guilty

436
00:24:49,040 --> 00:24:52,679
Speaker 1: almost all the time of doing things that aren't really

437
00:24:53,040 --> 00:24:57,400
Speaker 1: brilliant decisions. So we make mistakes that we really shouldn't

438
00:24:57,400 --> 00:24:59,120
Speaker 1: have made. If we had it to do over again,

439
00:24:59,160 --> 00:25:03,879
Speaker 1: a lot of us wouldn't make those mistakes. And the

440
00:25:04,000 --> 00:25:06,960
Speaker 1: reality is we do because we're human beings. The other

441
00:25:07,040 --> 00:25:09,520
Speaker 1: kind of mistake is we're aiming in the wrong direction.

442
00:25:09,680 --> 00:25:11,239
Speaker 1: I'll come back to that later if you want to.

443
00:25:11,320 --> 00:25:14,520
Speaker 1: But day in day out, people buying and selling stocks

444
00:25:14,840 --> 00:25:19,280
Speaker 1: are prone to getting caught having made an error in

445
00:25:19,320 --> 00:25:22,240
Speaker 1: their judgment on the price. So in other words, if

446
00:25:22,240 --> 00:25:25,640
Speaker 1: you can avoid those self inflicted rors, you win by

447
00:25:25,680 --> 00:25:30,320
Speaker 1: not losing. Yes, and the parallels are are obvious as

448
00:25:30,320 --> 00:25:33,840
Speaker 1: investors and tennis and very powerful on the long, long,

449
00:25:34,000 --> 00:25:36,399
Speaker 1: long term if you aim in the right direction, you've

450
00:25:36,400 --> 00:25:38,159
Speaker 1: got a good chance of getting there. You want to

451
00:25:38,160 --> 00:25:41,720
Speaker 1: go to Chicago, don't head south towards Florida. So Chicago.

452
00:25:41,840 --> 00:25:44,600
Speaker 1: As an investor, how do you aim in the right direction? What?

453
00:25:44,400 --> 00:25:47,520
Speaker 1: What does that exactly mean? Well, I can't give you

454
00:25:47,560 --> 00:25:50,919
Speaker 1: a straight answer except in generalities, because each of us

455
00:25:51,000 --> 00:25:54,000
Speaker 1: is unique. But start with how much money do you have?

456
00:25:54,359 --> 00:25:57,919
Speaker 1: Are you saving money or spending money? How many years

457
00:25:57,960 --> 00:26:00,480
Speaker 1: do you have before you need to cover your retirement

458
00:26:00,600 --> 00:26:02,760
Speaker 1: or pay for your kids going to college or whatever

459
00:26:02,800 --> 00:26:05,920
Speaker 1: is your objective. How much wealth do you have, how

460
00:26:05,960 --> 00:26:09,320
Speaker 1: much income are you creating? Take all those things you

461
00:26:09,320 --> 00:26:12,000
Speaker 1: can work out an investment strategy that makes good sense.

462
00:26:12,080 --> 00:26:14,400
Speaker 1: Let me give you an example. I'm seventy nine. Most

463
00:26:14,400 --> 00:26:16,320
Speaker 1: people would say that age you must have a lot

464
00:26:16,320 --> 00:26:19,560
Speaker 1: of bonds. I have no bonds. Why Why? Well, I

465
00:26:19,640 --> 00:26:22,400
Speaker 1: still enjoy working and I'm able to keep earning enough

466
00:26:22,440 --> 00:26:26,199
Speaker 1: to cover my operating costs. And secondly, I look at

467
00:26:26,240 --> 00:26:28,840
Speaker 1: my investments. I say, who are you investing for? I'm

468
00:26:28,840 --> 00:26:34,840
Speaker 1: actually investing for my grandchildren. Right, So, your portfolio is

469
00:26:34,840 --> 00:26:38,200
Speaker 1: not the average seventy nine year old man's portfolio. It's

470
00:26:38,240 --> 00:26:41,200
Speaker 1: for someone who has an investing horizon of and it's

471
00:26:41,200 --> 00:26:43,240
Speaker 1: not to brag about it, it's just the reality. I

472
00:26:43,240 --> 00:26:45,440
Speaker 1: ought to address that reality. If I did the normal

473
00:26:45,480 --> 00:26:47,719
Speaker 1: thing saying hey, you're about eighty, you probably would have

474
00:26:48,000 --> 00:26:51,399
Speaker 1: at least six maybe seventy and fixed income. I look

475
00:26:51,440 --> 00:26:53,919
Speaker 1: at I say, that's crazy. I'm investing on behalf of

476
00:26:53,960 --> 00:26:58,640
Speaker 1: my grandchildren. Okay, And and the someone else who isn't

477
00:26:58,680 --> 00:27:01,720
Speaker 1: investing on on b for their grandchildren. They have to

478
00:27:01,760 --> 00:27:03,639
Speaker 1: aim in the right direction. That means a mix of

479
00:27:03,640 --> 00:27:07,720
Speaker 1: stocks and bonds and something appropriate for their where they are,

480
00:27:07,800 --> 00:27:10,840
Speaker 1: whether they're working or retired. Every magician knows if you

481
00:27:10,880 --> 00:27:12,320
Speaker 1: want to be able to pull off a good trick,

482
00:27:12,440 --> 00:27:15,160
Speaker 1: distract your audience so they don't notice what you're actually

483
00:27:15,200 --> 00:27:18,000
Speaker 1: doing the same thing. It's true of everybody's having an

484
00:27:18,000 --> 00:27:21,880
Speaker 1: illicit of fair abstract your audience and they won't find

485
00:27:21,880 --> 00:27:24,160
Speaker 1: out what you're doing. The same thing. Is all kinds

486
00:27:24,200 --> 00:27:26,359
Speaker 1: of different problems. You get people to focus on the

487
00:27:26,400 --> 00:27:29,919
Speaker 1: wrong thing in investing. Most people get focused on day in,

488
00:27:30,040 --> 00:27:32,320
Speaker 1: day out stock prices and how do you do this quarter,

489
00:27:32,440 --> 00:27:36,520
Speaker 1: this year, maybe this week, this day, absolutely, and the

490
00:27:36,560 --> 00:27:40,000
Speaker 1: real questions are all about long, long, long term it's

491
00:27:40,119 --> 00:27:43,080
Speaker 1: to me, it's the father in law question. The man

492
00:27:43,200 --> 00:27:46,320
Speaker 1: has got a beautiful daughter, she's bright, she's interesting, she's

493
00:27:46,320 --> 00:27:49,720
Speaker 1: got a wonderful future ahead of her. She's introducing a guy.

494
00:27:49,800 --> 00:27:52,080
Speaker 1: Does he care whether he's got blue eyes or brown eyes?

495
00:27:52,119 --> 00:27:54,399
Speaker 1: Does he care whether he's got a wonderful sense of humor?

496
00:27:54,480 --> 00:27:56,720
Speaker 1: Does he care whether the guy is tall or a

497
00:27:56,720 --> 00:27:59,000
Speaker 1: good None of those things. What he wants to do

498
00:27:59,080 --> 00:28:01,880
Speaker 1: with one single thing? Is this going to be a

499
00:28:01,920 --> 00:28:05,560
Speaker 1: good friend from my daughter? Ten years from now, twenty

500
00:28:05,640 --> 00:28:08,120
Speaker 1: years from now, thirty years from now, forty years from now,

501
00:28:08,320 --> 00:28:11,960
Speaker 1: will she be in a good, happy position? I gotta

502
00:28:12,000 --> 00:28:15,800
Speaker 1: think a long time. So so let's talk a little

503
00:28:15,800 --> 00:28:18,320
Speaker 1: more about the article. It goes on to when the

504
00:28:18,440 --> 00:28:23,560
Speaker 1: Graham and Dot award in and that ultimately leads to

505
00:28:23,680 --> 00:28:26,960
Speaker 1: you writing the book. Well, also of dad's advice Dad

506
00:28:27,040 --> 00:28:31,119
Speaker 1: when we were growing upset, don't find a problem unless

507
00:28:31,119 --> 00:28:33,920
Speaker 1: you find a solution to that problem. I've I've heard

508
00:28:34,359 --> 00:28:38,160
Speaker 1: similar advice given to young employees. Don't bring problems to

509
00:28:38,200 --> 00:28:41,400
Speaker 1: your boss. Identify problems and bring a solution to it.

510
00:28:41,800 --> 00:28:43,640
Speaker 1: Years ago, I didn't think it was fair for Dad

511
00:28:43,680 --> 00:28:45,040
Speaker 1: to say that, because it's hard to come up with

512
00:28:45,040 --> 00:28:48,640
Speaker 1: solutions sometimes, but he was right. And so if you

513
00:28:48,840 --> 00:28:50,760
Speaker 1: put out the loser's game, this is a tough place

514
00:28:50,800 --> 00:28:54,120
Speaker 1: to play and be successful. Then the question obviously is, okay,

515
00:28:54,160 --> 00:28:56,760
Speaker 1: what would you do, And the answer is, don't play

516
00:28:56,840 --> 00:29:01,640
Speaker 1: the detailed transactions game, play the long term policy game

517
00:29:02,000 --> 00:29:04,280
Speaker 1: of getting in the right direction, and I don't get

518
00:29:04,280 --> 00:29:06,920
Speaker 1: back to driving. I don't care how fast you drive

519
00:29:07,160 --> 00:29:10,800
Speaker 1: going to Chicago, just be sure you're not headed towards Miami.

520
00:29:11,200 --> 00:29:17,800
Speaker 1: So it's funny because the the article from really presages

521
00:29:18,000 --> 00:29:22,240
Speaker 1: the indexing argument to be made forty plus years later.

522
00:29:22,400 --> 00:29:25,960
Speaker 1: Well back in the seventies, it was an accurate description

523
00:29:26,000 --> 00:29:29,560
Speaker 1: of the situation for individuals if they're competing with professionals.

524
00:29:29,560 --> 00:29:32,880
Speaker 1: Now it's an accurate description for professionals competing with professionals,

525
00:29:33,240 --> 00:29:37,040
Speaker 1: And individuals should not be investing in mutual funds without

526
00:29:37,080 --> 00:29:39,600
Speaker 1: being aware of how tough it is to be a

527
00:29:39,600 --> 00:29:43,480
Speaker 1: successful mutual fund manager. If you're an active investors, it's hard.

528
00:29:43,720 --> 00:29:48,320
Speaker 1: So that there's a theme that comes up in index Revolution,

529
00:29:48,760 --> 00:29:54,240
Speaker 1: in UM, the retirement crisis, and in Winning the Losers Game,

530
00:29:55,160 --> 00:29:59,520
Speaker 1: as well as Extraordinary Tennis for ordinary tennis players, which

531
00:29:59,560 --> 00:30:03,840
Speaker 1: is the importance of understanding your own skill set and

532
00:30:03,960 --> 00:30:07,080
Speaker 1: limitations and not trying to do more than you're capable

533
00:30:07,120 --> 00:30:10,440
Speaker 1: of doing. Its discussed that all true is the same

534
00:30:10,480 --> 00:30:14,080
Speaker 1: thing in driving an automobile on the highway. It's the

535
00:30:14,160 --> 00:30:18,080
Speaker 1: same thing in virtually every dimension of our lives. Trying

536
00:30:18,080 --> 00:30:19,520
Speaker 1: to figure out who you are and what you want

537
00:30:19,560 --> 00:30:24,360
Speaker 1: to accomplish and focus on that that remind me. Later,

538
00:30:24,360 --> 00:30:27,480
Speaker 1: I'm gonna tell you a funny driving story related to

539
00:30:27,520 --> 00:30:31,680
Speaker 1: that exact thing. So we talk. Um. We have some

540
00:30:31,800 --> 00:30:33,760
Speaker 1: quotes of yours that I really love and I want

541
00:30:33,760 --> 00:30:39,400
Speaker 1: to throw your way, um quote. The investment management business

542
00:30:39,520 --> 00:30:43,640
Speaker 1: is built upon a simple and basic belief professional money

543
00:30:43,680 --> 00:30:48,520
Speaker 1: managers can beat the market. That premise appears to be false.

544
00:30:49,280 --> 00:30:56,840
Speaker 1: Explain that the market is priced by investors. Fifty years ago,

545
00:30:56,920 --> 00:30:59,760
Speaker 1: those investors were individuals who bought and sold once every

546
00:30:59,800 --> 00:31:02,360
Speaker 1: year or two. They honestly didn't know an awful lot,

547
00:31:02,840 --> 00:31:05,400
Speaker 1: and so they made a lot of errors. Today, the

548
00:31:05,440 --> 00:31:09,400
Speaker 1: market is entirely priced by professionals. They are very much

549
00:31:09,440 --> 00:31:11,760
Speaker 1: on top of what's going on, and while they're never

550
00:31:11,920 --> 00:31:16,360
Speaker 1: always dead right, they're so close to being right compared

551
00:31:16,400 --> 00:31:19,320
Speaker 1: to anybody else. It's the old joke about the two

552
00:31:19,320 --> 00:31:22,040
Speaker 1: guys and the bear, and one guy is putting on

553
00:31:22,080 --> 00:31:24,160
Speaker 1: his sneakers and the other guy says, God, you can't

554
00:31:24,280 --> 00:31:27,240
Speaker 1: stop to put on your sneakers. The bear will catch you. No,

555
00:31:27,360 --> 00:31:30,920
Speaker 1: he won't. Who catch you down on the bear? I

556
00:31:30,960 --> 00:31:36,520
Speaker 1: just have to outrun you. So so I find it

557
00:31:36,600 --> 00:31:42,960
Speaker 1: fascinating that you identified this in in you and a

558
00:31:43,040 --> 00:31:46,920
Speaker 1: handful of the people Jack Bogel and maybe Burton Malkill,

559
00:31:47,000 --> 00:31:52,800
Speaker 1: who else in v was thinking along the lines that, hey,

560
00:31:52,840 --> 00:31:55,760
Speaker 1: it's nearly impossible to beat the market, and once you

561
00:31:55,840 --> 00:31:59,960
Speaker 1: factor in turnover in taxes and costs on a consistent

562
00:32:00,040 --> 00:32:04,320
Speaker 1: basis over time, it's all but impossible. How were so

563
00:32:04,520 --> 00:32:08,760
Speaker 1: few people recognizing this way back when very let's be

564
00:32:08,840 --> 00:32:13,360
Speaker 1: realistic investment management, active investment management, competing with everybody else.

