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

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Speaker 1: This week on the podcast, we have an extra special guest.

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Speaker 1: His name is Charlie Ellis, and I spend some time

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Speaker 1: going over his CV when we actually do the show,

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Speaker 1: so I won't um repeated, but I'm going to tell

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Speaker 1: a quick story about the first time Charlie was a

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Speaker 1: guest here. I was just captivated by the combination of

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Speaker 1: his intellect and integrity and common sense. And the show

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Speaker 1: ended and I had to be somewhere, and he was

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Speaker 1: walking down to Grand Central station, and I said, sure,

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Speaker 1: I'm happy to walk with you, and and we continue

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Speaker 1: to conversation down twenty blocks or so from the Bloomberg

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Speaker 1: Building to UM to Grand Central and I can't describe

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Speaker 1: it any of the way. It was just captivating. It's

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Speaker 1: a delight and a privilege to be able to chat

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Speaker 1: with someone of his experience, knowledge, wisdom. It was just delightful.

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Speaker 1: And I sat and chatted with him for this show

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Speaker 1: for about an hour and a half. If you are

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Speaker 1: at all interested in anything having to do with investment management,

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Speaker 1: institutional investing, individual investing, indexing, retirement savings, the list goes

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Speaker 1: on and on, you will appreciate this conversation. There there

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

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Speaker 1: one of the legends of finance. And so, with no

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Speaker 1: further ado, here is my conversation with Charlie Ellis. This

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

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

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

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

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

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

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

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Speaker 1: Becomes a c f A charter holder in nineteen sixty

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

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

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

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Speaker 1: of the cf A Institute. One of a dozen people

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

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Speaker 1: cf A Institute. Author of sixteen books on investing, and

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

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Speaker 1: Welcome back to Bloomberg. Glad to be here, Barry. Thank you.

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Speaker 1: So that's the short version of your curriculum. VTA will

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Speaker 1: spend some more time talking about your work in the

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Speaker 1: field in a little bit. But let's jump right in

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

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Speaker 1: title The index Revolution, Why investors should join it. Now

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

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

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

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Speaker 1: insider in the investment management world. I had chanced to

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

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Speaker 1: talk and talk and talk with them about what's going on.

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Speaker 1: And once you get a really good idea of what's

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Speaker 1: going on, you realize indexing makes so much sense for

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Speaker 1: so many people. Everybody should seriously consider it and most

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Speaker 1: people should do it. So how do you help write

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Speaker 1: a short book that's easy to read and see if

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Speaker 1: you're gonna attract attention? So, so let's talk about indexing.

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Speaker 1: You spoke at a conference recently, the Evidence Based Investing Conference.

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Speaker 1: Bill McNabb, the CEO and chairman UH of the conference,

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Speaker 1: spoke and the two of you both said the same thing. Gee,

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Speaker 1: it's a shame indexing attracted the word passive that that

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Speaker 1: seems to be a problem. What's the issue with passive? Well,

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Speaker 1: when I was growing up, we read The Little Engine

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Speaker 1: that Could and we were told if you study harder,

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Speaker 1: you'll get better grides. And when I got a job,

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Speaker 1: I was told, if you work hard, you'll get a raise,

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Speaker 1: you might even get a bonus. Everything about our lives.

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

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Speaker 1: want to learn how to play tennis, Practice, practice, practice,

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Speaker 1: Everything has to do with do more, work harder, and

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Speaker 1: you'll do better. So we come to investing and say, fine,

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Speaker 1: I'm ready to go. Where do I get a chance

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Speaker 1: to do better? I'm gonna work hard? And somebody says, he,

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Speaker 1: you know, I wouldn't bother doing that. Why don't you

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Speaker 1: just settle for average? Nobody wants to be average, Nobody

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Speaker 1: wants to settle. And the word passive is a horrible negative.

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Speaker 1: Can you imagine your wife or husband introducing you as

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Speaker 1: this is my spouse. Passive sounds terrible. So what is

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Speaker 1: the better phrase to describe what people should think of

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Speaker 1: when they think of indexing well to one is indexing

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Speaker 1: and the second is winning. Winning, So explain that why

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Speaker 1: is um? Why is winning? As Charlie Sheen would say,

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Speaker 1: why does that leave us to lead us to indexing? Well,

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Speaker 1: one thing that I would use to describe winning is

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Speaker 1: doing better than most of the other people at whatever

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Speaker 1: it is you're trying to do operationally, year after year

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Speaker 1: after year. Over the long term, indexing does better today

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Speaker 1: than active investing. That wasn't the case twenty five or

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Speaker 1: thirty years ago, but it is the case today. What

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Speaker 1: what accounts for that change? Massive change in virtually every variable.

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Speaker 1: Just for an example, if you go back fifty years ago,

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Speaker 1: there might have been five thousand people involved in active investing.

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Speaker 1: Now they're at least a million people involved, and they're smart,

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Speaker 1: well educated. They've all got exactly the same tools, computers,

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

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

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

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

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

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Speaker 1: you found it out before all your competitors did, it

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Speaker 1: was wonderful The second thing that's big, big change is

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

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

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

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Speaker 1: once every year or two and didn't candidly, no one,

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Speaker 1: awful lot. Now it's been reversed. Now or more of

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Speaker 1: trading on the New York Exchange is either machines or

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Speaker 1: professional people, and they're playing to win. Michael Mobisoft calls

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Speaker 1: this the paradox of skill. It's not that the competitors

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Speaker 1: are bad, it's that everybody else is so good. How

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Speaker 1: is there any room to to beat them when you're

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Speaker 1: playing at such high levels, so very good, and so

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Speaker 1: many of them, and they have the tools, they have

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Speaker 1: the technology. It's fabulous. They are so much better than

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Speaker 1: managers or twenty years ago. It's night and day. So

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Speaker 1: the first index fund that comes out by Jack Bogel,

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Speaker 1: they were hoping to sell you right in the book,

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Speaker 1: a hundred and fifty million dollars worth and they could

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Speaker 1: barely get it over ten million dollars when they first

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Speaker 1: launched it. It was a flop. Why did the first

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Speaker 1: index fund do so poorly? It wasn't a flop. It

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Speaker 1: was a big flop. A whole bunch of different things.

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Speaker 1: Number One, nobody knew anything about indexing to speak of,

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Speaker 1: and the idea wasn't out, and everybody was looking for

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Speaker 1: beat the market rates of return. That was a big

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Speaker 1: second is there was a sales load in order to

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Speaker 1: attract the sales force at the retail brokery firms. What

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Speaker 1: was that sales load? It was I think six and

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Speaker 1: a half percent. That's a lot when you're offering I'm

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Speaker 1: going to give you average, and I'm going to charge

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Speaker 1: you a big entry fee to get started. That wasn't

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Speaker 1: an annual fee. It was a one time load for

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Speaker 1: the purchase one time. But you dropped eight and a

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Speaker 1: half off the top of your money. Your behind the

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Speaker 1: line of scrimmage pretty far. So. One of the other

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Speaker 1: things that you mentioned the book that I think is fascinating.

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Speaker 1: Over the past fifty years, the trading volume on the

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Speaker 1: New York Stock Exchange increased from three million shares a

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Speaker 1: day to five billion a day. That's a fifteen hundred

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Speaker 1: not all on the New York Stock Exchange, some of

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Speaker 1: us off the board trading in New York Stock Exchange listed,

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Speaker 1: and honestly, five million is an average. It ferries up

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Speaker 1: and down depending on what the machines are doing. I'm

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Speaker 1: Barry Riults. You're listening to Masters in Business on Bloomberg

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Speaker 1: Radio today. My special guest is Charlie allis a legend

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Speaker 1: in Wall Street. He has written and I shouldn't just

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Speaker 1: say Wall Street, but a legend in all of finance.

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Speaker 1: He has written sixteen books, one of which I think

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Speaker 1: is quite fascinating. It's called Falling Short. The Coming Retirement Crisis.

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Speaker 1: What is the looming retirement crisis that the United States faces.

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Speaker 1: It's a complex of several different so let's just pick

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Speaker 1: out the really big ones. Number One, people are living

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Speaker 1: longer than they used to live. Longevity certainly is an

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Speaker 1: ongoing shift from which means people are going to be

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Speaker 1: in retirement for more years than they might have actually

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Speaker 1: been planning on. Secondly, a fairly large fraction half of

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Speaker 1: any couple who were in there late sixties, early seventies,

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Speaker 1: half of them will need assisted living at Sometimes that's

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Speaker 1: fairly expensive stuff you are, particularly if you're not prepared

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Speaker 1: for it. About a third of American workers have no

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Speaker 1: retirement plan whatsoever. Zero zero Social security or nothing. Social

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Speaker 1: Security is not enough, it's sure. Uh. Then if you say, well,

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Speaker 1: let's look at the people who got coverage. It used

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Speaker 1: to be that we had to find benefit plans, that

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Speaker 1: the company did everything. All you had to do was

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Speaker 1: tell them what your address was so they can mail

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Speaker 1: the checks. Now virtually every decision has to be made

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Speaker 1: by the individual. Many people are not well prepared for

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Speaker 1: making those decisions. Then you look at all the different decisions.

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

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Speaker 1: Are you going to match the match? Are you going

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Speaker 1: to escalate your contributions over time so that you're saving

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Speaker 1: enough to actually cover your cost in retirement? How are

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

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Speaker 1: to do the distributions from your investments when you do retire,

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Speaker 1: and you start with just one of the most obvious

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Speaker 1: things that drives me crazy. If you ask people broadly,

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Speaker 1: ask people here at Bloomberg, ask people who really know

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Speaker 1: quite a lot about investing. What is the delta? What

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Speaker 1: is the difference between how much you get from Social

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Speaker 1: Security if you claim as soon as you can sixty

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Speaker 1: two or you wait until you're seventy and a half

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Speaker 1: when you have to claim well, it must be a lot,

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Speaker 1: and I usually get somewhere between twenty and thirty percent

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Speaker 1: as an increase. That is not true if you don't

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Speaker 1: claim at sixty two and do claim tofer until you

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Speaker 1: get to seventy and a half, the increase every year

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Speaker 1: for the rest of your life, as long as you

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Speaker 1: live and it's inflation protected, is an increase of seventy

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Speaker 1: six percent. Really, that's giant. That's a giant payout. And

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Speaker 1: all I would like is that everybody knew and would

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Speaker 1: tell everybody they know more every effing year. So there's

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Speaker 1: no reason to unless you have no choice. If you

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Speaker 1: could wait till seventy and a half, that's clearly the better,

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Speaker 1: unless you're planning to die in your late sixties or

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Speaker 1: early seventies, in which case you should take the money.

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Speaker 1: But most people are not planning to make a note

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Speaker 1: of that. So there's a data point in the book

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Speaker 1: that that I find mind blowing as and and this

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Speaker 1: data is a few years old, but I looked it

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Speaker 1: up since and I know it hasn't changed dramatically. As

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Speaker 1: of the median household approaching retirement only had a hundred

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Speaker 1: and eleven thousand dollars in four oh one k and

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Speaker 1: IRA holdings, and if you do what financial advisors suggest

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Speaker 1: you withdrew a four percent a year, that put that

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Speaker 1: creates less than five thousand dollars in annual income house

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Speaker 1: less than four and a half thousands. Now the numbers

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Speaker 1: have gone up, but I think it's now a hundred

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Speaker 1: and thirteen thousand UM. I forgot the UM, not the

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Speaker 1: investment company Institute that the e B I R dot

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Speaker 1: org one of these so so e B R I right,

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Speaker 1: So that's where I got the one thirteen number. But

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Speaker 1: still it's it's an insignificant amount of amount of money. Yeah,

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Speaker 1: we could argue about the specific details. It doesn't matter.

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Speaker 1: For people going into retirement with usually something like twenty

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Speaker 1: years to go a hundred hundred and ten hundred twenty

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Speaker 1: even a hundred thirty thousand is no help at all

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Speaker 1: to covering the costs that they're going to be living with,

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Speaker 1: no help at all. Well, it's not quite that bad.

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Speaker 1: So it's a sucker bet. You looks like you've got

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Speaker 1: a lot of money. You imagine what it's like if

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Speaker 1: you're a working guy Joe sixpack, and you have been

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Speaker 1: working along and you look at your account. You see, Verry,

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Speaker 1: I got more money every dreamed I would have that.

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Speaker 1: It's in my own name. I've got a hundred and

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Speaker 1: ten hundred and fifteen thousand smackers thirty years right, So

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Speaker 1: long run, even if you retire at seventy and you

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Speaker 1: live to fifteen years, is still a long time to

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Speaker 1: not be having any income. And it's not just individuals.

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Speaker 1: The other data point from the book, the public sector

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Speaker 1: is just as bad. The Congressional Budget Office stated by

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Speaker 1: any measure, just about every single state and local pension

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Speaker 1: plan is underfunded. How how did that come about? Well,

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Speaker 1: that's the defined benefit plans in almost every case. So

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Speaker 1: these are public employees, teachers, what I like to say,

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Speaker 1: real Americans. These are a crowd of people who've put

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Speaker 1: in a good, long term serving the public, okay, And

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Speaker 1: where are they now? Their retirement depends on two things.

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Speaker 1: How much money has already been set aside, and how

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Speaker 1: much money is going to be earned by the investment

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Speaker 1: on that money that was set aside. And you look

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Speaker 1: through the eighties and nineties, people would have said, boy,

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Speaker 1: you know, we can earn a lot, ten percent, twelve percent,

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Speaker 1: fourteen percent. Years came ruaring through. We all had a

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Speaker 1: great time. If you assume that's what you could earn,

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Speaker 1: and you say, well, I want to be conservative, so

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Speaker 1: I'm only going to assume eight percent. Track it out

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Speaker 1: over time. That's your pension. Now, what if somebody comes

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Speaker 1: along and says, Barry, that was an unusual time period.

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Speaker 1: Interest rates went from thirteen percent to two percent. That

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Speaker 1: changed everything, made everything look like a hire rate to return.

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Speaker 1: You're not going to see that again. What are you

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Speaker 1: going to see? Well, we've got two percent three percent

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Speaker 1: in fixed income and it looks like six seven percent

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Speaker 1: in equity investments. What's the mix and you end up

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Speaker 1: with ten percent. So we've got what's called an unfunded

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Speaker 1: obligation that's on paper, we've signed up for it, but

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Speaker 1: it hasn't been paid in yet. Because we assume we're

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

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Speaker 1: assuming we're going to get a much lower rate of return.

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Speaker 1: How much do we have to put up a lot

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Speaker 1: so that blended rate to return. I'm joking about adding

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

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Speaker 1: seven equity, three bonds, you're really looking at a five

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Speaker 1: and a half six percent, a five and a half

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Speaker 1: six percent return at three in bonds would be a

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Speaker 1: little optimistic. Well, I'm taking the average over the next

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Speaker 1: thirty years. But if you look at the path and

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Speaker 1: you look at the long term average and bonds that

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Speaker 1: that said, you're so if we're looking at a much

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Speaker 1: lower rate of return, who's going to have to make

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Speaker 1: up that shortfall? Because these are contractually guaranteed payouts as

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Speaker 1: part of public employees employment contract. Who's on the hook

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Speaker 1: for that balance? Drop back to your really serious negotiations.

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Speaker 1: They're three parties at interest, the government, the mayor, the Senate,

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Speaker 1: the governor, mayor whoever it was, the public m hm,

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Speaker 1: and the workers. The workers are represented by a union.

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Speaker 1: The union guys are pretty smart. They've studied this stuff

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Speaker 1: for years. They pay a lot of attention. The political

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Speaker 1: people are focused on their next election and they're pretty

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Speaker 1: good at that sort of thing. The party that's going

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Speaker 1: to have to pay up any difference doesn't get to

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Speaker 1: come to the meetings. I'm Barry Ridholtz. You're listening to

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

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Speaker 1: is Charlie Ellis. He has been on the faculty of

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Speaker 1: the Harvard Business School. He has served on the Yale

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Speaker 1: Endowment Board of Directors of Vanguard. Uh, the list goes

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Speaker 1: on and on. Author of sixteen books on finance. I

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Speaker 1: want to start discussing your history in financial services with

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Speaker 1: a quote of yours that that I really should have

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Speaker 1: frames and it's this The investment management business should not

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Speaker 1: should be a profession, but is not explain that well.

