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Speaker 1: M. This is Mesters in Business with very Results on

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Speaker 1: Bloombird Radio this week on the podcast What Can I Say?

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Speaker 1: Charlie Alis is a legend in the world of finance,

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Speaker 1: whether it was at Greenwich Associates or as chair of

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Speaker 1: the Yell Endowment or a board member at Vanguard, he

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Speaker 1: has seen pretty much everything in the world of investing.

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Speaker 1: His career spans the entire modern era, dating back to

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Speaker 1: um you know, the Paul Vulcar era, and what took

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Speaker 1: place during the boom periods of the eighties and nineties,

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Speaker 1: and how technology has changed the world of investing. He's

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Speaker 1: just one of these people who is so thoughtful and

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Speaker 1: insightful about everything. It's just always a pleasure, uh to

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Speaker 1: chat with him. I found our discussion to be absolutely

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Speaker 1: us in and I think you will also with no

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Speaker 1: further ado my conversation with Grantwich Associates Charlie Alis. The

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Speaker 1: last time we spoke, we really were talking about the

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Speaker 1: retiming crisis, and we spent a little bit of time

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Speaker 1: discussing Van Guard. But this new book is so interesting

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Speaker 1: and so filled with details that only an inserter can have.

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Speaker 1: Let's delve into it a little bit. Tell us. What

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Speaker 1: first led you to Vanguard? How did you get involved

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Speaker 1: with them? Well, it's started long time ago. Six. I

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Speaker 1: was working with the securities firm in New York and

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Speaker 1: Wellington was a client in Philadelphia, and I would go

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Speaker 1: down to Philadelphia meet with John, Jack Bogel and the others,

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Speaker 1: and I got convinced that these were very bright and

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Speaker 1: interesting people doing interesting things. But Old Wellington was not

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Speaker 1: really a great and instinct place. It was balanced portfolio.

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Speaker 1: The assets were going down year by year by year,

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Speaker 1: as people said, you know, it's just out of date.

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Speaker 1: I want to get a performance fund. I want to

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Speaker 1: beat the market. These guys will never get out of

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Speaker 1: the slow that they're in. Uh. But still there was

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Speaker 1: something special about Jack and John. So the irony of

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Speaker 1: that is in ninety six, hey, we were about to start,

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Speaker 1: you know, a long period of equity under performance. You

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Speaker 1: would have guessed had you known that a balanced fund

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Speaker 1: of stock and bond portfolio was going to do a

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Speaker 1: lot better than just the pure stock funds over the

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Speaker 1: next sixteen years. That's the way the world works. Just

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Speaker 1: when you least expected, something goes in a different direction.

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Speaker 1: I really liked the guys and and when jack said

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Speaker 1: he was gonna be leaving after the merger Maide in

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Speaker 1: Heaven with the Boston Group. Jackie, you really are stretching it.

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Speaker 1: This is a very unlikely proposition. You've got less than

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Speaker 1: thirty people working with you. You're in charge of the

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Speaker 1: back office activities. That's an activity you never ever personally

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Speaker 1: enjoyed at all. You always assigned that to somebody else.

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Speaker 1: And he would say to me, don't worry about it,

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Speaker 1: Jim Reep, he's going to take responsibility for that. I

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Speaker 1: don't have to do it. You're not allowed to do

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Speaker 1: anything in investment management, and then I allow it to

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Speaker 1: do anything in sales. The mutual fund business is all

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Speaker 1: about sales and investing. What are you gonna do? And

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Speaker 1: the answer was I'm going to hang in there and

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Speaker 1: find a way to make this thing work. And the

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Speaker 1: fascinating story is the argument that he concocted around indexing. First,

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Speaker 1: it's non investment management because hey, we're not making any decisions,

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Speaker 1: we're just buying all the stocks in the index. And second,

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Speaker 1: there's no sales. People are gonna come to us, so

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Speaker 1: therefore this is out out of the deal he cut

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Speaker 1: with the folks at Wellington right, And it was just

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Speaker 1: barely enough over a period of several months to convince

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Speaker 1: his board of directors it's okay to do that, and

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Speaker 1: he just kind of skated through. They barely approved it.

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Speaker 1: Very close run. But Zack was a very argumentative, persuasive

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Speaker 1: always had the facts supporting whatever case. Like a really

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Speaker 1: good litigating lawyer, he was always able to make his

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Speaker 1: own case very very very well. So let's talk about

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Speaker 1: that initial funds. The plan was to do an IPO

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Speaker 1: to raise two million dollars in new client assets for

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Speaker 1: the funds. How much did they end up? Actually, this

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Speaker 1: is the first index funds. It's a very interesting story.

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Speaker 1: I'm going to raise a pretty serious amount of money.

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Speaker 1: It was very hard to get Wall Street to agree

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Speaker 1: to do the underwriting, and then it was really hard

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Speaker 1: to get salespeople the various cities to say, yeah, I'm

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Speaker 1: going to pitch this to my clients. For a very

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Speaker 1: good reason. Everybody knew in those days the purpose of

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Speaker 1: investment management is to beat the market. Everybody understood that

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Speaker 1: was the game. So you're looking for a manager is

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Speaker 1: going to beat the market. Everybody talked that way, And

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Speaker 1: here's the guy coming along and saying, I got a

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Speaker 1: really good idea for you. I'm not going to beat

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Speaker 1: the market. Jack would have argument, well, wait a minute.

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Speaker 1: Of the active funds are underperforming what they said they

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Speaker 1: were going to do. If I meet the market, match it,

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Speaker 1: I'm gonna beat most of them. I'll be in the

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Speaker 1: top quartile as a consequence. Yeah, yeah, yeah, But Jack,

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Speaker 1: you're going to charge a sales load of eight percent

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Speaker 1: on this index fund. So people's first day or eight

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Speaker 1: percent behind the market, how are they ever going to

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Speaker 1: catch up with the market. Don't let that bothery in.

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Speaker 1: We're gonna we'll find a way to make it work out.

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Speaker 1: But that was a killer, and people look at and say,

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Speaker 1: straight faced, I'm not going to go to my clients

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Speaker 1: and say go into this investment opportunity. You're guaranteed to

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Speaker 1: be behind the market for the rest of the time

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Speaker 1: that you hold onto it. Now, some of the data

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Speaker 1: that Jack had showed that the active managers, all of

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Speaker 1: whom were high fee, not even counting the fees. After

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Speaker 1: a period of time, the vast majority, some nine lag

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Speaker 1: the market, and then once you work the fees in

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Speaker 1: after ten or fifteen years, they're way behind the market.

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Speaker 1: Why did it take so long for that concept to

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Speaker 1: be recognized by investors. We're all governed by our beliefs,

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Speaker 1: and the beliefs are much more powerful than data. And

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Speaker 1: as we've seen in politics, as we will see in

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Speaker 1: all kinds of other subject areas, what people believe is

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Speaker 1: what drives them to their behavior and decisions. Don't bother

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Speaker 1: me with the facts is a reality of human beings.

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Speaker 1: So if you're fact based, you've got to be prepared

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Speaker 1: for people to say you're crazy. That doesn't make any sense.

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Speaker 1: I know what's right. And when you look back in

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Speaker 1: the nineties, seventies and eighties, you know, we take it

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Speaker 1: for granted how much data is available today, how easy

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Speaker 1: it is for us to access historical returns for various

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Speaker 1: indices versus inflation, versus dividends versus everything. That technology and

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Speaker 1: that information wasn't all that readily available for years ago.

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Speaker 1: What do you mean it wasn't readily available. It wasn't

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Speaker 1: available period. I mean we go back a little bit

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Speaker 1: of personal history. I was privileged to have the responsibility

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Speaker 1: for representing Greenwich Associates consulting with Wall Street firms. The

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Speaker 1: smartest people on Wall Street in terms of picking up

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Speaker 1: and understanding this is really good information. I can really

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Speaker 1: put it to work. John Whitehead at Goldman Sachs, who

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Speaker 1: was unbelievably demanding and rigorous as a client, But I

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Speaker 1: loved working for him because he always took everything very,

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Speaker 1: very seriously. There's one other person, Mike Bloomberg at Solomon Brothers,

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Speaker 1: and Mike took the information and converted into decisions on

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Speaker 1: a regular basis, and it put him in a very

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Speaker 1: strong position competitively. But it also proved to him the

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Speaker 1: value of having good heart information. And you can't deny

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Speaker 1: anybody can have good heart information and not use it.

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Speaker 1: He was really good at using it, and that's characteristic

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Speaker 1: of why he's been so extraordinary in his successfulness years

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Speaker 1: and years and years later. So all of this is

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Speaker 1: really fascinating. What made you nineteen books in decide to say, hey,

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Speaker 1: you know, it's time to tell the inside story of

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Speaker 1: Van Guard. What led you to saying now is the

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Speaker 1: time I was a direct to a Vanguard. I had

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Speaker 1: worked with Vanguard as a strategy consultant before being a director,

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Speaker 1: and I was deeply convinced that this was, for almost

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Speaker 1: any American investor, the right way to do your investing.

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Speaker 1: And then it was low cost YEP, high value YEP,

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Speaker 1: reliably delivered in a systematic way, and that looking at

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Speaker 1: as a director, it seemed to me very very clear

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Speaker 1: that Vanguard was way underestimated by almost everybody. The clients

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Speaker 1: of Vanguard underestimated how good a deal they were really getting.

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Speaker 1: People who weren't clients of Vanguard were crazy not to

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Speaker 1: know what the facts were. They can make their own decision,

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Speaker 1: but they should know at least what the facts are.

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Speaker 1: Here's a better way of being able to get good

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Speaker 1: investment guidance and information. And as a director, I said,

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Speaker 1: you know, I think we really are making a big

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Speaker 1: mistake not to make it clear to our own people

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Speaker 1: how good to deal where they're getting. Yeah. Yeah, but

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Speaker 1: you know, everything about Vanguards an organization is modesty, and

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Speaker 1: particularly with Jack Brennan, who was very much Mr Modesty,

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Speaker 1: and it just didn't take off. And then after I

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Speaker 1: left the board, Jack and I were both advisors to

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Speaker 1: a very very large investment fund, and so it gave

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Speaker 1: me an opportunity to make the pitch to him one

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Speaker 1: more time, and he said, you know, I think you're right.

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Speaker 1: I think this would be good for investors. I said,

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Speaker 1: but Jack is going to be good for Vanguard to

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Speaker 1: He said, yeah, but it's really good for investors, So

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Speaker 1: let's go ahead. So I like the concept of Vanguard's

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Speaker 1: culture as unique in the world of finance, low cost,

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Speaker 1: high integrity. Tell us a little bit about the Vanguard culture. Well,

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Speaker 1: it starts with one very simple proposition. Nobody is making

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Speaker 1: a profit. Every other investment organization has got a problem

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Speaker 1: that somebody is taking money out of the pot every day,

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Speaker 1: every month, every year as a profit. Let's see American way.

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Speaker 1: It's a good incentive. Yeah, yeah, yeah, But here's a

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Speaker 1: group who's highly motivated, they're doing all kinds of leadership things,

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Speaker 1: and nobody's taken a profit. Everybody who's an investor in

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Speaker 1: Vanguard is an owner of Vanguard. The only owners of

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Speaker 1: Vanguard are the investors in Vanguard. So it's a nice,

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Speaker 1: tight little situation where you eat your own cooking and

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Speaker 1: you're doing what's really right because it's what's really right

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Speaker 1: for everybody. Really interesting. So, given how the world has

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Speaker 1: changed over the past few decades, have you noticed any

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Speaker 1: changes in the culture at Vanguard over that period. Honestly, no,

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Speaker 1: it's astonishing. It's still boy Scotts and girls Scots gathered

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Speaker 1: together every day to do, as they like to say,

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Speaker 1: to do the right thing. And that's the only metric

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Speaker 1: by which they make a judgment. What's the really right

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Speaker 1: thing to do for our investor clients, because it's their

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Speaker 1: shop and we're here to do the right thing for them.