565
00:32:13,400 --> 00:32:15,880
Speaker 1: It's great fun. It is fun, and it's too much

566
00:32:16,520 --> 00:32:20,280
Speaker 1: requires concentrated attention. So people are really really working at that.

567
00:32:20,360 --> 00:32:22,480
Speaker 1: How are they going to pay any attention to something

568
00:32:22,520 --> 00:32:25,320
Speaker 1: that's completely foreign to everything they've ever heard of? It

569
00:32:25,400 --> 00:32:28,280
Speaker 1: just doesn't make sense, Which is step back and look

570
00:32:28,320 --> 00:32:31,000
Speaker 1: at the big picture and say, is my efforts feudal?

571
00:32:31,160 --> 00:32:33,200
Speaker 1: Or am I you know how many times can you

572
00:32:33,280 --> 00:32:35,320
Speaker 1: roll the stone up the hill and have it rolled

573
00:32:35,360 --> 00:32:38,320
Speaker 1: back down on you before you realize, Hey, maybe this

574
00:32:38,400 --> 00:32:40,760
Speaker 1: is a waste that there's one other thing that's really important.

575
00:32:40,800 --> 00:32:44,440
Speaker 1: The data that was available to people was inaccurate. It

576
00:32:44,520 --> 00:32:48,440
Speaker 1: was precise, but it was inaccurate. The reports on who

577
00:32:48,520 --> 00:32:53,800
Speaker 1: is performing compared to the market looked terribly encouraging. Looked

578
00:32:53,800 --> 00:32:56,479
Speaker 1: like seventy or eight percent of the professional managers were

579
00:32:56,520 --> 00:32:59,520
Speaker 1: beating the market. Uh, but you've left out somebody. Who'd

580
00:32:59,560 --> 00:33:02,240
Speaker 1: you leave the guys that got killed. We've been speaking

581
00:33:02,240 --> 00:33:05,680
Speaker 1: with Charlie Ellis. He is formally on the board of

582
00:33:05,720 --> 00:33:10,080
Speaker 1: directors of Vanguard and on the Yale Endowment Funds. We

583
00:33:10,200 --> 00:33:12,800
Speaker 1: love your comments and feedback. Be sure to write to

584
00:33:12,920 --> 00:33:17,240
Speaker 1: us at m IB podcast at Bloomberg dot net, check

585
00:33:17,280 --> 00:33:20,600
Speaker 1: out my daily column on Bloomberg View dot com, or

586
00:33:20,680 --> 00:33:25,000
Speaker 1: follow me on Twitter at rid Halts. I'm Barry rid Halts.

587
00:33:25,120 --> 00:33:28,640
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.

588
00:33:29,320 --> 00:33:31,800
Speaker 1: What could your future hold? More than you think? Because

589
00:33:31,800 --> 00:33:33,440
Speaker 1: at Merrill Lynch we work with you to create a

590
00:33:33,480 --> 00:33:36,520
Speaker 1: strategy built around your priorities. Visit mL dot com and

591
00:33:36,600 --> 00:33:39,000
Speaker 1: learn more about Merrill Lynch. An affiliated Bank of America.

592
00:33:39,120 --> 00:33:41,320
Speaker 1: Mary Lynch makes available products and services offered by Merrill

593
00:33:41,400 --> 00:33:43,800
Speaker 1: Lynch Pierce Federan Smith Incorporated or Register Broker Dealer remember

594
00:33:43,880 --> 00:33:47,360
Speaker 1: s I PC. Welcome to the podcast, Charlie. Thank you

595
00:33:47,400 --> 00:33:49,360
Speaker 1: so much for for doing this. You know, when we

596
00:33:49,600 --> 00:33:53,200
Speaker 1: first interviewed you, we've now done a hundred and something

597
00:33:53,400 --> 00:33:57,400
Speaker 1: plus interviews. You were you were in the early portion,

598
00:33:57,920 --> 00:33:59,720
Speaker 1: and I think I was a little rough around the

599
00:33:59,800 --> 00:34:03,080
Speaker 1: edge is when we first started. I'd like to think

600
00:34:03,920 --> 00:34:07,640
Speaker 1: that just through sheer repetition, I've gotten somewhat better. Your

601
00:34:09,880 --> 00:34:12,880
Speaker 1: trust me. If it sounds smooth, it's only because I

602
00:34:12,920 --> 00:34:16,520
Speaker 1: have really good engineers who edit out many, but not all,

603
00:34:16,560 --> 00:34:20,800
Speaker 1: of my mistakes. We sometimes leave them in UM for fun. UM.

604
00:34:20,840 --> 00:34:23,560
Speaker 1: There's so many questions that we blew through. I want

605
00:34:23,560 --> 00:34:28,600
Speaker 1: to come back to before we get to our standard questions.

606
00:34:28,719 --> 00:34:31,759
Speaker 1: And let's start with a quote that I love, and

607
00:34:31,800 --> 00:34:37,320
Speaker 1: this is in UM the book Index Revolution in seven

608
00:34:37,480 --> 00:34:41,279
Speaker 1: the director of research at Chase Manhattan Bank which is

609
00:34:41,320 --> 00:34:48,440
Speaker 1: now Chase JP Morrigan. But this is obviously thirty acquisitions ago. Quote.

610
00:34:48,960 --> 00:34:53,920
Speaker 1: The proliferation of index funds would lead to massively inefficient markets,

611
00:34:54,400 --> 00:34:57,040
Speaker 1: and a stocks price would become more a function of

612
00:34:57,160 --> 00:35:03,120
Speaker 1: money's flowing into index funds than flexion or its investment merits.

613
00:35:03,560 --> 00:35:07,920
Speaker 1: The entire capital allocation process of the securities market would

614
00:35:07,920 --> 00:35:12,000
Speaker 1: be distorted, and only companies represented in indexes would be

615
00:35:12,040 --> 00:35:18,000
Speaker 1: able to read raise any equity capital capital true? False?

616
00:35:18,080 --> 00:35:19,920
Speaker 1: What are your thoughts on that? Well, first of all,

617
00:35:19,920 --> 00:35:26,880
Speaker 1: it's false, But secondly, nobody's saying that today. Occasionally people say, oh,

618
00:35:27,000 --> 00:35:29,880
Speaker 1: what's going to happen? When aren't we getting rid of

619
00:35:29,920 --> 00:35:32,600
Speaker 1: the the capital allocation function with all this money flowing

620
00:35:32,680 --> 00:35:36,799
Speaker 1: index But there that's hyperbole and it's future stuff. If

621
00:35:36,920 --> 00:35:40,640
Speaker 1: you had everybody indexing, wouldn't that mean that we've got

622
00:35:40,640 --> 00:35:43,040
Speaker 1: a real problem. Yes, of course it would. And when

623
00:35:43,040 --> 00:35:46,600
Speaker 1: everybody stopped smoking, please let me know, because that would

624
00:35:46,600 --> 00:35:49,799
Speaker 1: be a really important reality. A lot less people are

625
00:35:49,840 --> 00:35:52,160
Speaker 1: smoking than used to, and a lot more people are

626
00:35:52,160 --> 00:35:55,359
Speaker 1: in the United States worldwide, more people are smoking other

627
00:35:55,400 --> 00:35:59,560
Speaker 1: than ever. Yeah, it's very, very unlikely that we will

628
00:35:59,600 --> 00:36:03,239
Speaker 1: get much indexing going on that smart people won't be

629
00:36:03,280 --> 00:36:06,239
Speaker 1: smart enough to figure out that they should now think

630
00:36:06,280 --> 00:36:09,520
Speaker 1: about doing a little bit of active investing. So what

631
00:36:09,560 --> 00:36:13,840
Speaker 1: do we of very percent of assets? But the game

632
00:36:14,040 --> 00:36:16,480
Speaker 1: is in the trading markets and in the trading markets

633
00:36:16,560 --> 00:36:20,800
Speaker 1: because index funds are very low turnover of total volumes

634
00:36:20,920 --> 00:36:25,120
Speaker 1: or less or less, and it's not aggressive, it's kind

635
00:36:25,120 --> 00:36:27,759
Speaker 1: of go with the flow activity most of the time.

636
00:36:27,800 --> 00:36:32,560
Speaker 1: It's highly skilled in the transactions, very skilled, but actually

637
00:36:32,560 --> 00:36:34,400
Speaker 1: it's just kind of going with the normal flow. So

638
00:36:34,560 --> 00:36:40,200
Speaker 1: the impact on pricing is diminimus. So index investing doesn't

639
00:36:40,680 --> 00:36:44,719
Speaker 1: affect prices very much, certainly doesn't. So, and you talk

640
00:36:44,760 --> 00:36:46,359
Speaker 1: to the people who know the most about it because

641
00:36:46,360 --> 00:36:49,279
Speaker 1: they're trading for index funds, they've figured out how to

642
00:36:49,320 --> 00:36:52,319
Speaker 1: handle almost every one of the questions that's people have

643
00:36:52,400 --> 00:36:56,000
Speaker 1: raised and handle them without any trouble. Some of the

644
00:36:56,320 --> 00:36:58,719
Speaker 1: questions are really interesting still and they still have some

645
00:36:58,800 --> 00:37:02,600
Speaker 1: minor difficulty. In the total picture, it's just no problem

646
00:37:02,680 --> 00:37:06,360
Speaker 1: at all. So if we were to look at thet

647
00:37:06,960 --> 00:37:12,799
Speaker 1: of investing that currently flows into of the assets, if

648
00:37:12,840 --> 00:37:17,960
Speaker 1: that were ever to become fifty, would that create opportunities

649
00:37:18,000 --> 00:37:20,719
Speaker 1: for the stock pickers? Would there be more inefficiencies at

650
00:37:20,760 --> 00:37:24,960
Speaker 1: that point? Not in those levels if you got to maybe,

651
00:37:25,400 --> 00:37:26,799
Speaker 1: but look at what you have to do. You've got

652
00:37:26,840 --> 00:37:30,359
Speaker 1: a million people are active involved in active investing. How

653
00:37:30,600 --> 00:37:33,120
Speaker 1: many of those people have to retire from the field

654
00:37:33,440 --> 00:37:35,759
Speaker 1: and say I'm gonna quit. I'm going to go back

655
00:37:35,800 --> 00:37:38,319
Speaker 1: and be a lawyer instead of being an investor. I'm

656
00:37:38,320 --> 00:37:41,480
Speaker 1: going to go into a normal business instead of investment management.

657
00:37:41,640 --> 00:37:44,200
Speaker 1: I don't want to do this stuff anymore. It's going

658
00:37:44,239 --> 00:37:47,239
Speaker 1: to be a long long time before what do you

659
00:37:47,239 --> 00:37:49,480
Speaker 1: have to do? You have to cut their pay by

660
00:37:49,880 --> 00:37:51,959
Speaker 1: that wouldn't be enough to cause most people to quit.

661
00:37:53,520 --> 00:37:56,160
Speaker 1: You really got a major change on your hands before

662
00:37:56,280 --> 00:37:58,520
Speaker 1: you're going to see anything like that. It won't happen

663
00:37:58,560 --> 00:38:01,240
Speaker 1: in my lifetime. I doubt it happened my son's lifetime,

664
00:38:01,280 --> 00:38:03,440
Speaker 1: and I doubt doubt doubt that will happen in my

665
00:38:03,520 --> 00:38:06,239
Speaker 1: granddaughter's lifetime. So you think that this is going to

666
00:38:06,360 --> 00:38:10,640
Speaker 1: go on continuously because of human beings being human beings,

667
00:38:11,200 --> 00:38:13,160
Speaker 1: and there's no other way to know, other way to

668
00:38:13,200 --> 00:38:16,120
Speaker 1: deal with that. Let's let's talk about some of the

669
00:38:16,200 --> 00:38:21,960
Speaker 1: issues on the retirement side. UM Richard Thaylor had written

670
00:38:21,960 --> 00:38:25,200
Speaker 1: a book called Nudge where he talks about a lot

671
00:38:25,239 --> 00:38:30,920
Speaker 1: of things that now require affirmative steps by the employee

672
00:38:30,920 --> 00:38:34,840
Speaker 1: should be replaced, not opt in, but opt out. So,

673
00:38:34,880 --> 00:38:38,200
Speaker 1: in other words, you join a firm, you're automatically enrolled

674
00:38:38,239 --> 00:38:41,120
Speaker 1: in the four oh one K and you're automatically enrolled

675
00:38:41,160 --> 00:38:45,160
Speaker 1: and increases as your salary goes up unless you opt

676
00:38:45,200 --> 00:38:47,000
Speaker 1: out of that. What what do you think of that?

677
00:38:47,120 --> 00:38:50,000
Speaker 1: I think it's a terrific idea for two different reasons.