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Speaker 1: A profession is defined by the service by the experts

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Speaker 1: on behalf of individuals who don't happen to know very

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Speaker 1: much about what the experts are experts in. That's why

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

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Speaker 1: An investment management used to be entirely a profession. It

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

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

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

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

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

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

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

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

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

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Speaker 1: only three of us went into investment management, and I

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

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

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

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

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

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

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

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Speaker 1: talking about the Rockefeller Family Office, a tiny little investment

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

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

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Speaker 1: Brothers Fund, and stuff like that. When you say a

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Speaker 1: tiny little team the Rockefeller Family Office, that was not

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

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

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

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

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

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

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

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Speaker 1: better go there. Because I don't know enough. So there's

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Speaker 1: there's a legend that Goldman Sachs offered you a job

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Speaker 1: and you said, no, thanks. What is that any truth

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Speaker 1: to that? It's totally true, but they didn't actually offer

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Speaker 1: the job. They had it printed on a piece of

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Speaker 1: paper and looking at it realizing, you know, Dad always

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Speaker 1: thought Goldman Sax was a great firm. I'd love to

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Speaker 1: go with a great firm, but I need to earn

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Speaker 1: at least six thousand dollars so I can pay off

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Speaker 1: my wife's loans for going to college. She'd going to

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Speaker 1: college on a scholarship and a loan package, and I

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Speaker 1: needed to pay that off. So I had figured I

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Speaker 1: could stave a thousand dollars out of six thousand. I

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Speaker 1: can't take a job. Ford never occurred to me. You

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

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Speaker 1: earn a bonus. So it ended up working out anyway

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Speaker 1: with with the Rockefellers and and eventually granteds associates. Uh

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Speaker 1: the firm you did? You you you co founded founded

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Speaker 1: I was the only one, the other one who founded it.

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Speaker 1: So how did you What did you learn from working

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Speaker 1: with the Rockefellers. I would think a family office sitting

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Speaker 1: on a giant pool of business, but giant pool of capital,

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Speaker 1: would really teach you the business from the inside out.

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Speaker 1: What what did you learn from that experience? I learned

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Speaker 1: a lot. Number one is that most people have not

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Speaker 1: thought through what they ought to be doing with their

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Speaker 1: investments over the long term, and they have not settled

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Speaker 1: on a policy that really makes sense to them individually. Second,

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Speaker 1: there's a lot of information, and if you don't have

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Speaker 1: that information, you're in trouble. And third that investment management

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Speaker 1: is a wonderful, interesting, fascinating, exciting and filled with all

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Speaker 1: kinds of experiences, wonderful place to work. So so, all told,

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Speaker 1: that was a positive experience, lucky, lucky and very positive.

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Speaker 1: But by the way, that's a theme that comes up

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Speaker 1: on the people I sit with and have these conversations

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Speaker 1: with over and over again, the role of just being

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Speaker 1: in the right place at the right time and getting

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Speaker 1: a little hey, smartest good. But sometimes lucky is better,

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Speaker 1: much much better. And you'll find that those who've been

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Speaker 1: around for a long time, it's all luck. Those that

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Speaker 1: are around only recently, they're paying attention how much you

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Speaker 1: can get paid, because it is the best paid line

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Speaker 1: of work in the world today. By the way, back

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Speaker 1: to back to some quotes in the book, the most

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Speaker 1: obvious success factor for us was luck, luck, and luck.

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Speaker 1: So how is that an exaggeration or is do you

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Speaker 1: think luck really serendipity a roll of the dice really

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

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

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

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

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

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

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Speaker 1: either kidding himself or kidding you. So we're gonna talk

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Speaker 1: later about um winning the losers game. But how often

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Speaker 1: do investors confuse luck for skill? All the time? All

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Speaker 1: the time. But there are normal human beings. That's when

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

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Speaker 1: If it doesn't work out well, I was unlucky. I'm

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Speaker 1: Barry rid Helts. You're listening to Masters in Business on

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Speaker 1: Bloomberg Radio. Our special yes today is Charlie Ellis. He

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Speaker 1: is a legend in the world of finance, having served

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Speaker 1: on the board of directors of Vanguard as well as

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Speaker 1: the Yale Endowmond Funds. Let's talk a little bit about

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Speaker 1: a paper you wrote in that I think has a

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Speaker 1: fascinating history, um both where it came from and where

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Speaker 1: it went. You authored The Losers Game in nineteen seventy

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Speaker 1: five as an article for the Financial Analyst Journal after

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Speaker 1: reading a book about tennis. Tell us about that. Well,

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Speaker 1: the hero of the story is really a brilliant guy

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Speaker 1: named Simon Ramo, who was the founder of what was

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Speaker 1: called Thompson Ramo Woldridge and then what's called t r

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Speaker 1: W and is in fact the organization that helped America

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Speaker 1: with its entire space program. He was a gifted amateur athlete,

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Speaker 1: and he also was a gifted musician. He used to

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Speaker 1: play in a quartet with three members of the Los

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Speaker 1: Angeles Professional Symphony Orchestra. Real Renaissance man, he sure was,

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Speaker 1: and he must have had a wonderful life. And along

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Speaker 1: the way he decided to write this little bitty book

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Speaker 1: which is the best guide to how you could do

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Speaker 1: better in tennis I've ever heard of. But it also

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Speaker 1: included a definition that was very very helpful to me. Said,

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Speaker 1: there's a whole lot of people that play tennis too.

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

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Speaker 1: different from everybody else. They play winners tennis. They are

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Speaker 1: absolutely fabulous. The shots are always right near the line.

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Speaker 1: They never hit it in that, they never hit it

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Speaker 1: out to speak of. The placements are terrific, their strategies

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Speaker 1: are brilliant. They are wonderful. Most most of the rest

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Speaker 1: of us play a different game. Yeah, I know, same rules,

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Speaker 1: same scoring, same clothes, same court, same facilities, maybe even

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

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

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Speaker 1: where the control of the game is in the hands

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Speaker 1: not of the winner but of the loser. So the

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

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

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Speaker 1: If you lose less, you'll be the winner. Lose less

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Speaker 1: will be And by the way, the name of that

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Speaker 1: book by Simon Ramo is extraordinary Tennis for the ordinary

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Speaker 1: tennis player. So how does that manifest itself as the

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Speaker 1: loser's game? About invest them? There two kinds of problems

429
00:24:26,119 --> 00:24:28,760
Speaker 1: in investing. One is the long term policy problem. The

430
00:24:28,760 --> 00:24:32,040
Speaker 1: other is the operational problem. People at all of us

431
00:24:32,119 --> 00:24:36,840
Speaker 1: are guilty almost all the time of doing things that

432
00:24:36,920 --> 00:24:41,320
Speaker 1: aren't really brilliant decisions. So we make mistakes that we

433
00:24:41,440 --> 00:24:43,560
Speaker 1: really shouldn't have made. If we had it to do

434
00:24:43,640 --> 00:24:46,280
Speaker 1: over again, a lot of us wouldn't make those mistakes.

435
00:24:47,320 --> 00:24:51,639
Speaker 1: And reality is, we do because we're human beings. The

436
00:24:51,680 --> 00:24:54,440
Speaker 1: other kind of mistakes were aiming in the wrong direction.

437
00:24:54,600 --> 00:24:56,159
Speaker 1: I'll come back to that later if you want to.

438
00:24:56,240 --> 00:24:59,680
Speaker 1: But day in day out, people buying and selling stocks

439
00:24:59,720 --> 00:25:04,240
Speaker 1: are prone to getting caught having made an error in

440
00:25:04,280 --> 00:25:07,159
Speaker 1: their judgment on the price. So in other words, if

441
00:25:07,200 --> 00:25:10,560
Speaker 1: you can avoid those self inflicted errors, you win by

442
00:25:10,600 --> 00:25:15,240
Speaker 1: not losing. Yes, and the parallels are are obvious as

443
00:25:15,280 --> 00:25:18,760
Speaker 1: investors and tennis and very powerful on the long, long,

444
00:25:18,920 --> 00:25:21,320
Speaker 1: long term. If you aim in the right direction, you've

445
00:25:21,320 --> 00:25:23,080
Speaker 1: got a good chance of getting there. You want to

446
00:25:23,080 --> 00:25:26,640
Speaker 1: go to Chicago, don't head south towards Florida, So to Chicago.

447
00:25:26,800 --> 00:25:29,080
Speaker 1: As an investor, how do you aim in the right direction?

448
00:25:29,119 --> 00:25:32,359
Speaker 1: What what does that exactly mean? Well, I can't give

449
00:25:32,400 --> 00:25:35,639
Speaker 1: you a straight answer except in generalities, because each of

450
00:25:35,720 --> 00:25:38,639
Speaker 1: us is unique. But start with how much money do

451
00:25:38,680 --> 00:25:42,080
Speaker 1: you have? Are you saving money or spending money? How

452
00:25:42,200 --> 00:25:44,600
Speaker 1: many years do you have before you need to cover

453
00:25:44,680 --> 00:25:47,080
Speaker 1: your retirement or pay for your kids going to college

454
00:25:47,160 --> 00:25:50,360
Speaker 1: or whatever is your objective? How much wealth do you have,

455
00:25:50,680 --> 00:25:54,120
Speaker 1: how much income are you creating? Take all those things,

456
00:25:54,160 --> 00:25:56,960
Speaker 1: you can work out an investment strategy that makes good sense.

457
00:25:57,000 --> 00:25:59,320
Speaker 1: Let me give you an example. I'm seventy nine. Most

458
00:25:59,320 --> 00:26:01,119
Speaker 1: people would say in that age, you must have a

459
00:26:01,119 --> 00:26:04,359
Speaker 1: lot of bonds. I have no bonds. Why Why? Well,

460
00:26:04,400 --> 00:26:07,040
Speaker 1: I still enjoy working and I'm able to keep earning

461
00:26:07,119 --> 00:26:11,000
Speaker 1: enough to cover my operating costs. And secondly, I look

462
00:26:11,000 --> 00:26:13,280
Speaker 1: at my investments. I say, who are you investing for?

463
00:26:13,600 --> 00:26:18,760
Speaker 1: I'm actually investing for my grandchildren, right right, So your

464
00:26:18,800 --> 00:26:22,560
Speaker 1: portfolio is not the average seventy nine year old man's portfolio.

465
00:26:22,960 --> 00:26:25,920
Speaker 1: It's for someone who has an investing horizon of And

466
00:26:25,960 --> 00:26:28,000
Speaker 1: it's not to brag about it. It's just the reality.

467
00:26:28,080 --> 00:26:30,000
Speaker 1: I ought to address that reality. If I did the

468
00:26:30,080 --> 00:26:32,240
Speaker 1: normal thing and saying, hey, you're about eighty, you probably

469
00:26:32,280 --> 00:26:35,840
Speaker 1: would have at least six maybe seventy and fixed income.

470
00:26:36,040 --> 00:26:38,439
Speaker 1: I look at I say, that's crazy. I'm investing on

471
00:26:38,480 --> 00:26:43,200
Speaker 1: behalf of my grandchildren. Okay, and and someone else who

472
00:26:43,320 --> 00:26:46,560
Speaker 1: isn't investing on on BF of their grandchildren. They have

473
00:26:46,600 --> 00:26:48,480
Speaker 1: to aim in the right direction. That means a mix

474
00:26:48,480 --> 00:26:52,320
Speaker 1: of stocks and bonds and something appropriate for their where

475
00:26:52,320 --> 00:26:55,520
Speaker 1: they are, whether they're working or retired. Every magician knows

476
00:26:55,560 --> 00:26:56,879
Speaker 1: if you want to be able to pull off a

477
00:26:56,880 --> 00:26:59,439
Speaker 1: good trick, distract your audience so they don't notice what

478
00:26:59,520 --> 00:27:02,520
Speaker 1: you're actually doing the same thing. It's true of everybody's

479
00:27:02,560 --> 00:27:06,640
Speaker 1: having an illicit affair. Abstract your audience and they won't

480
00:27:06,640 --> 00:27:08,720
Speaker 1: find out what you're doing. The same thing. Is all

481
00:27:08,800 --> 00:27:11,159
Speaker 1: kinds of different problems. You get people to focus on

482
00:27:11,200 --> 00:27:14,359
Speaker 1: the wrong thing in investing. Most people get focused on

483
00:27:14,520 --> 00:27:16,679
Speaker 1: day in, day out, stock prices and how to do

484
00:27:16,760 --> 00:27:21,000
Speaker 1: this quarter, this year, maybe the two years, week, this day, absolutely,

485
00:27:21,200 --> 00:27:24,760
Speaker 1: and the real questions are all about long, long, long term.

486
00:27:24,760 --> 00:27:27,800
Speaker 1: It's to me it's the father in law question. The

487
00:27:27,840 --> 00:27:31,000
Speaker 1: man has got a beautiful daughter, she's bright, she's interesting,

488
00:27:31,080 --> 00:27:33,719
Speaker 1: she's got a wonderful future ahead of her. She's introducing

489
00:27:33,760 --> 00:27:36,360
Speaker 1: a guy. Does he care whether he's got blue eyes

490
00:27:36,440 --> 00:27:38,240
Speaker 1: or brown eyes? Does he care whether he's got a

491
00:27:38,240 --> 00:27:40,640
Speaker 1: wonderful sense of humor? Does he care whether the guy

492
00:27:41,000 --> 00:27:43,320
Speaker 1: is tall or a good None of those things. What

493
00:27:43,359 --> 00:27:46,119
Speaker 1: he wants to do is one single thing. Is this

494
00:27:46,200 --> 00:27:49,560
Speaker 1: going to be a good friend from my daughter? Ten

495
00:27:49,640 --> 00:27:52,000
Speaker 1: years from now, twenty years from now, thirty years from now,

496
00:27:52,080 --> 00:27:54,720
Speaker 1: forty years from now, will she be in a good,

497
00:27:55,000 --> 00:27:59,159
Speaker 1: happy position? I gotta think long time. So so let's

498
00:28:00,160 --> 00:28:02,159
Speaker 1: talk a little more about the article. It goes on

499
00:28:02,200 --> 00:28:05,840
Speaker 1: to when the Graham and Dot Award in ninety seven,

500
00:28:06,560 --> 00:28:10,000
Speaker 1: and that ultimately leads to you writing the book. Well.

501
00:28:10,160 --> 00:28:13,960
Speaker 1: Also Dad's advice Dad when we were growing upset, don't

502
00:28:14,440 --> 00:28:17,760
Speaker 1: find a problem unless you find a solution to that problem.

503
00:28:18,080 --> 00:28:22,119
Speaker 1: I've I've heard similar advice given to young employees. Don't

504
00:28:22,119 --> 00:28:25,399
Speaker 1: bring problems to your boss. Identify problems and bring a

505
00:28:25,440 --> 00:28:27,960
Speaker 1: solution to it. Years ago. I didn't think it was

506
00:28:28,000 --> 00:28:29,600
Speaker 1: fair for Dad to say that, because it's hard to

507
00:28:29,600 --> 00:28:32,679
Speaker 1: come up with solutions sometimes, but he was right. And

508
00:28:32,720 --> 00:28:35,080
Speaker 1: so if you put out the loser's game, this is

509
00:28:35,119 --> 00:28:37,639
Speaker 1: a tough place to play and be successful, then the

510
00:28:37,720 --> 00:28:40,640
Speaker 1: question obviously is okay, what would you do? And the

511
00:28:40,720 --> 00:28:44,480
Speaker 1: answer is, don't play the detailed transactions game. Play the

512
00:28:44,600 --> 00:28:48,400
Speaker 1: long term policy game of getting in the right direction,

513
00:28:48,480 --> 00:28:50,840
Speaker 1: and I don't get back to driving. I don't care

514
00:28:50,840 --> 00:28:54,280
Speaker 1: how fast you drive. Going to Chicago just be sure

515
00:28:54,280 --> 00:28:58,120
Speaker 1: you're not headed towards Miami. So it's funny because the

516
00:28:58,120 --> 00:29:04,840
Speaker 1: the article from five really presages the indexing argument to

517
00:29:04,880 --> 00:29:08,920
Speaker 1: be made forty plus years later. Well back in the seventies,

518
00:29:08,960 --> 00:29:12,440
Speaker 1: it was an accurate description of the situation for individuals

519
00:29:12,960 --> 00:29:15,800
Speaker 1: if they're competing with professionals. Now it's an accurate description

520
00:29:15,840 --> 00:29:19,840
Speaker 1: for professionals competing with professionals, And individuals should not be

521
00:29:20,200 --> 00:29:23,880
Speaker 1: investing in mutual funds without being aware of how tough

522
00:29:23,920 --> 00:29:26,400
Speaker 1: it is to be a successful mutual fund manager. If

523
00:29:26,440 --> 00:29:29,720
Speaker 1: you're an active investors. It's so hard. So that there's

524
00:29:29,760 --> 00:29:35,240
Speaker 1: a theme that comes up in index Revolution, in um

525
00:29:35,320 --> 00:29:40,320
Speaker 1: the retirement Crisis, and in Winning the Losers Game, as

526
00:29:40,360 --> 00:29:44,600
Speaker 1: well as Extraordinary Tennis for ordinary tennis players, which is

527
00:29:45,360 --> 00:29:49,640
Speaker 1: the importance of understanding your own skill set and limitations

528
00:29:50,080 --> 00:29:52,440
Speaker 1: and not trying to do more than you're capable of doing.

