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Speaker 1: Welcome to How to Money. I'm Joel, and today I'm

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Speaker 1: talking how AI will impact your investments with Vanguard's Joe Davis. Okay,

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Speaker 1: so everywhere you look, people are talking about AI. Some

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Speaker 1: say it's going to save the world, others think it's

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Speaker 1: going to break it. But while the headlines focus on

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Speaker 1: sci fi futures and big tech battles, I'm interested in

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Speaker 1: something a little closer to home. What does all of

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Speaker 1: this actually mean for us as every day DIY investors

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Speaker 1: today and over the next decade. Fortunately, we don't have

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Speaker 1: to just wing it. Vanguard's global Chief Economist Joseph Davis

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Speaker 1: has been studying the forces shaping our financial future, AI

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Speaker 1: included and his new book Coming into View, he breaks

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Speaker 1: down the mega trends that are poised to reshape the

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Speaker 1: investing landscape. So, Joe, I'm glad to have you. Thank

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Speaker 1: you so much for joining me today.

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Speaker 2: No, thanks for having me.

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Speaker 1: Okay, first question, what do you like to sport? John

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Speaker 1: minus craft beer? What's your theme? What's your jam?

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Speaker 2: Anything to do with cooking? Okay, I've been married for

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Speaker 2: a long time. My wife and I were self proclaimed foodies.

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Speaker 2: I can't cook that well, but so you know ingredients, cookbooks,

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Speaker 2: maybe a new piece of cooking utensils. We love cooking.

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Speaker 2: What we do for date night, going out Friday, food

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Speaker 2: shopping and then so anything food related.

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Speaker 1: That's great. Okay. Well, and that's going to save you

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Speaker 1: money too, right, Being able to cook fancy meals at

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Speaker 1: home is much cheaper than getting a fancy meal out.

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Speaker 2: Yeah. Well, it's fun. You know, I cut the vegetables

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Speaker 2: and she actually does all the hard work. But it's

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Speaker 2: just something we can do together that's stress free.

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Speaker 1: I love it.

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Speaker 2: It's nice.

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Speaker 1: That's great, that's great. Okay. Can you give us maybe

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Speaker 1: a peek inside the world of Vanguard and maybe what

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Speaker 1: it's like working as as somebody who like the read

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Speaker 1: the book Trillions and I like the index, obsessed with

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Speaker 1: kind of the Index one, the advent of the Index one.

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Speaker 1: John Bogel, Yeah, yeah, tell me what is like working

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Speaker 1: to Bay Guard.

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Speaker 2: Well, I remember my first day. I've been here over

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Speaker 2: twenty years. It's it's a very collegial environment. We take

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Speaker 2: the mission seriously. What I mean by that is just, uh,

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Speaker 2: you know, the brilliance that Jack Bogel was the aligning

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Speaker 2: you know, the ultimate investor's interests with with how we

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Speaker 2: should do our work and how should we prioritize. And

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Speaker 2: so it's it's you know, the investor, the end investors

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Speaker 2: front and center, whether their individual investor, retiree, someone saving

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Speaker 2: for college. And it's palpable. That's that that has true

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Speaker 2: no matter who you are at Vanguard, and it's it's

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Speaker 2: an awesome responsibility. You know, we it's not our assets.

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Speaker 2: We manage over eleven trillion dollars today on behalf of

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Speaker 2: the end investors who trusted us, trusted us with the

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Speaker 2: hard earned savings and capital. You know, it's you know,

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Speaker 2: you're always thinking about in the ways we can improve

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Speaker 2: and do things better for the investor, but the investors

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Speaker 2: always front and center, and it's genuine. So that's why

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Speaker 2: myself and my colleagues, why we're so proud to have

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Speaker 2: worked at band are for someone.

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Speaker 1: So I don't want to go down to the dystopian timeline.

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Speaker 1: But what would have happened to Vanguard and Jack Bogel

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Speaker 1: had not like completely changed the access to you know,

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Speaker 1: low cost investments for the general public.

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Speaker 2: Well, I would have hoped that someone else would have

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Speaker 2: come along. I mean, I think the big great news

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Speaker 2: for all investors is that Vanguard and other companies have

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Speaker 2: helped lower the cost for all investors, so the you know,

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Speaker 2: the listeners on the call get to keep more of

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Speaker 2: the hard earned money. And you know, if I recall,

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Speaker 2: I did have another I had the good fortune of

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Speaker 2: having lunch with Jack Bogel himself many times before he passed.

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Speaker 2: I was earlier in my career. I recalled Jack saying

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Speaker 2: on more than one occasion, and then his one sort

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Speaker 2: of disappointment is he didn't see other firms emerge that

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Speaker 2: would moreant the client owned and you know, the sort

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Speaker 2: of mutual model that we have, only because he was

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Speaker 2: hoping that see those costs come down more quickly. But

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Speaker 2: the fact is that they have come down. But I

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Speaker 2: would like to have think that if Vangard hadn't come by,

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Speaker 2: others would have done as well. Because this is effectively

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Speaker 2: adoption of a new technology ETFs, scaled mutual funds, managing

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Speaker 2: you know, portfolios. You can lower the costs through technology

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Speaker 2: that was not the case thirty forty years ago. So

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Speaker 2: I know Vanger gets a lot of credit. I think

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Speaker 2: some of it's well deserved, but I would hope that

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Speaker 2: someone would have done it had we not done it.

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Speaker 1: Yeah, Okay, you actually start the book by detailing a

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Speaker 1: conversation that you had with Jack Bocal. This was what

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Speaker 1: two decades ago? This was a lunch that you guys

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Speaker 1: were having. Yes, what happened in that lunch conversation? And

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Speaker 1: yeah two decades right, two decades ago.

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Speaker 2: Yeah, And I don't want this to be a Vanguard commercial.

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Speaker 2: It's just I tell you the context for that lunch.

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Speaker 2: So I'm only working one year, less than one year

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Speaker 2: at Vanguard. I'm a new employee. So the fact that

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Speaker 2: Jack Bogle even answered my email and had lunch with me.

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Speaker 2: He's a founder of the company, right, you know my name,

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Speaker 2: But I was just all struck and just wanted to

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Speaker 2: get to know him better. And he knew a little

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Speaker 2: bit of my background, gets it, just a little bit

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Speaker 2: of the culture of the place, and we started talking

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Speaker 2: things around like what economists could do beyond just the

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Speaker 2: next three six months news flow, which I know is

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Speaker 2: a lot of focus when you read the media reports,

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Speaker 2: and I talk about that story of thinking about like,

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Speaker 2: how how can we help investors as they construct portfolios?

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Speaker 2: What are the returns the risk they could think about

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Speaker 2: over a medium run horizon. Knowing that this is the future.

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Speaker 2: And you knew I had more of the you know,

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Speaker 2: the technical background, but he gave me a really good grounding, Like, Joe,

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Speaker 2: when you can, can you focus on trying to extend

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Speaker 2: the industry's conversation around risk management, not performance chasing. But

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Speaker 2: we know that these risks matter. Hey, we're talking about

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Speaker 2: AI today, we're talking about deficis or or trade tensions.

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Speaker 2: They matter, And can we think it about it in

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Speaker 2: a way that we're not just making stuff up, which,

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Speaker 2: to be honest, sometimes is done in the industry. And

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Speaker 2: so he threw down the gallet to me, and it

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Speaker 2: took me a while to address some of his requests.

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Speaker 1: All right, So that makes me think when like, Vanguard

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Speaker 1: has has been making predictions right about the likelihood of

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Speaker 1: lower returns in the future, and but they but you

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Speaker 1: guys have been making those predictions for a few years now,

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Speaker 1: basically saying, hey, future returns are going to be lower.

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Speaker 1: That hasn't necessarily come to pass yet. But is that

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Speaker 1: because of like mean reversion market performance in recent in

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Speaker 1: recent years, and like, how should we be thinking about

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Speaker 1: those predictions?

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Speaker 2: No? And I love the fact that Joe, that you're

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Speaker 2: mentioning that it goes you to why we why we

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Speaker 2: provide these actions to begin with, they are focused on

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Speaker 2: generally ten years out, and ten years is for a

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Speaker 2: specific reason. It's where there is some reliability in the forecast.

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Speaker 2: I mean, we you know, I could give you one

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Speaker 2: year ahead numbers, but I think they're fairly unreliable and

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Speaker 2: the ground on economic fundamentals as well as our diagnosis

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Speaker 2: of future trends, and so you know, we're actually very

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Speaker 2: well aware and I talk about it in the book

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Speaker 2: the Elevated Odds of AI being fairly transformative from an

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Speaker 2: economic perspective and a market perspective. So in one sense,

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Speaker 2: we have among the most bullsh diagnosis from the economy

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Speaker 2: that I'm aware of in the asset management industry. Yet

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Speaker 2: that is also part of the reason why we're more

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Speaker 2: guarded than most on the full cycle investment returns, because

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Speaker 2: history clearly shows and that's why our projections are picking

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Speaker 2: up that after a period of very strong returns, no

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Speaker 2: one knows when it switches, you just get more muted

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Speaker 2: returns for a time, and so we're not bearish on

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Speaker 2: even the headlines. Actually, the stronger the the returns we see,

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Speaker 2: it's consistent with our diagnos of the economic trends. So

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Speaker 2: I wouldn't I know some just say, oh, if the

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Speaker 2: returns are high yesterday, then they're going to be low tomorrow.

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Speaker 2: It's not that simple, and a lot of these trends

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Speaker 2: vary over time. We try to account for those, but

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Speaker 2: we're fairly bullsh from an AI perspective, and that is

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Speaker 2: not inconsistent with saying, listen, the markets could get a

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Speaker 2: little euphoric here. I'm not saying it's saying sell investments.

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Speaker 2: What we're seeing is, though, do not expect the future repeat.

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Speaker 2: Now we've been alone. And when you can say when

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Speaker 2: you're early on a projection, maybe we're early, you could

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Speaker 2: say you're wrong. I'd say it's consistent with though the

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Speaker 2: logic where we have been saying that to be fair

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Speaker 2: three or four years bar. Our conviction is going up,

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Speaker 2: and I finally starting to hear others talk about what

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Speaker 2: they call the froth in the market. I think it's

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Speaker 2: put this way. It's nice being not the sole voice anymore.

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Speaker 1: Yeah, well, okay. Some individual investors might see those projections though,

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Speaker 1: and they might say, oh, lower returns for stocks in

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Speaker 1: the coming decade, Maybe I should look elsewhere. What would

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Speaker 1: you say to somebody who's thinking.

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Speaker 2: That, Well, I think you say, first of all, you

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Speaker 2: think about that these projections are primarily done from risk

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Speaker 2: management perspective. So you would take these projections and say,

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Speaker 2: first of all, I would hope most investors, if they're investing,

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Speaker 2: they have some multi year horizon, right, So first of all,

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Speaker 2: it's like, what are prudent returns? And I'd say, historical

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Speaker 2: US stocks have been roughly nine. The past few years,

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Speaker 2: we've been above that, the next several years, next five

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Speaker 2: seven years, we can be modestly below that. And that's

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Speaker 2: effect of what our outlook is. But that does not

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Speaker 2: mean for most investors that you should change your allocation.