678
00:38:50,040 --> 00:38:53,680
Speaker 1: There's a strong political view social view that we should

679
00:38:53,719 --> 00:38:58,880
Speaker 1: not have government setting the rules or telling us what

680
00:38:58,960 --> 00:39:03,319
Speaker 1: to do. That'd be better. This does not tell you

681
00:39:03,360 --> 00:39:05,759
Speaker 1: what to do, right, You have a choice, and we

682
00:39:05,920 --> 00:39:08,279
Speaker 1: have a choice at all times, and you would have

683
00:39:08,320 --> 00:39:10,720
Speaker 1: the choice to say Nope, that's not for me. Nope,

684
00:39:10,800 --> 00:39:12,799
Speaker 1: that's not for me. No, that's not for me. It's

685
00:39:12,840 --> 00:39:15,200
Speaker 1: called opt out. You say I don't want to be

686
00:39:15,239 --> 00:39:17,880
Speaker 1: in the plan, Okay, if you'd make that as your choice,

687
00:39:18,040 --> 00:39:20,560
Speaker 1: fine and say no, I want to be in the plan,

688
00:39:20,640 --> 00:39:22,279
Speaker 1: but I don't want to match the match. I don't

689
00:39:22,320 --> 00:39:25,319
Speaker 1: want free money by putting up my four percent of

690
00:39:26,040 --> 00:39:28,719
Speaker 1: match the employers four percent. If you really don't want

691
00:39:28,719 --> 00:39:31,600
Speaker 1: to do it, that's your freedom of choice. If you say, well,

692
00:39:31,640 --> 00:39:33,560
Speaker 1: I do want to do the four percent match, but

693
00:39:33,600 --> 00:39:35,520
Speaker 1: I don't want to increase the savings rate as I

694
00:39:35,560 --> 00:39:38,680
Speaker 1: get raises from time to time. Okay, you can do that.

695
00:39:39,040 --> 00:39:42,520
Speaker 1: I don't want to be in an target date fund. Fine,

696
00:39:42,600 --> 00:39:44,200
Speaker 1: if you don't want to do that, you could do

697
00:39:44,280 --> 00:39:46,600
Speaker 1: something else, but we make it available to you. So,

698
00:39:46,600 --> 00:39:49,800
Speaker 1: in other words, the choice architecture, which is the phrase

699
00:39:49,880 --> 00:39:54,480
Speaker 1: of this is the default setting is significant. And I

700
00:39:54,480 --> 00:39:58,719
Speaker 1: know they've done experiments in different countries with organ donation. Hey,

701
00:39:58,760 --> 00:40:00,600
Speaker 1: you don't have to be an organ do owner, but

702
00:40:00,680 --> 00:40:03,200
Speaker 1: the default setting on the driver's licenses you are an

703
00:40:03,280 --> 00:40:05,520
Speaker 1: organ donor. And it goes from an eight or a

704
00:40:05,560 --> 00:40:09,799
Speaker 1: ten percent participation rate to a rate and there's no

705
00:40:09,880 --> 00:40:12,520
Speaker 1: shortage of organs, and and all it is is you

706
00:40:12,560 --> 00:40:14,160
Speaker 1: don't have to do it. You just have to check

707
00:40:14,200 --> 00:40:16,160
Speaker 1: a box that says you're opting out. That's it, and

708
00:40:16,239 --> 00:40:20,080
Speaker 1: you get a huge increase in the percentage of workers

709
00:40:20,080 --> 00:40:23,120
Speaker 1: who become part of the plan, huge increase in the

710
00:40:23,120 --> 00:40:25,920
Speaker 1: percentage of people who take the match, huge increase in

711
00:40:25,960 --> 00:40:28,719
Speaker 1: the percentage of people who escalate over time their savings rate,

712
00:40:29,040 --> 00:40:31,400
Speaker 1: huge increase in number of people get into an automatic

713
00:40:31,440 --> 00:40:36,160
Speaker 1: investment program. Those are really positive moves. So opt out

714
00:40:36,239 --> 00:40:40,400
Speaker 1: should be you're automatically enrolled, you automatically do the match,

715
00:40:40,560 --> 00:40:44,000
Speaker 1: you automatically do the increase, and if you don't set

716
00:40:44,000 --> 00:40:46,680
Speaker 1: a fund. If you don't choose funds, you automatically go

717
00:40:46,760 --> 00:40:49,879
Speaker 1: into a target date fund. That's the default setting. If

718
00:40:49,880 --> 00:40:51,719
Speaker 1: you want to change it, you're free to change it.

719
00:40:51,760 --> 00:40:54,880
Speaker 1: But at least let's start you out on on something

720
00:40:55,040 --> 00:40:58,400
Speaker 1: as opposed to nothing. So if you if you don't

721
00:40:58,880 --> 00:41:02,799
Speaker 1: respond there's something happening as opposed to nothing, you lose

722
00:41:02,840 --> 00:41:05,520
Speaker 1: no freedom of choice, and you have the benefit if

723
00:41:05,520 --> 00:41:07,680
Speaker 1: you really don't know what to do, go with the flow.

724
00:41:08,200 --> 00:41:09,879
Speaker 1: So I got a lot of push back the other

725
00:41:10,000 --> 00:41:14,879
Speaker 1: day I did a column about the i ra A minimums.

726
00:41:15,280 --> 00:41:19,240
Speaker 1: I'm sorry the ira A ceilings. They're at fifty dollars.

727
00:41:19,280 --> 00:41:24,239
Speaker 1: That seems like an awfully small number of of if

728
00:41:24,280 --> 00:41:25,880
Speaker 1: people don't have a four in one K and they

729
00:41:25,920 --> 00:41:30,719
Speaker 1: want to max out their tax deferred um retirement savings

730
00:41:31,440 --> 00:41:35,080
Speaker 1: from when the aristol laws were passed, just adjusting for inflation,

731
00:41:35,120 --> 00:41:38,920
Speaker 1: you should be closer to seventy And unfortunately the way

732
00:41:38,960 --> 00:41:43,600
Speaker 1: inflation has proven itself to exist. The things we want,

733
00:41:43,760 --> 00:41:47,560
Speaker 1: the technology, the phones, the computers, they're going down in price.

734
00:41:47,640 --> 00:41:50,759
Speaker 1: But the things we need, housing and healthcare and and

735
00:41:50,800 --> 00:41:52,760
Speaker 1: that sort of stuff, they're all going up in price.

736
00:41:53,160 --> 00:41:56,080
Speaker 1: So really that's seventy hundred. If anything, it should be

737
00:41:56,080 --> 00:42:00,320
Speaker 1: closer to ten thousand. Do you see the sea ceiling

738
00:42:00,719 --> 00:42:04,319
Speaker 1: for IRA contributions as an issue for for a lot

739
00:42:04,400 --> 00:42:08,200
Speaker 1: of middle class families? All right? Now? The pushback I

740
00:42:08,239 --> 00:42:11,640
Speaker 1: got was on and if you're raising the IRA ceiling,

741
00:42:11,680 --> 00:42:13,279
Speaker 1: you have to raise the four oh one k. And

742
00:42:13,320 --> 00:42:17,280
Speaker 1: people said, well, it's already eighteen thousand, and imagine two people.

743
00:42:17,880 --> 00:42:20,160
Speaker 1: I think you have to raise them both. But so

744
00:42:20,239 --> 00:42:22,920
Speaker 1: many people fail to meet the ceiling on the four

745
00:42:23,040 --> 00:42:27,080
Speaker 1: one k, it's probably not as present. It would be

746
00:42:27,080 --> 00:42:29,720
Speaker 1: great to raise the ceiling. It would be really, really

747
00:42:29,760 --> 00:42:32,719
Speaker 1: great to help people understand how good that could be

748
00:42:32,800 --> 00:42:35,200
Speaker 1: for them and why they should take action and take

749
00:42:35,200 --> 00:42:38,359
Speaker 1: advantage of the higher ceiling. I don't I don't doubt

750
00:42:38,440 --> 00:42:43,200
Speaker 1: that at all. Let's talk about the savings rate um

751
00:42:43,880 --> 00:42:47,920
Speaker 1: three percent. Three percent is too low of a savings

752
00:42:48,000 --> 00:42:54,120
Speaker 1: rate to replace seventy of employment income during retirement. How

753
00:42:54,120 --> 00:42:57,480
Speaker 1: do we get people to save more than three percent

754
00:42:57,520 --> 00:43:01,040
Speaker 1: of their income? Help people understand what impact is when

755
00:43:01,040 --> 00:43:04,640
Speaker 1: they are retired, of how badly hurt they will be

756
00:43:05,000 --> 00:43:07,239
Speaker 1: if they don't save more. And we ought to be

757
00:43:07,320 --> 00:43:10,600
Speaker 1: teaching that day after day after day, Teach it in

758
00:43:10,680 --> 00:43:14,040
Speaker 1: high school, Teach it when people first join a retirement plan,

759
00:43:14,680 --> 00:43:18,080
Speaker 1: Teach it in the public domain all the time in

760
00:43:18,200 --> 00:43:22,000
Speaker 1: high school. Do we have any sort of financial literacy

761
00:43:22,080 --> 00:43:25,640
Speaker 1: courses offered at the high school level. Some of the

762
00:43:25,640 --> 00:43:27,839
Speaker 1: problem we have, all of us have, is we're all

763
00:43:27,880 --> 00:43:29,839
Speaker 1: too busy. We've got too many things on our mind.

764
00:43:29,840 --> 00:43:32,440
Speaker 1: So we Yeah, you know, I should lose ten pounds,

765
00:43:32,480 --> 00:43:34,879
Speaker 1: but you know, I just don't want to do it today. Yeah.

766
00:43:34,920 --> 00:43:37,759
Speaker 1: I know I should do more exercise, but I just

767
00:43:37,760 --> 00:43:40,120
Speaker 1: don't want to get started today. Yeah, I know. And

768
00:43:40,320 --> 00:43:42,520
Speaker 1: so many things that are crowd in on. You gotta

769
00:43:42,560 --> 00:43:44,439
Speaker 1: get a job, you gotta pay your taxes, you gotta

770
00:43:44,440 --> 00:43:46,560
Speaker 1: do this, you gotta do that. It's hard for people

771
00:43:46,600 --> 00:43:48,480
Speaker 1: set aside the time to say, now, I'm going to

772
00:43:48,600 --> 00:43:52,160
Speaker 1: learn enough about investing. And the shame is that investing

773
00:43:52,320 --> 00:43:55,920
Speaker 1: is basically the stuff that's really important, is really pretty simple,

774
00:43:56,560 --> 00:43:59,919
Speaker 1: and if people didn't get confused with only smart people

775
00:44:00,000 --> 00:44:02,719
Speaker 1: know that sort of stuff, or the language always bothers me.

776
00:44:02,760 --> 00:44:05,319
Speaker 1: I don't know what a pe ratio is, and they

777
00:44:05,320 --> 00:44:07,200
Speaker 1: talk about earnings yield and I don't know what that

778
00:44:07,360 --> 00:44:10,120
Speaker 1: is either, And pretty soon people say ah, hell, I'll

779
00:44:10,160 --> 00:44:12,720
Speaker 1: come back to it later, but I can't do it today.

780
00:44:13,000 --> 00:44:15,959
Speaker 1: If they knew what the problem really is and boil

781
00:44:16,000 --> 00:44:18,759
Speaker 1: it down to the simplest kinds of decisions. This is

782
00:44:18,760 --> 00:44:21,600
Speaker 1: how much money you need to have when you're retired, Okay,

783
00:44:21,640 --> 00:44:23,640
Speaker 1: to have that money to spend every year. This is

784
00:44:23,640 --> 00:44:25,479
Speaker 1: how much you have to have in your nest egg

785
00:44:25,760 --> 00:44:27,879
Speaker 1: Okay to get there. You have to save this kind

786
00:44:27,920 --> 00:44:30,840
Speaker 1: of money every year and invested in this kind of

787
00:44:30,880 --> 00:44:33,400
Speaker 1: sensible way. If we could teach people those four or

788
00:44:33,520 --> 00:44:36,160
Speaker 1: five things, they'd be all set. You should write a

789
00:44:36,160 --> 00:44:39,520
Speaker 1: book about that. Did oh wait, oh wait, you already

790
00:44:39,560 --> 00:44:42,640
Speaker 1: did so. There's a there's a thesis out there that

791
00:44:42,760 --> 00:44:49,600
Speaker 1: says that financial literacy education is great, but people rapidly

792
00:44:49,640 --> 00:44:51,920
Speaker 1: forget about it. You can teach people stuff and it

793
00:44:52,000 --> 00:44:54,680
Speaker 1: stays with them for three months, for six months, but

794
00:44:54,880 --> 00:44:58,360
Speaker 1: not for a lifetime. How do we get past the

795
00:44:58,600 --> 00:45:02,719
Speaker 1: sort of short term is um of people being so

796
00:45:02,760 --> 00:45:06,799
Speaker 1: easily distracted by by life as you One that you

797
00:45:06,880 --> 00:45:10,799
Speaker 1: obviously identified earlier is opt out versus opt in. If

798
00:45:10,880 --> 00:45:15,080
Speaker 1: every retirement plan you automatically did the sensible thing unless

799
00:45:15,120 --> 00:45:17,400
Speaker 1: you said no, I'm different from most other people. So

800
00:45:17,400 --> 00:45:19,520
Speaker 1: I've got a real reason for wanting to do something

801
00:45:19,560 --> 00:45:22,760
Speaker 1: different on this item or that item or that item. Fine,

802
00:45:23,040 --> 00:45:26,080
Speaker 1: you could have the freedom to make a I'm different decision.