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Speaker 1: So when we look around at the world of low

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Speaker 1: cost indexes, they're all pretty much the same. They're cheap,

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Speaker 1: they tend to hold almost identical portfolios. What makes the

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Speaker 1: Vanguard version of this so different? How does Vanguard brand

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Speaker 1: itself in what is essentially a commodity product. It's really fascinating,

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Speaker 1: essentially a commodity product. If you have a client, they

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Speaker 1: will understand the and appreciate they get good service, not

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Speaker 1: fabulous service, but good service at low cost on a

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Speaker 1: very reliable basis. And there's a group of people who

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Speaker 1: are working full time to protect them from anything dumb

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Speaker 1: or getting conned. Not bad. So let's talk about the

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Speaker 1: enigma that is Jack Vogel. He spent the first twenty

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Speaker 1: five years of his We are on the active side

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Speaker 1: of the street. Um, it seems like it's almost a

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Speaker 1: coincidence that Vanguard was even launched tell us about that.

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Speaker 1: There are a lot of different ways you've come at

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Speaker 1: the answer to your question. First, Jack engineered what was

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Speaker 1: supposed to be the great merger made in Heaven, combining

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Speaker 1: old fashioned Wellington with all of the integrity that it

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Speaker 1: might have had in days gone by, heavy sales load,

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Speaker 1: heavy on sales activities, um not so good on investing,

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Speaker 1: combined with the hot ticket group in Boston, and it

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Speaker 1: looked like that would be a winning proposition for everybody.

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Speaker 1: Only problem culture, personality, way of thinking, way of doing business.

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Speaker 1: Jack always wanted to have complete control of everything. The

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Speaker 1: guys that for indyke Door in Paynton and Lewis Partnership,

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Speaker 1: which is now the core of modern Wellington's, believed deeply

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Speaker 1: in a consensus development as friends talking things out, figuring

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Speaker 1: out together what's the best thing to do take a

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Speaker 1: long term point of view. The two cultures did not mix,

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Speaker 1: and Jack insisted on his culture being dominant because that

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Speaker 1: was key to his personality, and that made it worse,

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Speaker 1: not better. And then he insisted more on having it

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Speaker 1: his way, and that made it even worse. And so

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Speaker 1: finally they got to the point of saying, you have

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Speaker 1: to go and essentially they deposed him. They tossed out

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Speaker 1: the king, eventually winning a vote at a board level

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Speaker 1: where he was removed from Wellington the investment firm. But

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Speaker 1: Jack had a clever back door way around it. He

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Speaker 1: was still a participant and part of the board where

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Speaker 1: there were numerous independent directors, and the way the mutual

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Speaker 1: fund industry is set up, the administration of the funds

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Speaker 1: and the management of the investments are two different creatures,

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Speaker 1: so he was able to stay with the admin side.

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Speaker 1: Tell us a little bit about that. You've sent such

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Speaker 1: a nice job of summarizing it. There's almost nothing to

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Speaker 1: say other than you've got it exactly right. Oh. I

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Speaker 1: got a couple of chapters just on that. Jack Vogel

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Speaker 1: understood that the directors had certain kinds of power that

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Speaker 1: could not be taken away, and they were because of

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Speaker 1: the sec and the whole concept of regulation the mutual

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Speaker 1: fund industry representatives of the investors in the mutual funds.

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Speaker 1: That was a very strong base. And so legally the

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Speaker 1: directors were responsible for us figuring out what to do

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Speaker 1: about investing, and the directors were responsible for figuring out

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Speaker 1: what to do about sales. That's legally doesn't. It's not

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Speaker 1: the way to actually work. The way it actually worked

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Speaker 1: is the director's at exactly what they were told by

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Speaker 1: the management company, because otherwise they wouldn't get the very

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Speaker 1: nice fees that they were getting, and they wouldn't have

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Speaker 1: the privilege of coming to the meetings and so on.

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Speaker 1: All the directors were buddies of the folks running the investor.

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Speaker 1: Why else would you choose one obedient directors friends of

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Speaker 1: the firm, all that sort of stuff. It's really not

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Speaker 1: a nice part of the history. It's very different today,

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Speaker 1: but years ago, who's a different world. Uh So, Jack

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Speaker 1: had worked out that the directors would have responsibility for

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Speaker 1: making the final decision on things that were important enough

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Speaker 1: so that that's some real gravitas and some real strength.

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Speaker 1: And he had a very close relationship with several of

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Speaker 1: the directors, and several of the directors had a high

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Speaker 1: regard for Jack and some men of integrity, and so

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Speaker 1: they were very strong in support for him. Is like

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Speaker 1: Chuck Root for an example. He was the head of

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Speaker 1: T F and C, the actuarial firm, had a really

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Speaker 1: distinguished talent in the Philadelphia business community and basically thought

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Speaker 1: that Jack was a good guy with strong intentions and

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Speaker 1: maybe too strong a personality sometimes, but a good guy

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Speaker 1: for the long run, and it was clear going to

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Speaker 1: support him. And Jack had similar relationships with people who

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Speaker 1: give him support just enough so that he could get

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Speaker 1: the vote on his side for things that had to

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Speaker 1: do with the administration. Interesting phenomenon. One of the guys

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Speaker 1: said he was most focused on getting to be sure

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Speaker 1: that he would get the right support. Management consultant named Warden,

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Speaker 1: who was doing some terrific work for European companies trying

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Speaker 1: to understand American business after the Second World War and

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Speaker 1: built up a very nice franchise. Uh. He died, And

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Speaker 1: if it hadn't died the night before the vote, if

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Speaker 1: it hadn't happened that way, vote might have gone the

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Speaker 1: other way. That that close any right, Jack, one but

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Speaker 1: marginal vote, the right to be able to do the administration.

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Speaker 1: What a win? You think about pyric victories? What a win?

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Speaker 1: Let me just be sure I understand this. I'm Jack Bogel.

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Speaker 1: The one thing I don't care about at all, have

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Speaker 1: no interest in whatsoever is fund administration. That's my sole business.

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Speaker 1: And I'm going to have less than thirty people working

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Speaker 1: with me. And the crowd of funds that I'm managing

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Speaker 1: are basically going downhill because redemptions are larger than new sales.

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Speaker 1: That's not much to start with, but not at all.

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Speaker 1: Got to understand at the start there's a magic missing ingredient.

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Speaker 1: Jack's ability to be ferociously angry and beautifully articulate for

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Speaker 1: any case he ever wanted to make was a major

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Speaker 1: competitive factor. And then a couple of things were lucky breaks.

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Speaker 1: Money market funds came out and you could charge one

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Speaker 1: percent on a money market fund, which is a lot

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Speaker 1: to charge for something to says plain Vanilla as a

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Speaker 1: money market fund, but a money market fund was sure

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Speaker 1: to be a winner compared to the bank CDs that

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Speaker 1: were limited by regulation to five interest. Then Paul Volker

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Speaker 1: was driving the interest rates up to eight, ten, twelve

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Speaker 1: even on money market instruments. All you had to do

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Speaker 1: is a money market fund manager is by the standard

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Speaker 1: stuff treasury builds, commercial paper and the like, and you

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Speaker 1: could put together a portfolio that's producing a very high income,

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Speaker 1: and the banks that had all the money, we're limited

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Speaker 1: to that five and a half percent. So then when

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Speaker 1: he float out of the banks into the mutual funds,

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Speaker 1: and Vanguard made itself obvious choice by having slightly lower fees,

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Speaker 1: and then lower fees, and then lower fees as there

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Speaker 1: as it's built up. So they had low fees for

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Speaker 1: identical product. And you don't have to be that smart

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Speaker 1: to figure out, hey, when these are identical products and

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Speaker 1: one is low cost, why not? Why not? So let's

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Speaker 1: also talk about what was then thought of as a

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Speaker 1: fairly radical concept, mutualizing the mutual funds business. Tell us

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Speaker 1: a little bit about that idea where instead of being

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Speaker 1: profit driven, the profits would eventually flow back to the owners,

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Speaker 1: the investors, and the funds through lower fees. You just

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Speaker 1: said it beautifully. Well, you know, I I've been educated

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Speaker 1: with this book, so it's deep in my thought process. Well,

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Speaker 1: you know, once you get two and two is four,

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Speaker 1: it's easy to remember. Put to work. But the secret here,

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Speaker 1: over and over and over again is ferocious drive to

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Speaker 1: not fail, which was jack ferocious drive to be recognized

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Speaker 1: as Mr Wonderful, which was a very important part of

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Speaker 1: Jack Bogel all through his career, but they more and

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Speaker 1: more and more important as he got deeper into Van Kart.

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Speaker 1: Those two phenomena show up over and over and over again. So,

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Speaker 1: given how successful the mutualization was, why didn't any other

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Speaker 1: asset managers copy the structure? It seems like, oh wait, wait, wait, wait, wait,

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Speaker 1: what's the American way? I start a business to make

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Speaker 1: a profit. If I do a good job, people will

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Speaker 1: come to my business. I'll get bigger, I'll make more profits.

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Speaker 1: So I do a good job, I'll keep getting more

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Speaker 1: in it a positive cycle. Okay, what would attract anybody

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Speaker 1: to get into a business where you do a really

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Speaker 1: good job and you break even. You do a really

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Speaker 1: good job for years and you break even. You do

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Speaker 1: a really, really really good job for year after year

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Speaker 1: after year, for all kinds of people, and you break even.

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Speaker 1: You mean you never ever make a profit. That's right,

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Speaker 1: you never ever make a profit. Well, what's in it

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Speaker 1: for me? And that is a stopper for almost everybody

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Speaker 1: who starts a business. If you can't make a profit,

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Speaker 1: why in the world would you get going? Goes back

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Speaker 1: to Adam Smith and all the way through since then

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Speaker 1: you do end up achieving a certain size where there

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Speaker 1: are economies of scale, and you pay yourself a very

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Speaker 1: nice salary. Hey, maybe you don't go public, maybe you

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Speaker 1: don't sell the firm. But you sleep at night and

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Speaker 1: you know you're doing the right thing for your clients.

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Speaker 1: There's got to be some appeal for that. Now you're

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Speaker 1: getting to why is the culture at Vanguards so steadily

355
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Speaker 1: the same? Then why do people in Vanguard enjoyed being

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Speaker 1: where they are? First they really like doing a good

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Speaker 1: job and doing the right thing in doing a good job.

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Speaker 1: It's amazing that people really do like being in honest.

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Speaker 1: People really do like delivering good value. People really do

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Speaker 1: like doing a great job for other people as customers.

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Speaker 1: And particularly if you make clear when you joined Vanguard

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Speaker 1: you're never going to get rich, it is not going

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Speaker 1: to happen. So if that's the main item on your agenda,

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Speaker 1: go somewhere else. And there are plenty of places in

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Speaker 1: Wall Street where they'll say you want to get rich,

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Speaker 1: come here. So if you don't want to get rich,

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Speaker 1: but you do want to do something you're proud of

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Speaker 1: every day with a group of people who are just

369
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Speaker 1: like you, proud of what they're doing. Boy Scott's, Girl Scott's.

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Speaker 1: Pretty soon you start to say, you know there's something

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Speaker 1: to this. Maybe being a jesuit's not all that bad.