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Speaker 2: How I think about it is, okay, make sure you

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Speaker 2: have that if you have an aggressive spending goal, you

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Speaker 2: want to retire even earlier, you at least want to

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Speaker 2: stress test those hopes or plan against those numbers. Of

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Speaker 2: a six percent return versus a nine, maybe your goal

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Speaker 2: is still valuable or still reasonable. That's how we use

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Speaker 2: these projections when we give advice to clients. Perspective to advisors,

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Speaker 2: I'd also say, rather than like selling investments, which can

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Speaker 2: seem pretty aggressive, I'd say, thinking about how you deploy

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Speaker 2: new capital if you get a new bonus, or when

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Speaker 2: you work next year, and your forum and key plan.

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Speaker 2: There are parts of the market that have not participated

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Speaker 2: in our projection show the relative trade off, and so

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Speaker 2: I don't view it as what some would call market timing,

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Speaker 2: because we will not be able to time this cycle,

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Speaker 2: and we try to disclose as much as possible the rest.

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Speaker 2: I mean, I can't you know, some may interpret it

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Speaker 2: that way, but I can't help that we disclose it.

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Speaker 2: But I would be thinking about I'd tell many clients

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Speaker 2: been on the road hundreds of times this year. I

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Speaker 2: would say, think about deploying new capital to work, and

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Speaker 2: those investment opportunities are different than what the AI stocks

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Speaker 2: are telling you now, and it's consistent with a lot

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Speaker 2: of former investment cycles. So there's research behind it, and

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Speaker 2: it's kind of nice. Rather than saying people have made

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Speaker 2: people have not made a mistake. They do not need

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Speaker 2: to sell their current investments. It's I would think about

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Speaker 2: more in terms of how you deploy new capital, and

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Speaker 2: then stressed, has your your aspirations and family goals, your

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Speaker 2: portfolio goals on a lower return trajectory for a time,

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Speaker 2: maybe they're still robust to it. If they're not, you're

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Speaker 2: going to have to increase your savings a little bit

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Speaker 2: or or or or thinking about these new investment opportunities.

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Speaker 2: That's so hopefully that was a little long Windigel, but

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Speaker 2: hopefully that gives context.

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Speaker 1: No, that's helpful. It sounds like you're talking about moving

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Speaker 1: the runner ever so slightly instead of jerking the wheel.

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Speaker 2: Yes, it's laurno and again it's tender, and said, you know,

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Speaker 2: I have investors okay, asked me good questions like hey,

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Speaker 2: why can't you show the one year the two year numbers?

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Speaker 2: I said, I would, I can give you the numbers.

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Speaker 2: The confidence interval is so wide. There's a lack of confidence,

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Speaker 2: and I wish we had more accuracy. We don't. Even

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Speaker 2: in the tenure numbers our stock return, there's a fifty

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Speaker 2: percent likelihood we're going to be between likely three and

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Speaker 2: seven percent. That's a why three percent per year? Yeah

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Speaker 2: and seven percent per ye that's huge, But it's actually

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Speaker 2: it's data Dreven's evidence based. I wish they were now,

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Speaker 2: but even the projections we've seen the past two years,

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Speaker 2: I mean, the returns are not being defensive on the forecast.

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Speaker 2: It has been above our our meeting projections for sure,

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Speaker 2: but it's not necessarily inconsistent with our view because of

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Speaker 2: the nature of where the returns are coming from.

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Speaker 1: Yeah, well, I think that chose just a lot of

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Speaker 1: humility too, which makes me think about the way you

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Speaker 1: wrote this new book, and I feel like there's a

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Speaker 1: lot of humility in the process and in the presentation

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Speaker 1: as well. Talk to me about AI and globalization and

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Speaker 1: some of these trends that are feel really unpredictable, like

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Speaker 1: how do you try to make sense of them? And

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Speaker 1: you're thinking about investor returns moving forward when these things

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Speaker 1: feel so first or second inning and it's just really

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Speaker 1: hard to know where they go.

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Speaker 2: Sure, well, you're you're kind Joel in your words. You know,

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Speaker 2: we began a lot of this project started over my goodness,

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Speaker 2: probably three years ago. We started looking at AI. Actually,

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Speaker 2: my researched, my research team and I ten years ago,

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Speaker 2: like a decade ago now, and I had I had

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Speaker 2: to do my own deep dive on AI. I'm not

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Speaker 2: an AI like a techno expert, but had they had

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Speaker 2: the prospects for more meaningful change, and so I started

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Speaker 2: down this project saying I wanted a little bit firmer

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Speaker 2: range of what the economic impacts could be, what the

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Speaker 2: stock market impacts could be, other than what I would

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Speaker 2: call simple narratives Joel from smart people, I felt increasing

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Speaker 2: like I was in a narrative space. And what I

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Speaker 2: mean by that, I'll give you some examples. Clients would

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Speaker 2: ask me, Hey, Joe, our deficits and debt levels in

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Speaker 2: the United States are going up. At what point does

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Speaker 2: the bond market care about that and demand higher interest

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Speaker 2: rates or AI? Is it going to be good or bad?

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Speaker 2: And they wouldn't define good or bad, And I would

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Speaker 2: find myself like saying, oh, I don't think we're deglobalizing.

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Speaker 2: I don't think it'll do much for inflation. But I

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Speaker 2: was just giving you sort of more narrative base. And

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Speaker 2: I felt deficient as an economist. And I know no

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Speaker 2: one knows for certain no one knows, but we can

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Speaker 2: certainly bring data and science to bear in the same

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Speaker 2: way other disciplines do a little bit more detailed. I

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Speaker 2: am not saying economists don't use data and evidence, but

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Speaker 2: on these longer term projections, not in an integrated way.

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Speaker 2: They may look at AI, but they're not considering debt

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Speaker 2: levels at the same time, or they may be thinking

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Speaker 2: about the agent of society, but they may be leaving

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Speaker 2: out the tensions between the United States and China. And

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Speaker 2: you and I know this is a living, breathing organism.

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Speaker 2: But to my knowledge, no one was doing this, including ourselves,

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Speaker 2: and so we try. We had an audacious goal to

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Speaker 2: try to create a framework that would allow for these

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Speaker 2: you know, feedback loops, because they know they happen. What

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Speaker 2: was eye opening to me was the economic diagnosis. I

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Speaker 2: was not looking for it. I did not expect it,

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Speaker 2: but it challenged my own assumptions, which I talk about

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Speaker 2: in the book, and so trying to be data driven

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Speaker 2: in a probabilistic way, because that's how I think, you know,

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Speaker 2: even good investors, goodness, I even talk about poker players,

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Speaker 2: they always think about ranges and probabilities, right, you think

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Speaker 2: about risks. And we're disclosing this to the whole community.

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Speaker 2: I've disclosed it with policymakers. Maybe they'll improve the framework.

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Speaker 2: I hope they do. But the diagnosis was eye opening

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Speaker 2: to me. And I've been in the business twenty years.

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Speaker 1: So what was the diagnosis? What's of your assumptions were

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Speaker 1: most upended when you run.

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Speaker 2: I think the thing is I think a widespread view

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Speaker 2: is that the demographics our destiny, that if you have

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Speaker 2: an aging society, or if you have population growth that

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Speaker 2: is slowing, that you're you're destined for like low growth

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Speaker 2: and maybe either low or very high inflation, depend upon

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Speaker 2: how you interpret those trends. Now, again those things matter,

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Speaker 2: there are components of growth, but they don't their accuracy

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Speaker 2: in predicting future outcomes is really weak. That challenged my assumptions.

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Speaker 2: I think it does challenge the professions assumptions. Demographs are

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Speaker 2: not destined. In fact, they're very little reliability in future outcomes.

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Speaker 1: That's so interesting. Why does that? Because it has seemed

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Speaker 1: true for a long time that a declining birth rate

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Speaker 1: and aging population it just kind of sort of intuitively

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Speaker 1: makes sense.

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Speaker 2: Why intuitively it's a part of growth. But it only

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Speaker 2: explains just wan this way, like it's part of the calculus,

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Speaker 2: like part of GDP is how many people you're adding

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Speaker 2: to the workforce every year. It's just that it counts

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Speaker 2: for a very little of the movement up and down

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Speaker 2: of these trends over five years or ten years. And

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Speaker 2: to really push it, just think about aging like aging,

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Speaker 2: you have fewer that sounds very bad for the stock market,

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Speaker 2: doesn't sound bad like it sounds bad.

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Speaker 1: Yet sounds bad for social security too.

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Speaker 2: Human beings have been aging on this planet for a

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Speaker 2: million years and did not stop industrialization. So I'm picking,

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Speaker 2: I'm talking. I'm making a really fall four full point.

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Speaker 2: But the stress, the point of no one is just

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Speaker 2: bringing data to bear like, Okay, they can matter, but

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Speaker 2: how much it's a small medium lares Our beauty of

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Speaker 2: our framework is that we're putting them and we're putting

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Speaker 2: up against other forces. So why demographics don't matter? Technology?

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Speaker 2: How innovative it makes us, the new products, you know,

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Speaker 2: how transformed that does corporations, That will matter more for

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Speaker 2: GDP the next five years than all the demographics combined. Now,

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Speaker 2: if it happens in it, if we don't get the

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Speaker 2: lift from AI and we do have the aging and

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Speaker 2: fewer immigrants and weaker population growth, people may say, oh,

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Speaker 2: we had low growth because we had weak demographics, but

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Speaker 2: the data would show okay, that didn't help. But it

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Speaker 2: was a lack of lift off from innovation and new

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Speaker 2: ideas that really generated it. And I try to show

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Speaker 2: simple pictures. So that was certainly one all these factors matter,

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Speaker 2: the trade patterns and globalization deficits matter. The question is

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Speaker 2: the magnitudes of how each of these are moving can

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Speaker 2: really give you a decent handle or where the risks

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Speaker 2: are from the economic and market perspective three five, seven

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Speaker 2: years out. And this is not magic. It is how

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Speaker 2: these things evolve, and it's our unique data. We brought

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Speaker 2: probably the most data to bear on these concepts that

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Speaker 2: I'm aware of in either the private sector or in

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Speaker 2: the academic field. That's why it took us a while

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Speaker 2: to do the.

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Speaker 1: Work, I think.

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Speaker 2: So.

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Speaker 1: One of the things that you pointed to in the

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Speaker 1: book was status quo bias and that people often think that, hey,

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Speaker 1: what what was happening yesterday is what's going to happen tomorrow.

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Speaker 1: Things were kind of on a trend line and part

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Speaker 1: of what doesn't give And one of my questions for

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Speaker 1: you too is like, what about the completely unknown things

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Speaker 1: that blitz into our lives that we weren't prepared for,

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Speaker 1: that change everything right, like a pandemic. It's really hard

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Speaker 1: sometimes to make these these projections right when there's unknown

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Speaker 1: influences that might come down the pike.