803
00:45:26,400 --> 00:45:29,200
Speaker 1: Otherwise you can have the super freedom to say somebody

804
00:45:29,200 --> 00:45:31,239
Speaker 1: else has thought about this pretty damn well. They've done

805
00:45:31,239 --> 00:45:33,080
Speaker 1: a good job of figuring out what most people need.

806
00:45:33,360 --> 00:45:36,200
Speaker 1: I'm going to take what's the blue plate special and

807
00:45:36,200 --> 00:45:39,080
Speaker 1: and the problem is that people when folks don't do that,

808
00:45:39,280 --> 00:45:43,520
Speaker 1: what you're left with thirty forty years. Hence the fear

809
00:45:43,600 --> 00:45:46,200
Speaker 1: is that's going to fall on the taxpayer shoulders, because

810
00:45:46,200 --> 00:45:50,320
Speaker 1: it's just gonna really put stress on things like Medicare, Medicaid,

811
00:45:50,719 --> 00:45:53,439
Speaker 1: and Social Security. It's all going to end up back

812
00:45:53,480 --> 00:45:56,879
Speaker 1: on the taxpayers. Last wouldna be really alarmist. Think how

813
00:45:56,920 --> 00:46:00,759
Speaker 1: badly this country would feel if there were a large

814
00:46:00,840 --> 00:46:04,200
Speaker 1: number of people in their seventies, eighties, and nineties who

815
00:46:04,239 --> 00:46:07,319
Speaker 1: are highly focused on the fact that they really were

816
00:46:07,400 --> 00:46:10,800
Speaker 1: hurting financially, and they turned to you and other people

817
00:46:10,840 --> 00:46:14,920
Speaker 1: who are experts and said, you did us real harm.

818
00:46:14,960 --> 00:46:18,319
Speaker 1: It's all your fault, and we're really angry, and we're

819
00:46:18,320 --> 00:46:21,200
Speaker 1: going to express our views at the polling place and

820
00:46:21,239 --> 00:46:24,520
Speaker 1: We're gonna do whatever we can because we got hurt,

821
00:46:24,960 --> 00:46:26,680
Speaker 1: and you knew we were going to get hurt. You

822
00:46:26,719 --> 00:46:29,239
Speaker 1: knew it all along. Why did you do that to us?

823
00:46:29,440 --> 00:46:31,520
Speaker 1: They won't say, cause you know, I made a mistake

824
00:46:31,600 --> 00:46:33,680
Speaker 1: years ago. I should have done something. I've created this

825
00:46:33,680 --> 00:46:36,520
Speaker 1: problem for myself. That's not gonna happen. Didn't that just

826
00:46:36,600 --> 00:46:39,960
Speaker 1: happen already? Didn't we see the first round? That's so

827
00:46:40,200 --> 00:46:44,160
Speaker 1: let's let's without talking about politics, because nobody cares about

828
00:46:44,200 --> 00:46:50,680
Speaker 1: my views on politics. How much of what took place

829
00:46:50,880 --> 00:46:56,440
Speaker 1: in the polls and the angst and other factors like that,

830
00:46:56,560 --> 00:47:00,120
Speaker 1: the populist uprising? Is that a one off event in

831
00:47:01,400 --> 00:47:03,839
Speaker 1: or is that a warning shot? Hey, this is what

832
00:47:03,920 --> 00:47:05,920
Speaker 1: the future is gonna look like. If we don't develop

833
00:47:06,000 --> 00:47:10,239
Speaker 1: some economic security for for the population at large. It's

834
00:47:10,280 --> 00:47:14,760
Speaker 1: a first round only really could get worse pretty damn fast.

835
00:47:14,760 --> 00:47:16,799
Speaker 1: There's going to be more more of this sort of

836
00:47:16,960 --> 00:47:21,560
Speaker 1: populist uprising um in the future. If we don't as

837
00:47:21,560 --> 00:47:24,560
Speaker 1: a nation take care of our problems, we will have

838
00:47:24,640 --> 00:47:28,040
Speaker 1: those problems faster and get worse and worse, and they

839
00:47:28,040 --> 00:47:31,839
Speaker 1: can show up in politics very rapidly. So if you're

840
00:47:31,840 --> 00:47:34,520
Speaker 1: gonna be rational and reasonable about this. I don't know

841
00:47:34,560 --> 00:47:37,440
Speaker 1: what I can I can say to you about that. Um,

842
00:47:37,560 --> 00:47:39,560
Speaker 1: there's a data point in the book that I found

843
00:47:39,600 --> 00:47:42,839
Speaker 1: to be astonishing and I wanted to get to it

844
00:47:43,000 --> 00:47:46,080
Speaker 1: before UM we move on to some of our our

845
00:47:46,160 --> 00:47:50,960
Speaker 1: standard questions. If you start saving at and retire at

846
00:47:51,040 --> 00:47:55,640
Speaker 1: seventy versus starting to save at forty five and retire

847
00:47:55,760 --> 00:48:00,520
Speaker 1: at sixty two, you reduce the required save things rate

848
00:48:00,920 --> 00:48:03,839
Speaker 1: by a factor of ten. Is that is that right?

849
00:48:03,880 --> 00:48:07,000
Speaker 1: That's an astonishing number. It is an astonishing number. It's

850
00:48:07,000 --> 00:48:09,760
Speaker 1: a shame we don't all know it. It really helps

851
00:48:10,080 --> 00:48:13,880
Speaker 1: to have started early and have the accumulative power. Einstein

852
00:48:13,920 --> 00:48:16,000
Speaker 1: said that he thought the most powerful thing he knew

853
00:48:16,040 --> 00:48:19,600
Speaker 1: of was compound interest, compound rates of return. If you're

854
00:48:19,600 --> 00:48:21,480
Speaker 1: in it for the long term, and we all are,

855
00:48:21,520 --> 00:48:23,080
Speaker 1: whether we like it or not, in it for the

856
00:48:23,120 --> 00:48:25,960
Speaker 1: long term. If you're in it for the long term,

857
00:48:26,000 --> 00:48:27,839
Speaker 1: that's a wonderful thing to have going for you. All

858
00:48:27,880 --> 00:48:31,480
Speaker 1: you need is time t I m e. Time. Most

859
00:48:31,520 --> 00:48:34,680
Speaker 1: of those gains come in the last ten years, that's

860
00:48:34,760 --> 00:48:38,160
Speaker 1: that's the biggest. So if you're starting at five, the

861
00:48:38,200 --> 00:48:43,319
Speaker 1: bulk of your gains are coming. UM. In the last well,

862
00:48:43,400 --> 00:48:47,160
Speaker 1: let's let's call it last fifth of of your investment horizon.

863
00:48:47,560 --> 00:48:49,680
Speaker 1: You started forty five and you go to sixty two.

864
00:48:49,680 --> 00:48:53,120
Speaker 1: You're not giving yourself enough time for compounding to work, correct,

865
00:48:53,600 --> 00:48:57,000
Speaker 1: So let's see what else is one or two other things?

866
00:48:57,040 --> 00:48:59,600
Speaker 1: We've covered some stuff. You know what, I didn't talk

867
00:48:59,640 --> 00:49:02,759
Speaker 1: to you out. So you you were working in the

868
00:49:02,800 --> 00:49:06,240
Speaker 1: midst of the bear market of sixty six to eighty

869
00:49:06,239 --> 00:49:09,319
Speaker 1: two when you talked about, hey, nobody really wants to

870
00:49:09,320 --> 00:49:11,800
Speaker 1: work in finance in the thirties and there wasn't a

871
00:49:11,840 --> 00:49:13,799
Speaker 1: lot of money in the fifties. What was it like

872
00:49:14,320 --> 00:49:18,279
Speaker 1: from nineteen sixty two six to two when we had

873
00:49:18,360 --> 00:49:22,040
Speaker 1: ten twelve percent inflation rate and stocks went nowhere for

874
00:49:22,120 --> 00:49:26,320
Speaker 1: sixteen years? Who Yeah, stocks didn't go nowhere. Stocks went down.

875
00:49:26,760 --> 00:49:30,440
Speaker 1: The drop in the value of the down Jones average,

876
00:49:30,600 --> 00:49:34,920
Speaker 1: just to take any measure, the drop in the seventies

877
00:49:35,320 --> 00:49:38,319
Speaker 1: was greater than the drop in the from twenty nine

878
00:49:38,719 --> 00:49:41,120
Speaker 1: to the bottom of the thirties. So what do we

879
00:49:41,160 --> 00:49:45,160
Speaker 1: inflation adjusted the real real return? So you had it

880
00:49:45,200 --> 00:49:48,719
Speaker 1: was a ninetent loss once you factored in inflation. It

881
00:49:48,840 --> 00:49:52,040
Speaker 1: was held on wheels. So what did you do during

882
00:49:52,120 --> 00:49:54,400
Speaker 1: that period of time, How do you how do you

883
00:49:54,560 --> 00:49:58,000
Speaker 1: deal with institutions? How do you deal with individuals when

884
00:49:58,400 --> 00:50:01,000
Speaker 1: there's no not a lot of up side in equities

885
00:50:01,040 --> 00:50:03,960
Speaker 1: and whatever gains you have in bonds are going to

886
00:50:04,000 --> 00:50:06,600
Speaker 1: be offset by inflation. Well, it was worse in bonds

887
00:50:06,600 --> 00:50:09,319
Speaker 1: and it wasn't stocks, because you do a lot of

888
00:50:09,400 --> 00:50:12,760
Speaker 1: damage to a bond portfolio if you take injuuris froment

889
00:50:12,800 --> 00:50:18,040
Speaker 1: to two percent. So there was terrible everywhere all the

890
00:50:18,080 --> 00:50:22,840
Speaker 1: way around from two right when you're you're from you

891
00:50:23,000 --> 00:50:24,920
Speaker 1: if the Federal Reserve says interest rates want to be

892
00:50:25,000 --> 00:50:28,640
Speaker 1: high to break inflation this country a lot of good

893
00:50:28,719 --> 00:50:33,120
Speaker 1: doing that. Sure, you really really smashed the markets from

894
00:50:34,040 --> 00:50:38,719
Speaker 1: inflation or rate of return on a treasury bond all

895
00:50:38,719 --> 00:50:43,640
Speaker 1: the way down to two percent. That's a long sweep

896
00:50:43,800 --> 00:50:46,360
Speaker 1: of real pain and anguish for people on the fixed

897
00:50:46,360 --> 00:50:50,640
Speaker 1: income We we just finished a thirty year or maybe

898
00:50:50,640 --> 00:50:54,680
Speaker 1: even a thirty five year bull market in bonds. When

899
00:50:54,680 --> 00:50:59,040
Speaker 1: when you're looking at portfolio is going forward? What should

900
00:50:59,120 --> 00:51:02,120
Speaker 1: people be thinking about now? I know you don't have

901
00:51:02,160 --> 00:51:05,600
Speaker 1: a lot of bonds, but the average institution, the average investor,

902
00:51:07,000 --> 00:51:09,319
Speaker 1: what do you think about when you see rates at

903
00:51:09,360 --> 00:51:12,240
Speaker 1: two two and a half percent going who knows where?

904
00:51:12,280 --> 00:51:17,160
Speaker 1: How do you put together um a plan over for

905
00:51:17,200 --> 00:51:20,200
Speaker 1: the next couple of decades starting from such low rates

906
00:51:20,200 --> 00:51:23,160
Speaker 1: of interest. First of all, we all ought to know

907
00:51:23,360 --> 00:51:27,160
Speaker 1: it's not easy now because prices of bonds and prices

908
00:51:27,160 --> 00:51:30,759
Speaker 1: of stocks are high, and the Federal Reserve has done

909
00:51:30,760 --> 00:51:33,920
Speaker 1: all of us as a nation real good by getting

910
00:51:34,160 --> 00:51:37,319
Speaker 1: the interest rates down enough so that the employment has

911
00:51:37,360 --> 00:51:40,040
Speaker 1: gone up enough so that we're really starting to see

912
00:51:40,040 --> 00:51:42,880
Speaker 1: the economy come back to its full capabilities and potential.

913
00:51:43,440 --> 00:51:46,120
Speaker 1: It has been terribly painful for the people who depend

914
00:51:46,160 --> 00:51:49,480
Speaker 1: on interest income because they've seen interest income go from

915
00:51:49,560 --> 00:51:55,960
Speaker 1: five down to three. That hurts. So be realistic about that.

916
00:51:56,480 --> 00:51:58,719
Speaker 1: But if you're looking at what should you do as

917
00:51:58,719 --> 00:52:03,480
Speaker 1: an investor today, first of all, think long term. Secondly,

918
00:52:03,640 --> 00:52:06,359
Speaker 1: take a look at the total picture. Don't look just

919
00:52:06,440 --> 00:52:09,799
Speaker 1: at your stock and bond portfolio. Look at your home,

920
00:52:10,560 --> 00:52:14,320
Speaker 1: social Security and other and your income as an earning

921
00:52:14,360 --> 00:52:19,360
Speaker 1: person so called intellectual property. Those are all really important assets.