529
00:29:52,640 --> 00:29:56,240
Speaker 1: Its discussed that all true is the same thing in

530
00:29:56,480 --> 00:29:59,640
Speaker 1: driving an automobile on the highway. It's the same thing

531
00:30:00,040 --> 00:30:03,360
Speaker 1: in virtually every dimension of our lives. Try to figure

532
00:30:03,360 --> 00:30:05,480
Speaker 1: out who you are and what you want to accomplish,

533
00:30:05,640 --> 00:30:09,680
Speaker 1: and focus on that. That remind me later I'm gonna

534
00:30:09,680 --> 00:30:13,160
Speaker 1: tell you a funny driving story related to that exact thing.

535
00:30:13,640 --> 00:30:17,480
Speaker 1: So we talk. Um. We have some quotes of yours

536
00:30:17,520 --> 00:30:20,200
Speaker 1: that I really love and I want to throw your way,

537
00:30:21,040 --> 00:30:25,280
Speaker 1: um quote. The investment management business is built upon a

538
00:30:25,400 --> 00:30:30,280
Speaker 1: simple and basic belief professional money managers can beat the market.

539
00:30:30,960 --> 00:30:36,760
Speaker 1: That premise appears to be false. Explain that the market

540
00:30:37,400 --> 00:30:42,719
Speaker 1: is priced by investors. Fifty years ago, those investors were

541
00:30:42,760 --> 00:30:45,400
Speaker 1: individuals who bought and sold once every year or two.

542
00:30:45,480 --> 00:30:48,200
Speaker 1: They honestly didn't know an awful lot and so they

543
00:30:48,200 --> 00:30:51,480
Speaker 1: made a lot of errors. Today, the market is entirely

544
00:30:51,520 --> 00:30:54,840
Speaker 1: priced by professionals. They are very much on top of

545
00:30:54,880 --> 00:30:58,120
Speaker 1: what's going on, and while they're never always dead right,

546
00:30:58,880 --> 00:31:02,320
Speaker 1: they're so close to being right compared to anybody else.

547
00:31:02,720 --> 00:31:05,360
Speaker 1: It's the old joke about the two guys and the bear,

548
00:31:06,000 --> 00:31:07,760
Speaker 1: and one guy is putting on his sneakers, and the

549
00:31:07,760 --> 00:31:10,000
Speaker 1: other guy says, God, you can't stop to put on

550
00:31:10,040 --> 00:31:12,680
Speaker 1: your sneakers. The bear will catch you. No, he won't.

551
00:31:13,120 --> 00:31:16,120
Speaker 1: Who catch you down on the bear? I just have

552
00:31:16,160 --> 00:31:22,200
Speaker 1: to outrun you. So so I find it fascinating that

553
00:31:22,240 --> 00:31:28,600
Speaker 1: you identified this in you and a handful of the

554
00:31:28,640 --> 00:31:32,440
Speaker 1: people Jack Bogel and maybe Burton Malkill, who else in

555
00:31:33,080 --> 00:31:38,840
Speaker 1: v was thinking along the lines that, hey, it's nearly

556
00:31:38,880 --> 00:31:41,240
Speaker 1: impossible to beat the market, and once you factor in

557
00:31:41,480 --> 00:31:45,960
Speaker 1: turnover in taxes and costs on a consistent basis over time,

558
00:31:46,000 --> 00:31:51,480
Speaker 1: it's all but impossible. How were so few people recognizing

559
00:31:51,520 --> 00:31:55,560
Speaker 1: this way back when Bary let's be realistic investment management,

560
00:31:55,760 --> 00:31:59,000
Speaker 1: active investment management, competing with everybody else. It's great fun,

561
00:31:59,600 --> 00:32:03,080
Speaker 1: It is fun, and it's too much requires concentrated attention.

562
00:32:03,400 --> 00:32:05,520
Speaker 1: So people are really really working at that. How are

563
00:32:05,520 --> 00:32:08,200
Speaker 1: they going to pay any attention to something that's completely

564
00:32:08,240 --> 00:32:10,800
Speaker 1: foreign to everything they've ever heard of. It just doesn't

565
00:32:10,840 --> 00:32:13,400
Speaker 1: make sense, which is step back and look at the

566
00:32:13,440 --> 00:32:16,400
Speaker 1: big picture, and say, is my efforts feudal or at

567
00:32:16,440 --> 00:32:18,480
Speaker 1: my You know, how many times can you roll the

568
00:32:18,520 --> 00:32:20,720
Speaker 1: stone up the hill and have it rolled back down

569
00:32:20,760 --> 00:32:23,800
Speaker 1: on you before you realize, hey, maybe this is a waste,

570
00:32:23,840 --> 00:32:26,200
Speaker 1: that there's one other thing that's really important. The data

571
00:32:26,240 --> 00:32:30,080
Speaker 1: that was available to people was inaccurate. It was precise,

572
00:32:31,200 --> 00:32:34,240
Speaker 1: but it was inaccurate. The reports on who is performing

573
00:32:34,280 --> 00:32:39,160
Speaker 1: compared to the market looked terribly encouraging. Looked like seventy

574
00:32:39,280 --> 00:32:42,920
Speaker 1: or eight percent of the professional managers were beating the market. Yeah,

575
00:32:42,920 --> 00:32:45,160
Speaker 1: but you've left out somebody. Who'd you leave out? The

576
00:32:45,200 --> 00:32:48,560
Speaker 1: guys that got killed. We've been speaking with Charlie Ellis.

577
00:32:48,600 --> 00:32:51,920
Speaker 1: He is formally on the board of directors of Vanguard

578
00:32:52,080 --> 00:32:56,080
Speaker 1: and on the Yale Endowment Funds. We love your comments

579
00:32:56,080 --> 00:32:58,960
Speaker 1: and feedback. Be sure to write to us at m

580
00:32:59,000 --> 00:33:02,520
Speaker 1: IB podcast us at Bloomberg dot net, check out my

581
00:33:02,640 --> 00:33:06,080
Speaker 1: daily column on Bloomberg View dot com, or follow me

582
00:33:06,320 --> 00:33:10,240
Speaker 1: on Twitter at rid Halts. I'm Barry rid Halts. You've

583
00:33:10,280 --> 00:33:14,240
Speaker 1: been listening to Masters in Business on Bloomberg Radio. Welcome

584
00:33:14,280 --> 00:33:16,960
Speaker 1: to the podcast. Charlie. Thank you so much for for

585
00:33:17,040 --> 00:33:20,200
Speaker 1: doing this. You know, when we first interviewed you, we've

586
00:33:20,240 --> 00:33:24,240
Speaker 1: now done a hundred and something plus interviews. You were

587
00:33:24,240 --> 00:33:27,240
Speaker 1: you were in the early portion, and I think I

588
00:33:27,280 --> 00:33:30,720
Speaker 1: was a little rough around the edges when we first started.

589
00:33:30,880 --> 00:33:34,880
Speaker 1: I'd like to think that just through sheer repetition, I've

590
00:33:34,880 --> 00:33:39,840
Speaker 1: gotten somewhat better. Your smooth as So trust me, if

591
00:33:39,880 --> 00:33:42,320
Speaker 1: it sounds smooth, it's only because I have really good

592
00:33:42,360 --> 00:33:46,040
Speaker 1: engineers who edit out many, but not all, of my mistakes.

593
00:33:46,080 --> 00:33:49,840
Speaker 1: We sometimes leave them in um for fun um. There's

594
00:33:49,840 --> 00:33:52,400
Speaker 1: so many questions that we blew through. I want to

595
00:33:52,440 --> 00:33:57,360
Speaker 1: come back to before we get to our standard questions,

596
00:33:57,440 --> 00:34:00,120
Speaker 1: and let's start with a quote that I love of

597
00:34:00,360 --> 00:34:04,560
Speaker 1: and this is in um the book Index Revolution in

598
00:34:04,720 --> 00:34:09,160
Speaker 1: ninety seven the director of research at Chase Manhattan Bank

599
00:34:09,600 --> 00:34:12,560
Speaker 1: which is now Chase JP Morrigan. But this is obviously

600
00:34:13,200 --> 00:34:20,160
Speaker 1: thirty acquisitions ago quote. The proliferation of index funds would

601
00:34:20,239 --> 00:34:24,399
Speaker 1: lead to massively inefficient markets, and a stocks price would

602
00:34:24,440 --> 00:34:28,240
Speaker 1: become more a function of money's flowing into index funds

603
00:34:28,360 --> 00:34:34,359
Speaker 1: than reflection or its investment merits. The entire capital allocation

604
00:34:34,440 --> 00:34:37,959
Speaker 1: process of the securities market would be distorted, and only

605
00:34:38,000 --> 00:34:42,200
Speaker 1: companies represented in indexes would be able to read raise

606
00:34:42,360 --> 00:34:47,160
Speaker 1: any equity capital capital True or false? What are your

607
00:34:47,160 --> 00:34:49,160
Speaker 1: thoughts on that? Well, first of all, it is false,

608
00:34:49,239 --> 00:34:55,640
Speaker 1: But secondly, nobody's saying that today. Occasionally people say, oh,

609
00:34:55,719 --> 00:34:58,600
Speaker 1: what's going to happen? When aren't we getting rid of

610
00:34:58,640 --> 00:35:01,320
Speaker 1: the the capital allocation function with all this money flowing

611
00:35:01,400 --> 00:35:05,520
Speaker 1: index But there that's hyperbole and it's future stuff. If

612
00:35:05,640 --> 00:35:09,319
Speaker 1: you had everybody indexing, wouldn't that mean that we've got

613
00:35:09,360 --> 00:35:11,759
Speaker 1: a real problem? Yes, of course it would. And when

614
00:35:11,800 --> 00:35:15,319
Speaker 1: everybody stops smoking, please let me know, because that would

615
00:35:15,360 --> 00:35:18,560
Speaker 1: be a really important reality. A lot less people are

616
00:35:18,560 --> 00:35:20,920
Speaker 1: smoking than used to, and a lot more people are

617
00:35:20,920 --> 00:35:23,920
Speaker 1: in at the United States worldwide, more people are smoking

618
00:35:23,920 --> 00:35:28,279
Speaker 1: now than ever. It's very very unlikely that we will

619
00:35:28,320 --> 00:35:31,880
Speaker 1: get so much indexing going on that smart people won't

620
00:35:31,880 --> 00:35:34,359
Speaker 1: be smart enough to figure out that they should now

621
00:35:34,800 --> 00:35:38,160
Speaker 1: think about doing a little bit of active investing. So

622
00:35:38,160 --> 00:35:41,520
Speaker 1: what do we no of percent of assets? But the

623
00:35:42,320 --> 00:35:44,800
Speaker 1: game is in the trading markets and in the trading

624
00:35:44,840 --> 00:35:49,120
Speaker 1: markets because index funds are very low turnover of total

625
00:35:49,200 --> 00:35:53,560
Speaker 1: volumes or less or less, and it's not aggressive. It's

626
00:35:53,680 --> 00:35:56,520
Speaker 1: kind of go with the flow activity most of the time.

627
00:35:56,520 --> 00:36:01,280
Speaker 1: It's highly skilled in the transactions, very skilled, but actually

628
00:36:01,320 --> 00:36:03,160
Speaker 1: it's just kind of going with the normal flow. So

629
00:36:03,320 --> 00:36:08,239
Speaker 1: the impact on pricing is to minimus. So index investing

630
00:36:08,520 --> 00:36:13,200
Speaker 1: doesn't affect prices very much, certainly doesn't. So, and you

631
00:36:13,280 --> 00:36:14,880
Speaker 1: talk to the people who know the most about it

632
00:36:14,880 --> 00:36:17,920
Speaker 1: because they're trading for index funds, they've figured out how

633
00:36:17,960 --> 00:36:20,879
Speaker 1: to handle almost every one of the questions that's people

634
00:36:20,920 --> 00:36:24,640
Speaker 1: have raised and handle them without any trouble. Some of

635
00:36:24,640 --> 00:36:27,279
Speaker 1: the questions are really interesting still and they still have

636
00:36:27,360 --> 00:36:30,640
Speaker 1: some minor difficulty but in the total picture, it's just

637
00:36:30,800 --> 00:36:34,319
Speaker 1: no problem at all. So if we were to look

638
00:36:34,360 --> 00:36:40,239
Speaker 1: at thet of investing that currently flows into as of

639
00:36:40,320 --> 00:36:45,359
Speaker 1: the assets, if that were ever to become fifty, would

640
00:36:45,400 --> 00:36:48,120
Speaker 1: that create opportunities for the stock pickers? Would there be

641
00:36:48,160 --> 00:36:51,719
Speaker 1: more inefficiencies at that point? Not in those levels. If

642
00:36:51,719 --> 00:36:54,880
Speaker 1: you get to nine, maybe, But look at what you

643
00:36:54,920 --> 00:36:56,760
Speaker 1: have to do. You've got a million people are active

644
00:36:56,800 --> 00:37:00,200
Speaker 1: involved in active investing. How are many of those will

645
00:37:00,239 --> 00:37:03,680
Speaker 1: have to retire from the field and say I'm gonna quit.

646
00:37:03,719 --> 00:37:06,080
Speaker 1: I'm going to go back and be a lawyer instead

647
00:37:06,120 --> 00:37:08,040
Speaker 1: of being an investor. I'm going to go into a

648
00:37:08,080 --> 00:37:10,960
Speaker 1: normal business instead of investment management. I don't want to

649
00:37:10,960 --> 00:37:13,720
Speaker 1: do this stuff anymore. It's going to be a long

650
00:37:14,040 --> 00:37:16,440
Speaker 1: long time before what do you have to do? You

651
00:37:16,440 --> 00:37:19,399
Speaker 1: have to cut their pay by that wouldn't be enough

652
00:37:19,440 --> 00:37:23,239
Speaker 1: to cause most people to quit. You really got a

653
00:37:23,280 --> 00:37:25,640
Speaker 1: major change on your hands before you're going to see

654
00:37:25,680 --> 00:37:28,239
Speaker 1: anything like that. It won't happen in my lifetime. I

655
00:37:28,280 --> 00:37:30,640
Speaker 1: doubt it will happen my son's lifetime, and I doubt

656
00:37:30,760 --> 00:37:33,880
Speaker 1: doubt doubt that will happen in my granddaughter's lifetime. So

657
00:37:33,960 --> 00:37:36,640
Speaker 1: you think that This is going to go on continuously

658
00:37:37,360 --> 00:37:40,440
Speaker 1: because of human beings being human beings, and there's no

659
00:37:40,520 --> 00:37:42,359
Speaker 1: other way to know, other way to deal with that.