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Speaker 1: An idea and pretty soon you start finding hey, hey, wait,

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Speaker 1: this works. Let's talk a little bit about not just

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Speaker 1: Jack Bogel, but the era and the team he assembled

375
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Speaker 1: that was so crucial to Vanguard's success. Tell us a

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Speaker 1: little bit about how this Yankees came together. Great question. First,

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Speaker 1: Jack was man with the mission, and if you spent

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Speaker 1: time with him, you could be infected with that sense

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Speaker 1: of mission and purpose, and if that rang the bell

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Speaker 1: for what you wanted to do with your working career,

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Speaker 1: it was almost magic because there wasn't very much competition

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Speaker 1: from other people doing things in the investment world. Secondly,

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Speaker 1: this was a man of tremendous conviction above what was

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Speaker 1: going to be the right thing to do. Sometimes that

385
00:24:40,800 --> 00:24:44,680
Speaker 1: worked very much the advantage of Vanguard. There were sometimes

386
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Speaker 1: when it worked just the other way, and it was

387
00:24:47,200 --> 00:24:52,720
Speaker 1: a real negative but decisive whichever way. It was characteristic

388
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Speaker 1: of Jack as a personality. He could put on the

389
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Speaker 1: charm in a way in which almost anybody would melt.

390
00:25:00,800 --> 00:25:04,440
Speaker 1: And then, of course there were hard hitting times when

391
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Speaker 1: he was absolutely determined that everybody was going to do this,

392
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Speaker 1: or that you were already on board, and you sort

393
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Speaker 1: of saying, well, you can take the good with the bad.

394
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Speaker 1: We can work this one out really interesting. Tell us

395
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Speaker 1: a little bit about Jack Brennan, the man who succeeded

396
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Speaker 1: Bogel as as the second CEO of Vanguard. He's really

397
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Speaker 1: quite a fascinating character. Well, he had a terrific impact.

398
00:25:29,240 --> 00:25:32,000
Speaker 1: And if you look at the impact in terms of

399
00:25:32,119 --> 00:25:37,160
Speaker 1: essence under management, what Bogel did in his time, Brennan

400
00:25:37,240 --> 00:25:42,080
Speaker 1: did ten times as much in his time, ten times

401
00:25:42,160 --> 00:25:44,680
Speaker 1: as much. And he did it by putting the other

402
00:25:44,680 --> 00:25:48,119
Speaker 1: the team of other people, empowering them to be strong

403
00:25:48,160 --> 00:25:50,800
Speaker 1: and effective at what they were doing. Then it goes

404
00:25:50,840 --> 00:25:55,320
Speaker 1: back to a couple of different route factors. Boston, Irish

405
00:25:55,480 --> 00:26:01,200
Speaker 1: Catholic training. His dad was told by his guidance counselor

406
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Speaker 1: in high school, no, kid, you're not going to become

407
00:26:04,600 --> 00:26:08,120
Speaker 1: a mechanic. You're going to go to school because you're

408
00:26:08,160 --> 00:26:11,480
Speaker 1: too good and too smart to stop your life. Right

409
00:26:11,520 --> 00:26:15,280
Speaker 1: at this graduating from high school, you're going to college.

410
00:26:16,160 --> 00:26:20,240
Speaker 1: And that was a breakthrough. And Jack's father became a

411
00:26:20,280 --> 00:26:24,399
Speaker 1: consequential banker in the Boston area, but he always stayed

412
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Speaker 1: clear to his basic roots. Jack Brennan grows up as

413
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Speaker 1: a son of that kind of straightforward guy, and becomes

414
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Speaker 1: a very very straightforward guy himself. The second characteristic is

415
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Speaker 1: he was a very good athlete, and he was very

416
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Speaker 1: good at lacrosse in particular. And one day his kids

417
00:26:46,359 --> 00:26:49,359
Speaker 1: were asking, well, Dad, were you the highest scorer? And

418
00:26:49,359 --> 00:26:53,160
Speaker 1: he said, that's not the right question. What do you mean, Dad?

419
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Speaker 1: They gave him a copy of the Dartmouth Indian, the

420
00:26:57,560 --> 00:27:04,800
Speaker 1: student newspaper. Brennan twenty eight assists, eight goals. He said,

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Speaker 1: it's not whether youth score, it's whether your team scores.

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00:27:09,160 --> 00:27:11,360
Speaker 1: And that's Jack Brennan all the way through. He's all

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Speaker 1: about bringing the team for it. As he said himself,

424
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Speaker 1: being famous is not on my agenda. And it's very

425
00:27:18,680 --> 00:27:21,840
Speaker 1: clear most people have never heard of Jack Brennan. Probably

426
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Speaker 1: the most important person in the development of Vanguard is

427
00:27:24,560 --> 00:27:28,359
Speaker 1: an organization. That's quite a statement. I don't disagree, but

428
00:27:28,440 --> 00:27:33,440
Speaker 1: I don't think most people are aware how he professionalized Vanguard,

429
00:27:33,520 --> 00:27:36,320
Speaker 1: how he brought in a huge team of people, but

430
00:27:36,400 --> 00:27:41,280
Speaker 1: he also found all sorts of both cost savings and

431
00:27:41,320 --> 00:27:45,639
Speaker 1: growth that as good as Bogel was, it was just

432
00:27:45,760 --> 00:27:49,720
Speaker 1: outside of his expertise. Yeah, and look, Jack Bogel always said,

433
00:27:49,960 --> 00:27:54,119
Speaker 1: I'm a small company guy, and Jack Brennan understood to

434
00:27:54,240 --> 00:27:57,719
Speaker 1: be the really right Vanguard in the future is going

435
00:27:57,760 --> 00:28:00,600
Speaker 1: to have to be a big organization. Second, you're gonna

436
00:28:00,600 --> 00:28:03,280
Speaker 1: have to have a lot of computing power, because technology

437
00:28:03,440 --> 00:28:06,399
Speaker 1: is a secret to keeping costs low, low, low, and

438
00:28:06,520 --> 00:28:09,160
Speaker 1: long run. Jack Bogler would say over and over again,

439
00:28:09,320 --> 00:28:12,720
Speaker 1: computers are too damn expensive, and he was right on

440
00:28:12,760 --> 00:28:15,040
Speaker 1: the day that you buy them. But if you can

441
00:28:15,080 --> 00:28:17,919
Speaker 1: only think of him as that moment, you're not going

442
00:28:18,000 --> 00:28:19,479
Speaker 1: to be able to get a payoff. If you think

443
00:28:19,520 --> 00:28:21,600
Speaker 1: of him as going to own him for five years

444
00:28:21,680 --> 00:28:23,679
Speaker 1: or ten years, I'm going to use the tools to

445
00:28:23,720 --> 00:28:26,680
Speaker 1: bring the cost of the operation down, it's a completely

446
00:28:26,760 --> 00:28:30,320
Speaker 1: different answer. And so Jack Brennan was absolutely key to

447
00:28:30,400 --> 00:28:35,320
Speaker 1: the whole idea of using technology, particularly computers, and moving

448
00:28:35,520 --> 00:28:38,920
Speaker 1: in advancement that direction. Second thing is very good at

449
00:28:38,920 --> 00:28:44,320
Speaker 1: distributing responsibility and hiring in outstanding individuals to do in

450
00:28:44,360 --> 00:28:46,840
Speaker 1: a quiet way the things that needed to get done.

451
00:28:46,840 --> 00:28:50,360
Speaker 1: So shift from one person to a team, and the

452
00:28:50,400 --> 00:28:52,920
Speaker 1: team has got maybe a dozen key players on it.

453
00:28:53,360 --> 00:28:56,959
Speaker 1: Then you get something that's got tremendous capacity to manage

454
00:28:56,960 --> 00:28:59,840
Speaker 1: a larger and larger organization, which Vanguard had to be

455
00:29:00,040 --> 00:29:03,000
Speaker 1: come in order to get the economic power that it

456
00:29:03,040 --> 00:29:06,600
Speaker 1: has today to keep driving costs lower. So Brennan and

457
00:29:06,640 --> 00:29:12,440
Speaker 1: Bogel were very close. Eventually, to Brennan's dismay, the relationship

458
00:29:12,560 --> 00:29:15,760
Speaker 1: fell apart. Tell us a little bit about that eppisode.

459
00:29:16,120 --> 00:29:21,080
Speaker 1: Easy analogy would be father and son, older guy, younger guy. Mr.

460
00:29:21,080 --> 00:29:25,400
Speaker 1: Outside Jack Bogel, Mr. Inside Jack Brennan. So long as

461
00:29:25,440 --> 00:29:28,800
Speaker 1: that was the working relationship, things were great. But Jack

462
00:29:28,800 --> 00:29:33,560
Speaker 1: Bogel always thought of Vanguard as my company. And when

463
00:29:33,560 --> 00:29:36,560
Speaker 1: you have a possessive view like that, you can talk

464
00:29:36,640 --> 00:29:40,800
Speaker 1: yourself into making serious mistakes. He had agreed with Jim

465
00:29:40,880 --> 00:29:44,280
Speaker 1: Ripe way back when that the longest that anybody ought

466
00:29:44,320 --> 00:29:47,640
Speaker 1: to work at Vanguard would be maybe to seventy, So

467
00:29:47,760 --> 00:29:51,240
Speaker 1: let's have seventy br retirement age. They got closer and

468
00:29:51,280 --> 00:29:54,640
Speaker 1: closer and closer to it, and Jack Bogel said, well,

469
00:29:54,640 --> 00:29:57,440
Speaker 1: you haven't, doesn't applied to the chairman, doesn't inclide to me,

470
00:29:58,120 --> 00:29:59,840
Speaker 1: can't be the really right thing in the board of

471
00:29:59,840 --> 00:30:02,240
Speaker 1: the actor said, now it really is the right thing.

472
00:30:03,160 --> 00:30:06,080
Speaker 1: In fact, the company has already gone past your skill set,

473
00:30:06,640 --> 00:30:09,240
Speaker 1: and Jack Brennan has got the skill set and he's

474
00:30:09,280 --> 00:30:11,560
Speaker 1: proving it over and over and over again. We want

475
00:30:11,560 --> 00:30:14,160
Speaker 1: to make that change in a very clear way, I

476
00:30:14,200 --> 00:30:17,560
Speaker 1: don't want to make that change. Then Jack Bogel really

477
00:30:17,760 --> 00:30:22,280
Speaker 1: really resisted it. Finally, it turned out he was deeply

478
00:30:22,360 --> 00:30:24,880
Speaker 1: upset about not having made a fortune the way Ned

479
00:30:24,960 --> 00:30:28,760
Speaker 1: Johnson had made a fortunate fidelity. So they gave him

480
00:30:28,760 --> 00:30:34,040
Speaker 1: a substantial settlement to leave with good behavior and a

481
00:30:34,120 --> 00:30:37,360
Speaker 1: great opportunity for him to start Bogel Research, which turned

482
00:30:37,360 --> 00:30:41,560
Speaker 1: out to be marvelous success for Jack Bogel and for

483
00:30:41,720 --> 00:30:44,200
Speaker 1: people who are paying attention in that direction. But take

484
00:30:44,320 --> 00:30:47,800
Speaker 1: him out of the controls position on Van Guards so

485
00:30:47,840 --> 00:30:51,880
Speaker 1: it could basically grow in its natural way as a

486
00:30:51,920 --> 00:30:55,520
Speaker 1: major phenomenon. So let's talk a little bit about John Neff,

487
00:30:55,600 --> 00:30:59,360
Speaker 1: another name that made a huge difference early on. Doesn't

488
00:30:59,400 --> 00:31:01,440
Speaker 1: really get talked about all that much. Tell us what

489
00:31:01,480 --> 00:31:04,600
Speaker 1: he did and why he was so pivotal to Vanguard's success.