922
00:52:19,600 --> 00:52:22,240
Speaker 1: What are they worth? And then try with that total

923
00:52:22,280 --> 00:52:25,279
Speaker 1: portfolio to make a sensible decision as to what would

924
00:52:25,320 --> 00:52:28,359
Speaker 1: be right for you as an individual. Knowing we're all

925
00:52:28,400 --> 00:52:31,439
Speaker 1: different And the one question I know I didn't get

926
00:52:31,480 --> 00:52:34,080
Speaker 1: to before that I that I really wanted to was

927
00:52:34,160 --> 00:52:42,560
Speaker 1: about benchmarking. So in the index revolution you allude to this, um,

928
00:52:42,600 --> 00:52:45,799
Speaker 1: what was benchmarking like in the early days, How do

929
00:52:45,880 --> 00:52:49,120
Speaker 1: you benchmark and index when there really isn't a frame

930
00:52:49,160 --> 00:52:52,160
Speaker 1: of reference? What what was done in the seventies when

931
00:52:52,200 --> 00:52:55,000
Speaker 1: it came to that, well, in the fifties and sixties,

932
00:52:55,040 --> 00:52:56,520
Speaker 1: what would have been done as you look at the

933
00:52:56,560 --> 00:52:59,800
Speaker 1: down Jones average and say that's probably about it, or

934
00:52:59,880 --> 00:53:02,160
Speaker 1: you look at what you hoped to be able to

935
00:53:02,239 --> 00:53:06,839
Speaker 1: earn your return assumption and think that was about it.

936
00:53:07,239 --> 00:53:09,760
Speaker 1: That the data was not available on how well pension

937
00:53:09,800 --> 00:53:12,680
Speaker 1: funds were performing compared to other pension funds, how well

938
00:53:12,719 --> 00:53:16,240
Speaker 1: insurance companies were managing compared to banks, compared to investment

939
00:53:16,239 --> 00:53:19,239
Speaker 1: council firms. And when that data came out through a

940
00:53:19,400 --> 00:53:22,120
Speaker 1: firm called a G. Becker and Mary Lynch in those days,

941
00:53:22,480 --> 00:53:25,800
Speaker 1: the performance measurement, all of a sudden, the data, My god, Barrett,

942
00:53:25,840 --> 00:53:29,240
Speaker 1: look at the data. This is really important. And people

943
00:53:29,280 --> 00:53:31,560
Speaker 1: started saying, let's go find managers who can do a

944
00:53:31,600 --> 00:53:34,160
Speaker 1: really good job for us. And that's where active investment

945
00:53:34,160 --> 00:53:36,839
Speaker 1: management started. To take off. Because if you were an

946
00:53:36,880 --> 00:53:40,000
Speaker 1: active investment manager and you had access to really good research,

947
00:53:40,040 --> 00:53:42,799
Speaker 1: which was just being created in those days, and you're

948
00:53:42,840 --> 00:53:45,640
Speaker 1: willing to act fairly quickly instead of waiting for the

949
00:53:45,680 --> 00:53:49,440
Speaker 1: monthly investment committee meeting where you're trying to If you

950
00:53:49,480 --> 00:53:53,600
Speaker 1: were willing, you're willing to be assertive and do your

951
00:53:53,719 --> 00:53:56,080
Speaker 1: very best, you could really do a lot better than

952
00:53:56,120 --> 00:53:59,319
Speaker 1: the market. Those were glorious days for active investing. But

953
00:53:59,360 --> 00:54:02,960
Speaker 1: they're gone. That's it. That that's history. It's amazing to

954
00:54:03,000 --> 00:54:06,960
Speaker 1: think that that the Dow Jones, which is not just

955
00:54:07,080 --> 00:54:11,280
Speaker 1: Lodge captives, are the biggest companies, amongst the biggest companies

956
00:54:11,280 --> 00:54:13,960
Speaker 1: in the world. It just seems like such an odd

957
00:54:14,080 --> 00:54:17,640
Speaker 1: um benchmark for so many, so many you've probably left.

958
00:54:17,680 --> 00:54:20,880
Speaker 1: We use slide rules. In those days, they have calculators,

959
00:54:21,200 --> 00:54:23,080
Speaker 1: you know. When we wanted to do research, we went

960
00:54:23,120 --> 00:54:26,240
Speaker 1: to the New York Stock Exchange. They had a small

961
00:54:26,280 --> 00:54:29,280
Speaker 1: set aside library of all the filings with the SEC

962
00:54:29,520 --> 00:54:32,439
Speaker 1: and page after page after page you could do trying

963
00:54:32,480 --> 00:54:34,400
Speaker 1: to figure out what's going on in this company or

964
00:54:34,440 --> 00:54:36,680
Speaker 1: that company. You go out and meet with management and

965
00:54:36,680 --> 00:54:38,879
Speaker 1: they would talk with you for hours trying to help

966
00:54:38,920 --> 00:54:41,560
Speaker 1: you understand their company was a very different world in

967
00:54:41,600 --> 00:54:45,680
Speaker 1: the world we live in today. So that's that's quite fascinating.

968
00:54:45,760 --> 00:54:51,600
Speaker 1: And um, I've seen a lot of those changes, um firsthand,

969
00:54:51,800 --> 00:54:54,960
Speaker 1: but the fifties and sixties are before my time. It

970
00:54:55,040 --> 00:54:58,600
Speaker 1: sounds it sounds like it was pretty interesting and amazing

971
00:54:58,640 --> 00:55:02,839
Speaker 1: place to work. Let's go to my standard questions. These

972
00:55:02,880 --> 00:55:05,760
Speaker 1: are the questions that I asked all of my guests,

973
00:55:05,800 --> 00:55:07,600
Speaker 1: and some of these are going to require a little

974
00:55:07,640 --> 00:55:11,040
Speaker 1: recall on your part. Let's let's jump right into these.

975
00:55:11,520 --> 00:55:15,880
Speaker 1: So the thing that I find fascinating about you is

976
00:55:16,120 --> 00:55:20,239
Speaker 1: you graduate Yale with a major in art history. Did

977
00:55:20,239 --> 00:55:23,640
Speaker 1: you ever imagine art history would somehow lead to finance?

978
00:55:24,600 --> 00:55:28,759
Speaker 1: And and how did that art history background, Because you're

979
00:55:28,800 --> 00:55:32,680
Speaker 1: obviously an accomplished, successful person in the world of finance,

980
00:55:33,080 --> 00:55:37,440
Speaker 1: how did the art history training help you within the field?

981
00:55:38,800 --> 00:55:41,160
Speaker 1: Not very much, honestly, but it helped me in the

982
00:55:41,239 --> 00:55:43,799
Speaker 1: sense of when I had I traveled a great deal

983
00:55:44,040 --> 00:55:46,680
Speaker 1: in the work I did as a consultant and investment management,

984
00:55:46,719 --> 00:55:49,600
Speaker 1: so I was in London a lot and other major cities.

985
00:55:49,840 --> 00:55:52,520
Speaker 1: So if I had a meeting canceled, I knew what

986
00:55:52,560 --> 00:55:54,279
Speaker 1: to do. I got hunt to the art museum in

987
00:55:54,280 --> 00:55:56,560
Speaker 1: that particular city and have plenty of time to look

988
00:55:56,600 --> 00:55:58,480
Speaker 1: at the beautiful pictures and stuff like that. So it

989
00:55:58,600 --> 00:56:02,759
Speaker 1: was life enhanced. Yeah, it was great fun. Uh. It

990
00:56:02,840 --> 00:56:05,439
Speaker 1: also taught me a little bit about how to look

991
00:56:05,480 --> 00:56:09,560
Speaker 1: more carefully, because the difference between a really great painting

992
00:56:09,600 --> 00:56:13,319
Speaker 1: and a pretty good painting is not obvious. It's in

993
00:56:13,400 --> 00:56:16,680
Speaker 1: some of the details, in the specifics, and the difference

994
00:56:16,680 --> 00:56:20,480
Speaker 1: between the forgery and an original is of course really important.

995
00:56:20,880 --> 00:56:24,279
Speaker 1: And being able to look carefully was helpful, but I

996
00:56:24,280 --> 00:56:26,839
Speaker 1: wouldn't give too much. It was more in the recreation.

997
00:56:26,960 --> 00:56:29,279
Speaker 1: Why do I love to put When I was growing up,

998
00:56:29,280 --> 00:56:31,000
Speaker 1: I love to play golf, and then I played tennis.

999
00:56:31,040 --> 00:56:32,920
Speaker 1: Why did I play tennis? Because my wife likes to

1000
00:56:32,960 --> 00:56:38,040
Speaker 1: play tennis? Easy, So I wouldn't try to draw too

1001
00:56:38,120 --> 00:56:39,840
Speaker 1: much out it. So you're an art history major and

1002
00:56:39,840 --> 00:56:43,160
Speaker 1: then you got into investment management that there's no real

1003
00:56:43,239 --> 00:56:46,279
Speaker 1: linkage at all, So so okay, so let's put art

1004
00:56:46,320 --> 00:56:49,440
Speaker 1: history aside. Who were some of your early mentors, who

1005
00:56:49,520 --> 00:56:53,560
Speaker 1: who guided your career when you moved into finance. Well,

1006
00:56:53,600 --> 00:56:56,120
Speaker 1: I was very lucky to work for a guy who

1007
00:56:56,239 --> 00:56:59,839
Speaker 1: was a brilliant person. Uh, and he happened to be

1008
00:57:00,000 --> 00:57:02,920
Speaker 1: and investment management, and he happened to be working on

1009
00:57:03,000 --> 00:57:05,799
Speaker 1: investment problems. So I was there to learn from him

1010
00:57:05,800 --> 00:57:08,760
Speaker 1: what I could learn. Honestly, it didn't make very much difference.

1011
00:57:08,800 --> 00:57:10,560
Speaker 1: If he'd been in real estate, that would have been fine.

1012
00:57:10,600 --> 00:57:12,479
Speaker 1: If you'd been in retailing, that would have been fine.

1013
00:57:12,640 --> 00:57:14,279
Speaker 1: This is a guy that could teach me a lot.

1014
00:57:14,320 --> 00:57:17,360
Speaker 1: So you want to share a name with us? Name

1015
00:57:17,440 --> 00:57:20,600
Speaker 1: was well, the two guys actually j Richardest and Dilworth.

1016
00:57:21,480 --> 00:57:27,000
Speaker 1: Dick Dilworth was a factlessly talented guy. Uh. Many people

1017
00:57:27,080 --> 00:57:30,920
Speaker 1: confuse him with the once time mayor of Philadelphia. Completely

1018
00:57:30,920 --> 00:57:36,240
Speaker 1: different friends, but Dick Dilworth was a as good an

1019
00:57:36,280 --> 00:57:39,800
Speaker 1: illustration of the finest in America as you would find anywhere.

1020
00:57:40,240 --> 00:57:42,680
Speaker 1: And the other guy was a phone named Robert Strange,

1021
00:57:43,240 --> 00:57:46,680
Speaker 1: as in Robert Strange mcnamarica. They were cousins, and Bob

1022
00:57:46,760 --> 00:57:50,760
Speaker 1: Strange was also brilliant. Then he was my direct supervisor,

1023
00:57:50,960 --> 00:57:54,160
Speaker 1: and wonderful experience to work with two really brainy guys

1024
00:57:54,200 --> 00:57:56,560
Speaker 1: who were very very well connected because people thought the

1025
00:57:56,600 --> 00:58:00,200
Speaker 1: world of them as individuals. So so let's walk a

1026
00:58:00,240 --> 00:58:05,040
Speaker 1: little bit about the investors that who influenced your approach

1027
00:58:05,440 --> 00:58:09,320
Speaker 1: to investing. Who are the thinkers and investors that actually

1028
00:58:09,560 --> 00:58:12,760
Speaker 1: affected how you look the world of of putting capital

1029
00:58:12,760 --> 00:58:14,080
Speaker 1: at risk? Well, there are a whole bunch of them,

1030
00:58:14,120 --> 00:58:15,440
Speaker 1: but I'll tell you the one that I think is

1031
00:58:15,480 --> 00:58:20,880
Speaker 1: obviously the best. Uh Sandy Goddessman, who for many years

1032
00:58:20,920 --> 00:58:24,400
Speaker 1: was on the board at Berkshire Hathaway as Chairman of

1033
00:58:24,440 --> 00:58:28,080
Speaker 1: the board. And Sandy ran a firm called First Manhattan,

1034
00:58:28,480 --> 00:58:32,600
Speaker 1: Fine New York firm, and he was a client of

1035
00:58:32,640 --> 00:58:36,560
Speaker 1: mine when I was at Greenwich Associates, and one year

1036
00:58:36,600 --> 00:58:40,280
Speaker 1: I recommended they not stay in the institutional brokerage business

1037
00:58:40,520 --> 00:58:43,600
Speaker 1: and concentrated on the investment management business. The next year

1038
00:58:43,640 --> 00:58:45,520
Speaker 1: I went to see him and he said, you're right,

1039
00:58:45,600 --> 00:58:48,240
Speaker 1: we shouldn't be in the institutional brokerage business. We're just

1040
00:58:48,280 --> 00:58:52,400
Speaker 1: going to do investment management. I said, well, uh, sorry

1041
00:58:52,440 --> 00:58:54,240
Speaker 1: to hear that one sense, but I'm also glad you

1042
00:58:54,320 --> 00:58:58,040
Speaker 1: took the message. He said, well, that completes our business conversation. Now,

1043
00:58:58,080 --> 00:59:01,120
Speaker 1: what would you like to talk about? And lucky, lucky,

1044
00:59:01,320 --> 00:59:03,720
Speaker 1: lucky me, I said, Sandy, you're one of the best

1045
00:59:03,760 --> 00:59:07,000
Speaker 1: investment managers in this city. I'd love to have you

1046
00:59:07,160 --> 00:59:11,360
Speaker 1: tell me how you think about investing yourself. He said,

1047
00:59:11,400 --> 00:59:15,120
Speaker 1: that's easy. I said, thank you, tell me all he said.