660
00:37:42,760 --> 00:37:46,279
Speaker 1: Let's let's talk about some of the issues on the

661
00:37:46,320 --> 00:37:51,319
Speaker 1: retirement side. UM Richard Taylor had written a book called

662
00:37:51,400 --> 00:37:54,680
Speaker 1: Nudge where he talks about a lot of things that

663
00:37:55,560 --> 00:38:00,719
Speaker 1: now require affirmative steps by the employee should be replaced,

664
00:38:01,600 --> 00:38:04,280
Speaker 1: not opt in, but opt out. So, in other words,

665
00:38:04,760 --> 00:38:07,279
Speaker 1: you join a firm, you're automatically enrolled in the four

666
00:38:07,320 --> 00:38:11,160
Speaker 1: oh one K and you're automatically enrolled and increases as

667
00:38:11,239 --> 00:38:14,439
Speaker 1: your salary goes up unless you opt out of that.

668
00:38:14,640 --> 00:38:16,279
Speaker 1: What do you think of that? I think it's a

669
00:38:16,400 --> 00:38:20,160
Speaker 1: terrific idea for two different reasons. There's a strong political

670
00:38:20,239 --> 00:38:23,920
Speaker 1: view social view that we should not have government setting

671
00:38:23,960 --> 00:38:29,439
Speaker 1: the rules or telling us what to do. That'd be better.

672
00:38:31,160 --> 00:38:33,520
Speaker 1: This does not tell you what to do, right, You

673
00:38:33,560 --> 00:38:35,840
Speaker 1: have a choice, and you have a choice at all times,

674
00:38:35,880 --> 00:38:38,480
Speaker 1: and you would have the choice to say Nope, that's

675
00:38:38,520 --> 00:38:40,799
Speaker 1: not for me, Nope, that's not for me. No, that's

676
00:38:40,800 --> 00:38:43,320
Speaker 1: not for me. It's called opt out. You say I

677
00:38:43,400 --> 00:38:45,480
Speaker 1: don't want to be in the plan. Okay, if you'd

678
00:38:45,480 --> 00:38:48,520
Speaker 1: make that as your choice. Fine and say no, I

679
00:38:48,560 --> 00:38:50,000
Speaker 1: want to be in the plan, but I don't want

680
00:38:50,000 --> 00:38:52,600
Speaker 1: to match the match. I don't want free money by

681
00:38:52,640 --> 00:38:56,360
Speaker 1: putting up my four percent of match the employers four percent.

682
00:38:56,600 --> 00:38:58,560
Speaker 1: If you really don't want to do it, that's your

683
00:38:58,600 --> 00:39:01,120
Speaker 1: freedom of choice. If you well, I do want to

684
00:39:01,120 --> 00:39:02,800
Speaker 1: do the four percent match, but I don't want to

685
00:39:02,800 --> 00:39:05,439
Speaker 1: increase the savings rate as I get raises from time

686
00:39:05,440 --> 00:39:08,239
Speaker 1: to time. Okay, you can do that. I don't want

687
00:39:08,239 --> 00:39:11,600
Speaker 1: to be in an target date fund fun. If you

688
00:39:11,640 --> 00:39:13,600
Speaker 1: don't want to do that, you could do something else,

689
00:39:13,840 --> 00:39:16,000
Speaker 1: but we make it available to you. So, in other words,

690
00:39:16,040 --> 00:39:19,200
Speaker 1: the choice architecture, which is the phrase of this is

691
00:39:20,120 --> 00:39:23,759
Speaker 1: the default setting is significant. And I know they've done

692
00:39:23,800 --> 00:39:27,799
Speaker 1: experiments in different countries with organ donation. Hey, you don't

693
00:39:27,800 --> 00:39:30,280
Speaker 1: have to be an organ donor, but the default setting

694
00:39:30,280 --> 00:39:33,000
Speaker 1: on the driver's licenses you are an organ donor. And

695
00:39:33,080 --> 00:39:36,239
Speaker 1: it goes from an eight or ten percent participation rate

696
00:39:36,320 --> 00:39:40,200
Speaker 1: to rate and there's no shortage of organs, and and

697
00:39:40,239 --> 00:39:42,080
Speaker 1: all it is is you don't have to do it.

698
00:39:42,160 --> 00:39:43,879
Speaker 1: You just have to check a box that says you're

699
00:39:43,920 --> 00:39:46,840
Speaker 1: opting out. That's it, and you get a huge increase

700
00:39:46,920 --> 00:39:50,399
Speaker 1: in the percentage of workers who become part of the plan,

701
00:39:50,920 --> 00:39:53,600
Speaker 1: huge increase in the percentage of people who take the match,

702
00:39:53,840 --> 00:39:56,399
Speaker 1: huge increase in the percentage of people who escalate over

703
00:39:56,480 --> 00:39:58,840
Speaker 1: time their savings rate, huge increase in the number of

704
00:39:58,840 --> 00:40:01,719
Speaker 1: people get into an automatic the investment program. Those are

705
00:40:01,800 --> 00:40:07,400
Speaker 1: really positive moves. Opt out should be you're automatically enrolled,

706
00:40:07,640 --> 00:40:11,160
Speaker 1: you automatically do the match, you automatically do the increase.

707
00:40:11,600 --> 00:40:13,640
Speaker 1: And if you don't set a fund, if you don't

708
00:40:13,719 --> 00:40:16,760
Speaker 1: choose funds, you automatically go into a target date fund.

709
00:40:16,880 --> 00:40:19,400
Speaker 1: That's the default setting. If you want to change it,

710
00:40:19,480 --> 00:40:21,720
Speaker 1: you're free to change it. But at least let's start

711
00:40:21,719 --> 00:40:25,120
Speaker 1: you out on on something as opposed to nothing. So

712
00:40:25,200 --> 00:40:30,200
Speaker 1: if you if you don't respond there's something happening as

713
00:40:30,239 --> 00:40:33,120
Speaker 1: opposed to nothing, you lose no freedom of choice and

714
00:40:33,239 --> 00:40:35,120
Speaker 1: you have the benefit if you really don't know what

715
00:40:35,200 --> 00:40:37,560
Speaker 1: to do, go with the flow. So I got a

716
00:40:37,560 --> 00:40:40,000
Speaker 1: lot of pushback the other day I did a column

717
00:40:40,040 --> 00:40:44,799
Speaker 1: about the i r A minimums. I'm sorry the ira

718
00:40:44,840 --> 00:40:49,800
Speaker 1: A ceilings. They're at dollars that seems like an awfully

719
00:40:49,840 --> 00:40:53,920
Speaker 1: small number of of If people don't have a four

720
00:40:54,040 --> 00:40:56,560
Speaker 1: one K and they want to max out their tax

721
00:40:56,640 --> 00:41:02,080
Speaker 1: deferred um retirement savings from when the Aristus laws were passed.

722
00:41:02,239 --> 00:41:05,160
Speaker 1: Just adjusting for inflation, you should be closer to seventy

723
00:41:06,200 --> 00:41:11,000
Speaker 1: And unfortunately the way inflation has proven itself to exist.

724
00:41:11,360 --> 00:41:15,120
Speaker 1: The things we want, the technology, the phones, the computers,

725
00:41:15,160 --> 00:41:17,319
Speaker 1: they're going down in price. But the things we need,

726
00:41:17,840 --> 00:41:20,439
Speaker 1: housing and healthcare and and that sort of stuff, they're

727
00:41:20,440 --> 00:41:23,520
Speaker 1: all going up in price. So really that's seventy dred

728
00:41:23,760 --> 00:41:27,080
Speaker 1: If anything, it should be closer to ten thousand. Do

729
00:41:27,200 --> 00:41:32,280
Speaker 1: you see the ceiling for IRA contributions as an issue

730
00:41:32,320 --> 00:41:35,840
Speaker 1: for for a lot of middle class families? All right? Now,

731
00:41:36,200 --> 00:41:38,960
Speaker 1: the pushback I got was on and if you're raising

732
00:41:38,960 --> 00:41:41,480
Speaker 1: the IRA ceiling, you have to raise the four oh

733
00:41:41,480 --> 00:41:44,560
Speaker 1: one k, And people said, well, it's already eighteen thousand,

734
00:41:44,600 --> 00:41:47,480
Speaker 1: and imagine two people. I think you have to raise

735
00:41:47,560 --> 00:41:50,279
Speaker 1: them both. But so many people failed to meet the

736
00:41:50,320 --> 00:41:54,040
Speaker 1: ceiling on the four one k, it's probably not as present.

737
00:41:55,320 --> 00:41:57,560
Speaker 1: It would be great to raise the ceiling. It would

738
00:41:57,560 --> 00:42:00,480
Speaker 1: be really really great to help people understand and how

739
00:42:00,640 --> 00:42:03,000
Speaker 1: good that could be for them and why they should

740
00:42:03,040 --> 00:42:06,200
Speaker 1: take action and take advantage of the higher ceiling. I

741
00:42:06,239 --> 00:42:10,080
Speaker 1: don't I don't doubt that at all. Let's talk about

742
00:42:10,080 --> 00:42:15,320
Speaker 1: the savings rate um three percent. Three percent is too

743
00:42:15,400 --> 00:42:20,440
Speaker 1: low of a savings rate to replace se of employment

744
00:42:20,480 --> 00:42:24,520
Speaker 1: income during retirement. How do we get people to save

745
00:42:25,200 --> 00:42:28,520
Speaker 1: more than three percent of their income? Help people understand

746
00:42:28,560 --> 00:42:31,359
Speaker 1: what the impact is when they are retired, of how

747
00:42:31,640 --> 00:42:34,879
Speaker 1: badly hurt they will be if they don't save more.

748
00:42:35,160 --> 00:42:38,399
Speaker 1: And we ought to be teaching that day after day

749
00:42:38,440 --> 00:42:40,920
Speaker 1: after day. Teach it in high school, Teach it when

750
00:42:40,960 --> 00:42:44,080
Speaker 1: people first joined a retirement plan, Teach it in the

751
00:42:44,200 --> 00:42:48,319
Speaker 1: public domain all the time in high school. Do we

752
00:42:48,440 --> 00:42:51,920
Speaker 1: have any sort of financial literacy courses offered at the

753
00:42:51,960 --> 00:42:55,480
Speaker 1: high school level. Some of the problem we have, all

754
00:42:55,520 --> 00:42:57,560
Speaker 1: of us have, is we're all too busy. We've got

755
00:42:57,600 --> 00:42:59,759
Speaker 1: too many things in our mind. So we Yeah, you know,

756
00:42:59,840 --> 00:43:01,759
Speaker 1: I should lose ten pounds, but you know, I just

757
00:43:01,760 --> 00:43:04,200
Speaker 1: don't want to do it today. Yeah I know I

758
00:43:04,239 --> 00:43:06,920
Speaker 1: should do more exercise, but I just don't want to

759
00:43:06,920 --> 00:43:09,760
Speaker 1: get started today. Yeah I know. And so many things

760
00:43:09,760 --> 00:43:11,799
Speaker 1: that are crowd in on. You gotta get a job,

761
00:43:11,800 --> 00:43:13,480
Speaker 1: you gotta pay your taxes, you gotta do this, you

762
00:43:13,560 --> 00:43:15,960
Speaker 1: gotta do that. It's hard for people set aside the

763
00:43:16,000 --> 00:43:18,840
Speaker 1: time to say, now, I'm going to learn enough about investing.

764
00:43:19,080 --> 00:43:22,160
Speaker 1: And the shame is that investing is basically the stuff

765
00:43:22,160 --> 00:43:25,880
Speaker 1: that's really important, is really pretty simple, and if people

766
00:43:25,920 --> 00:43:29,239
Speaker 1: didn't get confused with only smart people know that sort

767
00:43:29,239 --> 00:43:31,759
Speaker 1: of stuff, or the language always bothers me. I don't

768
00:43:31,760 --> 00:43:34,520
Speaker 1: know what a pe ratio is, and they talk about

769
00:43:34,520 --> 00:43:36,480
Speaker 1: earnings yield and I don't know what that is either,

770
00:43:36,840 --> 00:43:39,279
Speaker 1: And pretty soon people say, ah, hell, I'll come back

771
00:43:39,280 --> 00:43:41,920
Speaker 1: to it later, but I can't do it today. If

772
00:43:41,960 --> 00:43:44,799
Speaker 1: they knew what the problem really is and boil it

773
00:43:44,840 --> 00:43:47,640
Speaker 1: down to the simplest kinds of decisions. This is how

774
00:43:47,680 --> 00:43:50,319
Speaker 1: much money you need to have when you're retired, Okay,

775
00:43:50,360 --> 00:43:52,360
Speaker 1: to have that money to spend every year. This is

776
00:43:52,400 --> 00:43:54,200
Speaker 1: how much you have to have in your nest egg

777
00:43:54,480 --> 00:43:56,600
Speaker 1: Okay to get there. You have to save this kind

778
00:43:56,640 --> 00:43:59,560
Speaker 1: of money every year and invested in this kind of

779
00:43:59,600 --> 00:44:02,160
Speaker 1: sensible way. If we could teach people those four or

780
00:44:02,239 --> 00:44:04,920
Speaker 1: five things, they'd be all set. You should write a

781
00:44:04,920 --> 00:44:08,919
Speaker 1: book about that. Did oh wait, oh wait, you already did. So.

782
00:44:09,120 --> 00:44:12,960
Speaker 1: There's a there's a thesis out there that says that

783
00:44:13,960 --> 00:44:19,120
Speaker 1: financial literacy education is great, but people rapidly forget about it.

784
00:44:19,160 --> 00:44:21,359
Speaker 1: You could teach people stuff and it stays with them

785
00:44:21,400 --> 00:44:24,920
Speaker 1: for three months, for six months, but not for a lifetime.

786
00:44:25,000 --> 00:44:28,719
Speaker 1: How do we get past the sort of short term

787
00:44:28,840 --> 00:44:33,600
Speaker 1: is um of of people being so easily distracted by

788
00:44:33,600 --> 00:44:36,640
Speaker 1: by life as you described. One that you obviously identified

789
00:44:36,640 --> 00:44:40,480
Speaker 1: earlier is opt out versus opt in. If every retirement

790
00:44:40,520 --> 00:44:44,279
Speaker 1: plan you automatically did the sensible thing, unless you said, no,

791
00:44:44,440 --> 00:44:46,560
Speaker 1: I'm different from most other people, so I've got a

792
00:44:46,560 --> 00:44:49,080
Speaker 1: real reason for wanting to do something different on this

793
00:44:49,120 --> 00:44:52,120
Speaker 1: item or that item or that item. Fine, you could

794
00:44:52,120 --> 00:44:55,640
Speaker 1: have the freedom to make a I'm different decision. Otherwise

795
00:44:55,680 --> 00:44:58,120
Speaker 1: you can have the super freedom to say somebody else

796
00:44:58,120 --> 00:45:00,080
Speaker 1: has thought about this pretty damn well. They've done a

797
00:45:00,120 --> 00:45:02,239
Speaker 1: good job of figuring out what most people need. I'm

798
00:45:02,280 --> 00:45:05,080
Speaker 1: going to take what's the blue plate special and and

799
00:45:05,120 --> 00:45:07,839
Speaker 1: the problem is that people when folks don't do that,

800
00:45:08,000 --> 00:45:12,239
Speaker 1: what you're left with thirty forty years hands. The fear

801
00:45:12,320 --> 00:45:14,959
Speaker 1: is that's going to fall on the taxpayer shoulders, because

802
00:45:14,960 --> 00:45:19,040
Speaker 1: it's just gonna really put stress on things like Medicare, Medicaid,

803
00:45:19,440 --> 00:45:22,200
Speaker 1: and Social Security. It's all going to end up back

804
00:45:22,239 --> 00:45:25,640
Speaker 1: on the taxpayers. Last wanna be really alarmist. Think how

805
00:45:25,680 --> 00:45:29,479
Speaker 1: badly this country would feel if there were a large

806
00:45:29,560 --> 00:45:33,000
Speaker 1: number of people in their seventies, eighties, and nineties who

807
00:45:33,000 --> 00:45:36,040
Speaker 1: are highly focused on the fact that they really were

808
00:45:36,120 --> 00:45:39,560
Speaker 1: hurting financially, and they turned to you and other people

809
00:45:39,560 --> 00:45:43,680
Speaker 1: who are experts and said, you did us real harm.

810
00:45:43,719 --> 00:45:47,040
Speaker 1: It's all your fault, and we're really angry, and we're

811
00:45:47,040 --> 00:45:49,960
Speaker 1: going to express our views at the polling place and

812
00:45:49,960 --> 00:45:53,280
Speaker 1: we're gonna do whatever we can because we got hurt.