490
00:31:05,400 --> 00:31:07,600
Speaker 1: People don't talk about John Neff today, but in the

491
00:31:07,680 --> 00:31:12,160
Speaker 1: sixties and the seventies and the eighties, people talked about

492
00:31:12,240 --> 00:31:15,760
Speaker 1: John Neff because he had the best record of any

493
00:31:15,840 --> 00:31:19,160
Speaker 1: mutual fund manager in the country. And you could argue

494
00:31:19,240 --> 00:31:22,280
Speaker 1: that one of the great managers at Capital Group hadn't

495
00:31:22,280 --> 00:31:25,480
Speaker 1: even better record, but Capital broke up the funds into

496
00:31:25,600 --> 00:31:29,360
Speaker 1: multi different portfolio managers so it was not public. But

497
00:31:29,440 --> 00:31:33,800
Speaker 1: among the public recorded John Neff had the best performance

498
00:31:33,840 --> 00:31:36,960
Speaker 1: over the long term. Wow, does that make a difference

499
00:31:37,000 --> 00:31:40,360
Speaker 1: when you're looking at year after year after year after year,

500
00:31:40,720 --> 00:31:43,760
Speaker 1: with some exceptions sometimes for two or three years, but

501
00:31:44,080 --> 00:31:47,160
Speaker 1: over any long term investment at the best record of

502
00:31:47,200 --> 00:31:50,760
Speaker 1: anybody in the investment business. What about Gus Sauder He

503
00:31:50,880 --> 00:31:53,840
Speaker 1: was the first chief investment officer at vant Guard Group,

504
00:31:54,120 --> 00:31:57,280
Speaker 1: highly regarded. Tell us a little bit about his contributions.

505
00:31:57,720 --> 00:32:02,400
Speaker 1: Terrific quant with the great deal of modesty and a

506
00:32:02,520 --> 00:32:07,280
Speaker 1: wonderful ability to think things through. And Gus Souder was

507
00:32:07,480 --> 00:32:11,720
Speaker 1: critical to development of the t F business and critical

508
00:32:11,840 --> 00:32:16,360
Speaker 1: to the development of the indexing business and the capacity

509
00:32:16,440 --> 00:32:21,680
Speaker 1: to manage with the quantitative group substantial fractions of the

510
00:32:21,720 --> 00:32:25,560
Speaker 1: actively managed portfolios because he could replicate what an active

511
00:32:25,560 --> 00:32:30,560
Speaker 1: manager might do and one of these quiet, soft spoken

512
00:32:31,640 --> 00:32:34,080
Speaker 1: it's not about me, it's about the interesting work that

513
00:32:34,160 --> 00:32:38,720
Speaker 1: my team is doing. The team builder and terrific technology

514
00:32:38,800 --> 00:32:41,600
Speaker 1: understander who was able to put things together in a

515
00:32:41,640 --> 00:32:45,920
Speaker 1: way that was really wonderful. You mentioned how important Jack

516
00:32:45,960 --> 00:32:48,400
Speaker 1: Brennan was. Let's talk a little bit about Bill McNabb.

517
00:32:49,000 --> 00:32:52,760
Speaker 1: He was running Vanguard right in the heart of the

518
00:32:52,840 --> 00:32:56,840
Speaker 1: financial crisis. He's the one who basically told all the

519
00:32:56,880 --> 00:32:59,880
Speaker 1: crew members, Hey, nobody's getting fired. Just get on the phones,

520
00:33:00,000 --> 00:33:02,479
Speaker 1: speak to the clients, and don't worry about your jobs.

521
00:33:02,480 --> 00:33:05,880
Speaker 1: We're all safe. Tell us a bit about his decision

522
00:33:05,920 --> 00:33:09,200
Speaker 1: making and how important he was, not just during the

523
00:33:09,200 --> 00:33:12,960
Speaker 1: financial crisis, but you know, I think Vinglo was about

524
00:33:13,480 --> 00:33:17,760
Speaker 1: eight hundred billion pre crisis, and now it's ten x,

525
00:33:17,880 --> 00:33:20,120
Speaker 1: it's eight trillion. Tell us a little bit about what

526
00:33:20,160 --> 00:33:23,800
Speaker 1: Bill McNabb brought to the table. Secret to Bill McNabb

527
00:33:23,880 --> 00:33:28,400
Speaker 1: is modesty, competence and discipline. And if you look at

528
00:33:28,480 --> 00:33:31,840
Speaker 1: how would you understand that? Think of him as he

529
00:33:32,080 --> 00:33:36,000
Speaker 1: was for many many years a rower in crew. There

530
00:33:36,040 --> 00:33:39,520
Speaker 1: are no fabulous individual performers. It's all about how the

531
00:33:39,560 --> 00:33:44,680
Speaker 1: whole group of eight people rose simultaneously to a level

532
00:33:44,680 --> 00:33:47,640
Speaker 1: of perfection and if they get it really really right,

533
00:33:48,120 --> 00:33:52,560
Speaker 1: perform in a way that you can't match. And that's

534
00:33:52,800 --> 00:33:57,720
Speaker 1: what Bill McNabb was all about. Is disciplined, steady, reliable

535
00:33:57,880 --> 00:34:02,800
Speaker 1: performance and USh ucks personality on the outside, but Mr

536
00:34:02,840 --> 00:34:06,640
Speaker 1: Trustworthy on the inside, and everybody knew he was the

537
00:34:06,760 --> 00:34:09,279
Speaker 1: kind of solid citizen that you would like to have

538
00:34:09,719 --> 00:34:12,160
Speaker 1: your sister Mary, or you'd like to have your mother Mary,

539
00:34:12,600 --> 00:34:14,719
Speaker 1: or you'd like to have your daughter married. And it's

540
00:34:14,760 --> 00:34:17,319
Speaker 1: one of those things that just a Mr. Good guy.

541
00:34:17,520 --> 00:34:21,600
Speaker 1: And while every other firm in the investment business was

542
00:34:21,640 --> 00:34:25,279
Speaker 1: cutting costs because the market was down and looked like

543
00:34:25,280 --> 00:34:27,680
Speaker 1: it was going to go down a lot, he said, no,

544
00:34:27,880 --> 00:34:30,439
Speaker 1: we're not going to cut costs at all. Nobody's losing

545
00:34:30,440 --> 00:34:33,360
Speaker 1: their job. We're all going to stay here together because

546
00:34:34,040 --> 00:34:36,560
Speaker 1: the number of customers is not going down. It's just

547
00:34:36,680 --> 00:34:39,759
Speaker 1: that the profitability of the business is going down. And

548
00:34:39,800 --> 00:34:43,440
Speaker 1: we do not a profit minded organization. Were a service

549
00:34:43,480 --> 00:34:47,120
Speaker 1: minded organization. We're all about the customers because there are

550
00:34:47,200 --> 00:34:50,239
Speaker 1: owners that we're gonna stay right steady on through. And

551
00:34:50,360 --> 00:34:53,759
Speaker 1: that made a terrific impact internally. But of course it

552
00:34:53,800 --> 00:34:56,840
Speaker 1: also meant that they had a wonderfully strong organization coming

553
00:34:56,840 --> 00:34:59,399
Speaker 1: out of the financial crisis, and that was a big

554
00:34:59,400 --> 00:35:03,760
Speaker 1: help to ye perfectly positioned. Tell us about Charlie Root.

555
00:35:03,800 --> 00:35:07,360
Speaker 1: What was his role as an advisor and a board member.

556
00:35:07,840 --> 00:35:12,799
Speaker 1: He was the head of a major actuarial consulting firm

557
00:35:13,000 --> 00:35:19,680
Speaker 1: in Philadelphia. Very disciplined thinker and an organizationally minded person

558
00:35:20,680 --> 00:35:23,400
Speaker 1: and one of those people that you'd love to have

559
00:35:23,520 --> 00:35:29,200
Speaker 1: as a director of your corporation. Unfortunately, shortly after some

560
00:35:29,280 --> 00:35:32,160
Speaker 1: of the most important decisions, he was cleaning out the

561
00:35:32,200 --> 00:35:36,440
Speaker 1: gutters in his home and the ladder he was thinking

562
00:35:37,040 --> 00:35:40,120
Speaker 1: had climbed up to the gutters on started to slip

563
00:35:40,160 --> 00:35:43,839
Speaker 1: a little bit to the side, and I'm afraid that

564
00:35:43,840 --> 00:35:46,800
Speaker 1: that caused his death. And it was a real loss

565
00:35:47,400 --> 00:35:50,920
Speaker 1: to Vanguard and a real loss to the Philadelphia community.

566
00:35:51,360 --> 00:35:54,640
Speaker 1: There's one person I really have to ask about, and

567
00:35:54,680 --> 00:35:57,040
Speaker 1: that's you. You were a director at Vanguard for over

568
00:35:57,080 --> 00:36:01,480
Speaker 1: a decade. You're a strategy consultant. Tell us about how

569
00:36:01,680 --> 00:36:05,439
Speaker 1: you felt your role was and what your contributions were

570
00:36:05,640 --> 00:36:08,960
Speaker 1: during that that era. In all fairness, I have to

571
00:36:08,960 --> 00:36:14,520
Speaker 1: feel you're blushing. I can't believe this. I really enjoyed

572
00:36:15,160 --> 00:36:19,400
Speaker 1: being a director. We didn't get paid very much. I

573
00:36:19,440 --> 00:36:21,680
Speaker 1: have to admit. The food that we were served at

574
00:36:21,760 --> 00:36:24,879
Speaker 1: meals was really pretty crummy, but it was all part

575
00:36:24,920 --> 00:36:27,600
Speaker 1: of the keep the cost down, keep the cost down. Attitude.

576
00:36:28,920 --> 00:36:32,840
Speaker 1: Management was so candid and so open with us as directors.

577
00:36:32,920 --> 00:36:35,560
Speaker 1: It was a privilege to be working with him. And

578
00:36:35,560 --> 00:36:38,120
Speaker 1: it didn't hurt that I was sitting side by side

579
00:36:38,120 --> 00:36:41,680
Speaker 1: with Bert Malkiel, who is one of those outstanding people

580
00:36:41,719 --> 00:36:45,560
Speaker 1: in the investments world. And Bert is just turned ninety

581
00:36:46,760 --> 00:36:50,839
Speaker 1: and his great book Random Walk Down Wall Street has

582
00:36:50,920 --> 00:36:54,320
Speaker 1: just come out with a new, very considerably updated version,

583
00:36:55,080 --> 00:36:59,080
Speaker 1: and to sit with him and to realize on item

584
00:36:59,160 --> 00:37:02,640
Speaker 1: after item to item, Burt and I agreed. Burton and

585
00:37:02,680 --> 00:37:05,680
Speaker 1: I agreed, Burt and I agreed. So it was a

586
00:37:05,719 --> 00:37:11,560
Speaker 1: wonderful privilege, the opportunity to be able to be candid, direct,

587
00:37:11,800 --> 00:37:15,640
Speaker 1: blunt spoken, and to have a really capable guy sitting

588
00:37:15,680 --> 00:37:17,799
Speaker 1: right besides youch thing, You're You're on the right track,

589
00:37:17,920 --> 00:37:21,040
Speaker 1: keep going, keep going, And to have a management team

590
00:37:21,080 --> 00:37:23,840
Speaker 1: that was so glad to hear what we had to say,

591
00:37:24,040 --> 00:37:27,840
Speaker 1: even when it made might be really in disagreement with him,

592
00:37:27,960 --> 00:37:30,759
Speaker 1: or might be slightly in disagreement with him. They loved

593
00:37:30,800 --> 00:37:34,120
Speaker 1: having the candor coming from the outside. Let's talk a

594
00:37:34,200 --> 00:37:38,040
Speaker 1: little bit about the current state of Vanguard, but I

595
00:37:38,120 --> 00:37:43,560
Speaker 1: have to preface it with Jack Bogel's c MH, not

596
00:37:43,560 --> 00:37:46,280
Speaker 1: not e m H, not the uh not the efficient

597
00:37:46,320 --> 00:37:51,160
Speaker 1: market hypothesis, but the cost matter hypothesis, which really dates

598
00:37:51,200 --> 00:37:56,080
Speaker 1: back to his Princeton thesis. It wasn't so much about

599
00:37:56,160 --> 00:37:59,880
Speaker 1: active versus passive, It was about expensive versus in a

600
00:38:00,000 --> 00:38:03,719
Speaker 1: expensive tell us a little bit about how that impacted

601
00:38:03,760 --> 00:38:08,759
Speaker 1: the development at Vanguard. First, you gotta understand that Jack

602
00:38:08,840 --> 00:38:16,160
Speaker 1: Bogel was a master of the personality franchise development business.

603
00:38:17,880 --> 00:38:22,560
Speaker 1: When nobody else gave a damn about becoming clearly identified

604
00:38:22,600 --> 00:38:26,319
Speaker 1: in a very specific way, Jack cared greatly about that.

605
00:38:26,840 --> 00:38:28,640
Speaker 1: And it goes back to when, as he likes to

606
00:38:28,640 --> 00:38:32,120
Speaker 1: tell the story on himself, at least did tell his

607
00:38:32,200 --> 00:38:35,120
Speaker 1: story on himself where he likes it or not. When

608
00:38:35,120 --> 00:38:38,680
Speaker 1: he was in school, he came in second in his

609
00:38:38,760 --> 00:38:43,120
Speaker 1: academic performance, and he went around to each one of

610
00:38:43,239 --> 00:38:49,000
Speaker 1: his teachers pleading with them to read, examine, and modify

611
00:38:49,120 --> 00:38:52,800
Speaker 1: his grade so he could come in first. He wanted

612
00:38:52,840 --> 00:38:57,880
Speaker 1: to be the valedictorian, not the salutatorian. Why would he

613
00:38:58,000 --> 00:39:02,200
Speaker 1: care so much about that? It is not the be

614
00:39:02,280 --> 00:39:05,400
Speaker 1: all and end all of the world. It because of

615
00:39:05,520 --> 00:39:11,040
Speaker 1: his personality. Something deep inside him drove him to always

616
00:39:11,239 --> 00:39:14,040
Speaker 1: enhance things, make things look better, make things look better,

617
00:39:14,120 --> 00:39:16,560
Speaker 1: make things look better, and so all the way through

618
00:39:16,600 --> 00:39:21,399
Speaker 1: the story of Vanguard, you'll find Jack Bogel doing things

619
00:39:21,560 --> 00:39:24,760
Speaker 1: or saying things to make the record look much more

620
00:39:24,800 --> 00:39:29,719
Speaker 1: positive about what he contributed than the reality. And one

621
00:39:29,760 --> 00:39:35,680
Speaker 1: of the awkwardnesses is the franchise building was done so beautifully,

622
00:39:35,719 --> 00:39:41,040
Speaker 1: so consistently, so skillfully by a master of that craft

623
00:39:41,520 --> 00:39:45,839
Speaker 1: that it's still twenty years later, thirty years later, carries on.

624
00:39:46,280 --> 00:39:48,680
Speaker 1: And most people, if you ask him, when you think

625
00:39:48,680 --> 00:39:51,960
Speaker 1: of Vanguard, who do you think of thing? They've got

626
00:39:51,960 --> 00:39:56,080
Speaker 1: it well. Jack Bogel was terribly important to the starting.

627
00:39:56,560 --> 00:40:00,400
Speaker 1: Nobody could have started the organization without being Jack Pokeel.

628
00:40:00,600 --> 00:40:06,759
Speaker 1: Partly anger, partly talent, partly skills of various particular characteristics,

629
00:40:06,800 --> 00:40:10,239
Speaker 1: one of which was building the personal franchise. Nobody could

630
00:40:10,239 --> 00:40:13,600
Speaker 1: have started Vanguard. But if Jack Bogel had stayed in control,

631
00:40:13,960 --> 00:40:17,200
Speaker 1: it would never have become the organization it is today.

632
00:40:17,239 --> 00:40:21,080
Speaker 1: It would be substantially smaller, it would be deeply outclassed

633
00:40:21,080 --> 00:40:24,400
Speaker 1: by people who would use automation to make their offering

634
00:40:24,440 --> 00:40:28,839
Speaker 1: a better and more effective proposition, and we wouldn't see

635
00:40:28,840 --> 00:40:31,520
Speaker 1: the Vanguard that's been developed since then. So let's talk

636
00:40:31,520 --> 00:40:36,400
Speaker 1: a little bit about that Vanguard very huge in ETFs,

637
00:40:36,880 --> 00:40:42,160
Speaker 1: big overseas investing, uh, lots of other things that Vanguard

638
00:40:42,200 --> 00:40:45,840
Speaker 1: and Bogel didn't see eye to eye about. How often

639
00:40:46,040 --> 00:40:50,960
Speaker 1: did the company disagree with its founder? Instant question And

640
00:40:51,000 --> 00:40:52,719
Speaker 1: I'm not sure I could do it in terms of

641
00:40:53,160 --> 00:40:57,920
Speaker 1: numerical quantitative But if you look back the concepts that

642
00:40:58,080 --> 00:41:04,799
Speaker 1: Jack Bogel really eaved in computers he thought were terribly expensive,

643
00:41:05,200 --> 00:41:09,880
Speaker 1: that would have been a stopper today you couldn't do it. Uh.

644
00:41:11,640 --> 00:41:17,440
Speaker 1: It really believed in his making the decisions. It's too

645
00:41:17,480 --> 00:41:20,040
Speaker 1: complicated a business. There's too many things going on, there

646
00:41:20,080 --> 00:41:23,560
Speaker 1: are too many different responsibilities for one person to do

647
00:41:23,880 --> 00:41:28,399
Speaker 1: all of the decision making. If you look at Vanguard today,

648
00:41:29,040 --> 00:41:33,520
Speaker 1: you're looking at a substantial organization that's going through a

649
00:41:33,640 --> 00:41:40,200
Speaker 1: substantial transformation towards becoming more of an effective organization at

650
00:41:40,280 --> 00:41:45,239
Speaker 1: serving clients interests and doing a better and better job

651
00:41:45,320 --> 00:41:48,440
Speaker 1: for the people who are already the investor owners of

652
00:41:48,520 --> 00:41:53,880
Speaker 1: Van Gourd. So they are not making a major commitment internationally,

653
00:41:54,280 --> 00:41:56,799
Speaker 1: they're not spending a lot of money to build a

654
00:41:56,920 --> 00:42:01,799
Speaker 1: future business in other countries. They're looking for places where

655
00:42:01,880 --> 00:42:06,040
Speaker 1: the resistance by the banking establishment or the financial establishment

656
00:42:06,400 --> 00:42:11,520
Speaker 1: in those different countries is more open to non local competition,

657
00:42:12,120 --> 00:42:14,959
Speaker 1: but it's hard to find, very hard to find. They've

658
00:42:14,960 --> 00:42:17,600
Speaker 1: made some changes that we're keeping up with the times.

659
00:42:17,800 --> 00:42:21,160
Speaker 1: They've got a substantial institutional business. If you're in the

660
00:42:21,280 --> 00:42:24,920
Speaker 1: investment business as an institution, you really want to know

661
00:42:25,040 --> 00:42:28,920
Speaker 1: something about private equity. If Vanguard doesn't have private equity,

662
00:42:29,000 --> 00:42:30,759
Speaker 1: that's going to take them out of the running. So

663
00:42:30,800 --> 00:42:34,959
Speaker 1: they've developed a really interesting joint venture where they're able

664
00:42:35,000 --> 00:42:38,800
Speaker 1: to get access to a very competent private equity investment

665
00:42:38,920 --> 00:42:43,279
Speaker 1: organization at a very controlled cost. They're not aiming to

666
00:42:43,320 --> 00:42:46,920
Speaker 1: be in the very best but second quartile of performance

667
00:42:46,960 --> 00:42:51,319
Speaker 1: on a reliable basis with broadly diversified capability. Okay, that'll

668
00:42:51,360 --> 00:42:53,920
Speaker 1: work very nicely. They're doing the same sort of a

669
00:42:54,000 --> 00:42:58,040
Speaker 1: change in going towards more and more advice. And anybody

670
00:42:58,040 --> 00:43:00,640
Speaker 1: has been in the investment management business, you have been

671
00:43:00,920 --> 00:43:05,399
Speaker 1: looking back on things, you can tell almost everybody would

672
00:43:05,440 --> 00:43:09,880
Speaker 1: be well advised to have been more a long term investor,

673
00:43:10,800 --> 00:43:15,200
Speaker 1: make fewer choices and decisions, figure out what's really right

674
00:43:15,280 --> 00:43:18,760
Speaker 1: for you. At the same time, you'd recognize that every

675
00:43:18,840 --> 00:43:24,560
Speaker 1: individual is unique. Nobody is exactly the same. If you

676
00:43:24,640 --> 00:43:28,520
Speaker 1: look at personality, for an example, your eyeglasses, I wear eyeglasses,

677
00:43:29,520 --> 00:43:34,520
Speaker 1: your shoe size, my shoe size, your shirt size, collar size,

678
00:43:34,760 --> 00:43:39,640
Speaker 1: sleeve length. Pretty soon you realize barries clothes are different

679
00:43:39,760 --> 00:43:43,200
Speaker 1: from mine because Barry is different from me, and he

680
00:43:43,320 --> 00:43:45,200
Speaker 1: ought to wear the closer or right for him, and

681
00:43:45,200 --> 00:43:47,080
Speaker 1: I ought to wear the closer or more right for him.

682
00:43:47,120 --> 00:43:49,960
Speaker 1: I might get advice from my wife or something on

683
00:43:50,239 --> 00:43:54,120
Speaker 1: what to wear, but we're actually dress similarly with our

684
00:43:54,480 --> 00:43:58,440
Speaker 1: collar shirts and a blue sweater. But but isn't Doesn't

685
00:43:58,440 --> 00:44:01,480
Speaker 1: that kind of raise the point of, well, everybody's different,

686
00:44:01,520 --> 00:44:04,680
Speaker 1: but everybody needs to, say, for retirement, to pay for

687
00:44:04,719 --> 00:44:08,200
Speaker 1: their kids college, to leave something to the next generation.

688
00:44:08,320 --> 00:44:12,399
Speaker 1: It shouldn't vary radically. The broad strokes should all be

689
00:44:12,480 --> 00:44:16,800
Speaker 1: fairly similar, shouldn't they in terms of the macro proposition?