1048
00:59:15,560 --> 00:59:18,560
Speaker 1: I'm invested in Berkshire Hathaway because I think Warren Buffett

1049
00:59:18,560 --> 00:59:20,439
Speaker 1: has figured out how to do investing in a way

1050
00:59:20,480 --> 00:59:22,919
Speaker 1: that is different from anybody else can do. I think

1051
00:59:22,920 --> 00:59:27,120
Speaker 1: he's brilliant and very, very disciplined. He's a long term investor. Then,

1052
00:59:27,200 --> 00:59:29,640
Speaker 1: so that's my major investment. And you've spent about half

1053
00:59:29,640 --> 00:59:33,000
Speaker 1: an hour teaching me to understand Berkshire Hathaway. What what

1054
00:59:33,120 --> 00:59:36,200
Speaker 1: year was this? This has been in the early nineteen seventies,

1055
00:59:36,280 --> 00:59:39,480
Speaker 1: sevent I think it was. So Berkshire Hathaway is not

1056
00:59:39,600 --> 00:59:42,640
Speaker 1: what it is today. It was barely on anybody's radar.

1057
00:59:43,200 --> 00:59:45,920
Speaker 1: And did you follow his advice? I certainly did. So,

1058
00:59:45,960 --> 00:59:51,920
Speaker 1: you're you're an investor with Berkshire since the seventies, and

1059
00:59:52,000 --> 00:59:56,000
Speaker 1: I've learned a lot by reading Warren Buffett's reports. I've

1060
00:59:56,120 --> 01:00:00,240
Speaker 1: learned a lot from Warren himself, and I have had

1061
01:00:00,240 --> 01:00:05,360
Speaker 1: an unbelievably positive experience I can imagine, to say the least.

1062
01:00:05,400 --> 01:00:10,760
Speaker 1: So um, it's ironic that you're talking about index investing

1063
01:00:10,880 --> 01:00:14,720
Speaker 1: when in the early seventies, when the opportunity existed, you

1064
01:00:14,800 --> 01:00:18,920
Speaker 1: found your way to Berkshire Hathaway. Those opportunities don't exist anymore,

1065
01:00:18,960 --> 01:00:22,560
Speaker 1: do they? Uh, there may exist, but they'd be hard

1066
01:00:22,600 --> 01:00:25,479
Speaker 1: for me to find. Well, I think they'd be hard

1067
01:00:25,480 --> 01:00:28,440
Speaker 1: for And I think when when Warren Buffett says that

1068
01:00:28,600 --> 01:00:33,560
Speaker 1: for his wife in her retirement, right, he's going to

1069
01:00:33,680 --> 01:00:36,600
Speaker 1: use primarily index funds, makes a lot of sense. When

1070
01:00:36,640 --> 01:00:39,240
Speaker 1: he says for most individuals, that's what they should do,

1071
01:00:39,360 --> 01:00:41,640
Speaker 1: makes a lot of sense. And then when David Swinson,

1072
01:00:41,680 --> 01:00:44,360
Speaker 1: who was the chief investment officer for Yale has done

1073
01:00:44,360 --> 01:00:48,800
Speaker 1: a wonderful job of investing as an active client in investing,

1074
01:00:49,440 --> 01:00:53,880
Speaker 1: says most everybody should be using index funds. I'm smart

1075
01:00:53,960 --> 01:00:55,880
Speaker 1: enough to realize that there are some guys are really

1076
01:00:55,920 --> 01:00:58,320
Speaker 1: really good at this, and they say that's what we

1077
01:00:58,360 --> 01:01:00,919
Speaker 1: ought to do. Probably ought to pay attention. So let's

1078
01:01:01,000 --> 01:01:04,600
Speaker 1: let's talk about Swenson for a minute. He created what

1079
01:01:04,720 --> 01:01:09,600
Speaker 1: everyone now calls the Yale model. It spawns a million imitators.

1080
01:01:10,160 --> 01:01:12,320
Speaker 1: None of them have been able to do what he's

1081
01:01:12,400 --> 01:01:18,280
Speaker 1: capable of doing, and Yale consistently outperforms most of the

1082
01:01:18,320 --> 01:01:22,880
Speaker 1: other large endowments. Harvard, M. I. T. Stanford, etcetera. Why

1083
01:01:23,000 --> 01:01:27,800
Speaker 1: has he been so singularly successful at the Yale model

1084
01:01:27,880 --> 01:01:30,640
Speaker 1: that he invented and happened. Other people have been unable

1085
01:01:31,320 --> 01:01:34,760
Speaker 1: to find success just doing what he does. It's a

1086
01:01:34,760 --> 01:01:36,720
Speaker 1: little too strong a statement. There's some other people who

1087
01:01:36,760 --> 01:01:40,360
Speaker 1: done a very good job, but David is really unique. Now.

1088
01:01:40,720 --> 01:01:45,400
Speaker 1: First of all, he's brilliant, really smart. Secondly, he's really

1089
01:01:45,440 --> 01:01:48,960
Speaker 1: well educated. Did his economics PhD at Yale and was

1090
01:01:49,120 --> 01:01:52,000
Speaker 1: top of the deck. Jim Tobin was his dissertation advisor,

1091
01:01:52,000 --> 01:01:54,760
Speaker 1: and Tim thought so highly of David that they had

1092
01:01:54,760 --> 01:01:59,280
Speaker 1: a great personal father to son kind of relationship. David's

1093
01:01:59,280 --> 01:02:02,360
Speaker 1: got Midway values, so he's all about integrity and doing

1094
01:02:02,360 --> 01:02:05,480
Speaker 1: the right thing for the right reasons, deep deep rooted,

1095
01:02:06,000 --> 01:02:08,439
Speaker 1: and he's devoted to the idea of doing a great

1096
01:02:08,480 --> 01:02:11,520
Speaker 1: job for Yale because thousands of people benefit from that.

1097
01:02:11,560 --> 01:02:14,880
Speaker 1: All the kids are on scholarship get better scholarships because

1098
01:02:14,960 --> 01:02:17,760
Speaker 1: David Swinson has done such a great job for that university.

1099
01:02:18,160 --> 01:02:21,000
Speaker 1: All the faculty members who are teaching courses have more

1100
01:02:21,080 --> 01:02:23,800
Speaker 1: financial support for what they're trying to do, the head

1101
01:02:23,800 --> 01:02:26,880
Speaker 1: of the university has more financial resources to build back

1102
01:02:27,000 --> 01:02:29,840
Speaker 1: the facilities of the university, it's one after another after

1103
01:02:30,160 --> 01:02:34,919
Speaker 1: everybody's benefiting. And why is he so darned good at it? Well, yes,

1104
01:02:34,920 --> 01:02:37,880
Speaker 1: he's brilliant. Yes he's well educated, and he's been doing

1105
01:02:37,880 --> 01:02:40,320
Speaker 1: it for a long time, and he's very very disciplined.

1106
01:02:40,600 --> 01:02:44,640
Speaker 1: But watch the part that's really important. He's completely objective

1107
01:02:44,760 --> 01:02:49,600
Speaker 1: and rational, and he's very good with people, and he's

1108
01:02:49,640 --> 01:02:54,560
Speaker 1: probably the best client anybody ever had. Tough, really tough

1109
01:02:54,640 --> 01:02:58,320
Speaker 1: as a client, but so honest, so straight and so

1110
01:02:58,360 --> 01:03:02,000
Speaker 1: helpful that everybody wants to have David Swinson as a client.

1111
01:03:02,480 --> 01:03:04,720
Speaker 1: So he gets pick and choose from all the very best,

1112
01:03:05,080 --> 01:03:08,560
Speaker 1: and he's very very careful at his selectivity, largely on

1113
01:03:08,680 --> 01:03:12,360
Speaker 1: integrity of the discipline of your investing and the integrity

1114
01:03:12,400 --> 01:03:14,840
Speaker 1: of the people who are working in the organization. When

1115
01:03:14,880 --> 01:03:17,000
Speaker 1: you get checked out by Swenson and his team, you

1116
01:03:17,000 --> 01:03:20,360
Speaker 1: get checked out more carefully than the CIA would check

1117
01:03:20,360 --> 01:03:21,800
Speaker 1: you out if you were going to be Secretary of

1118
01:03:21,880 --> 01:03:25,280
Speaker 1: State for the United States. It's an unbelievable process trying

1119
01:03:25,320 --> 01:03:28,240
Speaker 1: to be sure they don't make any mistakes. Last part,

1120
01:03:28,600 --> 01:03:32,200
Speaker 1: David Swinson and his team have a scuttle button network

1121
01:03:32,360 --> 01:03:35,640
Speaker 1: that goes throughout the investment management world. There's no one

1122
01:03:36,040 --> 01:03:38,200
Speaker 1: who has more people to say, If I could ever

1123
01:03:38,320 --> 01:03:42,400
Speaker 1: be helpful to David Swinson just a little bit sometime once,

1124
01:03:42,480 --> 01:03:44,840
Speaker 1: I would love to. So he gets all kinds of

1125
01:03:44,880 --> 01:03:48,480
Speaker 1: people feeding him ideas, insights, possibilities, things that might be

1126
01:03:48,560 --> 01:03:51,320
Speaker 1: useful because he's such a good user and one of

1127
01:03:51,360 --> 01:03:55,120
Speaker 1: the best users. Ways he uses it is not just

1128
01:03:55,240 --> 01:03:59,320
Speaker 1: for the Yale Endama, which gets undivided first attention, but

1129
01:03:59,440 --> 01:04:02,480
Speaker 1: then he also has been very very helpful in teaching

1130
01:04:02,520 --> 01:04:04,920
Speaker 1: people how to do that kind of investing. And if

1131
01:04:04,920 --> 01:04:08,400
Speaker 1: you look at the top fifty universities, about a third

1132
01:04:08,440 --> 01:04:13,240
Speaker 1: of them have got a David Swinson educated, developed and

1133
01:04:13,320 --> 01:04:17,080
Speaker 1: certified individual doing the investment management at that university. He's

1134
01:04:17,080 --> 01:04:19,120
Speaker 1: done a lot of people a lot of good for

1135
01:04:19,160 --> 01:04:25,520
Speaker 1: a long time. So that raises the the other university

1136
01:04:25,600 --> 01:04:30,040
Speaker 1: not too far in in the next state in Massachusetts.

1137
01:04:31,600 --> 01:04:35,440
Speaker 1: Why has the Harvard Endowment stumbled the way it has.

1138
01:04:35,840 --> 01:04:39,160
Speaker 1: There's been all sorts of crazy turnover. If you remember

1139
01:04:39,600 --> 01:04:42,240
Speaker 1: about ten or fifteen years ago, there was some sort

1140
01:04:42,280 --> 01:04:47,240
Speaker 1: of um general offense at how much the managers of

1141
01:04:47,240 --> 01:04:49,520
Speaker 1: the endowment were making and they were putting up really

1142
01:04:49,560 --> 01:04:53,120
Speaker 1: good numbers. A lot of that team left now there's

1143
01:04:53,160 --> 01:04:55,360
Speaker 1: been two or three c I O s since then.

1144
01:04:56,680 --> 01:04:59,280
Speaker 1: Let's compare and contrast. What does Harvard need to do

1145
01:04:59,480 --> 01:05:04,400
Speaker 1: to and the Harvard Endowment needs to do to look

1146
01:05:04,520 --> 01:05:08,120
Speaker 1: more like or at least be as successful as the

1147
01:05:08,200 --> 01:05:10,600
Speaker 1: Yale Endowment. Well, if you go back to the really

1148
01:05:10,640 --> 01:05:14,000
Speaker 1: great days of the Harvard Endowment, Jack Meyer, who was

1149
01:05:14,200 --> 01:05:18,160
Speaker 1: Harvard manager, David Swenson, the Yale manager, they became very

1150
01:05:18,160 --> 01:05:21,400
Speaker 1: close friends because they realized they were both motivated by

1151
01:05:21,400 --> 01:05:23,640
Speaker 1: the same values. Do the right thing for the client,

1152
01:05:24,480 --> 01:05:27,720
Speaker 1: do it with intellectual rigor, do it with objectivity at

1153
01:05:27,720 --> 01:05:31,880
Speaker 1: old times, and do it for the long term. Once

1154
01:05:31,920 --> 01:05:33,840
Speaker 1: you get those things down, pat as this is the

1155
01:05:33,840 --> 01:05:35,560
Speaker 1: way we're going to do it, it it leads you in

1156
01:05:35,560 --> 01:05:38,600
Speaker 1: a particular direction. I think that's been really important. The

1157
01:05:38,680 --> 01:05:42,840
Speaker 1: second thing is the governance. The oversight of the Yale

1158
01:05:42,920 --> 01:05:46,600
Speaker 1: Endowment has been very, very consistent and contributing in a

1159
01:05:46,720 --> 01:05:50,040
Speaker 1: very nice way. One reason it's been so consistent is

1160
01:05:50,120 --> 01:05:53,600
Speaker 1: that David Swenson has been carefully picking and choosing the

1161
01:05:53,640 --> 01:05:56,600
Speaker 1: people that ought to be candidates, and the candidates have

1162
01:05:56,680 --> 01:06:00,160
Speaker 1: been then selected by the president University and of it

1163
01:06:00,520 --> 01:06:04,720
Speaker 1: Swanson jointly, so that they've had a very nice capability

1164
01:06:04,840 --> 01:06:09,120
Speaker 1: in governance, and that's been a stability that's been enormously helpful.

1165
01:06:09,200 --> 01:06:12,840
Speaker 1: That's the key artist stability. You haven't had that in Cambridge.