813
00:45:53,719 --> 00:45:55,400
Speaker 1: And you knew we were going to get hurt. You

814
00:45:55,480 --> 00:45:57,920
Speaker 1: knew it all along. Why did you do that to us?

815
00:45:58,200 --> 00:46:00,239
Speaker 1: They won't say, cause you know, I made him stake

816
00:46:00,320 --> 00:46:02,400
Speaker 1: years ago. I should have done something. I've created this

817
00:46:02,440 --> 00:46:05,239
Speaker 1: problem for myself. That's not gonna happen. Didn't that just

818
00:46:05,360 --> 00:46:08,719
Speaker 1: happen already, didn't we see the first round? That's so

819
00:46:08,960 --> 00:46:12,880
Speaker 1: let's let's without talking about politics, because nobody cares about

820
00:46:12,960 --> 00:46:19,440
Speaker 1: my views on politics. How much of what took place

821
00:46:19,600 --> 00:46:25,200
Speaker 1: in the polls and the angst and other factors like that,

822
00:46:25,320 --> 00:46:28,799
Speaker 1: the populist uprising. Is that a one off event in

823
00:46:30,160 --> 00:46:32,600
Speaker 1: or is that a warning shot? Hey, this is what

824
00:46:32,640 --> 00:46:34,680
Speaker 1: the future is gonna look like if we don't develop

825
00:46:34,760 --> 00:46:38,960
Speaker 1: some economic security for for the population at large. It's

826
00:46:39,000 --> 00:46:43,480
Speaker 1: a first round only really could get worse pretty damn fast.

827
00:46:43,520 --> 00:46:45,560
Speaker 1: There's going to be more more of this sort of

828
00:46:45,680 --> 00:46:50,319
Speaker 1: populist uprising um in the future. If we don't as

829
00:46:50,320 --> 00:46:53,319
Speaker 1: a nation take care of our problems, we will have

830
00:46:53,360 --> 00:46:56,799
Speaker 1: those problems faster and get worse and worse, and they

831
00:46:56,800 --> 00:47:00,600
Speaker 1: can show up in politics very rapidly. So if you're

832
00:47:00,600 --> 00:47:03,279
Speaker 1: gonna be rational and reasonable about this, I don't know

833
00:47:03,280 --> 00:47:06,200
Speaker 1: what I can I can say to you about that. Um.

834
00:47:06,280 --> 00:47:08,320
Speaker 1: There's a data point in the book that I found

835
00:47:08,320 --> 00:47:11,600
Speaker 1: to be astonishing and I wanted to get to it

836
00:47:11,760 --> 00:47:14,799
Speaker 1: before UM we move on to some of our our

837
00:47:14,880 --> 00:47:19,520
Speaker 1: standard questions. If you start saving at five and retire

838
00:47:19,560 --> 00:47:23,799
Speaker 1: at seventy versus starting to save at forty five and

839
00:47:23,880 --> 00:47:29,239
Speaker 1: retire at sixty two, you reduce the required savings rate

840
00:47:29,680 --> 00:47:32,560
Speaker 1: by a factor of ten. Is that is that right?

841
00:47:32,640 --> 00:47:35,560
Speaker 1: That's an astonishing number. It is an astonishing number, and

842
00:47:35,560 --> 00:47:38,120
Speaker 1: it's a shame we don't all know it. It really

843
00:47:38,160 --> 00:47:42,000
Speaker 1: helps to have started early and have the accumulated power.

844
00:47:42,120 --> 00:47:44,440
Speaker 1: Einstein said that he thought the most powerful thing he

845
00:47:44,520 --> 00:47:48,160
Speaker 1: knew of was compound interest. Compound rates of return. If

846
00:47:48,160 --> 00:47:50,200
Speaker 1: you're in it for the long term, and we all are,

847
00:47:50,280 --> 00:47:51,799
Speaker 1: whether we like it or not, in it for the

848
00:47:51,840 --> 00:47:54,680
Speaker 1: long term. If you're in it for the long term,

849
00:47:54,719 --> 00:47:56,600
Speaker 1: that's a wonderful thing to have going for you. All

850
00:47:56,600 --> 00:48:00,200
Speaker 1: you need is time t I m e. Time. Most

851
00:48:00,280 --> 00:48:03,439
Speaker 1: of those gains come in the last ten years. That's

852
00:48:03,520 --> 00:48:06,240
Speaker 1: that's the biggest. So if you're starting at twenty five,

853
00:48:06,719 --> 00:48:09,960
Speaker 1: the bulk of your gains are coming um in the

854
00:48:10,040 --> 00:48:14,920
Speaker 1: last let's let's call it last fifth of of your

855
00:48:14,960 --> 00:48:17,800
Speaker 1: investment horizon. You started forty five and you go to

856
00:48:17,840 --> 00:48:20,719
Speaker 1: sixty two, you're not giving yourself enough time for compounding

857
00:48:20,760 --> 00:48:24,160
Speaker 1: to work. Correct. So let's see what else. There's one

858
00:48:24,239 --> 00:48:27,640
Speaker 1: or two other things. We've covered some stuff. You know

859
00:48:27,680 --> 00:48:30,359
Speaker 1: what I didn't talk to you about. So you were

860
00:48:30,400 --> 00:48:34,160
Speaker 1: working in the midst of the bear market of sixty

861
00:48:34,239 --> 00:48:36,919
Speaker 1: six to eighty two when you you talked about, Hey,

862
00:48:36,960 --> 00:48:39,680
Speaker 1: nobody really wants to work in finance in the thirties

863
00:48:40,000 --> 00:48:41,719
Speaker 1: and there wasn't a lot of money in the fifties.

864
00:48:41,760 --> 00:48:44,920
Speaker 1: What was it like from nineteen sixty two six to

865
00:48:45,680 --> 00:48:49,319
Speaker 1: two when we had ten twelve percent inflation rate and

866
00:48:49,440 --> 00:48:53,439
Speaker 1: stocks went nowhere for sixteen years. Who, Yeah, stocks didn't

867
00:48:53,480 --> 00:48:57,640
Speaker 1: go nowhere. Stocks went down. The drop in the value

868
00:48:57,800 --> 00:49:00,800
Speaker 1: of the down Jones average, just to take a measure,

869
00:49:01,760 --> 00:49:05,440
Speaker 1: the drop in the seventies was greater than the drop

870
00:49:05,640 --> 00:49:08,760
Speaker 1: in the from nine to the bottom of the thirties.

871
00:49:09,280 --> 00:49:12,640
Speaker 1: So what do we inflation adjusted the real real return,

872
00:49:12,760 --> 00:49:15,840
Speaker 1: so you had it was a nine loss once you

873
00:49:15,960 --> 00:49:20,120
Speaker 1: factored in inflation. It was held on wheels. So what

874
00:49:20,120 --> 00:49:22,000
Speaker 1: did you do during that period of time? How do

875
00:49:22,080 --> 00:49:24,759
Speaker 1: you how do you deal with institutions? How do you

876
00:49:24,760 --> 00:49:28,520
Speaker 1: deal with individuals when there's no not a lot of

877
00:49:28,600 --> 00:49:32,480
Speaker 1: upside inequities and whatever gains you have in bonds are

878
00:49:32,480 --> 00:49:34,839
Speaker 1: going to be offset by inflation. Well, it was worse

879
00:49:34,880 --> 00:49:37,799
Speaker 1: in bonds than it wasn't stocks, because you do a

880
00:49:37,800 --> 00:49:39,920
Speaker 1: lot of damage to a bond portfolio if you take

881
00:49:39,960 --> 00:49:44,880
Speaker 1: infuriates from percent to two percent. So there was terrible

882
00:49:44,960 --> 00:49:49,919
Speaker 1: everywhere all the way around from two percent right when

883
00:49:49,960 --> 00:49:53,319
Speaker 1: you're you're from If the Federal Reserve says interest rates

884
00:49:53,320 --> 00:49:57,040
Speaker 1: want to be high to break inflation, country a lot

885
00:49:57,040 --> 00:50:01,080
Speaker 1: of good doing that you really really ash the markets

886
00:50:01,719 --> 00:50:06,760
Speaker 1: from inflation or rate of return on a treasury bond

887
00:50:07,280 --> 00:50:12,400
Speaker 1: all the way down to two. That's a long sweep

888
00:50:12,560 --> 00:50:15,480
Speaker 1: of real pain and anguish for people on the fixed income.

889
00:50:16,000 --> 00:50:19,560
Speaker 1: We we just finished a thirty year or maybe even

890
00:50:19,600 --> 00:50:23,680
Speaker 1: a thirty five year bull market in bonds, when when

891
00:50:23,719 --> 00:50:28,160
Speaker 1: you're looking at portfolio is going forward? What should people

892
00:50:28,239 --> 00:50:30,960
Speaker 1: be thinking about now? I know you don't have a

893
00:50:30,960 --> 00:50:34,320
Speaker 1: lot of bonds, but the average institution, the average investor,

894
00:50:35,719 --> 00:50:38,000
Speaker 1: what do you think about when you see rates at

895
00:50:38,120 --> 00:50:40,959
Speaker 1: two two and a half percent going who knows where?

896
00:50:41,000 --> 00:50:45,880
Speaker 1: How do you put together um a plan over for

897
00:50:45,920 --> 00:50:48,960
Speaker 1: the next couple of decades starting from such low rates

898
00:50:48,960 --> 00:50:51,880
Speaker 1: of interest. First of all, we all ought to know

899
00:50:52,080 --> 00:50:55,880
Speaker 1: it's not easy now because prices of bonds and prices

900
00:50:55,920 --> 00:50:59,480
Speaker 1: of stocks are high, and the Federal Reserve has done

901
00:50:59,520 --> 00:51:02,680
Speaker 1: all of us as a nation real good by getting

902
00:51:02,880 --> 00:51:06,080
Speaker 1: the interest rates down enough so that the employment has

903
00:51:06,120 --> 00:51:08,759
Speaker 1: gone up enough so that we're really starting to see

904
00:51:08,800 --> 00:51:11,640
Speaker 1: the economy come back to its full capabilities and potential.

905
00:51:12,160 --> 00:51:14,840
Speaker 1: It has been terribly painful for the people who depend

906
00:51:14,920 --> 00:51:18,279
Speaker 1: on interest income because they've seen interest income go from

907
00:51:19,719 --> 00:51:24,719
Speaker 1: down to three. That hurts, So be realistic about that.

908
00:51:25,239 --> 00:51:27,440
Speaker 1: But if you're looking at what should you do as

909
00:51:27,480 --> 00:51:32,240
Speaker 1: an investor today? First of all, think long term. Secondly,

910
00:51:32,400 --> 00:51:35,080
Speaker 1: take a look at the total picture. Don't look just

911
00:51:35,200 --> 00:51:38,560
Speaker 1: at your stock and bond portfolio. Look at your home,

912
00:51:39,320 --> 00:51:43,080
Speaker 1: social security and other and your income as an earning

913
00:51:43,120 --> 00:51:48,080
Speaker 1: person so called intellectual property. Those are all really important assets.

914
00:51:48,360 --> 00:51:51,000
Speaker 1: What are they worth? And then try with that total

915
00:51:51,040 --> 00:51:54,040
Speaker 1: portfolio to make a sensible decision as to what would

916
00:51:54,080 --> 00:51:57,520
Speaker 1: be right for you as an individual, knowing we're all different.

917
00:51:58,360 --> 00:52:00,279
Speaker 1: And the one question I know I didn't get to

918
00:52:00,440 --> 00:52:04,320
Speaker 1: before that I that I really wanted to was about benchmarking.

919
00:52:04,600 --> 00:52:11,280
Speaker 1: So in the index revolution you allude to this, um

920
00:52:11,360 --> 00:52:14,560
Speaker 1: what was benchmarking like in the early days? How do

921
00:52:14,600 --> 00:52:17,880
Speaker 1: you benchmark and index when there really isn't a frame

922
00:52:17,920 --> 00:52:20,960
Speaker 1: of reference? What what was done in the seventies when

923
00:52:20,960 --> 00:52:23,760
Speaker 1: it came to that, well, in the fifties and sixties,

924
00:52:23,760 --> 00:52:25,279
Speaker 1: what would have been done as you look at the

925
00:52:25,280 --> 00:52:28,640
Speaker 1: Dow Jones average and say that's probably about it. Where

926
00:52:28,640 --> 00:52:30,920
Speaker 1: you look at what you hoped to be able to

927
00:52:30,960 --> 00:52:35,560
Speaker 1: earn your return assumption and think that was about it.

928
00:52:35,960 --> 00:52:38,520
Speaker 1: That the data was not available on how well pension

929
00:52:38,560 --> 00:52:41,439
Speaker 1: funds were performing compared to other pension funds, how well

930
00:52:41,480 --> 00:52:45,000
Speaker 1: insurance companies were managing compared to banks compared to investment

931
00:52:45,000 --> 00:52:48,000
Speaker 1: council firms. And when that data came out through a

932
00:52:48,160 --> 00:52:50,839
Speaker 1: firm called A. G. Becker and Mary Lynch in those days,

933
00:52:51,200 --> 00:52:54,560
Speaker 1: the performance measurement, all of a sudden, the data, My god, Barrett,

934
00:52:54,560 --> 00:52:58,000
Speaker 1: look at the data. This is really important. And people

935
00:52:58,000 --> 00:53:00,520
Speaker 1: started saying, let's go find managers and do a really

936
00:53:00,560 --> 00:53:03,320
Speaker 1: good job for us. And that's where active investment management

937
00:53:03,360 --> 00:53:05,920
Speaker 1: started to take off. Because if you were an active

938
00:53:05,960 --> 00:53:08,680
Speaker 1: investment manager and you had access to really good research,

939
00:53:08,760 --> 00:53:11,560
Speaker 1: which was just being created in those days, and you're

940
00:53:11,560 --> 00:53:14,360
Speaker 1: willing to act fairly quickly instead of waiting for the

941
00:53:14,440 --> 00:53:18,200
Speaker 1: monthly investment committee meeting where you're trying to if you

942
00:53:18,239 --> 00:53:22,160
Speaker 1: were willing, if you're willing to be assertive and do

943
00:53:22,239 --> 00:53:24,640
Speaker 1: your very best, you could really do a lot better

944
00:53:24,680 --> 00:53:27,719
Speaker 1: than the market. Those were glorious days for active investing.

945
00:53:27,960 --> 00:53:31,560
Speaker 1: But they're gone. That's that. That that's history. It's amazing

946
00:53:31,600 --> 00:53:35,560
Speaker 1: to think that that the Dow Jones, which is not

947
00:53:35,640 --> 00:53:39,640
Speaker 1: just Lodge captives, are the biggest companies amongst the biggest

948
00:53:39,640 --> 00:53:42,200
Speaker 1: companies in the world. It just seems like such an

949
00:53:42,239 --> 00:53:46,399
Speaker 1: odd um benchmark for so many, so many you've probably left.

950
00:53:46,400 --> 00:53:50,439
Speaker 1: We use slide rules in those days have calculators. When

951
00:53:50,440 --> 00:53:52,879
Speaker 1: we wanted to do research, we went to the New

952
00:53:52,960 --> 00:53:56,040
Speaker 1: York Stock Exchange. They had a small set aside library

953
00:53:56,040 --> 00:53:59,239
Speaker 1: of all the filings with the SEC and page after

954
00:53:59,280 --> 00:54:01,560
Speaker 1: page after pay age you could do trying to figure

955
00:54:01,560 --> 00:54:03,760
Speaker 1: out what's going on in this company or that company.

956
00:54:04,000 --> 00:54:05,759
Speaker 1: You go out and meet with management and they would

957
00:54:05,800 --> 00:54:08,160
Speaker 1: talk with you for hours trying to help you understand

958
00:54:08,200 --> 00:54:10,640
Speaker 1: their company, which a very different world in the world

959
00:54:10,719 --> 00:54:14,879
Speaker 1: we live in today. So that's that's quite fascinating. And um,

960
00:54:17,000 --> 00:54:20,719
Speaker 1: I've seen a lot of those changes, um firsthand, but

961
00:54:21,120 --> 00:54:24,160
Speaker 1: the fifties and sixties are before my time. It sounds

962
00:54:24,640 --> 00:54:27,640
Speaker 1: it sounds like it was pretty interesting and amazing place

963
00:54:27,680 --> 00:54:31,759
Speaker 1: to work. Let's go to my standard questions. These are

964
00:54:31,760 --> 00:54:34,759
Speaker 1: the questions that I ask all of my guests, and

965
00:54:34,760 --> 00:54:36,360
Speaker 1: and some of these are going to require a little

966
00:54:36,400 --> 00:54:39,800
Speaker 1: recall on your part. Let's let's jump right into these.