690
00:44:17,040 --> 00:44:21,200
Speaker 1: But you're exactly right, But everybody is different from everybody

691
00:44:21,200 --> 00:44:27,040
Speaker 1: else in age, income, wealth, attitude towards life, how many

692
00:44:27,120 --> 00:44:31,560
Speaker 1: years you want to keep working, things like risk tolerance,

693
00:44:31,719 --> 00:44:35,480
Speaker 1: or everybody differs. So it turns out that almost everybody

694
00:44:35,520 --> 00:44:43,400
Speaker 1: is specifically individually themselves different from somebody else specifically individually

695
00:44:43,520 --> 00:44:48,719
Speaker 1: themselves and as a result, advice to individuals is increasingly

696
00:44:48,840 --> 00:44:53,359
Speaker 1: obviously a useful part of the total investment proposition. Then

697
00:44:53,560 --> 00:44:58,680
Speaker 1: Vanguard is moving in that direction and capable probably of

698
00:44:58,800 --> 00:45:02,319
Speaker 1: more power in that direction that anybody would ever under

699
00:45:02,600 --> 00:45:07,160
Speaker 1: understate or estimate. I read a crazy statistic somewhere I

700
00:45:07,160 --> 00:45:10,080
Speaker 1: don't recall was in the book or elsewhere in the

701
00:45:10,160 --> 00:45:15,600
Speaker 1: state of Pennsylvania, the certified financial Planners, something like n

702
00:45:16,680 --> 00:45:20,600
Speaker 1: of them in the state work for Vanguard. That's that's

703
00:45:20,640 --> 00:45:24,040
Speaker 1: just a crazy number. As they've pushed into uh the

704
00:45:24,080 --> 00:45:28,840
Speaker 1: advisory business. In hiring all of these cfps made a

705
00:45:28,880 --> 00:45:33,080
Speaker 1: major commitment to serving the investor with what they really need.

706
00:45:33,680 --> 00:45:38,439
Speaker 1: And most people really ought to have a good investment plan,

707
00:45:38,680 --> 00:45:42,200
Speaker 1: but they don't. Most people ought to have a clear

708
00:45:42,280 --> 00:45:46,120
Speaker 1: definition of their long term purpose as investors other than

709
00:45:46,360 --> 00:45:47,800
Speaker 1: I want to do better in the market, or I

710
00:45:47,840 --> 00:45:49,440
Speaker 1: want to do at least as well as the market,

711
00:45:49,520 --> 00:45:52,360
Speaker 1: or I want to do well, or something vague in

712
00:45:52,400 --> 00:45:55,360
Speaker 1: general like that. Very hard to get people to be

713
00:45:55,480 --> 00:45:57,960
Speaker 1: very specific about what do they really really want to

714
00:45:57,960 --> 00:46:01,759
Speaker 1: do and why. And if you've got a good advisor,

715
00:46:02,400 --> 00:46:04,960
Speaker 1: you can do a lot to improve on your results

716
00:46:05,520 --> 00:46:09,239
Speaker 1: by figuring out together what makes sense to you that's

717
00:46:09,239 --> 00:46:13,640
Speaker 1: available in the marketplace, and making the right decisions of

718
00:46:13,680 --> 00:46:18,120
Speaker 1: what's available and realistic as opposed to dreams that may

719
00:46:18,200 --> 00:46:20,919
Speaker 1: or may not come true. So so let's talk about

720
00:46:20,960 --> 00:46:25,759
Speaker 1: two areas that are a little controversial. One is the

721
00:46:25,760 --> 00:46:31,200
Speaker 1: thought that as indexing became more and more appealing and

722
00:46:31,480 --> 00:46:34,399
Speaker 1: attracted more and more assets. Jack Bogel was a little

723
00:46:34,400 --> 00:46:40,919
Speaker 1: concerned about on Oligopoly about potential anti trust issues. At

724
00:46:41,000 --> 00:46:46,799
Speaker 1: what size is passive or indexing too large? I think

725
00:46:46,800 --> 00:46:48,799
Speaker 1: it's a wonderful question, but if you don't mind, I'm

726
00:46:48,800 --> 00:46:51,359
Speaker 1: going to say it's the wrong question. Okay. The right

727
00:46:51,440 --> 00:46:57,200
Speaker 1: question is when will active investors say to themselves, the professionals,

728
00:46:57,239 --> 00:46:59,759
Speaker 1: the people who are making their living as active investors,

729
00:47:00,200 --> 00:47:02,719
Speaker 1: say to themselves, I think I'm going to get a

730
00:47:02,760 --> 00:47:05,640
Speaker 1: different career. I think I'm going to leave this business

731
00:47:05,880 --> 00:47:08,480
Speaker 1: and go in a different direction. At what age will

732
00:47:08,520 --> 00:47:11,600
Speaker 1: they say to their children, Look, it was okay for

733
00:47:11,680 --> 00:47:13,760
Speaker 1: me in my time, but it's not a good place

734
00:47:13,800 --> 00:47:17,000
Speaker 1: for you. Don't do it. Don't do it. At what

735
00:47:17,120 --> 00:47:20,400
Speaker 1: point are you going to see fewer people taking courses

736
00:47:20,400 --> 00:47:24,439
Speaker 1: on investment management at business schools? Were nowhere near that

737
00:47:25,440 --> 00:47:28,600
Speaker 1: we're putting more people through the learning process of how

738
00:47:28,600 --> 00:47:31,960
Speaker 1: to be pretty damn good as an analyst through business

739
00:47:32,000 --> 00:47:35,480
Speaker 1: school courses and then out into the industry. Then are

740
00:47:35,520 --> 00:47:39,200
Speaker 1: coming out of the industry through retirement, and that's where

741
00:47:39,239 --> 00:47:43,840
Speaker 1: the market is really controlled. For market efficiency or correct

742
00:47:43,840 --> 00:47:48,000
Speaker 1: pricing is really smart people. If you go back fifty

743
00:47:48,080 --> 00:47:51,080
Speaker 1: years ago, there were a small number of people who

744
00:47:51,160 --> 00:47:55,040
Speaker 1: made their living as analysts and a small number of

745
00:47:55,080 --> 00:47:59,799
Speaker 1: people made their living as portfolio managers, maybe as many

746
00:47:59,840 --> 00:48:05,480
Speaker 1: a five people in the world, and today it's somewhere

747
00:48:05,520 --> 00:48:10,640
Speaker 1: between one and a half and two million people. That's

748
00:48:10,680 --> 00:48:13,120
Speaker 1: a big change, and there's been lots of other changes.

749
00:48:13,520 --> 00:48:15,600
Speaker 1: The one that I think is the most powerful here

750
00:48:15,600 --> 00:48:19,880
Speaker 1: we are that Bloomberg radio. Think about how many people

751
00:48:20,080 --> 00:48:24,200
Speaker 1: own a terminal, a Bloomberg terminal that will give you

752
00:48:24,320 --> 00:48:27,120
Speaker 1: any answer to any question you ever want to ask

753
00:48:27,160 --> 00:48:30,520
Speaker 1: for the rest of your life within seconds. It's all

754
00:48:30,680 --> 00:48:33,360
Speaker 1: it's all data and technology. It's all over the place.

755
00:48:33,960 --> 00:48:37,920
Speaker 1: Everybody has computing power in their pocket. That's as much

756
00:48:37,920 --> 00:48:41,840
Speaker 1: as a three sixty, which was IBM's magical power force

757
00:48:42,480 --> 00:48:46,840
Speaker 1: fifty years ago. And everybody has access to the Internet,

758
00:48:46,920 --> 00:48:51,200
Speaker 1: and it's entertaining its communication worldwide, and thank goodness we

759
00:48:51,239 --> 00:48:54,680
Speaker 1: speak the English language because that's the language of investing worldwide.

760
00:48:54,920 --> 00:48:58,600
Speaker 1: But it means that this is huge transformation that's taken place,

761
00:48:59,040 --> 00:49:02,080
Speaker 1: and it has made the markets more and more skillful

762
00:49:02,360 --> 00:49:06,040
Speaker 1: at finding the right price, but made it harder for

763
00:49:06,200 --> 00:49:09,280
Speaker 1: active managers than as you and I've talked about before,

764
00:49:09,920 --> 00:49:13,680
Speaker 1: active managers underperformed that the chosen segment of the market

765
00:49:13,760 --> 00:49:19,160
Speaker 1: they went after, and now we're somewhere between and of

766
00:49:19,200 --> 00:49:22,920
Speaker 1: active managers fall short of their intention, and when they

767
00:49:22,960 --> 00:49:26,440
Speaker 1: fall short, they often get desperate and fall very short

768
00:49:26,760 --> 00:49:30,720
Speaker 1: by hail Mary passes and other kinds of dramatic efforts.

769
00:49:30,960 --> 00:49:34,959
Speaker 1: The paradox of skill is the better the professionals get,

770
00:49:35,560 --> 00:49:39,399
Speaker 1: it becomes increasingly harder to even beat the market, so

771
00:49:39,560 --> 00:49:44,120
Speaker 1: that that's quite fastening. One other um question that's a

772
00:49:44,120 --> 00:49:48,800
Speaker 1: little controversial. H we've seen some pushback to e s g.

773
00:49:49,080 --> 00:49:54,759
Speaker 1: Environmental social governance investing and the voting of proxies. How

774
00:49:54,840 --> 00:49:59,520
Speaker 1: does an entity like Vanguard manage these issues on behalf

775
00:49:59,640 --> 00:50:04,200
Speaker 1: of there huge thirty million clients and they're eight trillion

776
00:50:04,280 --> 00:50:08,000
Speaker 1: dollars in assets and very simple they do what you

777
00:50:08,040 --> 00:50:10,520
Speaker 1: would like to if you were a corporate executive, what

778
00:50:10,600 --> 00:50:14,240
Speaker 1: would you like to have your shareholders do? Pay attention

779
00:50:14,280 --> 00:50:18,719
Speaker 1: to the votes, be quite consistent about always voting, and

780
00:50:18,800 --> 00:50:22,640
Speaker 1: as you know, most people don't vote at all. And

781
00:50:22,760 --> 00:50:26,880
Speaker 1: then many institutional investments say, it's not our decision to

782
00:50:26,920 --> 00:50:30,839
Speaker 1: make because we're on behalf of those. So your very

783
00:50:30,880 --> 00:50:36,000
Speaker 1: best client, if you're a corporate executive, best shareholder, is

784
00:50:36,040 --> 00:50:39,000
Speaker 1: to be somebody who is in it for the long run.

785
00:50:40,000 --> 00:50:42,640
Speaker 1: And if you're a vanguard and indexing, you're in it

786
00:50:42,640 --> 00:50:47,280
Speaker 1: permanently for the long, long, long run. Cares about certain

787
00:50:47,320 --> 00:50:51,399
Speaker 1: basic principles, and they do, and they advertise what those

788
00:50:51,440 --> 00:50:54,520
Speaker 1: principles are. For an example, they believe that a board

789
00:50:54,520 --> 00:51:00,960
Speaker 1: of directors should have h an incentive in the company's style. Uh,

790
00:51:01,920 --> 00:51:08,360
Speaker 1: they're very strong to have diversification of personality and background. Um, okay.

791
00:51:08,400 --> 00:51:11,040
Speaker 1: Find those are pretty much straightforward things. Nobody would have

792
00:51:11,080 --> 00:51:13,520
Speaker 1: any trouble with that. Yeah, And they are very much

793
00:51:13,600 --> 00:51:16,680
Speaker 1: in favor of certain kinds of incentives but not others.

794
00:51:17,200 --> 00:51:19,040
Speaker 1: And most people look at and say, yeah, those are

795
00:51:19,040 --> 00:51:20,960
Speaker 1: the right things to be in favor of. So it's

796
00:51:21,000 --> 00:51:25,440
Speaker 1: one after another after another. Items were Vanguard and State

797
00:51:25,480 --> 00:51:29,719
Speaker 1: Street and black Rock are all three in agreement basically

798
00:51:30,120 --> 00:51:32,879
Speaker 1: that good governance is an important characteristic of a board

799
00:51:32,880 --> 00:51:35,240
Speaker 1: of directors, and they really want to see that going.

800
00:51:35,840 --> 00:51:38,319
Speaker 1: What is it that you wouldn't like about the way

801
00:51:38,360 --> 00:51:41,880
Speaker 1: in which the voting has done. It's a terrifically powerful answer.

802
00:51:41,920 --> 00:51:44,200
Speaker 1: What wouldn't you like? And there is nothing that you

803
00:51:44,200 --> 00:51:49,280
Speaker 1: wouldn't like? Now, is it possible that a group could quietly,

804
00:51:49,560 --> 00:51:54,239
Speaker 1: somehow skillfully get together and agree, let's do something that's

805
00:51:54,280 --> 00:51:57,560
Speaker 1: really not going to be right for our investors? Yeah,

806
00:51:57,680 --> 00:52:01,680
Speaker 1: you could say mechanically it's possible. But there's Canada for

807
00:52:01,719 --> 00:52:03,840
Speaker 1: an example of the country right next to one of

808
00:52:03,880 --> 00:52:08,839
Speaker 1: the most powerful military organization nations in the world. Are

809
00:52:08,880 --> 00:52:11,440
Speaker 1: the Canadians a fraid the Americans are going to attack again?

810
00:52:11,640 --> 00:52:16,160
Speaker 1: Of course not. In fact, we cooperate in our activities. Okay,

811
00:52:16,560 --> 00:52:19,160
Speaker 1: what would happen if somebody at any one of the

812
00:52:19,200 --> 00:52:23,000
Speaker 1: indexing leaders were to do something that was not quite

813
00:52:23,520 --> 00:52:26,600
Speaker 1: boy scout, girl scout right down the line? They'll get

814
00:52:26,640 --> 00:52:28,920
Speaker 1: called out, I think got called out. Would it be

815
00:52:28,960 --> 00:52:32,839
Speaker 1: in the newspapers, yes, would it be on Bloomberg Radio? Yes?

816
00:52:33,320 --> 00:52:35,919
Speaker 1: Would you have an interview with somebody who had called

817
00:52:35,960 --> 00:52:40,000
Speaker 1: him out. Yes, one of those perfectly marvelous situations where

818
00:52:40,280 --> 00:52:42,839
Speaker 1: you're forced to do what you dame well want to do.

819
00:52:42,960 --> 00:52:45,560
Speaker 1: That they all have State Street, Vanguard, Black Rock, they

820
00:52:45,560 --> 00:52:47,880
Speaker 1: all have pretty good businesses. Why would you want to

821
00:52:47,920 --> 00:52:52,319
Speaker 1: mess with that? Really really fascinating stuff, Charlie. Let's let's

822
00:52:52,360 --> 00:52:55,560
Speaker 1: jump to some of our favorite questions that we ask

823
00:52:55,719 --> 00:52:58,239
Speaker 1: all of our guests. And I want to start with

824
00:52:58,280 --> 00:53:01,919
Speaker 1: the last time I saw you was before the pandemic.

825
00:53:02,520 --> 00:53:05,480
Speaker 1: What have you been doing during the pandemic? And tell

826
00:53:05,560 --> 00:53:09,279
Speaker 1: us what what's been keeping you entertained? Well. Part of

827
00:53:09,280 --> 00:53:14,800
Speaker 1: the entertainment value is that are our children or daughter

828
00:53:15,400 --> 00:53:18,560
Speaker 1: and her husband and their two kids under five have

829
00:53:18,719 --> 00:53:21,319
Speaker 1: moved into our house, so we've had the privilege of

830
00:53:21,360 --> 00:53:23,839
Speaker 1: watching little kids again. And I have to tell you

831
00:53:24,080 --> 00:53:26,280
Speaker 1: that is a dream come true. It's a lot of fun.

832
00:53:27,440 --> 00:53:30,120
Speaker 1: The second thing is we have an agreement in our

833
00:53:30,160 --> 00:53:34,799
Speaker 1: family that we're worried about the children and COVID, so

834
00:53:34,840 --> 00:53:36,839
Speaker 1: we don't do very much at all in the way

835
00:53:36,840 --> 00:53:39,480
Speaker 1: of travel. And I used to be five days a

836
00:53:39,480 --> 00:53:42,359
Speaker 1: week and on the train into Manhattan right as we're

837
00:53:42,440 --> 00:53:45,000
Speaker 1: doing business. I haven't been in New York City three

838
00:53:45,040 --> 00:53:49,439
Speaker 1: times in three years really something else. And so I'm

839
00:53:49,480 --> 00:53:52,239
Speaker 1: delighted to be here today. But in our family, I

840
00:53:52,239 --> 00:53:55,200
Speaker 1: have to drive in and then turn around and drive back,

841
00:53:55,680 --> 00:53:57,279
Speaker 1: and as you know, the traffic has done all that

842
00:53:57,400 --> 00:54:00,120
Speaker 1: convenience so on and song, But things like that have

843
00:54:00,200 --> 00:54:04,960
Speaker 1: been distractions. I've enjoyed the privileged Zoom has made a

844
00:54:04,960 --> 00:54:07,120
Speaker 1: wonderful difference to my life, and I'm sure to most

845
00:54:07,160 --> 00:54:10,960
Speaker 1: other people. The freedom to be able to do repeat

846
00:54:11,040 --> 00:54:16,000
Speaker 1: messages and communication in a serious way through Zoom has

847
00:54:16,000 --> 00:54:20,200
Speaker 1: really been terrific. The third thing is I've got a

848
00:54:21,680 --> 00:54:23,719
Speaker 1: real be in my bunnet that i want to be

849
00:54:23,760 --> 00:54:26,279
Speaker 1: able to try to be helpful to people, and so

850
00:54:26,800 --> 00:54:32,160
Speaker 1: doing investment advice is just as easy for me located

851
00:54:32,160 --> 00:54:36,360
Speaker 1: where I am. Once you make the communication contact works,

852
00:54:36,360 --> 00:54:39,720
Speaker 1: I've find and I've really enjoyed being able to provide

853
00:54:39,760 --> 00:54:43,759
Speaker 1: some useful investment advice individuals as were going along. And

854
00:54:43,760 --> 00:54:48,400
Speaker 1: then the the third thing is I've been quite active

855
00:54:48,440 --> 00:54:52,880
Speaker 1: in writing. I've written for the Financial Times several different pieces,

856
00:54:52,960 --> 00:54:56,520
Speaker 1: and I've written a couple of different books. I've got

857
00:54:56,560 --> 00:54:59,800
Speaker 1: three books in the process of coming out. Some have

858
00:55:00,000 --> 00:55:03,040
Speaker 1: I've been busy, Yeah, I've been busy. So so one

859
00:55:03,080 --> 00:55:04,800
Speaker 1: of the things I won't always like to ask people

860
00:55:05,040 --> 00:55:09,560
Speaker 1: is about their mentors who helped shape your career. Well,

861
00:55:09,600 --> 00:55:12,680
Speaker 1: the most important person probably is Nellie Walsh, my sixth

862
00:55:12,719 --> 00:55:18,200
Speaker 1: grade school teacher, who called me on their carpet one day,

863
00:55:18,200 --> 00:55:20,520
Speaker 1: and I was terribly surprised because I thought I was

864
00:55:20,560 --> 00:55:24,800
Speaker 1: doing just the right thing. And she said, you were

865
00:55:24,840 --> 00:55:28,000
Speaker 1: wrestling with Peter Neely, weren't you. Well, I was, but

866
00:55:28,120 --> 00:55:31,000
Speaker 1: that's because of I couldn't get him to stop throwing

867
00:55:31,000 --> 00:55:33,480
Speaker 1: the snowballs with cinders in him at the little kids,

868
00:55:33,520 --> 00:55:35,120
Speaker 1: and he was picking on the little kids, and I

869
00:55:35,120 --> 00:55:40,000
Speaker 1: didn't think that was fair. And she said, Charles never

870
00:55:40,040 --> 00:55:43,520
Speaker 1: called me Charlie always Charles, I think more of you.

871
00:55:44,040 --> 00:55:47,040
Speaker 1: I expect more of you than you would lower yourself

872
00:55:47,120 --> 00:55:50,839
Speaker 1: to the likes of Peter Neely. You may go. And

873
00:55:51,040 --> 00:55:55,560
Speaker 1: ever since then I've been held to a higher account,

874
00:55:55,960 --> 00:56:00,719
Speaker 1: higher standard, higher expectation in every way to be responsive

875
00:56:00,760 --> 00:56:04,400
Speaker 1: to Nellie Walsh. But and more serious people in the

876
00:56:04,440 --> 00:56:08,200
Speaker 1: investment world. Uh Joe Lasser, who was the director of

877
00:56:08,200 --> 00:56:12,440
Speaker 1: research at Worth time, a traditional Wall Street firm. He

878
00:56:12,680 --> 00:56:17,800
Speaker 1: believed deeply in security analysis and was a very strong

879
00:56:17,840 --> 00:56:20,480
Speaker 1: advocate of the c f A program, and so he

880
00:56:20,560 --> 00:56:23,560
Speaker 1: got me and a group of us in our training

881
00:56:23,600 --> 00:56:25,799
Speaker 1: group to take the c f A exam as soon

882
00:56:25,840 --> 00:56:30,719
Speaker 1: as we could. That was an important break breakaway time.

883
00:56:31,520 --> 00:56:35,320
Speaker 1: H Another would be Collier Kroma, was a terrific professor

884
00:56:35,400 --> 00:56:38,719
Speaker 1: of investment management at Harvard Business School, and enjoyed very

885
00:56:38,800 --> 00:56:43,840
Speaker 1: much working with him. You could argue also Ben Graham

886
00:56:43,960 --> 00:56:47,279
Speaker 1: and David Dodd because of their wonderful book Security Analysis,

887
00:56:47,680 --> 00:56:52,280
Speaker 1: which was the first affirmation of professionalism in the financial

888
00:56:52,320 --> 00:56:57,759
Speaker 1: analysis and securities pricing industry. UH and it really made

889
00:56:57,760 --> 00:57:00,000
Speaker 1: a big difference to me. One of the great privilege

890
00:57:00,000 --> 00:57:02,960
Speaker 1: bages of my life was to work when I was

891
00:57:03,560 --> 00:57:07,120
Speaker 1: working in Wall Street and then working for Grunch Associates

892
00:57:07,160 --> 00:57:11,319
Speaker 1: for thirty years, working all day, every day with some

893
00:57:11,400 --> 00:57:14,560
Speaker 1: of the smartest, most capable people in the world. And

894
00:57:14,640 --> 00:57:18,439
Speaker 1: they were all involved in investment management, and if any

895
00:57:18,520 --> 00:57:22,320
Speaker 1: one of them competed, all the others competed, and they

896
00:57:22,320 --> 00:57:25,080
Speaker 1: all wanted to try to find ways to be better.