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Speaker 2: Well, and that's why and so some would say, hey,

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Speaker 2: then why bother you can so you're to You're toyer, right, Joel,

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Speaker 2: So you can do if you say that, there's two

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Speaker 2: ways you can react to it, and both of them

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Speaker 2: are fair. I'll just give you my perspective on it.

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Speaker 2: One is, you know what, future is completely unpredictable, So

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Speaker 2: why even bother? I would say, well, then, but then

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Speaker 2: why do financial planning exercises? Why do any risk management?

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Speaker 2: You got to think about give some attempt at probabilities

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Speaker 2: and magnitudes. And that's what was lacking in the industry.

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Speaker 2: Someone say, oh, we're gonna have a death crisis. Okay,

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Speaker 2: well what's the probability of magnitude? Because without those two numbers,

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Speaker 2: I can't even think about risk management and portfolio. Someone

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Speaker 2: may say, Joe, the probability is small. Yeah, bad outcome,

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Speaker 2: but probability is really small. I may not alter my

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Speaker 2: folio a lot versus no. If someone said, no, this

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Speaker 2: is a material risk, here's all the evidence why we've

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Speaker 2: controlled for other factors. It's twenty or thirty percent. Oh,

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Speaker 2: that's no longer a tail event that I can't predict. Right,

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Speaker 2: Martian could come down from the universe. I mean what like,

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Speaker 2: I don't know, So there's always that uncertainty we have

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Speaker 2: first acknowledge. That's why I actually I felt very strongly,

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Speaker 2: in fact, why I came to Vanguard, which at Vogel

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Speaker 2: he loved our approach of putting things in probabilities and magnitudes.

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Speaker 2: I know, you know today some in the market wants

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Speaker 2: just a number, but we're not going to apologize for

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Speaker 2: the fact that we're given an attempt. No one knows

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Speaker 2: what these true numbers are, but we are trying to

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Speaker 2: be as data driven as possible. And it's certainly not

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Speaker 2: like I woke up one day and say that's AI

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Speaker 2: transfermed ouh, It's gonna be seventy percent. Why seventy Well,

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Speaker 2: it's different than fifty. Like I'm trying to it's kept

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Speaker 2: myself honest. I didn't want to be in the narrative camp.

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Speaker 2: And then, if you know, it also allows investors. These

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Speaker 2: are all the assumptions, these are all the things moving.

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Speaker 2: They can change their probabilities based upon the discussion in

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Speaker 2: the book, and they say, you know, Joe, I'm going

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Speaker 2: to weigh these negative forces more. I think you're under estimating.

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Speaker 2: I don't know the tensions with trade. Oh fine, maybe

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Speaker 2: take that twenty to thirty percent scenario, increase it a

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Speaker 2: little bit. But at least we've started the conversation. It's

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Speaker 2: the end, it's your listener's money, but we've started the conversation.

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Speaker 2: They can take our probabilities or they can move them

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Speaker 2: left or right as a risk management framework. At least

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Speaker 2: it's I would view this as a starting point to

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Speaker 2: the conversation in this evolving dynamic. But at least we're

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Speaker 2: putting numbers on the page, and they're not and they're

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Speaker 2: they're grounded in all the data that we have to bear. Yes,

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Speaker 2: there are things in the sample. The one beauty of

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Speaker 2: going back in time is that history doesn't repeat. But

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Speaker 2: there's been piers of where the world has deglobalized before

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Speaker 2: major changes in demographics. People are shocked to see that

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Speaker 2: our demographics changed. Immigration slowed to a ground to a

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Speaker 2: halt during the Rory nineteen twenties. We've had sometimes revolutionary

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Speaker 2: new technologies, but they're rare, but they do give you

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Speaker 2: a glimpse. But we got to move those periods into

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Speaker 2: the modern day because today is different. And I think

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Speaker 2: we've started that conversation. Hopefully that investors can think of

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Speaker 2: it through that lens.

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Speaker 1: There's a lot more to discuss, and I specifically want

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Speaker 1: to dig in and talk about how prior technology, the PC,

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Speaker 1: the Internet, how much can we look to the past

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Speaker 1: to determine the potential future. We get to that more

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Speaker 1: right after this. So speaking with bank guards Joe Davis,

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Speaker 1: and we're talking about AI, how it can impact, how

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Speaker 1: it will impact your investments. It already is Joe. It

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Speaker 1: kind of feels like an inflection point is here akin

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Speaker 1: to the PC the Internet, right, those were revolutionary technologies.

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Speaker 1: There are many others too, but those the Internet changed everything.

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Speaker 1: Like this conversation that we're having would not exist right

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Speaker 1: without the Internet. Just think about the abundance of podcasts,

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Speaker 1: like spheres of commerce that just weren't possible before the

431
00:23:16,240 --> 00:23:18,679
Speaker 1: Internet came out, And it's just so hard to know

432
00:23:19,359 --> 00:23:21,439
Speaker 1: in the beginning how that's going to shake out, hence

433
00:23:21,880 --> 00:23:25,959
Speaker 1: the dot com bubble. There were even companies doing things

434
00:23:26,400 --> 00:23:29,200
Speaker 1: that now successful companies are doing, but they just couldn't

435
00:23:29,200 --> 00:23:31,440
Speaker 1: make it work in the early days of the Internet.

436
00:23:31,520 --> 00:23:36,000
Speaker 1: So what are the possibilities, Like I'm thinking about it

437
00:23:36,040 --> 00:23:38,760
Speaker 1: through that framework of the Internet and how it changed things.

438
00:23:39,000 --> 00:23:42,840
Speaker 1: Is AI gonna is it similar in its potential impact

439
00:23:42,960 --> 00:23:45,399
Speaker 1: is greater magnitude. How are you thinking about that when

440
00:23:45,400 --> 00:23:46,040
Speaker 1: you're forecasting.

441
00:23:46,160 --> 00:23:48,120
Speaker 2: Yeah, so I'd say, and I'd try to boil it down.

442
00:23:48,160 --> 00:23:51,000
Speaker 2: But the one power of our data driven framework is

443
00:23:51,200 --> 00:23:55,080
Speaker 2: we're looking all technologies that they're meaningful affect us, meaning

444
00:23:55,080 --> 00:24:00,400
Speaker 2: the economy, workers, and the markets through three dimensions. One

445
00:24:00,520 --> 00:24:02,399
Speaker 2: is they automate some of the work we do. That

446
00:24:02,440 --> 00:24:05,159
Speaker 2: can sound bad. Yes, it can be disruptive, but it

447
00:24:05,200 --> 00:24:08,600
Speaker 2: also leads to greater standards to living and growth. Second,

448
00:24:08,680 --> 00:24:11,560
Speaker 2: it augments us. It's the computer for helping you with

449
00:24:11,640 --> 00:24:14,399
Speaker 2: this podcast in the internet today, Joel. Right, that's the copilot.

450
00:24:15,400 --> 00:24:19,280
Speaker 2: And then the third is what general purpose technologies do.

451
00:24:19,480 --> 00:24:22,680
Speaker 2: And you just mentioned it create new industries or platforms, right,

452
00:24:23,400 --> 00:24:27,440
Speaker 2: like the Internet helped enable online shopping. Didn't create online

453
00:24:27,440 --> 00:24:30,600
Speaker 2: shopping without the Internet, we're not talking about it. And

454
00:24:30,680 --> 00:24:34,360
Speaker 2: through our framework, it says the odds are significantly tilted

455
00:24:34,880 --> 00:24:36,840
Speaker 2: in the data driven way because we have all this

456
00:24:37,040 --> 00:24:40,080
Speaker 2: data and they evolve. We're picking up signals today. Based

457
00:24:40,119 --> 00:24:45,119
Speaker 2: upon those signals, there's a likelihood that we're in the

458
00:24:45,160 --> 00:24:48,399
Speaker 2: third end of this, but we're likelihood that AI is

459
00:24:48,520 --> 00:24:52,080
Speaker 2: more transformational from an economic perspective than even the personal computer.

460
00:24:52,160 --> 00:24:55,439
Speaker 2: In our data, we can compare the projections versus what

461
00:24:55,440 --> 00:24:58,520
Speaker 2: it did underneath the surface to the computer, the internet,

462
00:24:58,560 --> 00:25:02,560
Speaker 2: the automobile, the electricity. It's not an electricity, but it's

463
00:25:02,600 --> 00:25:06,720
Speaker 2: it's meaningful and it's a it's not going to be

464
00:25:06,720 --> 00:25:09,360
Speaker 2: a dud. Odds are than social media, but it's got

465
00:25:09,359 --> 00:25:12,200
Speaker 2: to accelerate its development, and that's why the odds are

466
00:25:12,240 --> 00:25:16,080
Speaker 2: six roughly fifty five sixty percent, why they're not one hundred.

467
00:25:16,200 --> 00:25:18,359
Speaker 2: So I get two reactions to this forecast. Those that

468
00:25:18,400 --> 00:25:21,959
Speaker 2: are pessimistic on AI say, hey, you're you're too boshed,

469
00:25:22,000 --> 00:25:25,440
Speaker 2: But I said, no, you're ignoring the history and the signals. However,

470
00:25:25,560 --> 00:25:28,360
Speaker 2: those that are very bolshed, I've been to Silicondelli multiple

471
00:25:28,400 --> 00:25:31,439
Speaker 2: times and they say, how is it not one hundred percent?

472
00:25:31,600 --> 00:25:34,640
Speaker 2: They will say I will not mention individual compatability, say

473
00:25:34,680 --> 00:25:38,119
Speaker 2: we know the probability of AI transforming is one hundred percent.

474
00:25:38,520 --> 00:25:45,040
Speaker 2: I say, well, you are also overestimating that this, yes,

475
00:25:45,119 --> 00:25:47,879
Speaker 2: this development will happen, is not happen yet, nor have

476
00:25:47,920 --> 00:25:51,359
Speaker 2: the new platforms emerged, and so half of the growth

477
00:25:51,400 --> 00:25:55,320
Speaker 2: effect comes from which we'll get to our investment thesis.

478
00:25:55,440 --> 00:25:57,919
Speaker 2: Why some of the investment implications are different what the

479
00:25:57,920 --> 00:26:00,840
Speaker 2: current headlines. Half of the growth f lift is these

480
00:26:00,880 --> 00:26:05,320
Speaker 2: new companies and industries in the you know I talk

481
00:26:05,359 --> 00:26:08,000
Speaker 2: about in the book, like computers. It was something online shopping.

482
00:26:08,600 --> 00:26:12,560
Speaker 2: Some of these media and communications electricity to help power

483
00:26:12,600 --> 00:26:15,879
Speaker 2: the assembly line, which helped automobile manufacturers. But without electricity,

484
00:26:15,920 --> 00:26:19,520
Speaker 2: we don't have those dividends. It created the elect the

485
00:26:20,200 --> 00:26:22,960
Speaker 2: movie industry, or enabled it entertainment industry. We didn't have

486
00:26:23,000 --> 00:26:27,640
Speaker 2: an entertainment at that regard. So it's anticipating. I see

487
00:26:27,640 --> 00:26:30,320
Speaker 2: the blob of my computer screen. It goes from negative depositive.