967
00:54:40,239 --> 00:54:43,799
Speaker 1: So the quite thing that I find fascinating about you

968
00:54:44,480 --> 00:54:48,640
Speaker 1: is you graduate Yale with a major in art history.

969
00:54:48,760 --> 00:54:51,759
Speaker 1: Did you ever imagine art history would somehow lead to

970
00:54:51,840 --> 00:54:57,120
Speaker 1: finance and and how did that art history background, Because

971
00:54:57,280 --> 00:55:01,400
Speaker 1: you're obviously an accomplished successful part in the world of finance.

972
00:55:01,840 --> 00:55:06,200
Speaker 1: How did the art history training help you within the field?

973
00:55:07,560 --> 00:55:09,920
Speaker 1: Not very much, honestly, But it helped me in the

974
00:55:09,960 --> 00:55:12,520
Speaker 1: sense of when I had I traveled a great deal

975
00:55:12,760 --> 00:55:15,440
Speaker 1: in the work I did as a consultant on investment management,

976
00:55:15,440 --> 00:55:18,360
Speaker 1: so I was in London a lot and other major cities.

977
00:55:18,560 --> 00:55:21,239
Speaker 1: So if I had a meeting canceled, I knew what

978
00:55:21,280 --> 00:55:23,160
Speaker 1: to do. I got unto the art museum in that

979
00:55:23,200 --> 00:55:25,440
Speaker 1: particular city and have plenty of time to look at

980
00:55:25,440 --> 00:55:27,440
Speaker 1: the beautiful pictures and stuff like that. So it was

981
00:55:28,040 --> 00:55:31,840
Speaker 1: life enhancing. Yeah, it was great fun. Uh. It also

982
00:55:31,920 --> 00:55:35,680
Speaker 1: taught me a little bit about how to look more carefully,

983
00:55:35,719 --> 00:55:38,520
Speaker 1: because the difference between a really great painting and a

984
00:55:38,520 --> 00:55:42,440
Speaker 1: pretty good painting is not obvious. It's in some of

985
00:55:42,480 --> 00:55:45,719
Speaker 1: the details, in the specifics, and the difference between the

986
00:55:45,800 --> 00:55:49,839
Speaker 1: forgery and an original is of course really important. And

987
00:55:50,000 --> 00:55:53,400
Speaker 1: being able to look carefully was helpful, but I wouldn't

988
00:55:53,400 --> 00:55:55,879
Speaker 1: give too much. It was more in the recreation. Why

989
00:55:55,920 --> 00:55:58,000
Speaker 1: do I love to put When I was growing up,

990
00:55:58,000 --> 00:55:59,800
Speaker 1: I love to play golf, and then I played tennis.

991
00:55:59,800 --> 00:56:03,000
Speaker 1: Why I play tennis because my wife likes to play tennis?

992
00:56:03,040 --> 00:56:07,200
Speaker 1: Easy so I wouldn't try to draw too much out

993
00:56:07,200 --> 00:56:08,799
Speaker 1: of So you're an art history major and then you

994
00:56:08,840 --> 00:56:12,759
Speaker 1: got into investment management that there's no real linkage at all.

995
00:56:12,960 --> 00:56:15,879
Speaker 1: So so okay, so let's put art history aside. Who

996
00:56:15,880 --> 00:56:19,839
Speaker 1: were some of your early mentors, who who guided your

997
00:56:19,880 --> 00:56:22,839
Speaker 1: career when you moved into finance. Well, I was very

998
00:56:22,920 --> 00:56:27,359
Speaker 1: lucky to work for a guy who was a brilliant person. Uh.

999
00:56:27,400 --> 00:56:30,040
Speaker 1: And he happened to be in an investment management and

1000
00:56:30,080 --> 00:56:33,279
Speaker 1: he happened to be working on investment problems. So I

1001
00:56:33,400 --> 00:56:36,200
Speaker 1: was there to learn from him what I could learn. Honestly,

1002
00:56:36,239 --> 00:56:38,040
Speaker 1: it didn't make very much difference. If he'd been in

1003
00:56:38,080 --> 00:56:39,799
Speaker 1: real estate, that would have been fine. If you'd been

1004
00:56:39,800 --> 00:56:41,759
Speaker 1: in retailing, that would have been fine. This is a

1005
00:56:41,760 --> 00:56:44,200
Speaker 1: guy that could teach me a lot. So you want

1006
00:56:44,200 --> 00:56:46,719
Speaker 1: to share a name with us? Name was well, there

1007
00:56:46,719 --> 00:56:51,080
Speaker 1: two guys actually, j Richards and Dilworth. Dick Dilworth was

1008
00:56:51,200 --> 00:56:56,600
Speaker 1: a factlessly talented guy. Uh. Many people confuse him with

1009
00:56:56,640 --> 00:57:00,440
Speaker 1: the once time mayor of Philadelphia, completely different French guy.

1010
00:57:01,880 --> 00:57:06,040
Speaker 1: But Dick Dilworth was a as good an illustration of

1011
00:57:06,120 --> 00:57:08,920
Speaker 1: the finest in America as you would find anywhere. Really,

1012
00:57:08,960 --> 00:57:11,400
Speaker 1: and the other guy was a phone named Robert Strange,

1013
00:57:11,960 --> 00:57:15,440
Speaker 1: as in Robert Strange Mcnamerica. They were cousins, and Bob

1014
00:57:15,480 --> 00:57:19,520
Speaker 1: Strange was also brilliant. Then he was my direct supervisor,

1015
00:57:19,680 --> 00:57:22,680
Speaker 1: and a wonderful experience to work with two really brainy

1016
00:57:22,680 --> 00:57:25,240
Speaker 1: guys who were very very well connected because people thought

1017
00:57:25,240 --> 00:57:28,800
Speaker 1: the world of them as individuals. So so let's talk

1018
00:57:28,840 --> 00:57:33,280
Speaker 1: a little bit about the investors that who influenced your

1019
00:57:33,320 --> 00:57:37,360
Speaker 1: approach to investing. Who are the thinkers and investors that

1020
00:57:37,520 --> 00:57:41,040
Speaker 1: actually affected how you looked the world of of putting

1021
00:57:41,120 --> 00:57:42,840
Speaker 1: capital at risk. Well, there a whole bunch of them,

1022
00:57:42,840 --> 00:57:44,160
Speaker 1: but I'll tell you the one that I think is

1023
00:57:44,200 --> 00:57:49,600
Speaker 1: obviously the best. Uh Sandy Goddessman, who for many years

1024
00:57:49,680 --> 00:57:53,120
Speaker 1: was on the board at Berkshire Hathaway as Chairman of

1025
00:57:53,160 --> 00:57:56,840
Speaker 1: the board. And Sandy ran a firm called First Manhattan,

1026
00:57:57,200 --> 00:58:01,320
Speaker 1: Fine New York firm, and he was a client of

1027
00:58:01,360 --> 00:58:05,280
Speaker 1: mine when I was at Greenwich Associates, and one year

1028
00:58:05,360 --> 00:58:09,040
Speaker 1: I recommended they not stay in the institutional brokerage business

1029
00:58:09,240 --> 00:58:12,320
Speaker 1: and concentrated on the investment management business. The next year

1030
00:58:12,360 --> 00:58:14,280
Speaker 1: I went to see him and he said, you're right,

1031
00:58:14,360 --> 00:58:17,000
Speaker 1: we shouldn't be in the institutional brokerage business. We're just

1032
00:58:17,000 --> 00:58:21,160
Speaker 1: going to do investment management. I said, well, uh, sorry

1033
00:58:21,160 --> 00:58:23,000
Speaker 1: to hear that one sense, but I'm also glad you

1034
00:58:23,040 --> 00:58:26,800
Speaker 1: took the message. He said, well, that completes our business conversation. Now,

1035
00:58:26,800 --> 00:58:29,840
Speaker 1: what would you like to talk about? And lucky, lucky

1036
00:58:30,080 --> 00:58:32,400
Speaker 1: lucky me. I said, Sandy, you're one of the best

1037
00:58:32,480 --> 00:58:35,800
Speaker 1: investment managers in this city. I'd love to have you

1038
00:58:35,880 --> 00:58:40,080
Speaker 1: tell me how you think about investing yourself. He said,

1039
00:58:40,120 --> 00:58:43,880
Speaker 1: that's easy. I said, thank you tell me all. He said,

1040
00:58:44,280 --> 00:58:47,280
Speaker 1: I'm invested in Berkshire Hathaway because I think Warren Buffett

1041
00:58:47,320 --> 00:58:49,200
Speaker 1: has figured out how to do investing in a way

1042
00:58:49,200 --> 00:58:51,640
Speaker 1: that is different from anybody else can do. I think

1043
00:58:51,640 --> 00:58:55,880
Speaker 1: he's brilliant and very very disciplined. He's a long term investor. Then,

1044
00:58:55,960 --> 00:58:58,360
Speaker 1: so that's my major investment. And he spent about half

1045
00:58:58,360 --> 00:59:01,720
Speaker 1: an hour teaching me to understand Berkshire Hathway. What what

1046
00:59:01,840 --> 00:59:05,000
Speaker 1: year was this? This has been in the early nineteen seventies.

1047
00:59:05,680 --> 00:59:08,480
Speaker 1: I think it was so Berkshire Hathaway is not what

1048
00:59:08,560 --> 00:59:12,080
Speaker 1: it is today. It was barely on anybody's radar. And

1049
00:59:12,120 --> 00:59:14,919
Speaker 1: did you follow his advice? I certainly did. So you're

1050
00:59:15,080 --> 00:59:20,680
Speaker 1: you're an investor with with Berkshire since the seventies, and

1051
00:59:20,720 --> 00:59:24,760
Speaker 1: I've learned a lot by reading Warren Buffett's reports. I've

1052
00:59:24,840 --> 00:59:28,960
Speaker 1: learned a lot from Warren himself, and I have had

1053
00:59:29,000 --> 00:59:34,120
Speaker 1: an unbelievably positive experience I can imagine, to say the least.

1054
00:59:34,120 --> 00:59:39,520
Speaker 1: So Um, it's ironic that you're talking about index investing

1055
00:59:39,600 --> 00:59:43,480
Speaker 1: when in the early seventies, when the opportunity existed, you

1056
00:59:43,520 --> 00:59:47,680
Speaker 1: found your way to Berkshire Hathaway. Those opportunities don't exist anymore,

1057
00:59:47,720 --> 00:59:51,280
Speaker 1: do they. Uh, there may exist, but they'd be hard

1058
00:59:51,320 --> 00:59:54,200
Speaker 1: for me to find. Well, I think they'd be hard

1059
00:59:54,200 --> 00:59:57,080
Speaker 1: for And I think when when Warren Buffett says that

1060
00:59:57,320 --> 01:00:02,320
Speaker 1: for his wife and her retirement right he's going to

1061
01:00:02,400 --> 01:00:05,360
Speaker 1: use primarily index funds makes a lot of sense. When

1062
01:00:05,360 --> 01:00:08,000
Speaker 1: he says for most individuals, that's what they should do,

1063
01:00:08,120 --> 01:00:10,400
Speaker 1: makes a lot of sense. And then when David Swinson,

1064
01:00:10,440 --> 01:00:13,080
Speaker 1: who is the chief investment officer for Yale has done

1065
01:00:13,080 --> 01:00:17,560
Speaker 1: a wonderful job of investing as an active client in investing,

1066
01:00:18,200 --> 01:00:22,600
Speaker 1: says most everybody should be using index funds. I'm smart

1067
01:00:22,720 --> 01:00:24,640
Speaker 1: enough to realize that there are some guys are really

1068
01:00:24,680 --> 01:00:27,080
Speaker 1: really good at this and they say, that's what we

1069
01:00:27,120 --> 01:00:29,680
Speaker 1: ought to do. Probably ought to pay attention. So let's

1070
01:00:29,760 --> 01:00:33,360
Speaker 1: let's talk about Swenson for a minute. He created what

1071
01:00:33,440 --> 01:00:38,320
Speaker 1: everyone now calls the Yale model. It spawns a million imitators.

1072
01:00:38,920 --> 01:00:41,040
Speaker 1: None of them have been able to do what he's

1073
01:00:41,160 --> 01:00:47,000
Speaker 1: capable of doing, and Yale consistently outperforms most of the

1074
01:00:47,040 --> 01:00:51,640
Speaker 1: other large endowments Harvard, m I T, Stanford, etcetera. Why

1075
01:00:51,720 --> 01:00:56,520
Speaker 1: has he been so singularly successful at the Yale model

1076
01:00:56,600 --> 01:00:58,840
Speaker 1: that he invented, and halp some other people have been

1077
01:00:58,920 --> 01:01:03,400
Speaker 1: unable to find success just doing what he does. It's

1078
01:01:03,400 --> 01:01:05,280
Speaker 1: a little too strong a statement. There's some other people

1079
01:01:05,320 --> 01:01:09,080
Speaker 1: who've done a very good job. But David is really unique. Now.

1080
01:01:09,480 --> 01:01:14,160
Speaker 1: First of all, he's brilliant, really smart. Secondly, he's really

1081
01:01:14,160 --> 01:01:17,680
Speaker 1: well educated. Did his economics PhD at Yale and was

1082
01:01:17,720 --> 01:01:20,720
Speaker 1: the top of the deck. Jim Tobin was his dissertation advisor,

1083
01:01:20,760 --> 01:01:23,520
Speaker 1: and Tim thought so highly of David that they had

1084
01:01:23,520 --> 01:01:28,000
Speaker 1: a great personal father to son kind of relationship. David's

1085
01:01:28,040 --> 01:01:31,080
Speaker 1: got Midwest values, so he's all about integrity and doing

1086
01:01:31,120 --> 01:01:34,200
Speaker 1: the right thing for the right reasons, deep deep rooted,

1087
01:01:34,720 --> 01:01:37,160
Speaker 1: and he's devoted to the idea of doing a great

1088
01:01:37,240 --> 01:01:40,240
Speaker 1: job for Yale because thousands of people benefit from that.

1089
01:01:40,320 --> 01:01:43,640
Speaker 1: All the kids are on scholarship get better scholarships because

1090
01:01:43,720 --> 01:01:46,480
Speaker 1: David Swinson has done such a great job for that university.

1091
01:01:46,880 --> 01:01:49,720
Speaker 1: All the faculty members who are teaching courses have more

1092
01:01:49,840 --> 01:01:52,520
Speaker 1: financial support for what they're trying to do. The head

1093
01:01:52,560 --> 01:01:55,640
Speaker 1: of the university has more financial resources to build back

1094
01:01:55,720 --> 01:01:58,640
Speaker 1: the facilities of the university. It's one after another after

1095
01:01:58,880 --> 01:02:03,360
Speaker 1: everybody's benefiting. And why is he so darned good at it? Well,

1096
01:02:03,480 --> 01:02:06,400
Speaker 1: yes he's brilliant. Yes he's well educated, and he's been

1097
01:02:06,440 --> 01:02:09,040
Speaker 1: doing it for a long time, and he's very very disciplined.

1098
01:02:09,360 --> 01:02:13,400
Speaker 1: But watch the part that's really important. He's completely objective

1099
01:02:13,520 --> 01:02:18,360
Speaker 1: and rational, and he's very good with people, and he's

1100
01:02:18,400 --> 01:02:23,320
Speaker 1: probably the best client anybody ever had. Tough, really tough

1101
01:02:23,400 --> 01:02:27,040
Speaker 1: as a client, but so honest, so straight and so

1102
01:02:27,120 --> 01:02:30,720
Speaker 1: helpful that everybody wants to have David Swinson as a client.