1166
01:06:12,840 --> 01:06:18,080
Speaker 1: That's been missing from from the Harvard endownment um. So

1167
01:06:18,240 --> 01:06:20,560
Speaker 1: it is what it is. I like the joke that, uh,

1168
01:06:20,840 --> 01:06:23,680
Speaker 1: it's a hedge fund with a unit small university attached

1169
01:06:23,720 --> 01:06:26,120
Speaker 1: to it. Is is how some people have have described

1170
01:06:26,360 --> 01:06:29,880
Speaker 1: Harvard UM. I don't know if that's true, but it

1171
01:06:29,960 --> 01:06:32,560
Speaker 1: certainly is. It certainly is interesting. Let's let's get back

1172
01:06:32,600 --> 01:06:36,880
Speaker 1: to my list of standard questions. So you mentioned Swanson,

1173
01:06:36,960 --> 01:06:40,720
Speaker 1: you mentioned Buffett, any other investors or thinkers that you

1174
01:06:40,760 --> 01:06:44,440
Speaker 1: want to reference in the people who have influenced your

1175
01:06:44,480 --> 01:06:47,040
Speaker 1: approach to investors. Well, I've been very privileged because I've

1176
01:06:47,040 --> 01:06:48,600
Speaker 1: been all over the world working with a lot of

1177
01:06:48,640 --> 01:06:51,760
Speaker 1: different people. And if you started going through the list,

1178
01:06:52,200 --> 01:06:55,520
Speaker 1: you know you'd have to pick up Inncox Sung, who

1179
01:06:55,600 --> 01:06:58,880
Speaker 1: for many years was chief investor for the g I

1180
01:06:58,960 --> 01:07:03,120
Speaker 1: C in Singapore, a very large sovereign wealth fund. You

1181
01:07:03,240 --> 01:07:06,280
Speaker 1: go to London and Peter Storm with Darling would be

1182
01:07:06,320 --> 01:07:08,520
Speaker 1: another top of the deck. He was the guy that

1183
01:07:08,600 --> 01:07:11,880
Speaker 1: was in charge of Warburg Investment management in its glorious

1184
01:07:11,920 --> 01:07:16,960
Speaker 1: and great days across the United States, All kinds of

1185
01:07:16,960 --> 01:07:20,200
Speaker 1: different people have been terrific. Jim Rothenberg at Capital Group

1186
01:07:20,200 --> 01:07:25,760
Speaker 1: would have been one of those individuals. Now, David Testa

1187
01:07:25,880 --> 01:07:30,600
Speaker 1: tiro Price would be another. Uh. The large number of

1188
01:07:30,680 --> 01:07:34,240
Speaker 1: really really gifted people. All right, So let's shift subjects

1189
01:07:34,240 --> 01:07:37,160
Speaker 1: a little bit. People always ask about books. We we

1190
01:07:37,240 --> 01:07:40,480
Speaker 1: talked about some of your books as well as UM

1191
01:07:41,480 --> 01:07:45,320
Speaker 1: as well as Extraordinary Tennis. What other sorts of books

1192
01:07:45,600 --> 01:07:48,240
Speaker 1: UM have you enjoyed or would you recommend? What sort

1193
01:07:48,280 --> 01:07:52,840
Speaker 1: of finance related fiction nonfiction? What? What books do you? Uh?

1194
01:07:53,040 --> 01:07:56,600
Speaker 1: Fill your line your bookshelves at home? Well, I'd love

1195
01:07:56,640 --> 01:08:00,800
Speaker 1: to read biography and history. I have to be responsible

1196
01:08:00,840 --> 01:08:03,920
Speaker 1: for reading investment books, and I like to be responsible

1197
01:08:03,960 --> 01:08:06,600
Speaker 1: for reading business books. But what I really like doing

1198
01:08:07,080 --> 01:08:10,800
Speaker 1: is biography and history because I can learn forever lessons

1199
01:08:10,920 --> 01:08:14,240
Speaker 1: by doing that. Give us a few examples of start

1200
01:08:14,360 --> 01:08:16,519
Speaker 1: with an author like Ron chernow, but most people think

1201
01:08:16,880 --> 01:08:19,759
Speaker 1: he did Hamilton's but he got some wonderful, wonderful books

1202
01:08:19,760 --> 01:08:24,439
Speaker 1: on business organizations that are bar none. His book on Morgan,

1203
01:08:24,720 --> 01:08:28,200
Speaker 1: his book on John D. Rockefeller, terrific books and full

1204
01:08:28,240 --> 01:08:30,880
Speaker 1: of insight and understanding. It's funny you imagine those two.

1205
01:08:30,960 --> 01:08:34,559
Speaker 1: The person I had you sign uh your book to Mike,

1206
01:08:34,680 --> 01:08:37,400
Speaker 1: who's the head of my research and my firm. He's

1207
01:08:37,439 --> 01:08:40,559
Speaker 1: read both of those. He's read The Morrigan and he's

1208
01:08:40,560 --> 01:08:43,240
Speaker 1: read the Rockefell bio, and he said they're both astonishing.

1209
01:08:43,439 --> 01:08:47,439
Speaker 1: They're really terrific, just unbelievably researched and deep. And these

1210
01:08:47,479 --> 01:08:50,320
Speaker 1: guys lead amazing, amazing lives. And we all ought to

1211
01:08:50,360 --> 01:08:55,439
Speaker 1: read Robert Carroll's wonderful books about Lyndon Johnson because they

1212
01:08:55,439 --> 01:09:00,400
Speaker 1: are insightful in the details as well as conceptually useful,

1213
01:09:00,960 --> 01:09:03,120
Speaker 1: fabulous lessons all the time. But this is why it

1214
01:09:03,240 --> 01:09:06,240
Speaker 1: really really is how many books now are in that

1215
01:09:06,439 --> 01:09:10,519
Speaker 1: Johnson sequence for so far? All right? Because I remember

1216
01:09:10,600 --> 01:09:16,719
Speaker 1: Carol from The Power Broker about Robert Moses terrific book thick,

1217
01:09:16,760 --> 01:09:19,559
Speaker 1: a thousand pages. It's still a terrific book worth absolutely

1218
01:09:19,560 --> 01:09:22,839
Speaker 1: worth reading. It's five really great books in one package.

1219
01:09:22,840 --> 01:09:25,600
Speaker 1: I mean, it's a wonderful book. Um. So you mentioned

1220
01:09:25,920 --> 01:09:29,639
Speaker 1: uh investment and finance books. What what stands out as

1221
01:09:29,680 --> 01:09:35,040
Speaker 1: some of your favorites? Oh, Arthur Stone doings wonderful to

1222
01:09:35,280 --> 01:09:39,559
Speaker 1: volume corporate finance, mostly for the footnotes, which are about

1223
01:09:39,600 --> 01:09:43,960
Speaker 1: half of every page. Unbelievably rich body of insight and

1224
01:09:44,040 --> 01:09:48,240
Speaker 1: understanding as things went along through the late eighteen hundreds

1225
01:09:48,280 --> 01:09:52,400
Speaker 1: through the nineteen hundreds. Just a terrific source of learning.

1226
01:09:53,040 --> 01:09:56,840
Speaker 1: Ben Graham and David Dodds. Graham and Dodd is a

1227
01:09:56,960 --> 01:10:02,080
Speaker 1: terrific book, particularly the NY four Action, which just is

1228
01:10:02,160 --> 01:10:07,479
Speaker 1: the dream come true. Um. Jason's Wagge's books are all

1229
01:10:07,600 --> 01:10:12,400
Speaker 1: really worth reading. Uh. Jonathan Clements writes a very nice,

1230
01:10:12,760 --> 01:10:16,280
Speaker 1: continuous book that I think it's really worth anybody paying attention.

1231
01:10:16,560 --> 01:10:20,920
Speaker 1: Andy Tobias wrote a wonderful book on individual investing. Uh,

1232
01:10:21,040 --> 01:10:24,280
Speaker 1: we're very lucky. People put years and years and years

1233
01:10:24,320 --> 01:10:27,720
Speaker 1: into learning and then a couple of years into condensing

1234
01:10:27,760 --> 01:10:30,559
Speaker 1: into a relatively short package. And you can buy the

1235
01:10:30,640 --> 01:10:33,080
Speaker 1: damn thing in your own local store, or you can

1236
01:10:33,120 --> 01:10:35,960
Speaker 1: buy it over the internet for less than fifty bucks.

1237
01:10:36,280 --> 01:10:38,759
Speaker 1: And there's all that knowledge and carry with you wherever

1238
01:10:38,840 --> 01:10:41,240
Speaker 1: you want to go. I mean, books are an unbelievable bargain.

1239
01:10:41,560 --> 01:10:45,320
Speaker 1: It's funny. He mentions Wage and Graham and Dodd We

1240
01:10:45,320 --> 01:10:48,040
Speaker 1: were just in the office a day or two ago

1241
01:10:48,200 --> 01:10:53,360
Speaker 1: talking about this Wage annotated version of the Intelligent Investor,

1242
01:10:54,080 --> 01:10:57,120
Speaker 1: and the consensus was this is the version you have

1243
01:10:57,240 --> 01:11:02,679
Speaker 1: to get because he described each chapter. So there's the chapter,

1244
01:11:03,120 --> 01:11:07,640
Speaker 1: and then there's Jason's Wagge's detailed explanation and series of

1245
01:11:07,720 --> 01:11:10,760
Speaker 1: examples of why each chapter is so insightful. And if

1246
01:11:10,800 --> 01:11:13,120
Speaker 1: you ask Ben Graham, he would say, get this wag

1247
01:11:13,360 --> 01:11:18,000
Speaker 1: version because of the annotation high praise. Indeed. So so

1248
01:11:18,080 --> 01:11:22,160
Speaker 1: let's talk we we've we've referenced or or just hinted

1249
01:11:22,200 --> 01:11:25,600
Speaker 1: about things that have changed since you've joined the industry.

1250
01:11:26,400 --> 01:11:27,760
Speaker 1: What do you think is what do you think is

1251
01:11:27,800 --> 01:11:30,600
Speaker 1: the most significant change for the positive and what do

1252
01:11:30,640 --> 01:11:33,639
Speaker 1: you think is the most significant change for the negative

1253
01:11:33,800 --> 01:11:37,000
Speaker 1: over the past couple of decades. One way of saying

1254
01:11:37,000 --> 01:11:39,360
Speaker 1: that most positive is that things have gotten better and

1255
01:11:39,400 --> 01:11:42,360
Speaker 1: better and better. The markets have been going up, so

1256
01:11:42,920 --> 01:11:48,880
Speaker 1: that's got to be a big, big positive. How about structurally,

1257
01:11:48,880 --> 01:11:52,280
Speaker 1: what do you think structurally has been the positive change

1258
01:11:52,320 --> 01:11:55,320
Speaker 1: when when you look at that's that's obvious, and that's

1259
01:11:55,360 --> 01:11:59,160
Speaker 1: the easy access to the expertise of large numbers of

1260
01:11:59,240 --> 01:12:02,280
Speaker 1: brilliantly talented people working hard is held to figure out

1261
01:12:02,320 --> 01:12:05,439
Speaker 1: what prices ought to be called an index fund, you

1262
01:12:05,479 --> 01:12:07,920
Speaker 1: get all the best people working with their tails off

1263
01:12:08,120 --> 01:12:13,439
Speaker 1: every single day, every single night for nearly nothing. So

1264
01:12:13,880 --> 01:12:16,559
Speaker 1: that brings us full circle back back to why most

1265
01:12:16,560 --> 01:12:21,000
Speaker 1: people should be buying indexes. Let's talk about the shifts

1266
01:12:21,040 --> 01:12:24,760
Speaker 1: going forward. So we've seen this trend develop, especially since

1267
01:12:24,800 --> 01:12:28,920
Speaker 1: the last financial crisis, where Vanguard went from under a

1268
01:12:28,960 --> 01:12:32,320
Speaker 1: trillion they're now coming up on four trillion. What do

1269
01:12:32,400 --> 01:12:36,439
Speaker 1: you think is the next shifts or is it just

1270
01:12:36,520 --> 01:12:41,320
Speaker 1: a continuation of what we've seen algorithm in software and

1271
01:12:41,360 --> 01:12:46,600
Speaker 1: the so called robo advisors, low cost indexing. Is it

1272
01:12:46,680 --> 01:12:49,320
Speaker 1: just going to extrapolate forward or is something else out

1273
01:12:49,600 --> 01:12:54,200
Speaker 1: out there that is going to change investing in the future. Well,

1274
01:12:54,200 --> 01:12:55,840
Speaker 1: the change force you just picked up on are going

1275
01:12:55,880 --> 01:12:59,439
Speaker 1: to continue, so called robo advisor very very helpful for

1276
01:12:59,479 --> 01:13:03,320
Speaker 1: the lower wealth individual part of the market. UH, indexing

1277
01:13:03,400 --> 01:13:05,680
Speaker 1: being more and more accepted, going to be continued. We're

1278
01:13:05,680 --> 01:13:08,840
Speaker 1: going to take the cost out of investing so that

1279
01:13:08,880 --> 01:13:11,920
Speaker 1: the returns that were available will go mostly to the

1280
01:13:11,920 --> 01:13:14,479
Speaker 1: owners of the capital, so that people have more money

1281
01:13:14,479 --> 01:13:16,920
Speaker 1: in their retirement years or more money to spend in

1282
01:13:16,920 --> 01:13:21,960
Speaker 1: the meantime. Those would be positive. The changes that we

1283
01:13:22,040 --> 01:13:24,640
Speaker 1: see now are going to continue but the changes we

1284
01:13:24,720 --> 01:13:28,320
Speaker 1: don't yet know because we haven't seen them. Artificial intelligence

1285
01:13:28,360 --> 01:13:31,000
Speaker 1: being an obvious illustration of that, are going to compiling

1286
01:13:31,040 --> 01:13:32,880
Speaker 1: in on top of it's going to get to be

1287
01:13:32,920 --> 01:13:35,320
Speaker 1: a finer and finer, faster and faster market, harder and

1288
01:13:35,320 --> 01:13:38,360
Speaker 1: harder to keep up with little and beat U. That

1289
01:13:38,400 --> 01:13:40,439
Speaker 1: can be converted to your benefit if you just say

1290
01:13:40,560 --> 01:13:42,880
Speaker 1: that's the way it is. So I'm gonna go with

1291
01:13:43,000 --> 01:13:45,200
Speaker 1: the flow, and I'm going to use indexing, and that's

1292
01:13:45,200 --> 01:13:51,439
Speaker 1: why people are to join the index revolution. And um,

1293
01:13:51,479 --> 01:13:53,559
Speaker 1: so here's a question I didn't get to ask you

1294
01:13:54,280 --> 01:13:56,960
Speaker 1: that that I've wanted to. This came from an emailer.

1295
01:13:57,520 --> 01:13:59,120
Speaker 1: What do you do to relax? What do you do

1296
01:13:59,160 --> 01:14:02,360
Speaker 1: for enjoyment outside of the office. Well, first of all,

1297
01:14:02,360 --> 01:14:04,880
Speaker 1: I'm married the most wonderful woman I've met, so I

1298
01:14:05,040 --> 01:14:07,559
Speaker 1: really have a nice time with her. And that doesn't

1299
01:14:07,600 --> 01:14:10,000
Speaker 1: take long hours of just a few minutes with her

1300
01:14:10,120 --> 01:14:13,160
Speaker 1: is always a treat. Now, the second thing is I

1301
01:14:13,240 --> 01:14:15,120
Speaker 1: happen to love the work I do. I don't do

1302
01:14:15,200 --> 01:14:17,679
Speaker 1: anything I don't like. I often say to my friends

1303
01:14:18,040 --> 01:14:22,240
Speaker 1: I quit working at thirty. I've not quite eighty, but

1304
01:14:22,280 --> 01:14:24,679
Speaker 1: I have not done anything that I didn't feel like doing,

1305
01:14:24,720 --> 01:14:28,200
Speaker 1: want to do and enjoy doing. So it's been a marvelous,

1306
01:14:28,240 --> 01:14:31,240
Speaker 1: privileged experience. And I know I'm lucky, but I plan

1307
01:14:31,400 --> 01:14:35,479
Speaker 1: to stay there if I possitive weekend. Uh. I think

1308
01:14:35,640 --> 01:14:38,400
Speaker 1: learning is always a treat, and I don't know as

1309
01:14:38,479 --> 01:14:41,519
Speaker 1: much as I should know about music, and so listening

1310
01:14:41,520 --> 01:14:45,080
Speaker 1: to music is a wonderful opportunity to learn something that's

1311
01:14:45,120 --> 01:14:49,120
Speaker 1: new to me. And then books that come out year

1312
01:14:49,160 --> 01:14:51,719
Speaker 1: after year after year, these wonderful books that are available

1313
01:14:51,760 --> 01:14:55,600
Speaker 1: and chance to learn that. So my last two questions,

1314
01:14:55,600 --> 01:14:59,200
Speaker 1: these are are my favorite two that we ask of

1315
01:14:59,280 --> 01:15:03,160
Speaker 1: all our guests. Um, if a millennial or a recent

1316
01:15:03,200 --> 01:15:06,040
Speaker 1: college grad would come to you and said, I'm interested

1317
01:15:06,040 --> 01:15:08,920
Speaker 1: in a career in finance, what sort of advice would

1318
01:15:08,960 --> 01:15:13,160
Speaker 1: you give them? Finance is a pretty broad field. Be

1319
01:15:13,320 --> 01:15:16,360
Speaker 1: sure that you've gone to business school. I think seriously

1320
01:15:16,400 --> 01:15:18,760
Speaker 1: about doing more than business schools. So you might do

1321
01:15:18,800 --> 01:15:22,120
Speaker 1: a joint law school business school combination, or do business

1322
01:15:22,120 --> 01:15:25,760
Speaker 1: school and then study economics for an advanced degree afterwards.

1323
01:15:25,800 --> 01:15:29,799
Speaker 1: But be sure you understand knowledge is a very important resource.

1324
01:15:30,439 --> 01:15:33,240
Speaker 1: The second thing is look to be with people you

1325
01:15:33,320 --> 01:15:37,400
Speaker 1: admire greatly for their basic values. How they live year in,

1326
01:15:37,640 --> 01:15:41,120
Speaker 1: year out in an organization that really wants to teach

1327
01:15:41,160 --> 01:15:43,160
Speaker 1: and train young people how to be the best they

1328
01:15:43,200 --> 01:15:45,800
Speaker 1: could be, because if you've got talent, you want to

1329
01:15:45,840 --> 01:15:48,840
Speaker 1: maximize that talent. Key to that is fast learning curve,

1330
01:15:48,920 --> 01:15:51,880
Speaker 1: particularly in the early years. Third thing is do not

1331
01:15:52,080 --> 01:15:55,400
Speaker 1: do anything because it pays well. Choose what you want

1332
01:15:55,400 --> 01:15:57,160
Speaker 1: to do because you love it. If you're doing what

1333
01:15:57,240 --> 01:15:59,240
Speaker 1: you love doing, you get better and better and better

1334
01:15:59,280 --> 01:16:00,880
Speaker 1: at it. As you get better and better and better,

1335
01:16:00,880 --> 01:16:03,840
Speaker 1: you'll be paid well. Anybody in finance who's really good

1336
01:16:04,120 --> 01:16:06,400
Speaker 1: is going to be paid so well that their biggest

1337
01:16:06,400 --> 01:16:09,800
Speaker 1: financial problem over their lifetime. They may be poor when

1338
01:16:09,800 --> 01:16:12,639
Speaker 1: they get started, but over their lifetime, their biggest financial

1339
01:16:12,640 --> 01:16:15,080
Speaker 1: problem is how to protect their children from too much

1340
01:16:15,120 --> 01:16:18,840
Speaker 1: money when they die. That that is a very good

1341
01:16:18,840 --> 01:16:22,600
Speaker 1: advice across the board. And it's interesting that people like

1342
01:16:22,680 --> 01:16:25,920
Speaker 1: Martin Buffett have learned the lesson and they says to

1343
01:16:26,000 --> 01:16:28,880
Speaker 1: their kids, hey, I made this money, now you go

1344
01:16:29,000 --> 01:16:32,160
Speaker 1: make your money. Don't don't count on my wealth in

1345
01:16:32,240 --> 01:16:36,519
Speaker 1: order to disincentivize you from going out. And Buffett's going

1346
01:16:36,520 --> 01:16:39,120
Speaker 1: farther now. He said, I give my children enough so

1347
01:16:39,160 --> 01:16:41,080
Speaker 1: they can choose to do what they really want to

1348
01:16:41,080 --> 01:16:44,880
Speaker 1: do and then but not so much that they don't

1349
01:16:44,920 --> 01:16:48,599
Speaker 1: have to choose something not so much that makes sense,

1350
01:16:48,640 --> 01:16:51,439
Speaker 1: So they're going to have to find a career. Just

1351
01:16:52,560 --> 01:16:54,439
Speaker 1: he's giving them enough of the head start so it

1352
01:16:54,479 --> 01:16:56,880
Speaker 1: allows them a little selected open the doors so you

1353
01:16:56,920 --> 01:16:59,040
Speaker 1: can be your first choice and go for what you

1354
01:16:59,080 --> 01:17:02,240
Speaker 1: want to do for a great life. And you're a

1355
01:17:02,280 --> 01:17:07,200
Speaker 1: tough person to ask this question of because most people

1356
01:17:08,479 --> 01:17:12,320
Speaker 1: have to play with the answer. But I'm afraid you've

1357
01:17:12,360 --> 01:17:16,240
Speaker 1: answered this question in the body of your career. But

1358
01:17:16,280 --> 01:17:19,200
Speaker 1: I'm gonna ask in anyway, and it's what do you

1359
01:17:19,280 --> 01:17:23,080
Speaker 1: know about investing today that you wish you knew forty

1360
01:17:23,160 --> 01:17:28,240
Speaker 1: years ago when you began. Wow, there's so many different

1361
01:17:28,280 --> 01:17:30,599
Speaker 1: things that I didn't know that I wish i'd known.

1362
01:17:30,680 --> 01:17:35,040
Speaker 1: But the main item for me is how sensible it

1363
01:17:35,120 --> 01:17:38,760
Speaker 1: is after everything comes in to change the nature of

1364
01:17:38,800 --> 01:17:42,560
Speaker 1: investment management. All those people, all those tools, all that information,

1365
01:17:43,160 --> 01:17:47,920
Speaker 1: simplify your life, concentrate on the really important questions and

1366
01:17:48,080 --> 01:17:53,080
Speaker 1: index your operations. That you knew that back in seventy five.

1367
01:17:53,160 --> 01:17:55,680
Speaker 1: That's why I said it's a tough question. When I

1368
01:17:55,680 --> 01:17:58,639
Speaker 1: first came in, I came in in the early sixties. Really,

1369
01:17:58,720 --> 01:18:03,439
Speaker 1: so you wish you but really for someone over the

1370
01:18:03,479 --> 01:18:06,920
Speaker 1: course of your career. So usually when I when I

1371
01:18:06,960 --> 01:18:11,479
Speaker 1: ask that question to people, the answer that comes up is, well,

1372
01:18:11,560 --> 01:18:14,120
Speaker 1: here's what I know today that I wish I knew

1373
01:18:14,160 --> 01:18:17,160
Speaker 1: way early in my career. But I kind of feel

1374
01:18:17,240 --> 01:18:20,840
Speaker 1: like you've figured a lot of this out pretty early

1375
01:18:20,880 --> 01:18:24,640
Speaker 1: in your career. That's very generous on your part. I

1376
01:18:24,640 --> 01:18:28,400
Speaker 1: think it's more lucky than brilliant figuring it out. But

1377
01:18:28,560 --> 01:18:31,240
Speaker 1: do what you really really want to do is something

1378
01:18:31,280 --> 01:18:34,439
Speaker 1: that I was getting close to understanding then. Now I

1379
01:18:34,479 --> 01:18:37,759
Speaker 1: know it's absolutely and and it seems like you've managed

1380
01:18:37,800 --> 01:18:40,679
Speaker 1: to do that over over the whole course of your career.

1381
01:18:41,280 --> 01:18:43,880
Speaker 1: I promised to get you out in time for your

1382
01:18:43,960 --> 01:18:47,880
Speaker 1: lunch date, and so we still have a buffers to

1383
01:18:48,200 --> 01:18:50,040
Speaker 1: make sure you're gonna do that. I I have to

1384
01:18:50,920 --> 01:18:54,599
Speaker 1: thank you, Charlie for being so generous uh with your time.

1385
01:18:55,200 --> 01:18:59,719
Speaker 1: We have been speaking with Charlie Ellis of the formerly

1386
01:18:59,760 --> 01:19:04,160
Speaker 1: of the Yale Endowment, Greenwich Associates, the Vanguard Board of Directors,

1387
01:19:04,240 --> 01:19:07,920
Speaker 1: Harvard Faculty. The list goes on and on. His latest

1388
01:19:07,960 --> 01:19:10,880
Speaker 1: book is Index Revolution And for those of you who

1389
01:19:10,880 --> 01:19:14,120
Speaker 1: are thinking about putting money in the stock market. This

1390
01:19:14,200 --> 01:19:17,760
Speaker 1: is as good as any place UH to start. I

1391
01:19:17,800 --> 01:19:21,439
Speaker 1: would be remiss if I did not thank Taylor Riggs,

1392
01:19:21,520 --> 01:19:27,439
Speaker 1: my booker, Charlie Vollmer, our producer, Michael bat Nick, our

1393
01:19:28,280 --> 01:19:30,920
Speaker 1: director of research. And I can't see who's still in

1394
01:19:31,800 --> 01:19:36,479
Speaker 1: the booth. Oh you're here, okay because I heard a

1395
01:19:36,520 --> 01:19:42,000
Speaker 1: male voice five minutes ago. Uh at Medina, who is

1396
01:19:42,000 --> 01:19:46,560
Speaker 1: our recording engineer. We love your comments and feedback. Be

1397
01:19:46,760 --> 01:19:50,639
Speaker 1: sure to write to us at m IB podcast at

1398
01:19:50,680 --> 01:19:54,839
Speaker 1: Bloomberg dot net. I'm Barry rid Holts. You've been listening

1399
01:19:54,880 --> 01:19:58,479
Speaker 1: to Masters in Business on Bloomberg Radio. Our world is

1400
01:19:58,520 --> 01:20:00,960
Speaker 1: always moving, so with Marylynn. You can get access to

1401
01:20:01,000 --> 01:20:04,120
Speaker 1: financial guidance online, in person, or through the app. Visit

1402
01:20:04,280 --> 01:20:06,360
Speaker 1: mL dot com and learn more about Merrill Lynch, an

1403
01:20:06,360 --> 01:20:08,960
Speaker 1: affiliated Bank of America. Merrill Lynch makes available products and

1404
01:20:09,000 --> 01:20:11,280
Speaker 1: services offered by Merrill Lynch. Pierce Federan Smith Incorporated or

1405
01:20:11,280 --> 01:20:12,800
Speaker 1: Registered Broker Dealer remember s I PC