488
00:26:30,520 --> 00:26:33,239
Speaker 2: Those are new industries and new investment opportunities. I am

489
00:26:33,359 --> 00:26:37,480
Speaker 2: racking my brain what those companies are. I have no

490
00:26:37,560 --> 00:26:41,680
Speaker 2: clue what those industries are. I can speculate, but I'm

491
00:26:41,720 --> 00:26:44,119
Speaker 2: telling you that is half of the left. Half of

492
00:26:44,160 --> 00:26:47,560
Speaker 2: it is just the disruption it'll do to our work.

493
00:26:47,680 --> 00:26:50,440
Speaker 2: We're saying that in eighty percent of the occupation, so

494
00:26:50,520 --> 00:26:54,320
Speaker 2: most listeners on the call will see their job change

495
00:26:54,359 --> 00:26:56,560
Speaker 2: by at least thirty percent over the next seven years.

496
00:26:56,560 --> 00:26:58,800
Speaker 2: That's a bigger change than we saw with the personal computer.

497
00:26:58,960 --> 00:27:01,800
Speaker 2: So it had, and not everyone will win, So I'm

498
00:27:01,800 --> 00:27:04,560
Speaker 2: not going to sugarcoat it. There's some significant change coming

499
00:27:04,640 --> 00:27:06,080
Speaker 2: if AI continues to advance.

500
00:27:07,240 --> 00:27:09,760
Speaker 1: One of the things that investors have seen is a

501
00:27:09,800 --> 00:27:15,040
Speaker 1: handful of companies just grow to enormous sizes and enormous valuations.

502
00:27:15,440 --> 00:27:17,920
Speaker 1: And so some people might think of as an investor

503
00:27:17,960 --> 00:27:21,199
Speaker 1: like I missed out on the earning, I missed out

504
00:27:21,240 --> 00:27:23,639
Speaker 1: on the growth potential. I should have invested in in

505
00:27:23,720 --> 00:27:28,119
Speaker 1: Nvidia four years ago. Whatever, And what would you say

506
00:27:28,520 --> 00:27:31,040
Speaker 1: to those people? And it's also we're in this space

507
00:27:31,080 --> 00:27:35,040
Speaker 1: where there's going to be so much competition it is

508
00:27:35,080 --> 00:27:37,560
Speaker 1: hard to determine who the winners and losers are going

509
00:27:37,600 --> 00:27:40,639
Speaker 1: to be, even if the AI space in general is

510
00:27:40,640 --> 00:27:42,760
Speaker 1: going to continue to grow at SUMI a very rate.

511
00:27:43,040 --> 00:27:45,400
Speaker 2: Listen, first of all, the stock market's been up a lot,

512
00:27:45,520 --> 00:27:48,280
Speaker 2: so thank goodness for I want keeping you know, keeping

513
00:27:48,359 --> 00:27:51,919
Speaker 2: invested and doing well. Right. It's a good point. But yeah,

514
00:27:52,000 --> 00:27:56,359
Speaker 2: if you've been overweight technology stocks in your portfolio, congratulations

515
00:27:57,440 --> 00:27:59,200
Speaker 2: if you have and you feel like, hey, I've left

516
00:27:59,240 --> 00:28:01,160
Speaker 2: money on the table, So what do you do now.

517
00:28:02,320 --> 00:28:05,800
Speaker 2: What I was surprised to find I did not expect

518
00:28:05,840 --> 00:28:12,360
Speaker 2: it is that the areas of outperformance and underperformance. Let's

519
00:28:12,359 --> 00:28:15,760
Speaker 2: fix it on the stock market. In a technology cycle

520
00:28:16,200 --> 00:28:18,840
Speaker 2: loosely has two phases to it, and I didn't know this.

521
00:28:19,640 --> 00:28:24,600
Speaker 2: The first phase can last now it varies, but let's

522
00:28:24,640 --> 00:28:27,840
Speaker 2: call it five to seven years. It's the producers of

523
00:28:27,880 --> 00:28:30,840
Speaker 2: the new technology. It is the electrical companies the gs

524
00:28:30,920 --> 00:28:33,600
Speaker 2: of the world in nineteen ten and twenties. It's the

525
00:28:33,680 --> 00:28:36,320
Speaker 2: computer companies in the dot com in the nineteen nineties,

526
00:28:36,400 --> 00:28:38,960
Speaker 2: think of today, it's the AI stocks. If it's AI

527
00:28:39,080 --> 00:28:42,360
Speaker 2: is really going to continue to advance, they do fantastically well.

528
00:28:42,480 --> 00:28:46,200
Speaker 2: For good reason. Earning's growth is explosive. The technology is spreading,

529
00:28:47,040 --> 00:28:50,200
Speaker 2: it's starting to be produced at scale, and there's huge

530
00:28:50,200 --> 00:28:53,400
Speaker 2: profit opportunities. However, what I was shocked to find is that,

531
00:28:53,440 --> 00:28:57,960
Speaker 2: without exception in the back half in the second five

532
00:28:58,000 --> 00:29:00,520
Speaker 2: to seven years, is that some of that out format

533
00:29:00,600 --> 00:29:03,200
Speaker 2: switches actually and it starts to spread outside of the

534
00:29:03,240 --> 00:29:07,520
Speaker 2: tech sector. And so the more bush you are on AI,

535
00:29:07,720 --> 00:29:11,440
Speaker 2: I tell investors, believe it or not, the more bush

536
00:29:11,440 --> 00:29:14,040
Speaker 2: you are in AI, the more I would be suggesting

537
00:29:15,880 --> 00:29:20,120
Speaker 2: less overweight or even underweight technology in your portfolio the

538
00:29:20,160 --> 00:29:22,560
Speaker 2: next five or seven years and people say what I said,

539
00:29:22,560 --> 00:29:24,440
Speaker 2: I did not misspeak. Let me walk you through it.

540
00:29:25,160 --> 00:29:28,680
Speaker 2: And there's two reasons why this rotation happens. One is

541
00:29:29,360 --> 00:29:31,280
Speaker 2: all the new entrants coming into the space show you

542
00:29:31,320 --> 00:29:33,200
Speaker 2: just mentioned it right, It's not I'm not speaking in

543
00:29:33,240 --> 00:29:36,040
Speaker 2: all the investment it's going to be. It transforms the economy.

544
00:29:36,840 --> 00:29:40,160
Speaker 2: But hundreds of not thousands, of companies go into the space,

545
00:29:40,240 --> 00:29:42,560
Speaker 2: not all them will merge. I'm not saying that the

546
00:29:42,680 --> 00:29:44,640
Speaker 2: large companies will go out of business. I'm I'm saying

547
00:29:44,680 --> 00:29:46,520
Speaker 2: that at all. It's not clear to me who wins.

548
00:29:47,160 --> 00:29:49,640
Speaker 2: But as a portfolio, there's a lot of creative destruction.

549
00:29:50,080 --> 00:29:52,800
Speaker 2: And you know, the past five years or so, there's

550
00:29:52,840 --> 00:29:56,360
Speaker 2: been nearly four over four thousand AI companies funded in

551
00:29:56,400 --> 00:29:58,920
Speaker 2: the US alone. That's more than all publicly trade US stocks.

552
00:29:59,720 --> 00:30:01,880
Speaker 2: Of them will fail, and it's not because AI is

553
00:30:01,880 --> 00:30:04,600
Speaker 2: a bust, so you just have to think about that.

554
00:30:04,760 --> 00:30:07,080
Speaker 2: But it doesn't feel like that in the first phase.

555
00:30:07,120 --> 00:30:09,440
Speaker 2: It feels like only the tech stocks are going up,

556
00:30:09,480 --> 00:30:12,080
Speaker 2: and it's it is massive out performance.

557
00:30:11,680 --> 00:30:13,160
Speaker 1: And it feels like a bit of an arms race

558
00:30:13,320 --> 00:30:16,040
Speaker 1: right now too companies and it's.

559
00:30:15,920 --> 00:30:18,440
Speaker 2: Not as And then some will say, well, is that

560
00:30:18,480 --> 00:30:21,240
Speaker 2: a bubble, I said, generally you get frothy investments. Is

561
00:30:21,280 --> 00:30:23,200
Speaker 2: part of the reason why we have a guarded outlook

562
00:30:23,280 --> 00:30:27,520
Speaker 2: even though we're bush on AI. But I don't you

563
00:30:27,680 --> 00:30:30,360
Speaker 2: never use the word bubble. Here's why, Joel, because it

564
00:30:30,440 --> 00:30:33,400
Speaker 2: implies maybe it maybe runs the risk of implying that

565
00:30:33,480 --> 00:30:35,719
Speaker 2: the tech. If I hear bubble, I might be as

566
00:30:35,760 --> 00:30:37,680
Speaker 2: a listener, they say, ah, then your skeptical and AI.

567
00:30:37,720 --> 00:30:40,480
Speaker 2: I'm like, no, no, no, no, no skeptic In AI. There's

568
00:30:40,520 --> 00:30:44,720
Speaker 2: just huge investment because people see the benefits. Some of

569
00:30:44,760 --> 00:30:48,960
Speaker 2: them will probably misinvested. But but I think everyone can

570
00:30:49,000 --> 00:30:52,320
Speaker 2: be making rational decisions. Now. What happens though, here's the

571
00:30:52,400 --> 00:30:56,120
Speaker 2: cool thing in the second half of the cycle again,

572
00:30:56,720 --> 00:31:01,480
Speaker 2: in periods where new technology, these general purpose technologies emerge,

573
00:31:01,520 --> 00:31:04,320
Speaker 2: they are transforming the economy. So I tell those that

574
00:31:04,360 --> 00:31:07,320
Speaker 2: are bullsh on AI, well, if AI is so great,

575
00:31:08,680 --> 00:31:11,480
Speaker 2: then how is it transforming the average profitability to the average

576
00:31:11,480 --> 00:31:16,720
Speaker 2: hospital or at the bank Vanguard, if Vanguard was publicly traded,

577
00:31:16,720 --> 00:31:20,400
Speaker 2: how we being more efficient? What new platforms, Joel, You've

578
00:31:20,440 --> 00:31:23,000
Speaker 2: got podcasts, right to say, your public company, how you

579
00:31:23,040 --> 00:31:25,800
Speaker 2: scale your business? So I said, I don't know what

580
00:31:25,840 --> 00:31:28,480
Speaker 2: they are but I said, this is no longer social media,

581
00:31:28,520 --> 00:31:31,120
Speaker 2: which means if we use it, but it hasn't really

582
00:31:31,200 --> 00:31:35,320
Speaker 2: lifted economic growth if it's transformative, So what happens. That's

583
00:31:35,360 --> 00:31:38,160
Speaker 2: where it's the so called value stocks, the non tech

584
00:31:38,200 --> 00:31:42,800
Speaker 2: stocks start to perform pretty well because now we're consuming

585
00:31:42,840 --> 00:31:45,800
Speaker 2: the technology. So the cycle goes from producing the technology

586
00:31:46,160 --> 00:31:50,560
Speaker 2: to consuming it. Now again, what new platforms emerge? I

587
00:31:50,640 --> 00:31:53,920
Speaker 2: don't know. I identify some areas of where it could be.