1103
01:02:31,240 --> 01:02:33,480
Speaker 1: So he gets pick and shoes from all the very best,

1104
01:02:33,840 --> 01:02:37,320
Speaker 1: and he's very very careful at his selectivity largely on

1105
01:02:37,400 --> 01:02:41,080
Speaker 1: integrity of the discipline of your investing and the integrity

1106
01:02:41,120 --> 01:02:43,600
Speaker 1: of the people who are working in the organization. When

1107
01:02:43,600 --> 01:02:45,720
Speaker 1: you get checked out by Swenson and his team, you

1108
01:02:45,760 --> 01:02:49,080
Speaker 1: get checked out more carefully than the CIA would check

1109
01:02:49,120 --> 01:02:50,560
Speaker 1: you out if you were going to be Secretary of

1110
01:02:50,600 --> 01:02:54,000
Speaker 1: State for the United States. It's an unbelievable process trying

1111
01:02:54,040 --> 01:02:56,959
Speaker 1: to be sure they don't make any mistakes. Last part,

1112
01:02:57,360 --> 01:03:00,439
Speaker 1: David Swinson and his team have a sc little button

1113
01:03:00,480 --> 01:03:04,120
Speaker 1: network that goes throughout the investment management world. There's no

1114
01:03:04,160 --> 01:03:06,760
Speaker 1: one who has more people who say, if I could

1115
01:03:06,760 --> 01:03:09,959
Speaker 1: ever be helpful to David Swinson just a little bit

1116
01:03:10,200 --> 01:03:13,200
Speaker 1: sometime once, I would love to. So he gets all

1117
01:03:13,280 --> 01:03:17,080
Speaker 1: kinds of people feeding him ideas, insights, possibilities, things might

1118
01:03:17,120 --> 01:03:19,960
Speaker 1: be useful because he's such a good user and one

1119
01:03:20,000 --> 01:03:23,600
Speaker 1: of the best users. Ways he uses it is not

1120
01:03:23,760 --> 01:03:27,360
Speaker 1: just for the Yale Endowment, which gets undivided first attention,

1121
01:03:27,960 --> 01:03:30,640
Speaker 1: but then he also has been very very helpful in

1122
01:03:30,840 --> 01:03:33,480
Speaker 1: teaching people how to do that kind of investing. And

1123
01:03:33,520 --> 01:03:36,880
Speaker 1: if you look at the top fifty universities, about a

1124
01:03:36,920 --> 01:03:41,600
Speaker 1: third of them have got a David Swinson educated, developed

1125
01:03:41,880 --> 01:03:45,640
Speaker 1: and certified individual doing the investment management at that university.

1126
01:03:45,640 --> 01:03:47,680
Speaker 1: He's done a lot of people a lot of good

1127
01:03:47,800 --> 01:03:52,520
Speaker 1: for a long time. So that raises the the other

1128
01:03:53,600 --> 01:03:58,800
Speaker 1: university not too far in in the next state, in Massachusetts.

1129
01:04:00,320 --> 01:04:04,200
Speaker 1: Why has the Harvard Endowment stumbled the way it has.

1130
01:04:04,560 --> 01:04:08,040
Speaker 1: There's been all sorts of crazy turnover. If you remember

1131
01:04:08,360 --> 01:04:10,959
Speaker 1: about ten or fifteen years ago, there was some sort

1132
01:04:11,040 --> 01:04:15,960
Speaker 1: of um general offense at how much the managers of

1133
01:04:16,000 --> 01:04:18,280
Speaker 1: the endowment were making, and they were putting up really

1134
01:04:18,280 --> 01:04:21,880
Speaker 1: good numbers. A lot of that team left. Now there's

1135
01:04:21,880 --> 01:04:24,120
Speaker 1: been two or three c I O s since then.

1136
01:04:25,400 --> 01:04:28,040
Speaker 1: Let's compare and contrast. What does Harvard need to do

1137
01:04:28,240 --> 01:04:33,160
Speaker 1: to and the Harvard Endowment needs to do to look

1138
01:04:33,280 --> 01:04:36,840
Speaker 1: more like or at least be as successful as the

1139
01:04:36,920 --> 01:04:39,360
Speaker 1: Yale Endowment. Well, if you go back to the really

1140
01:04:39,360 --> 01:04:42,720
Speaker 1: great days of the Harvard Endowment, Jack Meyer, who was

1141
01:04:42,800 --> 01:04:46,600
Speaker 1: your Harvard manager, David Swinson, the Yale manager. They became

1142
01:04:46,720 --> 01:04:50,000
Speaker 1: very close friends because they realized they were both motivated

1143
01:04:50,040 --> 01:04:52,360
Speaker 1: by the same values. Do the right thing for the client,

1144
01:04:53,240 --> 01:04:56,480
Speaker 1: do it with intellectual rigor, do it with objectivity or

1145
01:04:56,480 --> 01:05:00,640
Speaker 1: old times, and do it for the long term. Once

1146
01:05:00,640 --> 01:05:02,600
Speaker 1: you get those things down, pat as this is the

1147
01:05:02,600 --> 01:05:04,400
Speaker 1: way we're gonna do it, it leads you in a

1148
01:05:04,400 --> 01:05:07,760
Speaker 1: particular direction. I think that's been really important. The second

1149
01:05:07,800 --> 01:05:12,080
Speaker 1: thing is the governance. The oversight of the Yale Endowment

1150
01:05:12,160 --> 01:05:15,640
Speaker 1: has been very, very consistent and contributing in a very

1151
01:05:15,720 --> 01:05:19,040
Speaker 1: nice way. One reason it's been so consistent is that

1152
01:05:19,320 --> 01:05:22,640
Speaker 1: David Swenson has been carefully picking and choosing the people

1153
01:05:22,680 --> 01:05:25,560
Speaker 1: that ought to be candidates, and the candidates have been

1154
01:05:25,600 --> 01:05:30,320
Speaker 1: then selected by the president University and David Swenson jointly,

1155
01:05:30,840 --> 01:05:34,320
Speaker 1: so that they've had a very nice capability in governance.

1156
01:05:34,560 --> 01:05:38,120
Speaker 1: And that's been a stability that's been enormously helpful. That's

1157
01:05:38,120 --> 01:05:41,600
Speaker 1: the key artist stability. You haven't had that in Cambridge.

1158
01:05:41,600 --> 01:05:46,800
Speaker 1: That's been missing from from the Harvard endownmentt UM. So

1159
01:05:47,000 --> 01:05:49,320
Speaker 1: it is what it is. I like the joke that, uh,

1160
01:05:49,600 --> 01:05:52,440
Speaker 1: it's a hedge fund with a unit small university attached

1161
01:05:52,440 --> 01:05:56,280
Speaker 1: to it. Is is how some people have described Harvard UM.

1162
01:05:56,320 --> 01:05:58,600
Speaker 1: I don't know if that's true's not, but but it

1163
01:05:58,680 --> 01:06:01,440
Speaker 1: certainly is. It certainly interesting. Let's let's get back to

1164
01:06:02,040 --> 01:06:05,800
Speaker 1: my list of standard questions. So you mentioned Swanson, you

1165
01:06:05,840 --> 01:06:09,680
Speaker 1: mentioned Buffett, any other investors or thinkers that you want

1166
01:06:09,680 --> 01:06:13,560
Speaker 1: to reference in the people who have influenced your approach

1167
01:06:13,600 --> 01:06:15,920
Speaker 1: to investments. Well, I've been very privileged because I've been

1168
01:06:15,960 --> 01:06:18,000
Speaker 1: all over the world working with a lot of different people.

1169
01:06:18,280 --> 01:06:21,120
Speaker 1: And if you started going through the list, you know

1170
01:06:21,160 --> 01:06:24,720
Speaker 1: you'd have to pick up Ncox Song, who for many

1171
01:06:24,800 --> 01:06:28,640
Speaker 1: years was chief investor for the g I C in Singapore,

1172
01:06:29,040 --> 01:06:32,640
Speaker 1: a very large sovereign wealth fund. You go to London

1173
01:06:32,920 --> 01:06:36,080
Speaker 1: and Peter Storm with Darling would be another top of

1174
01:06:36,120 --> 01:06:37,880
Speaker 1: the deck. He was the guy that was in charge

1175
01:06:37,880 --> 01:06:41,400
Speaker 1: of Warburg Investment Management in its glorious and great days

1176
01:06:42,840 --> 01:06:46,400
Speaker 1: across the United States. All kinds of different people have

1177
01:06:46,480 --> 01:06:49,480
Speaker 1: been terrific. Jim Rothenberg at Capital Group would have been

1178
01:06:49,680 --> 01:06:55,640
Speaker 1: one of those individuals. Now David Testa Tiro Price would

1179
01:06:55,640 --> 01:07:00,800
Speaker 1: be another. Uh. The large number of really really gifted people.

1180
01:07:01,520 --> 01:07:03,840
Speaker 1: All right, So let's shift subjects a little bit. People

1181
01:07:03,920 --> 01:07:06,920
Speaker 1: always ask about books. We we talked about some of

1182
01:07:06,960 --> 01:07:11,960
Speaker 1: your books as well as UM as well as Extraordinary Tennis.

1183
01:07:12,520 --> 01:07:15,840
Speaker 1: What other sorts of books have you enjoyed or would

1184
01:07:15,840 --> 01:07:20,120
Speaker 1: you recommend? What sort of finance related fiction, nonfiction? What

1185
01:07:20,120 --> 01:07:24,600
Speaker 1: what books do you fill your line your bookshelves at home. Well,

1186
01:07:24,640 --> 01:07:28,760
Speaker 1: I'd love to read biography and history. I have to

1187
01:07:28,800 --> 01:07:31,800
Speaker 1: be responsible for reading investment books, and I like to

1188
01:07:31,840 --> 01:07:34,840
Speaker 1: be responsible for reading business books. But what I really

1189
01:07:34,880 --> 01:07:38,080
Speaker 1: like doing is biography and history because I can learn

1190
01:07:38,600 --> 01:07:42,360
Speaker 1: forever lessons by doing that. Give us a few examples

1191
01:07:42,360 --> 01:07:44,520
Speaker 1: of so start with an author like Ron chernow, but

1192
01:07:44,560 --> 01:07:47,720
Speaker 1: most people think he did Hamilton's, but he got some wonderful,

1193
01:07:47,720 --> 01:07:52,080
Speaker 1: wonderful books on business organizations that are bar none. His

1194
01:07:52,160 --> 01:07:55,760
Speaker 1: book on Morgan, his book on John D. Rockefeller, terrific

1195
01:07:55,800 --> 01:07:58,960
Speaker 1: books and full of insight and understanding. It's funny you

1196
01:07:59,000 --> 01:08:01,080
Speaker 1: mentioned those two the part, and I had you sign

1197
01:08:01,920 --> 01:08:04,240
Speaker 1: uh your book to Mike, who's the head of my

1198
01:08:04,320 --> 01:08:07,320
Speaker 1: research and my firm. He's read both of those. He's

1199
01:08:07,360 --> 01:08:10,480
Speaker 1: read the Morrigan and he's read the Rockefell bio, and

1200
01:08:10,560 --> 01:08:14,160
Speaker 1: he said they're both astonishing. They're really terrific, just unbelievably

1201
01:08:14,200 --> 01:08:18,439
Speaker 1: researched and deep, and these guys lead amazing, amazing lives.

1202
01:08:18,479 --> 01:08:20,880
Speaker 1: And we all ought to read Robert Carroll's wonderful books

1203
01:08:20,920 --> 01:08:26,760
Speaker 1: about Lyndon Johnson because they are insightful in the details

1204
01:08:26,800 --> 01:08:31,000
Speaker 1: as well as conceptually useful, fabulous lessons all the time.

1205
01:08:31,080 --> 01:08:33,960
Speaker 1: But this is why it really really is how many

1206
01:08:33,960 --> 01:08:38,000
Speaker 1: books now are in that Johnson sequence for so far?

1207
01:08:38,120 --> 01:08:41,839
Speaker 1: All right? Because I remember Carol from The Power Broker

1208
01:08:41,960 --> 01:08:46,880
Speaker 1: about Robert Moses. Terrific book, thick a thousand pages, still

1209
01:08:46,880 --> 01:08:50,080
Speaker 1: a terrific book, worth absolutely worth reading. It's five really

1210
01:08:50,120 --> 01:08:53,280
Speaker 1: great books in one package. It's a wonderful book. Um,

1211
01:08:53,439 --> 01:08:57,240
Speaker 1: so you mentioned, uh investment and finance books. What what

1212
01:08:57,439 --> 01:09:02,519
Speaker 1: stands out as some of your favorites. Oh, Arthur Stone

1213
01:09:02,560 --> 01:09:07,680
Speaker 1: doings wonderful to volume corporate finance, mostly for the footnotes

1214
01:09:07,720 --> 01:09:11,840
Speaker 1: which are about half of every page. Unbelievably rich body

1215
01:09:11,960 --> 01:09:15,640
Speaker 1: of insight and understanding as things went along through the

1216
01:09:15,720 --> 01:09:18,880
Speaker 1: late eighteen hundreds through the nineteen hundreds. It was just

1217
01:09:18,920 --> 01:09:24,280
Speaker 1: a terrific source of learning. Ben Graham and David Dodds

1218
01:09:24,560 --> 01:09:28,960
Speaker 1: Graham and Dott is a terrific book, particularly the four edition,

1219
01:09:29,000 --> 01:09:35,240
Speaker 1: which just is a dream come true. Uh. Jason's Wags

1220
01:09:35,240 --> 01:09:40,400
Speaker 1: books are all really worth reading. Uh. Jonathan Clements writes

1221
01:09:40,439 --> 01:09:43,519
Speaker 1: a very nice, continuous book that I think it's really

1222
01:09:43,520 --> 01:09:47,120
Speaker 1: worth anybody paying attention. Andy Tobias wrote a wonderful book

1223
01:09:47,120 --> 01:09:52,120
Speaker 1: on individual investing. Uh. We're very lucky people put years

1224
01:09:52,120 --> 01:09:55,160
Speaker 1: and years and years into learning and then a couple

1225
01:09:55,160 --> 01:09:58,640
Speaker 1: of years into condensing into a relatively short package, and

1226
01:09:58,720 --> 01:10:01,280
Speaker 1: you can buy the damn thing in your own local store,

1227
01:10:01,560 --> 01:10:03,800
Speaker 1: or you can buy it over the internet for less

1228
01:10:03,800 --> 01:10:06,800
Speaker 1: than fifty bucks, and there's all that knowledge and carry

1229
01:10:06,840 --> 01:10:08,639
Speaker 1: with you wherever you want to go. I mean, books

1230
01:10:08,640 --> 01:10:12,000
Speaker 1: are an unbelievable bargain. It's funny, he mentions Wage and

1231
01:10:12,120 --> 01:10:16,000
Speaker 1: Graham and Dodd we were just in the office a

1232
01:10:16,080 --> 01:10:20,599
Speaker 1: day or two ago talking about this Wage annotated version

1233
01:10:20,680 --> 01:10:25,080
Speaker 1: of The Intelligent Investor, and the consensus was this is

1234
01:10:25,120 --> 01:10:29,639
Speaker 1: the version you have to get because he describes each chapter.

1235
01:10:30,360 --> 01:10:34,280
Speaker 1: So there's the chapter, and then there's Jason's Wagge's detailed

1236
01:10:34,280 --> 01:10:38,479
Speaker 1: explanation and series of examples of why each chapter is

1237
01:10:38,520 --> 01:10:41,000
Speaker 1: so insightful. And if you asked Ben Graham, he would say,

1238
01:10:41,120 --> 01:10:46,160
Speaker 1: get this wag version because of the annotation, high praise. Indeed.