897
00:57:25,360 --> 00:57:27,840
Speaker 1: And they were all willing to tell you any insights

898
00:57:27,880 --> 00:57:30,920
Speaker 1: that they had, and they're all willing to provide a

899
00:57:31,080 --> 00:57:35,720
Speaker 1: chorus of teachers and guidance in terms of what's going

900
00:57:35,760 --> 00:57:39,720
Speaker 1: on in investment management, and for me, that's really the

901
00:57:39,720 --> 00:57:43,520
Speaker 1: most important single place for learning that I had, And

902
00:57:43,680 --> 00:57:47,400
Speaker 1: what a privilege all day every day to be with

903
00:57:47,440 --> 00:57:50,000
Speaker 1: the smartest people in the room who were trying to

904
00:57:50,040 --> 00:57:53,120
Speaker 1: figure out investment management. And when you add it all together,

905
00:57:53,240 --> 00:57:56,840
Speaker 1: you realize they're competing with themselves and they're not going

906
00:57:56,840 --> 00:57:59,960
Speaker 1: to be able to beat each other on a systematic

907
00:58:00,000 --> 00:58:03,880
Speaker 1: and regular basis, and boys, that make a big difference

908
00:58:03,920 --> 00:58:06,160
Speaker 1: to your way of thinking. So you mentioned Graham and

909
00:58:06,240 --> 00:58:10,000
Speaker 1: dot and their books on on security analysis. Tell us

910
00:58:10,000 --> 00:58:12,960
Speaker 1: some of your over other favorites, and what else you've

911
00:58:13,000 --> 00:58:15,400
Speaker 1: been reading more recently, Well more recently, I have to

912
00:58:15,400 --> 00:58:18,120
Speaker 1: tell you I haven't found a book on investment management

913
00:58:18,160 --> 00:58:21,400
Speaker 1: that I thought was really compelling. Could argue no, Come on,

914
00:58:21,480 --> 00:58:25,120
Speaker 1: there is a very recent book that's the new edition

915
00:58:25,720 --> 00:58:29,480
Speaker 1: of an established book. Bert Malkiel's Random Walk Down Wall

916
00:58:29,520 --> 00:58:31,840
Speaker 1: Street has got to be one of the best books

917
00:58:31,840 --> 00:58:34,520
Speaker 1: that's ever been written about investment management and about the

918
00:58:34,560 --> 00:58:38,520
Speaker 1: markets and how to think about them. Uh. Wonderful guy

919
00:58:38,680 --> 00:58:42,440
Speaker 1: and a wonderful book and has done so much for

920
00:58:42,480 --> 00:58:45,240
Speaker 1: so many people. Then if you look at other books

921
00:58:45,280 --> 00:58:48,040
Speaker 1: that I would like to read, then their tend towards

922
00:58:48,200 --> 00:58:53,840
Speaker 1: history biography, and I'm always looking for suggestions of more

923
00:58:53,880 --> 00:58:56,200
Speaker 1: books to read in that general field, because I think

924
00:58:56,240 --> 00:58:59,200
Speaker 1: you learned so much about the way human beings do

925
00:58:59,400 --> 00:59:02,040
Speaker 1: things if you study about them, study about them, and

926
00:59:02,040 --> 00:59:04,840
Speaker 1: study about them. And so I'm a nut for trying

927
00:59:04,840 --> 00:59:08,840
Speaker 1: to learn from others. I like the suggestions what sort

928
00:59:08,840 --> 00:59:11,920
Speaker 1: of advice would you give to a recent college graduate

929
00:59:12,240 --> 00:59:16,240
Speaker 1: who is thinking about a career in investment management? Here,

930
00:59:16,280 --> 00:59:18,959
Speaker 1: I have a very strong opinion that you should think

931
00:59:19,080 --> 00:59:23,040
Speaker 1: very candidly about why you're interested. We all know, for

932
00:59:23,040 --> 00:59:25,840
Speaker 1: an example, that it's a very well paid line of work.

933
00:59:26,760 --> 00:59:29,640
Speaker 1: Most people don't really appreciate how well paid it is,

934
00:59:29,720 --> 00:59:33,680
Speaker 1: but it is wonderfully well paid. Secondly, you don't have

935
00:59:33,760 --> 00:59:37,760
Speaker 1: to retire at six. In fact, many people work into

936
00:59:37,800 --> 00:59:42,760
Speaker 1: their seventies. Many people even work into their eighties. At five,

937
00:59:42,840 --> 00:59:47,400
Speaker 1: I'm still working in the visitors. I just very wonderful

938
00:59:47,480 --> 00:59:50,880
Speaker 1: privilege of not having to stop work at some arbitrary

939
00:59:50,960 --> 00:59:55,520
Speaker 1: date like sixty five or sixty. Now, that's a characteristic

940
00:59:55,880 --> 01:00:00,240
Speaker 1: when you look at the lifetime compensation of being in

941
01:00:00,280 --> 01:00:03,040
Speaker 1: the markets all the time and free to pick any

942
01:00:03,040 --> 01:00:06,840
Speaker 1: time you want to to pick a stock individually. That

943
01:00:06,920 --> 01:00:09,960
Speaker 1: can be for some people a very attractive characteristics. So

944
01:00:10,400 --> 01:00:15,000
Speaker 1: if you'd like to make some substantial financial success, that's

945
01:00:15,000 --> 01:00:19,480
Speaker 1: one reason. If that's your motivation, I think you're in

946
01:00:19,520 --> 01:00:24,440
Speaker 1: trouble because yes, of course you will make a substantial

947
01:00:24,440 --> 01:00:29,400
Speaker 1: amount of income, but it's not the most important part

948
01:00:29,400 --> 01:00:31,920
Speaker 1: of your life. When you get to the end of

949
01:00:32,000 --> 01:00:34,600
Speaker 1: life and you're off standing in front of St. Peter

950
01:00:34,720 --> 01:00:37,240
Speaker 1: at the Pearly Gates and he said, well, you had

951
01:00:37,280 --> 01:00:39,919
Speaker 1: your life. You were very lucky to be born at all.

952
01:00:40,480 --> 01:00:44,000
Speaker 1: But there you were, and you chose the investment management world.

953
01:00:44,440 --> 01:00:48,480
Speaker 1: What did you really do during that that you're proud of?

954
01:00:49,760 --> 01:00:51,720
Speaker 1: I made a lot of money. That's not a good

955
01:00:51,760 --> 01:00:56,800
Speaker 1: answer to a really great question. So be sure that

956
01:00:56,920 --> 01:01:00,120
Speaker 1: if you're going into the investment management field that you know.

957
01:01:00,280 --> 01:01:01,600
Speaker 1: Is it because you want to make a lot of

958
01:01:01,640 --> 01:01:04,240
Speaker 1: money or is it because you like the idea of

959
01:01:04,280 --> 01:01:06,680
Speaker 1: competing all the time with some of the smartest, most

960
01:01:06,680 --> 01:01:09,760
Speaker 1: hard working people in the world, which could be a

961
01:01:09,880 --> 01:01:13,080
Speaker 1: terrific motivator and you can understand. Or is it because

962
01:01:13,080 --> 01:01:15,600
Speaker 1: you want to serve people and help them with what

963
01:01:15,640 --> 01:01:19,440
Speaker 1: they're trying to figure out about what they want to accomplish.

964
01:01:19,920 --> 01:01:22,560
Speaker 1: If you're the latter group, then you're going to be

965
01:01:22,600 --> 01:01:25,920
Speaker 1: in a profession and you will also get paid well,

966
01:01:26,240 --> 01:01:29,280
Speaker 1: but your compensation will come primarily from being good at

967
01:01:29,280 --> 01:01:33,160
Speaker 1: the profession that lasts a lifetime. But you have to

968
01:01:33,160 --> 01:01:36,840
Speaker 1: be clear about what is your motivation? Really really very

969
01:01:36,880 --> 01:01:39,880
Speaker 1: interesting and our final question, what do you know about

970
01:01:39,960 --> 01:01:43,760
Speaker 1: the world of finance and investing in Wall Street today

971
01:01:43,800 --> 01:01:46,520
Speaker 1: that you wish you knew fifty or so years ago.

972
01:01:48,480 --> 01:01:51,560
Speaker 1: You know, it's pretty obvious in a way. I wish

973
01:01:51,600 --> 01:01:55,840
Speaker 1: I'd understood how much change was going to take place

974
01:01:55,960 --> 01:02:01,440
Speaker 1: in the investment management activity and field computers, for an example,

975
01:02:02,080 --> 01:02:06,080
Speaker 1: when I first got started, there were no computers being used,

976
01:02:06,160 --> 01:02:08,840
Speaker 1: or maybe in the back office, but they were clunky

977
01:02:09,000 --> 01:02:12,560
Speaker 1: kinds of operations. And the idea that there would be

978
01:02:12,680 --> 01:02:17,360
Speaker 1: the transformation of information that worldwide is available to you

979
01:02:17,480 --> 01:02:22,880
Speaker 1: instantaneously through Mike Bloomberg's wonderful invention the terminal, that the

980
01:02:22,920 --> 01:02:27,280
Speaker 1: Bloomberg terminal has transformed the world of information gathering. The

981
01:02:27,320 --> 01:02:31,760
Speaker 1: Internet has transformed the world of information gathering, and as

982
01:02:31,760 --> 01:02:36,760
Speaker 1: a consequence, the world of investing is now worldwide and

983
01:02:37,360 --> 01:02:40,400
Speaker 1: everybody in the world is competing with everybody else in

984
01:02:40,440 --> 01:02:45,120
Speaker 1: the world in the investment management field. So UH, I

985
01:02:45,160 --> 01:02:48,920
Speaker 1: wish I'd understood how dramatic a change there would be,

986
01:02:48,920 --> 01:02:50,760
Speaker 1: because it would make a big difference to if you

987
01:02:50,800 --> 01:02:53,800
Speaker 1: had understood that you have the forces of change working

988
01:02:53,840 --> 01:02:56,880
Speaker 1: for you, and you could have made a completely different

989
01:02:56,880 --> 01:03:01,200
Speaker 1: transformation of life. Quite fascinating. Charlie, thank you for being

990
01:03:01,200 --> 01:03:04,560
Speaker 1: so generous with your time. We have been speaking with

991
01:03:04,680 --> 01:03:09,000
Speaker 1: Charlie Ellis, author of the new book Inside Vanguard, Leadership

992
01:03:09,040 --> 01:03:12,440
Speaker 1: Secrets from the company that continues to rewrite the rules

993
01:03:12,560 --> 01:03:16,080
Speaker 1: of investing business. If you enjoy this conversation, be sure

994
01:03:16,120 --> 01:03:18,840
Speaker 1: and check out any of the previous four hundred and

995
01:03:18,880 --> 01:03:22,800
Speaker 1: seventy podcasts we've done over the past eight years. You

996
01:03:22,840 --> 01:03:27,040
Speaker 1: can find those at iTunes, Spotify, YouTube, wherever you get

997
01:03:27,040 --> 01:03:30,160
Speaker 1: your favorite podcast from. UH be sure and sign up

998
01:03:30,240 --> 01:03:33,560
Speaker 1: for my daily reading list at rid Halts dot com.

999
01:03:33,680 --> 01:03:37,120
Speaker 1: Follow me on Twitter at rit Halts. You can follow

1000
01:03:37,280 --> 01:03:42,040
Speaker 1: all of the Bloomberg podcasts at Podcasts on Twitter. I

1001
01:03:42,080 --> 01:03:44,240
Speaker 1: would be remiss if I did not thank the crack

1002
01:03:44,360 --> 01:03:48,320
Speaker 1: team that helps with these conversations together each week. Justin

1003
01:03:48,400 --> 01:03:51,920
Speaker 1: Milner is my audio engineer. Atica val bron is my

1004
01:03:52,040 --> 01:03:56,400
Speaker 1: project manager. Paris Wald is my producer. Sean Russo is

1005
01:03:56,400 --> 01:04:00,200
Speaker 1: my head of research. I'm Barry rit Halts. You been

1006
01:04:00,240 --> 01:04:03,480
Speaker 1: listening to Masters in Business on Bloomberg Radio.