588
00:31:54,000 --> 00:31:58,080
Speaker 2: I think the transformation has to go through healthcare, high

589
00:31:58,200 --> 00:32:03,240
Speaker 2: unmet needs, as tough to scale, labor shortages on some

590
00:32:03,480 --> 00:32:06,600
Speaker 2: you know, potentially in the future. So you know, I

591
00:32:06,680 --> 00:32:08,280
Speaker 2: think it's got to go through there as one. But

592
00:32:08,320 --> 00:32:11,440
Speaker 2: I'm not an industry analyst, but that's exciting because those

593
00:32:11,680 --> 00:32:14,360
Speaker 2: those parts of the market have lagged the tech sector

594
00:32:14,400 --> 00:32:17,800
Speaker 2: by a wide margin. So I would be saying, listen,

595
00:32:17,880 --> 00:32:20,240
Speaker 2: as an investor, you have a little new capital coming

596
00:32:20,280 --> 00:32:24,280
Speaker 2: to work, and you are bullsh on AI. You start

597
00:32:24,360 --> 00:32:27,360
Speaker 2: to start thinking about the stocks outside the US and

598
00:32:27,400 --> 00:32:32,640
Speaker 2: outside of the text sector, precisely because of the broadening effects. Now,

599
00:32:32,640 --> 00:32:34,960
Speaker 2: if you're a bearish on AI, this stuff is hype,

600
00:32:35,080 --> 00:32:37,360
Speaker 2: then that here's the thing. It leads to the same

601
00:32:37,360 --> 00:32:41,240
Speaker 2: investment conclusion. If a if AI is hype, then the

602
00:32:41,280 --> 00:32:44,400
Speaker 2: mag seven are over or overpriced. The tech sector is

603
00:32:44,400 --> 00:32:48,200
Speaker 2: going to underperform for a significant period. So the irony

604
00:32:48,280 --> 00:32:51,160
Speaker 2: is that in either the scenario the book talks about,

605
00:32:51,320 --> 00:32:54,480
Speaker 2: you would want to start thinking about outside the tech

606
00:32:54,560 --> 00:32:57,520
Speaker 2: sector in either whether you're bush or bearish on tech.

607
00:32:57,560 --> 00:33:00,160
Speaker 2: And that's it's the bullsh fast that that I and

608
00:33:00,200 --> 00:33:00,640
Speaker 2: see comment.

609
00:33:01,000 --> 00:33:04,600
Speaker 1: I think I think for the average armchair investor, the

610
00:33:05,160 --> 00:33:07,360
Speaker 1: it's like, what have you done for me lately? And

611
00:33:07,640 --> 00:33:10,520
Speaker 1: just like you look at the Kathy Woods Fund right

612
00:33:10,560 --> 00:33:13,000
Speaker 1: when it was soaring in price, and that's when everybody

613
00:33:13,040 --> 00:33:14,960
Speaker 1: got in, was at the top, and then you have

614
00:33:15,200 --> 00:33:22,280
Speaker 1: the you know, eventual devaluation of that investment, and it

615
00:33:22,360 --> 00:33:24,760
Speaker 1: just makes it. Yeah, like you can look back to

616
00:33:24,800 --> 00:33:26,720
Speaker 1: the computer and the internet era too, and you can

617
00:33:26,960 --> 00:33:30,240
Speaker 1: you can show companies they were at the center of

618
00:33:30,280 --> 00:33:32,240
Speaker 1: everything we did. I'm thinking about a company like AOL

619
00:33:32,800 --> 00:33:37,240
Speaker 1: that was like everybody used AOL for for email, for news,

620
00:33:37,400 --> 00:33:41,240
Speaker 1: for communication. AOL is a shell of a company at this.

621
00:33:41,240 --> 00:33:43,840
Speaker 2: Point, it just goes to high failure rates in a

622
00:33:43,880 --> 00:33:46,360
Speaker 2: period when here's the irony is that I have had

623
00:33:46,400 --> 00:33:49,640
Speaker 2: to study a lot of these cycles is that here's

624
00:33:49,640 --> 00:33:53,920
Speaker 2: the thing that comes out of technological change. Rapid returns

625
00:33:54,120 --> 00:33:56,320
Speaker 2: in those stocks for a time. That's great, it's actually

626
00:33:56,320 --> 00:34:01,440
Speaker 2: a signal that the technology is merit huge failure rates.

627
00:34:01,720 --> 00:34:05,640
Speaker 2: Some stars emerged now we call them unicorns, you call

628
00:34:05,680 --> 00:34:08,640
Speaker 2: them whatever you want. They could be existing or they

629
00:34:08,680 --> 00:34:11,759
Speaker 2: become market leaders, become bigger. So you can you can

630
00:34:11,760 --> 00:34:14,840
Speaker 2: find evidence of that, but you also find high failure rates. Now,

631
00:34:15,120 --> 00:34:17,240
Speaker 2: if I have to own the portfolio in the sector,

632
00:34:17,880 --> 00:34:19,920
Speaker 2: I'm probably be stuck with a little bit of both.

633
00:34:20,080 --> 00:34:23,000
Speaker 2: What what I'm saying is you can start thinking is

634
00:34:23,000 --> 00:34:26,040
Speaker 2: that this is this full investment cycle is not over.

635
00:34:27,000 --> 00:34:29,760
Speaker 2: And if you first so stay invested, but you can,

636
00:34:30,080 --> 00:34:32,040
Speaker 2: if you want to be offensive, if you miss some

637
00:34:32,120 --> 00:34:34,440
Speaker 2: of the tech run up. Listen, this thing could go

638
00:34:34,480 --> 00:34:36,600
Speaker 2: on for another two years. It's in our simulations like

639
00:34:36,640 --> 00:34:38,879
Speaker 2: it wouldn't shock me. You could have further melt up.

640
00:34:39,880 --> 00:34:42,759
Speaker 2: But if you're playing the lawn game, I'm trying to

641
00:34:42,760 --> 00:34:45,000
Speaker 2: think in my in my you know, you know, my

642
00:34:45,040 --> 00:34:48,200
Speaker 2: own portfolios. Hey, what's what's the next extension of this

643
00:34:48,719 --> 00:34:51,920
Speaker 2: if it continues, and start thinking about, well, how is

644
00:34:51,920 --> 00:34:55,880
Speaker 2: AI going to be used? Think about then those sectors

645
00:34:55,920 --> 00:35:00,160
Speaker 2: which aren't trading that really high multiples. Yeah, and and

646
00:35:00,200 --> 00:35:02,920
Speaker 2: that's actually playing offense. It's you know, you could be

647
00:35:02,960 --> 00:35:05,040
Speaker 2: bush and think about it. I'm starting to hear active

648
00:35:05,160 --> 00:35:09,880
Speaker 2: managers start talking about this, and so I think we're

649
00:35:09,920 --> 00:35:11,600
Speaker 2: all on into something. And you got time on this,

650
00:35:11,800 --> 00:35:13,839
Speaker 2: like it's not going to disappear tomorrow. We've got five

651
00:35:13,920 --> 00:35:14,560
Speaker 2: seven years on this.

652
00:35:14,680 --> 00:35:18,160
Speaker 1: But essentially, productivity is going to extend to so many

653
00:35:18,200 --> 00:35:20,880
Speaker 1: other sectors of the economy. And if you're only focused

654
00:35:20,960 --> 00:35:24,520
Speaker 1: on AI stocks, then you're too hyper focused.

655
00:35:24,640 --> 00:35:26,920
Speaker 2: That's the thing. If it stays in Silicon Valley, we

656
00:35:27,000 --> 00:35:30,160
Speaker 2: got a problem. Yeah, but I'm saying what horizon someone's

657
00:35:30,160 --> 00:35:32,160
Speaker 2: saying for the next year, So well next year, you know,

658
00:35:33,000 --> 00:35:35,160
Speaker 2: we don't have that sort of accuracy. But yeah, one

659
00:35:35,200 --> 00:35:36,920
Speaker 2: shocked when we continue to mount up. You want to

660
00:35:37,000 --> 00:35:40,759
Speaker 2: chase the momentum, fine, go ahead, but reprepare for a

661
00:35:40,840 --> 00:35:41,800
Speaker 2: rocky ride.

662
00:35:41,920 --> 00:35:44,440
Speaker 1: So what does a robust portfolio look like? Then? For

663
00:35:44,560 --> 00:35:48,240
Speaker 1: the average investor who does have a long time horizon,

664
00:35:48,280 --> 00:35:52,399
Speaker 1: they've got ten, twenty thirty years and do simple strategies

665
00:35:52,680 --> 00:35:55,640
Speaker 1: index funds, target date funds. Oh, do they need to

666
00:35:55,680 --> 00:35:58,560
Speaker 1: be more complex than that, or can like bogel heads

667
00:35:58,600 --> 00:35:59,279
Speaker 1: still do well.

668
00:35:59,400 --> 00:36:01,840
Speaker 2: No. Well, First of all, the key is the asset

669
00:36:01,880 --> 00:36:05,319
Speaker 2: allocation and drive down the cost. AI has not in

670
00:36:05,360 --> 00:36:08,960
Speaker 2: any way, shape or form change to the investment principles

671
00:36:09,160 --> 00:36:11,400
Speaker 2: which will be here long after AI and then the

672
00:36:11,440 --> 00:36:14,080
Speaker 2: next tech and then the next technology and next technology.

673
00:36:13,840 --> 00:36:17,000
Speaker 2: And that's why I felt compelled to introduce in a

674
00:36:17,080 --> 00:36:20,160
Speaker 2: very respectful way, Jack bo Vanguard's founders, You've probably done

675
00:36:20,200 --> 00:36:24,480
Speaker 2: more for investment principles for the industry at large then

676
00:36:24,520 --> 00:36:27,080
Speaker 2: I can think of anyone in finance, and so you've

677
00:36:27,120 --> 00:36:30,920
Speaker 2: got to stay invested, right, That's the first thing. And

678
00:36:30,960 --> 00:36:33,600
Speaker 2: I'm what I thought though, is that these risks are

679
00:36:33,960 --> 00:36:36,759
Speaker 2: most of the risks we are diagnosing are different than

680
00:36:36,760 --> 00:36:38,799
Speaker 2: what some of the markets contemplate. So if this thing

681
00:36:38,880 --> 00:36:41,160
Speaker 2: about risk management, as you think about it, and I try

682
00:36:41,200 --> 00:36:43,799
Speaker 2: to talk about some actionable things in there, but they're not,

683
00:36:44,560 --> 00:36:47,040
Speaker 2: I won't call any of this jewels see change. So

684
00:36:47,080 --> 00:36:49,319
Speaker 2: if you're on the if you're listening here on the

685
00:36:49,480 --> 00:36:51,919
Speaker 2: Joel's podcast, as you always do, and you're thinking about, Okay,

686
00:36:52,320 --> 00:36:53,719
Speaker 2: how do I think about it for my farm work

687
00:36:54,000 --> 00:36:57,799
Speaker 2: or so forth, changes in moderation at the margin right

688
00:36:57,880 --> 00:37:00,560
Speaker 2: if at all, But stay invested. Do not listen to

689
00:37:00,600 --> 00:37:02,320
Speaker 2: those that are going to say the sky is falling,

690
00:37:02,719 --> 00:37:04,960
Speaker 2: and do not listen to those that get so hyped

691
00:37:05,040 --> 00:37:08,080
Speaker 2: up on AI that they see no risks in the

692
00:37:08,160 --> 00:37:10,960
Speaker 2: market and just what like on the downside, Let's not

693
00:37:11,040 --> 00:37:13,000
Speaker 2: think the world is ending just because at that levels

694
00:37:13,000 --> 00:37:15,800
Speaker 2: continue to go up. There's a way to overweight fixed

695
00:37:15,840 --> 00:37:19,640
Speaker 2: income at the margin for more conservative investors, which also

696
00:37:19,680 --> 00:37:23,240
Speaker 2: sounds contrarying, But don't run for the hills for gold

697
00:37:23,280 --> 00:37:26,279
Speaker 2: and other asset prices like that's the signals are not

698
00:37:26,360 --> 00:37:29,439
Speaker 2: what you invest in for the full investment cycle.

699
00:37:29,600 --> 00:37:31,600
Speaker 1: Let's say someone does have a shorter time horizon. Let's

700
00:37:31,600 --> 00:37:35,080
Speaker 1: say somebody's listening and they're on the edge of retirement

701
00:37:35,200 --> 00:37:38,359
Speaker 1: and they're like, stocks have been good to me, and

702
00:37:38,600 --> 00:37:42,480
Speaker 1: I should I take some chips off the table, especially

703
00:37:42,560 --> 00:37:47,360
Speaker 1: given kind of some of the potential the ways that

704
00:37:47,400 --> 00:37:50,080
Speaker 1: this could play out that could be negative from like

705
00:37:50,560 --> 00:37:53,279
Speaker 1: a tech standpoint. Let's say we see some of the

706
00:37:53,480 --> 00:37:56,800
Speaker 1: valuations pull back and investors kind of get a little tepid.

707
00:37:57,120 --> 00:37:59,880
Speaker 1: That could have an impact for people who need that money.

708
00:37:59,640 --> 00:38:01,919
Speaker 2: More were that and that's a part of a good

709
00:38:01,920 --> 00:38:04,120
Speaker 2: I think financial planners stressed us. And if someone's doing

710
00:38:04,120 --> 00:38:06,919
Speaker 2: it on their own, listen, you know, and any good

711
00:38:06,920 --> 00:38:09,520
Speaker 2: advisor would have all the sophisticated math. Your investors may

712
00:38:09,560 --> 00:38:12,359
Speaker 2: have spreadsheets and software and all that good stuff. Joel.

713
00:38:12,440 --> 00:38:15,200
Speaker 2: And a way to simplify with not losing any of

714
00:38:15,239 --> 00:38:18,560
Speaker 2: that that great insights is to say some simple exercise.

715
00:38:18,600 --> 00:38:21,799
Speaker 2: I even tell family and friends. So you take your money,

716
00:38:21,840 --> 00:38:23,719
Speaker 2: and you have your asset allocation right, you can pull

717
00:38:23,760 --> 00:38:27,080
Speaker 2: up your balance right on your account. I say, just

718
00:38:27,120 --> 00:38:29,880
Speaker 2: imagine the world next two years, we're down thirty percent

719
00:38:30,320 --> 00:38:33,880
Speaker 2: and up thirty percent. In both those words like do

720
00:38:34,000 --> 00:38:36,440
Speaker 2: the math and I do it. I actually I do

721
00:38:36,520 --> 00:38:39,680
Speaker 2: it with pen I actually put in excel. I dropped

722
00:38:39,719 --> 00:38:43,239
Speaker 2: thirty percent of my portfolio. Oh that hurts, I said,

723
00:38:43,320 --> 00:38:46,400
Speaker 2: let's see that number. And now now my wife and

724
00:38:46,440 --> 00:38:48,439
Speaker 2: I go through that. And now I say, hey, hunt,

725
00:38:48,920 --> 00:38:51,520
Speaker 2: is this changing our lifestyle from what we know a

726
00:38:51,600 --> 00:38:53,359
Speaker 2: week going to get? Do we have to put off

727
00:38:53,480 --> 00:38:55,880
Speaker 2: something that we were planning on doing. If the answer

728
00:38:55,960 --> 00:38:59,520
Speaker 2: is yes, then they should start thinking about mod is

729
00:38:59,640 --> 00:39:02,279
Speaker 2: changing take some risk on the table because but then

730
00:39:02,400 --> 00:39:06,400
Speaker 2: also be aware that if you do that on the downside,

731
00:39:06,760 --> 00:39:10,440
Speaker 2: now you okay, giving up the thirty percent upside and

732
00:39:10,480 --> 00:39:13,279
Speaker 2: look at that number two, because you have to look

733
00:39:13,280 --> 00:39:16,520
Speaker 2: at both. You can't just look at one. I tend

734
00:39:16,520 --> 00:39:19,040
Speaker 2: to be a little bit more risk loving, less risk averse.

735
00:39:19,080 --> 00:39:21,759
Speaker 2: But there's no judgment in this. No, I appreciate that

736
00:39:21,800 --> 00:39:24,440
Speaker 2: so so much, says I cannot be down thirty that's

737
00:39:24,520 --> 00:39:26,200
Speaker 2: chicks all the table. Others like, yeah, I can live

738
00:39:26,239 --> 00:39:29,719
Speaker 2: with it. It's longer term than good. They're probably looking

739
00:39:29,719 --> 00:39:32,080
Speaker 2: at the thirty percent on the upside. I think there's

740
00:39:32,080 --> 00:39:35,759
Speaker 2: nothing wrong. This is judgment free zone, and I say

741
00:39:35,800 --> 00:39:37,759
Speaker 2: that's a really siber exercise people can do. You can

742
00:39:37,800 --> 00:39:39,719
Speaker 2: add more math to it, but that gets to the

743
00:39:39,719 --> 00:39:43,200
Speaker 2: same endpoint. And if the answer is no, don't change anything.

744
00:39:43,960 --> 00:39:46,440
Speaker 2: If it's yes, then they're probably in the wrong asset

745
00:39:46,440 --> 00:39:50,280
Speaker 2: allocation because most people don't rebalance, which things like target

746
00:39:50,360 --> 00:39:52,759
Speaker 2: date funds automatically do. And it's kind of like on

747
00:39:52,760 --> 00:39:57,840
Speaker 2: an autopilot. But like my brokera's account doesn't rebalance, my

748
00:39:57,920 --> 00:40:01,280
Speaker 2: stock portfolio, is I have more risk am exposed today

749
00:40:01,920 --> 00:40:03,880
Speaker 2: than I did three years ago because the market's up

750
00:40:03,880 --> 00:40:04,200
Speaker 2: a lot.

751
00:40:04,520 --> 00:40:05,000
Speaker 1: Makes sense.

752
00:40:05,239 --> 00:40:07,960
Speaker 2: So if I do that thirty percent down now it's

753
00:40:07,960 --> 00:40:10,359
Speaker 2: going to look like a bigger hurt than it did

754
00:40:10,360 --> 00:40:12,600
Speaker 2: three years ago. Am I good with it? I don't know.

755
00:40:12,640 --> 00:40:14,080
Speaker 2: We're going to do that a year and my wife

756
00:40:14,120 --> 00:40:16,160
Speaker 2: and I and we'll see. I'll let you know where

757
00:40:16,200 --> 00:40:16,600
Speaker 2: we land.

758
00:40:16,880 --> 00:40:19,560
Speaker 1: I look forward to hearing that. Okay, we've got more

759
00:40:19,640 --> 00:40:23,000
Speaker 1: to get to international stock exposure. We'll get to that

760
00:40:23,200 --> 00:40:32,680
Speaker 1: and more. Right after this, I'm still talking about the

761
00:40:32,680 --> 00:40:35,960
Speaker 1: Big Oars show. Davis and Joe, just a few more

762
00:40:36,000 --> 00:40:38,279
Speaker 1: questions for you. But one of the things I'm really

763
00:40:38,280 --> 00:40:42,440
Speaker 1: curious about too. We touched on this briefly, but how

764
00:40:42,560 --> 00:40:48,160
Speaker 1: crucial are low costs in a portfolio, especially given kind

765
00:40:48,160 --> 00:40:51,880
Speaker 1: of these trends that we might be experiencing. Is that

766
00:40:51,960 --> 00:40:57,200
Speaker 1: something investors under consider. There's certain funds out there, even

767
00:40:57,200 --> 00:40:59,000
Speaker 1: when you're looking at something like as basic as an

768
00:40:59,040 --> 00:41:01,960
Speaker 1: S and P five hundred fund, the cost can very dramatically.

769
00:41:02,360 --> 00:41:05,919
Speaker 1: How important is keeping the cost low? And does it

770
00:41:05,960 --> 00:41:08,000
Speaker 1: is it more important in this environment or less important?

771
00:41:08,200 --> 00:41:11,439
Speaker 2: Well, it's it's it's critically important regardless, I mean, because

772
00:41:11,480 --> 00:41:14,400
Speaker 2: the fact is, it's just it's part of compound interest.

773
00:41:14,560 --> 00:41:18,040
Speaker 2: I mean, Benjamin Franklin, he said it, you know, two

774
00:41:18,080 --> 00:41:20,480
Speaker 2: hundred fifty years ago, the power of compound interests and

775
00:41:21,320 --> 00:41:23,759
Speaker 2: even Einstein's to talk about it's probably one of the

776
00:41:23,800 --> 00:41:28,759
Speaker 2: most powerful forces on finance people least appreciate, right, and

777
00:41:28,840 --> 00:41:32,719
Speaker 2: so all high costs can can eat at returns. And

778
00:41:32,760 --> 00:41:35,319
Speaker 2: it's just a math. And so I want to keep

779
00:41:35,320 --> 00:41:36,920
Speaker 2: as much in my heart owned money as I do.

780
00:41:37,160 --> 00:41:40,040
Speaker 2: And so I would say, and so that that Vanguard

781
00:41:40,040 --> 00:41:42,160
Speaker 2: has always been the thesis. I know sometimes it gets

782
00:41:42,480 --> 00:41:45,520
Speaker 2: in the industry. Listeners may appreciate this, ohh, I go

783
00:41:45,680 --> 00:41:49,840
Speaker 2: active management, active funds versus index funds. More important this

784
00:41:49,920 --> 00:41:52,600
Speaker 2: is coming from Vanguard. What we've always said, it's low

785
00:41:52,640 --> 00:41:56,640
Speaker 2: cost versus high cost. So the push to push the extreme.

786
00:41:57,200 --> 00:41:59,600
Speaker 2: If someone Joel if a listener on this call, has

787
00:41:59,640 --> 00:42:03,880
Speaker 2: I don't a ninety basis point where seventy basis points

788
00:42:03,880 --> 00:42:07,759
Speaker 2: index fund, I am saying, as a as an employee,

789
00:42:07,760 --> 00:42:11,360
Speaker 2: advantguard sell that fund. Now I cannot get financial advice,

790
00:42:11,400 --> 00:42:14,439
Speaker 2: but I would be strongly questioning. And that's an index fund.

791
00:42:14,520 --> 00:42:17,400
Speaker 1: But it's high cost and those exist. Those exist.

792
00:42:17,400 --> 00:42:21,759
Speaker 2: There are something that's well, there's some ets they go narrow, Yeah,

793
00:42:21,760 --> 00:42:24,600
Speaker 2: they have narrow space. You know thematics. Some things are

794
00:42:24,680 --> 00:42:27,839
Speaker 2: high cost I'm just saying, like, that's a hurle you're

795
00:42:27,840 --> 00:42:30,840
Speaker 2: gonna have to overcome, just like active managers have to overcome.

796
00:42:31,280 --> 00:42:33,760
Speaker 2: So I've always been there's some high quality even active

797
00:42:33,760 --> 00:42:36,800
Speaker 2: managers twenty thirty basis points, they still have to outperform

798
00:42:37,000 --> 00:42:39,120
Speaker 2: the market, but they don't have as much of a

799
00:42:39,200 --> 00:42:44,560
Speaker 2: headwind as say, I don't know, eighty ninety basis point manager.

800
00:42:46,040 --> 00:42:47,759
Speaker 2: Now the index fund, I know I'm going to get

801
00:42:47,800 --> 00:42:51,120
Speaker 2: the market return minus my expense ratio. And as Jack

802
00:42:51,120 --> 00:42:52,960
Speaker 2: would say, I want to get as close to the

803
00:42:53,000 --> 00:42:57,040
Speaker 2: market itself as I can. So that's that's great starting point.

804
00:42:58,560 --> 00:43:01,520
Speaker 2: But you know, I start to have personally when I

805
00:43:01,560 --> 00:43:04,640
Speaker 2: start going up north of I don't know, thirty five

806
00:43:04,760 --> 00:43:09,120
Speaker 2: or forty for sure, and for broad market exposure, if

807
00:43:09,160 --> 00:43:12,040
Speaker 2: I'm north of twenty or so, I'm asking myself.

808
00:43:11,680 --> 00:43:14,840
Speaker 1: Why you briefly mentioned international just a little bit earlier,

809
00:43:14,840 --> 00:43:18,440
Speaker 1: And I know Jack was not He didn't necessarily he

810
00:43:18,480 --> 00:43:22,040
Speaker 1: didn't necessarily think most people needed international exposure to a

811
00:43:22,200 --> 00:43:25,480
Speaker 1: much exposure at international stocks has has like Vanguard's thesis

812
00:43:25,480 --> 00:43:27,120
Speaker 1: on that change that changed much or.

813
00:43:27,239 --> 00:43:29,360
Speaker 2: No it has, And I tell you and I was respectful.

814
00:43:29,520 --> 00:43:31,160
Speaker 2: So Jack had all those years on me and he's

815
00:43:31,160 --> 00:43:33,319
Speaker 2: founder of the company. But we battled on that. Yeah,

816
00:43:33,440 --> 00:43:35,480
Speaker 2: over the same lunch he was asking me I talked

817
00:43:35,480 --> 00:43:38,120
Speaker 2: about in the book. He'd say, Ah, Joe, we don't.

818
00:43:38,239 --> 00:43:40,360
Speaker 2: We don't need international. You get a most exposure for

819
00:43:40,440 --> 00:43:42,920
Speaker 2: the US. Don't don't sell the US short. I'm like,

820
00:43:42,960 --> 00:43:47,960
Speaker 2: I'm not. I'm not. I'm not patriotic. I'm more diversifying

821
00:43:48,239 --> 00:43:51,800
Speaker 2: of And so I tell you so. Fact, this past

822
00:43:51,800 --> 00:43:55,680
Speaker 2: ten years US has dominated non US. And so I'm

823
00:43:55,680 --> 00:43:58,160
Speaker 2: hearing Jack, I hear I told you so. I told

824
00:43:58,200 --> 00:44:01,000
Speaker 2: you so. He's been He's been spot on right. What

825
00:44:01,080 --> 00:44:04,279
Speaker 2: I say, though, is that doesn't say why we ultimately say,

826
00:44:04,320 --> 00:44:07,160
Speaker 2: put some of your eggs outside the US. It has

827
00:44:07,280 --> 00:44:11,400
Speaker 2: nothing to do with the relative valuations. Is US more

828
00:44:11,440 --> 00:44:15,320
Speaker 2: expensive less? The fact is, what history shows is roughly

829
00:44:15,400 --> 00:44:18,480
Speaker 2: four percent of the companies account for half of the

830
00:44:18,520 --> 00:44:21,800
Speaker 2: stock markets, a return of the last century. Four percent.

831
00:44:21,880 --> 00:44:25,760
Speaker 2: Just think about that. Wow, now the past fifteen years.

832
00:44:25,840 --> 00:44:28,000
Speaker 2: But the benefit of hindsight, it turns out almost all

833
00:44:28,080 --> 00:44:32,160
Speaker 2: those companies have been in the US right well, great

834
00:44:32,760 --> 00:44:35,520
Speaker 2: to help explains the high earnings growth. It help. It's

835
00:44:35,560 --> 00:44:38,560
Speaker 2: not all, but it's a big chunk helps explain the

836
00:44:38,560 --> 00:44:41,000
Speaker 2: strong returns of the past twenty or thirty years. So

837
00:44:41,760 --> 00:44:43,480
Speaker 2: my only point is if you have one hundred percent

838
00:44:43,600 --> 00:44:47,520
Speaker 2: US exposure, I just remind people, whether you realize it

839
00:44:47,640 --> 00:44:53,200
Speaker 2: or not, that's a very strong stance on technology. Dare

840
00:44:53,239 --> 00:44:56,400
Speaker 2: I even say almost arrogance stance that the US is

841
00:44:56,400 --> 00:44:59,680
Speaker 2: going to dominate one hundred percent of the next great

842
00:44:59,719 --> 00:45:03,400
Speaker 2: company over the next twenty or thirty years. Now, again

843
00:45:03,760 --> 00:45:06,120
Speaker 2: I'm not saying you shouldn't have a high US weight,

844
00:45:06,560 --> 00:45:09,080
Speaker 2: but just think about that. And I'm not one hundred

845
00:45:09,080 --> 00:45:11,000
Speaker 2: percent confident they will be in the US. I think

846
00:45:11,000 --> 00:45:14,400
Speaker 2: the US is very innovative, very entrepreneurial, more so the

847
00:45:14,400 --> 00:45:16,920
Speaker 2: most economies, but I'm not one hundred percent confident one

848
00:45:16,960 --> 00:45:19,319
Speaker 2: hundred percent of companies will come from there. And that's

849
00:45:19,400 --> 00:45:23,520
Speaker 2: why we say non zero. And then that also then

850
00:45:23,560 --> 00:45:26,719
Speaker 2: diversifies your currency exposure a little bit given some of

851
00:45:26,719 --> 00:45:29,600
Speaker 2: our debt, you know, risks at the margin. So that

852
00:45:29,600 --> 00:45:31,560
Speaker 2: that that's why you would have non US and I

853
00:45:31,600 --> 00:45:33,799
Speaker 2: would say that you know, bless them if you were

854
00:45:33,800 --> 00:45:39,319
Speaker 2: alive today, now that you know the evaluations is secondary.

855
00:45:39,440 --> 00:45:42,680
Speaker 2: Is the US more expensive than the non US? We'll

856
00:45:42,719 --> 00:45:46,120
Speaker 2: talk about that, but reasonable people can say, can I

857
00:45:46,160 --> 00:45:50,399
Speaker 2: have ten percent thirty forty percent? Non US. I think

858
00:45:50,400 --> 00:45:53,400
Speaker 2: it's more just getting off the zero bound because you

859
00:45:53,640 --> 00:45:55,480
Speaker 2: you just mean not realize you have almost like this

860
00:45:55,600 --> 00:45:59,839
Speaker 2: technology bet right. And for someone that says I'm good

861
00:45:59,840 --> 00:46:01,719
Speaker 2: with the US, I would just really move your mind

862
00:46:01,760 --> 00:46:04,200
Speaker 2: and this is smart people, I would just say, respectfully,

863
00:46:04,200 --> 00:46:08,560
Speaker 2: the smartest minds in the world forty years ago said

864
00:46:08,640 --> 00:46:13,600
Speaker 2: you only needed investments in one country, and that was Japan,

865
00:46:15,200 --> 00:46:18,000
Speaker 2: technology leader of the world. The smartest investors are well,

866
00:46:18,040 --> 00:46:20,240
Speaker 2: by the way, do that were right for twenty years?

867
00:46:20,280 --> 00:46:22,440
Speaker 2: And I am not saying the US is following Japan.

868
00:46:22,480 --> 00:46:25,640
Speaker 2: But I'm saying I just like basket your eggs and

869
00:46:25,680 --> 00:46:27,800
Speaker 2: one mess so readonable people. I said, even you have

870
00:46:27,880 --> 00:46:30,359
Speaker 2: five percent to get off the zero bound a little bit,

871
00:46:31,000 --> 00:46:34,440
Speaker 2: and but but but thank goodness, the returns have been

872
00:46:34,480 --> 00:46:36,759
Speaker 2: so strong for US investors. It's been a huge house.

873
00:46:36,760 --> 00:46:39,319
Speaker 1: Has writing this book impacted how you think about your

874
00:46:39,360 --> 00:46:40,000
Speaker 1: own investments?

875
00:46:40,000 --> 00:46:42,359
Speaker 2: Well, I think it's uh, it's well, Firk to fall.

876
00:46:42,400 --> 00:46:46,560
Speaker 2: Writing a book is humbling. I've had to write academic

877
00:46:47,080 --> 00:46:49,359
Speaker 2: style type work for years, but to try to make

878
00:46:49,400 --> 00:46:52,640
Speaker 2: it take all the jargon out of it took me

879
00:46:52,719 --> 00:46:55,480
Speaker 2: more than a few tries. I will admit it beat

880
00:46:55,560 --> 00:46:58,040
Speaker 2: me up, But as my mom says, it's always good

881
00:46:58,040 --> 00:47:00,279
Speaker 2: to be dose, to give it a little humble high

882
00:47:00,320 --> 00:47:03,400
Speaker 2: every once in a while. So but I think it

883
00:47:03,520 --> 00:47:08,000
Speaker 2: was a really appreciating the opportunity for non consensus outcomes

884
00:47:08,040 --> 00:47:11,040
Speaker 2: and not to be alarmist on it. We are saying

885
00:47:11,239 --> 00:47:14,920
Speaker 2: it's actually probably the most bold economic assessment that I'm

886
00:47:14,960 --> 00:47:17,680
Speaker 2: aware of from any firm in the world right now.

887
00:47:17,760 --> 00:47:21,200
Speaker 2: We are saying that the most respected minds generally the

888
00:47:21,239 --> 00:47:26,280
Speaker 2: same view the central banks, you know, in National Monetary Fund,

889
00:47:26,680 --> 00:47:29,279
Speaker 2: the probability of their forecast being correct over the next

890
00:47:29,280 --> 00:47:32,279
Speaker 2: five years is only is twenty percent or less. Can

891
00:47:32,320 --> 00:47:35,120
Speaker 2: you think about from my perspective, the audacity of that

892
00:47:35,200 --> 00:47:39,400
Speaker 2: statement is fairly that's pretty autacious statement. But it's thata driven.

893
00:47:39,440 --> 00:47:42,719
Speaker 2: I was not looking for this forecast, and so that

894
00:47:42,880 --> 00:47:45,799
Speaker 2: was but putting it in a way that wasn't being

895
00:47:45,800 --> 00:47:50,040
Speaker 2: an alarmist. And so what I hope is there's value

896
00:47:50,040 --> 00:47:52,960
Speaker 2: in us trying to bridge the economic world into the

897
00:47:53,040 --> 00:47:57,840
Speaker 2: investment world without having me having to read five hundred pages.

898
00:47:58,000 --> 00:48:00,120
Speaker 1: Yeah, well no, and I think that's what you did

899
00:48:00,360 --> 00:48:03,800
Speaker 1: really well in this and it gives people like, instead

900
00:48:03,800 --> 00:48:07,799
Speaker 1: of just reading headlines and negative news or boy, this

901
00:48:07,840 --> 00:48:11,440
Speaker 1: could be really bad, it gives people a framework to

902
00:48:11,480 --> 00:48:15,279
Speaker 1: help understand how this is going to impact them as

903
00:48:15,320 --> 00:48:19,160
Speaker 1: individuals over the next ten fifteen years. And so I

904
00:48:19,160 --> 00:48:21,319
Speaker 1: think it's great work. Joe, really appreciate you joining me.

905
00:48:21,320 --> 00:48:23,560
Speaker 1: We'll make sure to link to the book as well

906
00:48:23,640 --> 00:48:25,279
Speaker 1: in the show notes. But thanks so much for coming

907
00:48:25,320 --> 00:48:26,400
Speaker 1: on the pod. We really appreciate it.

908
00:48:26,600 --> 00:48:27,719
Speaker 2: Oh, thanks for having me.

909
00:48:28,239 --> 00:48:31,319
Speaker 1: All right, that was such an interesting conversation, So fun

910
00:48:31,320 --> 00:48:35,239
Speaker 1: to have somebody from Vanguard on. You know, Joe has

911
00:48:35,360 --> 00:48:39,399
Speaker 1: just been an economist there for multiple decades and done

912
00:48:39,400 --> 00:48:43,640
Speaker 1: stage great work and its Vanguard is such a unique institution.

913
00:48:44,080 --> 00:48:46,879
Speaker 1: It's been so impactful to individual investors. And so when

914
00:48:46,880 --> 00:48:49,359
Speaker 1: I saw Joe's book come out, I was like, oh,

915
00:48:49,480 --> 00:48:53,759
Speaker 1: that's an interesting subject matter, also interesting like where it's

916
00:48:53,800 --> 00:48:58,759
Speaker 1: coming from. Gave me even more pause to say. I

917
00:48:58,760 --> 00:49:01,879
Speaker 1: think he would be a good guest, And I hope

918
00:49:02,040 --> 00:49:04,279
Speaker 1: this was a helpful conversation for you. I think when

919
00:49:04,320 --> 00:49:07,040
Speaker 1: it comes down to it, my big takeaways from this

920
00:49:07,560 --> 00:49:10,560
Speaker 1: were really to not change your investing thesis all that

921
00:49:10,640 --> 00:49:14,120
Speaker 1: much based on the headlines, and that is an interesting

922
00:49:14,160 --> 00:49:17,000
Speaker 1: place to reside, especially after Joe's like, Hey, I'm super

923
00:49:17,040 --> 00:49:19,960
Speaker 1: polish on AI. I think it's going to have overwhelmingly,

924
00:49:20,000 --> 00:49:22,520
Speaker 1: based on my modeling, a really big impact on our

925
00:49:22,560 --> 00:49:27,040
Speaker 1: economy as a whole. Then you might think he would

926
00:49:27,120 --> 00:49:30,600
Speaker 1: have some hot tips, right, some specific stocks that he

927
00:49:30,640 --> 00:49:33,239
Speaker 1: would recommend, this is the direction you should go to

928
00:49:33,320 --> 00:49:37,160
Speaker 1: maximize earnings over the next six months or six years.

929
00:49:37,760 --> 00:49:41,200
Speaker 1: But really, he said changes at the margin. At most,

930
00:49:41,600 --> 00:49:46,000
Speaker 1: most people should be making very small changes to their holdings,

931
00:49:46,000 --> 00:49:49,000
Speaker 1: and that low costs still matter more than ever. So

932
00:49:49,560 --> 00:49:55,200
Speaker 1: even despite AI being a disruptive technology that is likely

933
00:49:55,239 --> 00:50:00,960
Speaker 1: to have meaningful impacts across the economy, saying like you

934
00:50:01,080 --> 00:50:03,680
Speaker 1: probably shouldn't do much. That's a whole lot different And

935
00:50:03,719 --> 00:50:06,239
Speaker 1: I love how too. He talked about, actually, if you're

936
00:50:06,239 --> 00:50:08,839
Speaker 1: gonna do anything, you might want to underweight technology. And

937
00:50:08,920 --> 00:50:14,840
Speaker 1: so the last ten twenty years has been the betting

938
00:50:14,880 --> 00:50:20,960
Speaker 1: on technology has been a winning formula. But with valuations

939
00:50:20,960 --> 00:50:24,200
Speaker 1: where they are and with his thesis that AI will

940
00:50:24,239 --> 00:50:27,520
Speaker 1: be impactful, actually those impacts are going to spread to

941
00:50:28,160 --> 00:50:32,920
Speaker 1: companies that aren't just the mag seven. And I think

942
00:50:32,960 --> 00:50:34,359
Speaker 1: there's a lot of truth to that, and I think

943
00:50:34,440 --> 00:50:37,000
Speaker 1: he's right that if AI is going to be impactful,

944
00:50:37,120 --> 00:50:40,400
Speaker 1: it is bound to it has to by definition, impact

945
00:50:41,239 --> 00:50:44,640
Speaker 1: hundreds and hundreds and hundreds of publicly traded companies across

946
00:50:44,680 --> 00:50:47,640
Speaker 1: the country and across the world, and that those productivity

947
00:50:47,680 --> 00:50:52,319
Speaker 1: gains are likely to help industor see greater returns in

948
00:50:52,400 --> 00:50:56,839
Speaker 1: non tech stocks. These are really difficult things to prognosticate,

949
00:50:56,880 --> 00:51:00,040
Speaker 1: even like we started off the episode talking about the

950
00:51:00,200 --> 00:51:03,640
Speaker 1: Vanguard's predictions about muted socc returns and he's like, yeah,

951
00:51:03,880 --> 00:51:06,880
Speaker 1: last two years we haven't looked that great, and so

952
00:51:06,920 --> 00:51:11,040
Speaker 1: these are really difficult projections to make. But I love

953
00:51:11,040 --> 00:51:13,799
Speaker 1: the Joe's using data. He's doing his best to try

954
00:51:13,800 --> 00:51:16,480
Speaker 1: to help people make an informed decision. And I think

955
00:51:16,520 --> 00:51:21,520
Speaker 1: more than anything, it helps me as an individual investor.

956
00:51:21,840 --> 00:51:24,240
Speaker 1: Just like you, you're an individual investor, I'm an individual investor.

957
00:51:24,440 --> 00:51:29,359
Speaker 1: It helps me feel solid about my choice to stay

958
00:51:29,400 --> 00:51:33,000
Speaker 1: the course, to stay low cost, to not make meaningful changes,

959
00:51:33,400 --> 00:51:36,360
Speaker 1: even if other people around you or other people on

960
00:51:36,360 --> 00:51:39,680
Speaker 1: the internet are getting rich investing in a couple of

961
00:51:39,719 --> 00:51:44,920
Speaker 1: tech stocks. Well, is that outside growth going to keep

962
00:51:44,960 --> 00:51:48,719
Speaker 1: going for years and years and years into the future. Maybe,

963
00:51:49,120 --> 00:51:53,200
Speaker 1: But I think what Joe has based on history and

964
00:51:53,239 --> 00:51:56,640
Speaker 1: based on smart projections. I think he's come up with

965
00:51:57,040 --> 00:51:59,719
Speaker 1: a reasonable framework for how we can think about where

966
00:51:59,760 --> 00:52:02,520
Speaker 1: things go from here. And especially when you look back

967
00:52:02,560 --> 00:52:05,719
Speaker 1: to the history of the PC and the Internet. Some

968
00:52:05,760 --> 00:52:09,280
Speaker 1: of those companies that started off strong aren't with us anymore.

969
00:52:09,480 --> 00:52:12,680
Speaker 1: Some are Amazon still here right. The dot com bust

970
00:52:12,920 --> 00:52:15,520
Speaker 1: hurt Amazon, but Amazon made it through. But then there

971
00:52:15,360 --> 00:52:18,400
Speaker 1: are the companies that looked like they were poised to

972
00:52:18,520 --> 00:52:21,719
Speaker 1: change the way certain business was done and they just

973
00:52:22,000 --> 00:52:26,840
Speaker 1: they didn't last, right. And so yeah, as an individual domester,

974
00:52:26,960 --> 00:52:31,520
Speaker 1: now is it time to maybe not change things dramatically

975
00:52:31,800 --> 00:52:35,480
Speaker 1: because of something you heard on CNBC, but it is

976
00:52:35,560 --> 00:52:37,480
Speaker 1: time to step back and look at am I doing

977
00:52:37,520 --> 00:52:40,680
Speaker 1: the basics right? So I hope this episode was helpful.

978
00:52:41,239 --> 00:52:43,919
Speaker 1: Thanks as always for tuning in. You can find links

979
00:52:43,960 --> 00:52:47,040
Speaker 1: to Joe's book and to some of the other things

980
00:52:47,040 --> 00:52:49,680
Speaker 1: we may have referenced on the podcast today up in

981
00:52:49,719 --> 00:52:51,840
Speaker 1: the show notes on our website at how Tomoney dot com.

982
00:52:51,960 --> 00:52:54,120
Speaker 1: Until next time, best friend out

983
00:53:00,120 --> 00:53:03,440
Speaker 2: The