1239
01:10:46,280 --> 01:10:50,160
Speaker 1: So so let's talk we we've we've referenced or or

1240
01:10:50,320 --> 01:10:53,519
Speaker 1: just hinted about things that have changed since you've joined

1241
01:10:53,560 --> 01:10:56,200
Speaker 1: the industry. What do you think is what do you

1242
01:10:56,200 --> 01:10:59,160
Speaker 1: think is the most significant change for the positive and

1243
01:10:59,200 --> 01:11:01,640
Speaker 1: what do you think is the most significant change for

1244
01:11:01,720 --> 01:11:05,360
Speaker 1: the negative over the past couple of decades. One way

1245
01:11:05,400 --> 01:11:07,759
Speaker 1: of saying that most positive is that things have gotten

1246
01:11:07,760 --> 01:11:10,920
Speaker 1: better and better and better. The markets have been going up,

1247
01:11:10,960 --> 01:11:16,800
Speaker 1: so that's got to be a big, big positive. How

1248
01:11:16,840 --> 01:11:20,040
Speaker 1: about structurally, what do you think structurally has been the

1249
01:11:20,120 --> 01:11:23,080
Speaker 1: positive change when when you look at that's that's obvious,

1250
01:11:23,600 --> 01:11:27,320
Speaker 1: and that's the easy access to the expertise of large

1251
01:11:27,400 --> 01:11:30,640
Speaker 1: numbers of brilliantly talented people working hard is held to

1252
01:11:30,640 --> 01:11:33,719
Speaker 1: figure out what prices ought to be. Called an index fund,

1253
01:11:34,080 --> 01:11:36,400
Speaker 1: you get all the best people working on their tails

1254
01:11:36,439 --> 01:11:41,160
Speaker 1: off every single day, every single night for nearly nothing.

1255
01:11:41,920 --> 01:11:44,920
Speaker 1: So that brings us full circle back back to why

1256
01:11:45,040 --> 01:11:49,280
Speaker 1: most people should be buying indexes. Let's talk about the

1257
01:11:49,320 --> 01:11:53,240
Speaker 1: shifts going forward. So we've seen this trend develop, especially

1258
01:11:53,280 --> 01:11:57,559
Speaker 1: since the last financial crisis where Vanguard went from under

1259
01:11:57,600 --> 01:12:00,160
Speaker 1: a trillion they're now coming up on for trill in.

1260
01:12:00,840 --> 01:12:04,720
Speaker 1: What do you think is the next shifts or is

1261
01:12:04,760 --> 01:12:09,120
Speaker 1: it just a continuation of what we've seen algorithm in

1262
01:12:09,200 --> 01:12:14,560
Speaker 1: software and the so called robo advisors low cost indexing.

1263
01:12:15,120 --> 01:12:17,559
Speaker 1: Is it just going to extrapolate forward or is something

1264
01:12:17,560 --> 01:12:22,120
Speaker 1: else out out there that is going to change investing

1265
01:12:22,160 --> 01:12:24,040
Speaker 1: in the future. Well, the change force you just picked

1266
01:12:24,120 --> 01:12:26,920
Speaker 1: up on are going to continue. So called robo advisor

1267
01:12:27,280 --> 01:12:30,240
Speaker 1: very very helpful for the lower wealth individual part of

1268
01:12:30,280 --> 01:12:33,479
Speaker 1: the market. Uh. Indexing being more and more accepted, going

1269
01:12:33,520 --> 01:12:35,840
Speaker 1: to be continued. We're going to take the cost out

1270
01:12:35,880 --> 01:12:39,760
Speaker 1: of investing so that the returns that were available will

1271
01:12:39,800 --> 01:12:42,280
Speaker 1: go mostly to the owners of the capital, so that

1272
01:12:42,320 --> 01:12:44,920
Speaker 1: people have more money in their retirement years or more

1273
01:12:44,960 --> 01:12:47,320
Speaker 1: money to spend in the meantime. Those would be positive.

1274
01:12:49,439 --> 01:12:52,280
Speaker 1: The changes that we see now are going to continue,

1275
01:12:52,520 --> 01:12:54,920
Speaker 1: but the changes we don't yet know because we haven't

1276
01:12:54,960 --> 01:12:58,599
Speaker 1: seen them. Artificial intelligence being an obvious illustration of that,

1277
01:12:58,760 --> 01:13:01,439
Speaker 1: are gonna compiling in top of it's going to get

1278
01:13:01,479 --> 01:13:03,679
Speaker 1: to be a finer and finer, faster and faster market,

1279
01:13:03,720 --> 01:13:05,840
Speaker 1: harder and harder to keep up with little and beat

1280
01:13:07,000 --> 01:13:08,920
Speaker 1: that can be converted to your benefit if you just

1281
01:13:08,960 --> 01:13:11,439
Speaker 1: say that's the way it is. So I'm gonna go

1282
01:13:11,560 --> 01:13:13,760
Speaker 1: with the flow, and I'm going to use indexing, and

1283
01:13:13,760 --> 01:13:20,200
Speaker 1: that's why people are to join the index revolution. And um,

1284
01:13:20,240 --> 01:13:22,320
Speaker 1: so here's a question I didn't get to ask you

1285
01:13:23,040 --> 01:13:25,720
Speaker 1: that that I've wanted to. This came from an emailer.

1286
01:13:26,240 --> 01:13:27,840
Speaker 1: What do you do to relax? What do you do

1287
01:13:27,920 --> 01:13:31,080
Speaker 1: for enjoyment outside of the office. Well, first of all,

1288
01:13:31,120 --> 01:13:33,600
Speaker 1: I'm married, the most wonderful woman I've met, so I

1289
01:13:33,800 --> 01:13:36,320
Speaker 1: really have a nice time with her, and that doesn't

1290
01:13:36,320 --> 01:13:38,760
Speaker 1: take long hours at just a few minutes with her

1291
01:13:38,880 --> 01:13:41,920
Speaker 1: is always a treat. Now, the second thing is I

1292
01:13:41,960 --> 01:13:43,880
Speaker 1: happen to love the work I do. I don't do

1293
01:13:43,960 --> 01:13:46,400
Speaker 1: anything I don't like. I often say to my friends,

1294
01:13:46,800 --> 01:13:51,000
Speaker 1: I quit working at thirty. I've not quite eighty, but

1295
01:13:51,040 --> 01:13:53,400
Speaker 1: I have not done anything that I didn't feel like doing,

1296
01:13:53,479 --> 01:13:56,960
Speaker 1: want to do and enjoy doing. So it's been a marvelous,

1297
01:13:57,000 --> 01:13:59,960
Speaker 1: privileged experience. And I know I'm lucky, but I play

1298
01:14:00,120 --> 01:14:04,200
Speaker 1: to stay there if I possitively can. Uh. I think

1299
01:14:04,360 --> 01:14:07,160
Speaker 1: learning is always a treat. And I don't know as

1300
01:14:07,200 --> 01:14:10,200
Speaker 1: much as I should know about music, and so listening

1301
01:14:10,280 --> 01:14:13,840
Speaker 1: to music is a wonderful opportunity to learn something that's

1302
01:14:13,840 --> 01:14:17,880
Speaker 1: new to me. And then books that come out year

1303
01:14:17,920 --> 01:14:20,439
Speaker 1: after year after year, these wonderful books that are available

1304
01:14:20,479 --> 01:14:24,320
Speaker 1: and a chance to learn that. So my last two questions,

1305
01:14:24,360 --> 01:14:27,920
Speaker 1: these are are my favorite two that we ask of

1306
01:14:28,000 --> 01:14:31,880
Speaker 1: all our guests. Um, if a millennial or a recent

1307
01:14:31,960 --> 01:14:34,759
Speaker 1: college grad would come to you and said I'm interested

1308
01:14:34,800 --> 01:14:37,679
Speaker 1: in a career in finance, what sort of advice would

1309
01:14:37,680 --> 01:14:41,880
Speaker 1: you give them? Finance is a pretty broad field. Be

1310
01:14:42,040 --> 01:14:45,120
Speaker 1: sure that you've gone to business school. I think seriously

1311
01:14:45,160 --> 01:14:47,479
Speaker 1: about doing more than business schools, So you might do

1312
01:14:47,560 --> 01:14:50,840
Speaker 1: a joint law school business school combination, or do business

1313
01:14:50,880 --> 01:14:54,480
Speaker 1: school and then study economics for an advanced degree afterwards.

1314
01:14:54,520 --> 01:14:58,519
Speaker 1: But be sure you understand knowledge is a very important resource.

1315
01:14:59,160 --> 01:15:01,960
Speaker 1: The second thing is look to be with people you

1316
01:15:02,040 --> 01:15:05,920
Speaker 1: admire greatly for their basic values, how they live year

1317
01:15:06,080 --> 01:15:09,559
Speaker 1: in year out, in an organization that really wants to

1318
01:15:09,600 --> 01:15:11,760
Speaker 1: teach and train young people how to be the best

1319
01:15:11,800 --> 01:15:14,439
Speaker 1: they could be. Because if you've got talent, you want

1320
01:15:14,479 --> 01:15:17,559
Speaker 1: to maximize that talent. Key to that is fast learning curve,

1321
01:15:17,680 --> 01:15:20,600
Speaker 1: particularly in the early years. Third thing is do not

1322
01:15:20,800 --> 01:15:24,160
Speaker 1: do anything because it pays well. Choose what you want

1323
01:15:24,160 --> 01:15:25,920
Speaker 1: to do because you love it. If you're doing what

1324
01:15:25,960 --> 01:15:28,000
Speaker 1: you love doing, you get better and better and better

1325
01:15:28,000 --> 01:15:29,639
Speaker 1: at it. As you get better and better and better,

1326
01:15:29,640 --> 01:15:32,599
Speaker 1: you'll be paid well. Anybody in finance who's really good

1327
01:15:32,840 --> 01:15:35,160
Speaker 1: is going to be paid so well that their biggest

1328
01:15:35,160 --> 01:15:38,519
Speaker 1: financial problem over their lifetime. They may be poor when

1329
01:15:38,520 --> 01:15:41,360
Speaker 1: they get started, but over their lifetime, their biggest financial

1330
01:15:41,360 --> 01:15:43,760
Speaker 1: problem is how to protect their children from too much

1331
01:15:43,840 --> 01:15:47,559
Speaker 1: money when they die. That that is a very good

1332
01:15:47,600 --> 01:15:51,320
Speaker 1: advice across the board. And it's interesting that people like

1333
01:15:51,400 --> 01:15:54,680
Speaker 1: Marren Buffett have learned the lesson and they says to

1334
01:15:54,720 --> 01:15:57,600
Speaker 1: their kids, Hey, I made this money, now you go

1335
01:15:57,760 --> 01:16:00,880
Speaker 1: make your money. Don't don't count on my health in

1336
01:16:01,000 --> 01:16:05,240
Speaker 1: order to disincentivize you from going out. And Buffett's going

1337
01:16:05,280 --> 01:16:07,840
Speaker 1: farther that he said, I give my children enough so

1338
01:16:07,920 --> 01:16:09,960
Speaker 1: they can choose to do what they really want to do.

1339
01:16:11,560 --> 01:16:13,760
Speaker 1: And then but not so much that they don't have

1340
01:16:13,840 --> 01:16:17,519
Speaker 1: to choose something. Not so much that makes sense, So

1341
01:16:17,560 --> 01:16:21,479
Speaker 1: they're going to have to find a career. Just he's

1342
01:16:21,479 --> 01:16:23,559
Speaker 1: giving them enough of a head start so it allows

1343
01:16:23,560 --> 01:16:25,840
Speaker 1: them a little selected open the doors so you can

1344
01:16:25,880 --> 01:16:28,000
Speaker 1: be your first choice and go for what you want

1345
01:16:28,000 --> 01:16:31,280
Speaker 1: to do for a great life. And you're a tough

1346
01:16:31,360 --> 01:16:37,320
Speaker 1: person to ask this question of because most people have

1347
01:16:37,520 --> 01:16:41,600
Speaker 1: to play with the answer. But I'm afraid you've answered

1348
01:16:41,600 --> 01:16:45,160
Speaker 1: this question in the body of your career. But I'm

1349
01:16:45,160 --> 01:16:48,120
Speaker 1: gonna ask in anyway, and it's what do you know

1350
01:16:48,200 --> 01:16:52,080
Speaker 1: about investing today that you wish you knew forty years

1351
01:16:52,120 --> 01:16:57,240
Speaker 1: ago when you began. Wow, there's so many different things

1352
01:16:57,240 --> 01:16:59,519
Speaker 1: that I didn't know that I wish i'd known, But

1353
01:16:59,560 --> 01:17:04,000
Speaker 1: the main item for me is how sensible it is

1354
01:17:04,640 --> 01:17:08,519
Speaker 1: after everything comes in to change the nature of investment management.

1355
01:17:08,600 --> 01:17:12,440
Speaker 1: All those people, all those tools, all that information, simplify

1356
01:17:12,520 --> 01:17:17,240
Speaker 1: your life, concentrate on the really important questions and index

1357
01:17:17,280 --> 01:17:21,840
Speaker 1: your operations. That you knew that back in seventy five.

1358
01:17:21,920 --> 01:17:24,400
Speaker 1: That's why I said, it's a tough question when I

1359
01:17:24,439 --> 01:17:26,719
Speaker 1: first came in. I came in in the early sixties.

1360
01:17:26,840 --> 01:17:31,719
Speaker 1: Oh really, so you wish you but really for someone

1361
01:17:31,840 --> 01:17:35,120
Speaker 1: over the course of your career. So usually when I

1362
01:17:35,200 --> 01:17:38,760
Speaker 1: when I ask that question to people, the answer that

1363
01:17:38,840 --> 01:17:41,960
Speaker 1: comes up is, well, here's what I know today that

1364
01:17:42,040 --> 01:17:44,800
Speaker 1: I wish I knew way early in my career. But

1365
01:17:45,040 --> 01:17:47,800
Speaker 1: I kind of feel like you've figured a lot of

1366
01:17:47,840 --> 01:17:52,799
Speaker 1: this out pretty early in your career. That's very generous

1367
01:17:52,840 --> 01:17:55,519
Speaker 1: on your part. I think it's more lucky than brilliant

1368
01:17:55,760 --> 01:17:58,920
Speaker 1: figuring it out. But do what you really really want

1369
01:17:58,960 --> 01:18:01,800
Speaker 1: to do is something that I was getting close to

1370
01:18:01,880 --> 01:18:05,360
Speaker 1: understanding then now I know it's absolutely and and it

1371
01:18:05,400 --> 01:18:08,280
Speaker 1: seems like you've managed to do that over over the

1372
01:18:08,280 --> 01:18:11,280
Speaker 1: whole course of your career. I promised to get you

1373
01:18:11,360 --> 01:18:14,400
Speaker 1: out in time for your lunch date and so we

1374
01:18:14,479 --> 01:18:17,840
Speaker 1: still have a buffers to make sure you're gonna do that.

1375
01:18:17,960 --> 01:18:20,920
Speaker 1: I I have to thank you for Charlie, for being

1376
01:18:20,960 --> 01:18:25,000
Speaker 1: so generous, uh with your time. We have been speaking

1377
01:18:25,040 --> 01:18:29,559
Speaker 1: with Charlie Ellis of the formerly of the Yale Endowment,

1378
01:18:29,600 --> 01:18:34,519
Speaker 1: Greenwich Associates, the Vanguard Board of Directors, Harvard Faculty. The

1379
01:18:34,560 --> 01:18:38,240
Speaker 1: list goes on and on. His latest book is Index Revolution.

1380
01:18:38,479 --> 01:18:41,160
Speaker 1: And for those of you who are thinking about putting

1381
01:18:41,200 --> 01:18:43,479
Speaker 1: money in the stock market, this is as good as

1382
01:18:43,600 --> 01:18:48,320
Speaker 1: any place uh to start. I would be remiss if

1383
01:18:48,360 --> 01:18:52,360
Speaker 1: I did not thank Taylor Riggs, my booker, Charlie Vollmer,

1384
01:18:52,439 --> 01:18:58,160
Speaker 1: our producer, Michael bat Nick, our director of research. And

1385
01:18:58,200 --> 01:19:04,639
Speaker 1: I can't see who's still in the booth. Oh you're here, okay,

1386
01:19:04,640 --> 01:19:09,880
Speaker 1: because I heard a male voice five minutes ago at

1387
01:19:09,960 --> 01:19:13,960
Speaker 1: Medina who is our recording engineer. We love your comments

1388
01:19:14,000 --> 01:19:17,439
Speaker 1: and feedback. Be sure to write to us at m

1389
01:19:17,520 --> 01:19:22,400
Speaker 1: IB podcast at Bloomberg dot net. I'm Barry rit Halts.

1390
01:19:22,720 --> 01:19:26,400
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio.