WEBVTT - Getting Mutualized with Jack Bogle 0:00:05.800 --> 0:00:11.840 Welcome to Trallians. I'm Joel Weber in America. Pile tunis Eric. 0:00:11.880 --> 0:00:15.400 We took a field trip to Pennsylvania recently. You know, 0:00:15.440 --> 0:00:17.840 your home state. Yeah, not really that far a field 0:00:17.840 --> 0:00:19.520 trip for me. I live in Philly, so it's almost 0:00:19.560 --> 0:00:22.960 like a home game's early train out of pinn Station, 0:00:23.200 --> 0:00:25.560 although anytime you go on the school gol it is 0:00:25.600 --> 0:00:29.160 an adventure. It's that road seventy six that goes from 0:00:29.160 --> 0:00:32.320 Philly out Vorst traffic in the country, second worst highway 0:00:32.360 --> 0:00:34.599 after the one in l A in the country. Yeah, 0:00:34.640 --> 0:00:36.559 I think it should be renamed the Day Kill. So 0:00:36.640 --> 0:00:38.920 we did that because at the other end of that 0:00:39.000 --> 0:00:43.080 journey is a living legend at Vanguard named Jack Bogel. 0:00:43.360 --> 0:00:45.279 That's right, and the reason we went at to see him. 0:00:45.320 --> 0:00:48.159 Not only are we trying to interview, you know, experts 0:00:48.159 --> 0:00:50.240 in the industry now and then, but in this case, 0:00:50.320 --> 0:00:53.120 we were interviewing him for a special series we have 0:00:53.200 --> 0:00:55.440 coming out called Trillions Presents, which is sort of like 0:00:55.480 --> 0:00:57.960 a ken Burn style documentary on the story of the 0:00:57.960 --> 0:01:00.480 E t F, a six part series, and Bogel is 0:01:00.520 --> 0:01:02.840 part of that story. So we wanted to interview him 0:01:03.000 --> 0:01:06.000 for this special series. And while we were interviewing him, 0:01:06.040 --> 0:01:09.640 it lasted about an hour and ten minutes. He was 0:01:09.680 --> 0:01:12.080 so over us. He was at the end, I could 0:01:12.080 --> 0:01:14.720 tell he just wanted us to leave. Yeah. Yeah, But 0:01:14.880 --> 0:01:17.880 amazing guy though, totally. And there were so many things 0:01:17.959 --> 0:01:20.720 that came out of his mouth that weren't exactly applicable 0:01:20.760 --> 0:01:22.679 to the story of the E t F. But we're 0:01:22.720 --> 0:01:25.280 just little nuggets that I thought we should not just 0:01:25.400 --> 0:01:29.200 let sit on this file. Absolutely every word that was 0:01:29.240 --> 0:01:30.880 coming out of his mouth, you're just hanging on it 0:01:30.880 --> 0:01:34.360 because he's so astute still, I mean, he's right there. 0:01:34.400 --> 0:01:37.399 He is sharp, He's like the Ben Franklin of the 0:01:37.440 --> 0:01:41.200 financial world. He's got he's not only talking logic, and 0:01:41.240 --> 0:01:43.800 he's built, you know, second big assassinent enter. But he's 0:01:43.840 --> 0:01:46.720 just little nuggets of wisdom just sort of come out. 0:01:46.920 --> 0:01:50.280 And I mean basically almost every American can basically chock 0:01:50.400 --> 0:01:54.280 up the retirement to Jack Bogel. Yeah, even Buffett says, 0:01:54.400 --> 0:01:56.360 this guy is the one they should build statue. He 0:01:56.600 --> 0:01:59.960 will definitely make the history book. So it's literally a legend. 0:02:00.440 --> 0:02:04.720 But beyond Bogel's place in history, he's also sitting there 0:02:04.760 --> 0:02:07.200 in the Bogel research Center. So what he does is 0:02:07.240 --> 0:02:09.360 similar to what I do, and he studies fund so 0:02:09.400 --> 0:02:11.160 he's got a lot of good opinions on what's going 0:02:11.200 --> 0:02:13.200 on right now and it's part of the founder of 0:02:13.280 --> 0:02:15.160 Van Garden. Now they kind of moved in it into 0:02:15.200 --> 0:02:17.880 this other capacity where he's more of an advisor. Yeah, 0:02:17.880 --> 0:02:19.959 he writes books and does research, so in a way, 0:02:20.040 --> 0:02:22.480 he and I have a very similar job and tracked 0:02:22.520 --> 0:02:29.360 the same. That's generous. Yeah. On this episode of Trillions 0:02:30.240 --> 0:02:35.960 Getting Mutualized with Jack Bogel, Okay, why are we calling 0:02:36.000 --> 0:02:39.639 this getting mutualized Because when we sat down with him, 0:02:39.680 --> 0:02:42.000 he was in the middle of writing his latest book 0:02:42.120 --> 0:02:43.840 and he was going through a chapter he wrote over 0:02:43.880 --> 0:02:45.560 the weekend. We saw him on a Monday, and this 0:02:45.639 --> 0:02:48.200 latest book is an upcoming book, not even out yet, 0:02:48.520 --> 0:02:50.639 so he was sharing what he was writing. So we 0:02:50.760 --> 0:02:53.720 kind of gus the weekend writing like the whole weekend 0:02:53.720 --> 0:02:55.519 he said, he wrote. Yeah, he said he naps a lot, 0:02:55.600 --> 0:02:58.920 which is understandable, but and I like to know right now, 0:02:59.160 --> 0:03:01.880 right now. And one of the things that stuck out 0:03:01.919 --> 0:03:03.800 to me about with this chapter he was writing about 0:03:04.120 --> 0:03:06.840 everybody thinks the indstages can consolidate because everybody wants low 0:03:06.880 --> 0:03:10.320 cost products, and you know there's favorite things to talk about, right, 0:03:10.360 --> 0:03:11.560 and so in the end, you know we're gonna see 0:03:11.600 --> 0:03:13.400 a lot of companies get together to get scale and 0:03:13.400 --> 0:03:16.520 go cheaper. He's gone beyond that. He thinks they're going 0:03:16.560 --> 0:03:20.280 to actually mutualize, which means they're gonna what does that mean? 0:03:20.520 --> 0:03:23.280 That means that Vanguard is a mutual ownership structure there 0:03:24.080 --> 0:03:26.520 so different than anybody else. Absolutely means that that the 0:03:26.520 --> 0:03:30.000 fun investors are the shareholders. He thinks more and more 0:03:30.080 --> 0:03:35.200 companies will be forced to do this in order to compete. Radical. Radical. Yeah, 0:03:35.280 --> 0:03:38.400 it's like a Bernie Sanders moment totally. So let's play 0:03:38.440 --> 0:03:42.880 the clip in my book. I am telling you the 0:03:42.920 --> 0:03:47.320 world in the coming era, there will be mass mutual 0:03:47.360 --> 0:03:51.680 relations of large firms in the business. And there are 0:03:51.680 --> 0:03:55.920 a whole lot of reasons. One is there's a competitor 0:03:55.920 --> 0:03:58.880 out there that's eating their lunch and then know perfectly 0:03:58.880 --> 0:04:02.840 well why is eating there less? And so far they 0:04:02.880 --> 0:04:07.000 have not wanted to get competitive again. They'd have to 0:04:07.120 --> 0:04:10.160 slash their phase, but they can never slash them or 0:04:10.160 --> 0:04:13.880 not to get down to where mutual can do. So 0:04:13.920 --> 0:04:16.599 he's not talking about et f there right, he's talking, 0:04:16.720 --> 0:04:19.200 it's bigger than that, bigger than that. And this is 0:04:19.200 --> 0:04:22.359 obviously a little out of our normal purview here, but 0:04:22.520 --> 0:04:25.119 this is something that I've been focused on a lot. 0:04:25.839 --> 0:04:29.120 If everybody wants their funds for dirt cheap, and Vanguard's 0:04:29.160 --> 0:04:31.920 taking in about two thirds of all the money, and 0:04:31.960 --> 0:04:34.280 the reason Vanguard is is because they're so cheap and 0:04:34.320 --> 0:04:37.200 they've been lowering their fees for thirty or forty years, 0:04:37.880 --> 0:04:40.880 what's going to happen to this industry? And he's basically saying, 0:04:40.920 --> 0:04:42.880 this is what's gonna happen, and this, by the way, 0:04:42.960 --> 0:04:46.680 is an industry level phenomenon. He answered this. The question 0:04:46.720 --> 0:04:48.600 that we first asked him that this was the answer of, 0:04:49.440 --> 0:04:53.159 was why does he think other firms haven't done Vanguard's 0:04:53.240 --> 0:04:56.359 mutual ownership structure as opposed to being sort of a 0:04:56.480 --> 0:05:00.200 for profit company? And that was his answer was that, well, 0:05:00.400 --> 0:05:02.520 they haven't because they haven't had too. But now they 0:05:02.560 --> 0:05:06.560 they're probably gonna have to radical, very radical, because it's 0:05:06.600 --> 0:05:10.080 a completely different way of operating and that is going 0:05:10.120 --> 0:05:13.920 to mean a lot of lower revenues for these companies. 0:05:13.960 --> 0:05:17.039 But what's crazy about what he says is when you 0:05:17.080 --> 0:05:19.560 think of consolidation, you think, okay, if you consolidate with 0:05:19.600 --> 0:05:21.440 three or four companies, get your assets to a couple 0:05:21.480 --> 0:05:23.800 of trillion, you have so much an assets, you could 0:05:23.839 --> 0:05:26.800 lower your fees to Van Guardian levels. He's basically saying 0:05:26.839 --> 0:05:29.960 that's not going to be enough. Jack Bogel has a 0:05:30.000 --> 0:05:33.880 way of delivering savagery, but in a folksy manner, and 0:05:33.920 --> 0:05:38.159 that was classic Bogel. Your jugg on the ground. But 0:05:38.240 --> 0:05:40.960 you're like, oh, it's it's sounded so grandfather like. He 0:05:41.160 --> 0:05:44.000 We also asked him about what the timeline would be 0:05:44.040 --> 0:05:47.440 like for this, which he said didn't he didn't really 0:05:47.440 --> 0:05:49.640 think about it that way. It's just gonna happen. It 0:05:49.680 --> 0:05:51.160 could be five years, it could be ten years, it 0:05:51.200 --> 0:05:53.360 could be two decades, but it will happen. He thinks 0:05:53.360 --> 0:05:57.080 it's in eventuality. Okay, next one. We buried the lead 0:05:57.120 --> 0:06:00.560 on this one. Yeah, so we did. We're on an 0:06:00.600 --> 0:06:03.000 et F show here, so we had to ask about ETF. Now, 0:06:03.000 --> 0:06:07.120 Bogel has famously not exactly been a fan. Where he 0:06:07.120 --> 0:06:09.359 stands on this one. He is not a fan. His 0:06:09.560 --> 0:06:12.159 famous quote was that E t F are like handing 0:06:12.160 --> 0:06:15.520 an arsonist the match, except that he may have one 0:06:15.600 --> 0:06:18.440 up to it with his interview with us. All right, 0:06:18.520 --> 0:06:21.279 let's play this clip. Well, t is just an only forum, 0:06:21.320 --> 0:06:26.800 index fun um, a sort of bastardized forum for the 0:06:26.839 --> 0:06:30.119 one of a better word for one of the better word. Yeah, 0:06:30.160 --> 0:06:33.920 I mean it's pretty blunt to the chase. That's how 0:06:33.920 --> 0:06:37.200 he feels. But why does he feel that one? Here's 0:06:37.200 --> 0:06:41.440 why the e t F was really designed and this 0:06:41.480 --> 0:06:44.799 goes back to our documentary to increase volume on the AMEX. 0:06:44.800 --> 0:06:46.800 It was created by people in exchange who wanted to 0:06:46.800 --> 0:06:51.840 see volume from the volume totally. And he hates volume. 0:06:51.880 --> 0:06:53.960 He thinks you're holding period should be like a hundred years. 0:06:54.400 --> 0:06:57.039 So it's a trading This is a trading tool conceived 0:06:57.080 --> 0:06:59.520 of as a trading tool, and he is not a trader. 0:06:59.560 --> 0:07:02.919 He's a long term investor. And what I think hurts 0:07:03.000 --> 0:07:05.880 him is that he's he created the index fund or 0:07:06.520 --> 0:07:09.279 made it into the big success it is, and this 0:07:09.400 --> 0:07:12.080 is sort of a mutation of it. So it kind 0:07:12.080 --> 0:07:14.720 of gets credit for the rise of passive but in 0:07:14.720 --> 0:07:17.760 in no way is it passive investing. So he does 0:07:17.800 --> 0:07:20.320 think that it may have contaminated this. It can be 0:07:20.400 --> 0:07:22.600 used for pastive investing and it can be. And we 0:07:22.600 --> 0:07:24.800 we we challenged them with the fact that yes, some 0:07:24.800 --> 0:07:26.240 some ETFs are trade a lot by a lot of 0:07:26.280 --> 0:07:29.360 big investors, and that those volume figures can overshadow the 0:07:29.360 --> 0:07:31.840 people who are buying and holding. And and he admitted 0:07:31.880 --> 0:07:34.400 that there's no way to separate out the volume. And 0:07:35.160 --> 0:07:38.040 when you press Fogel on E t F s as 0:07:38.080 --> 0:07:40.760 being a fine vehicle if you buy and hold, he 0:07:40.840 --> 0:07:43.240 will admit that he just thinks that many people are. 0:07:44.160 --> 0:07:47.480 And let's play that clip. Absolutely And you know my 0:07:47.560 --> 0:07:52.160 statement about that may seem kind of senegal, But exchange 0:07:52.200 --> 0:07:54.160 traded funds, you're fine just so long as you don't 0:07:54.160 --> 0:07:57.880 trade them. And that that's quite a true statement because 0:07:57.880 --> 0:08:00.720 you should stay with the class hey ones, the broadly 0:08:00.760 --> 0:08:05.119 diversitified ones, the total stock mark at the SNP, total 0:08:05.160 --> 0:08:12.440 international um, total bond and more total balance is even easier. 0:08:12.480 --> 0:08:17.520 I want to stay with one. So yes, so that's interesting. Yeah, 0:08:17.520 --> 0:08:20.640 actually does acknowledge that it's okay, you just have to ignore, 0:08:21.480 --> 0:08:23.600 you know, E t F. You just have to ignore 0:08:23.640 --> 0:08:27.720 the tea exactly. And I know from I've studied the 0:08:27.720 --> 0:08:30.800 flows all the time, like it's my job basically, and 0:08:30.880 --> 0:08:33.520 I can tell you they're the low cost products from 0:08:33.559 --> 0:08:37.680 Vanguard and Schwab and some I shares core. They definitely 0:08:37.679 --> 0:08:40.559 have lower turnover. They're used more by advisors for long 0:08:40.679 --> 0:08:43.960 term building block purposes an institutional investors who will hold 0:08:44.000 --> 0:08:46.880 those blocks for a long time. Yeah, long term investors 0:08:47.280 --> 0:08:48.840 like the E t F for the low fees and 0:08:48.880 --> 0:08:52.480 their tax efficiency. So uh, they are if used correctly. 0:08:52.480 --> 0:08:54.319 That's why I compare E t F to Gremlins. Remember 0:08:54.320 --> 0:08:55.960 the magua that was handed to that boy in the 0:08:56.000 --> 0:08:59.560 movie Gremlins. Cute little thing. As long as you've been well, 0:08:59.679 --> 0:09:02.520 is he rules? Yeah, And one of the rules, in 0:09:02.559 --> 0:09:06.360 my opinion, is don't overtrade. If you can just withstand 0:09:06.360 --> 0:09:09.319 the temptation of not trading, you can get so many, 0:09:09.360 --> 0:09:12.079 so much of the benefits of the t F upper 0:09:12.080 --> 0:09:16.920 case lowercase T, upper case F. I like that. And 0:09:17.440 --> 0:09:20.640 speaking of acronyms, Boglos trying to introduce his own acronym 0:09:20.679 --> 0:09:23.080 for index funds. I think you might think that it's 0:09:23.120 --> 0:09:26.000 just sort of blends. He's trying to coovid little catchy acronym. 0:09:26.040 --> 0:09:31.840 So he called the TIFFs TIFFs traditional index fund. So 0:09:32.559 --> 0:09:34.680 I've never heard of that before. Had you heard that before, 0:09:34.720 --> 0:09:37.439 I haven't. He's trying to push it. You know, when 0:09:37.480 --> 0:09:39.680 you try to push a buzzword or not, it sometimes 0:09:39.679 --> 0:09:42.280 doesn't work. But anyway, he's trying his best. Then here's 0:09:42.320 --> 0:09:45.280 him on TIFFs. T I s are a phrase that 0:09:45.360 --> 0:09:48.000 will have to be used. And you see these comparison. 0:09:48.040 --> 0:09:51.360 It says E T s versus other mutual funds, and 0:09:51.400 --> 0:09:56.559 other mutual funds are probably six index funds. You know, 0:09:56.679 --> 0:10:01.079 we know overall, but it's exactly. Funds are index one. 0:10:01.559 --> 0:10:03.960 But if you take the ETFs out and look at 0:10:03.960 --> 0:10:06.360 the rest of it, it's gonna be six percent or 0:10:06.400 --> 0:10:10.120 five index. Men, there's got to be a separation of 0:10:10.120 --> 0:10:13.000 those two things because they are as different as day 0:10:13.000 --> 0:10:16.959 and night. And you can argue that indeed that an 0:10:16.960 --> 0:10:19.520 e T F has far more characteristics of an actively 0:10:19.559 --> 0:10:24.120 manage fund than than a traditional than the next one does. 0:10:24.280 --> 0:10:27.520 Let me just think about that. So what he's getting 0:10:27.520 --> 0:10:29.920 at here is that again, if you look at the 0:10:29.920 --> 0:10:33.720 holding periods for TIFFs, they tend to be really long 0:10:33.880 --> 0:10:38.319 term discipline type investors because because it includes stuff like 0:10:38.360 --> 0:10:41.800 mutual funds. Yeah, and look when we say when people 0:10:41.840 --> 0:10:44.040 talk about, like, oh, all the money is going from 0:10:44.120 --> 0:10:47.560 mutual funds to um e t f s, that's not 0:10:47.600 --> 0:10:51.400 true because index mutual funds are mutual funds. Or when 0:10:51.400 --> 0:10:53.120 people say that all the money is going from active 0:10:53.120 --> 0:10:55.400 to passive, that's also not quite true because a lot 0:10:55.400 --> 0:10:58.120 of e t fs are being used very actively. So 0:10:58.200 --> 0:11:00.920 he's trying to say that a lot of the generalization 0:11:01.000 --> 0:11:05.000 of these trends is not really true because people tend 0:11:05.000 --> 0:11:08.840 to forget that index funds are mutual funds and truly passive. 0:11:08.880 --> 0:11:12.760 In other words, there's nuance yes. Um. Another thing that 0:11:12.840 --> 0:11:15.160 I think is somewhat of a scoop in our interview, 0:11:15.200 --> 0:11:17.480 which I have never heard Bogel say, and I study 0:11:17.520 --> 0:11:20.440 a lot of his interviews. He talked about when Vanguard 0:11:20.480 --> 0:11:23.480 launched e t s, he was not running the company, 0:11:23.559 --> 0:11:25.199 so it was a little bit out of his control 0:11:25.280 --> 0:11:28.520 that they did it, and history says, or legend says, 0:11:28.520 --> 0:11:30.679 he wasn't very happy about it. So we asked him 0:11:30.679 --> 0:11:33.400 about it, and he kind of conceded he would have 0:11:33.559 --> 0:11:35.520 done the same thing if you were running the company. 0:11:35.520 --> 0:11:38.280 And I thought that really was him moving a notch 0:11:38.400 --> 0:11:41.600 closer to sort of coming to peace with the Vanguard ETFs, 0:11:42.520 --> 0:11:45.600 which is maybe not surprising considering how much of a 0:11:45.640 --> 0:11:48.400 dominant player they've become. I also think he sees that, 0:11:48.600 --> 0:11:50.400 compared to some of the other e t s, vanguard 0:11:50.440 --> 0:11:52.560 ets are not traded as much, and I think he's 0:11:53.840 --> 0:11:55.880 come to more peace with that. So here he is. 0:11:56.280 --> 0:11:59.319 And I, even, to be quite blunt about it, said, 0:11:59.360 --> 0:12:06.120 you know, I'd probably have done it too, But for me, 0:12:06.520 --> 0:12:09.839 compared to anybody else, it was a big stretch. But 0:12:10.160 --> 0:12:14.480 looking back on my career, I made some really stupid judgments, 0:12:15.679 --> 0:12:18.480 and I think more when I had a marketing hat 0:12:18.559 --> 0:12:21.640 on and this is a marketing product. This is a 0:12:21.640 --> 0:12:26.360 product and bring in money and the serve investor as well. 0:12:27.120 --> 0:12:29.240 We don't really know that. It's a bit of a 0:12:29.280 --> 0:12:32.840 backhanded compliment. I love to travel in his voice like 0:12:32.880 --> 0:12:36.400 he sees it, and then it's like it's tough. Look, 0:12:36.440 --> 0:12:38.680 it's baby steps for him. I think, you know, Bogel 0:12:38.720 --> 0:12:41.439 to me reminds me of the father whose daughter has 0:12:41.520 --> 0:12:44.240 married a guy he does not like, and it's sort 0:12:44.280 --> 0:12:47.880 of the slow process of warming up to the son 0:12:47.920 --> 0:12:51.480 in law. And it looks like a really frustrating Thanksgiving dinner. 0:12:54.600 --> 0:12:57.760 There's some life lessons in there. So the marketing hat 0:12:58.200 --> 0:13:00.480 being a real one, which is if you're just selling, 0:13:01.160 --> 0:13:03.600 then probably it's not gonna work out in your favorite 0:13:03.600 --> 0:13:05.840 in the long run. Well, the case that was made 0:13:05.840 --> 0:13:08.640 at the time Banguard Large CTS was that ETS will 0:13:08.640 --> 0:13:11.520 get us into broker's channels, and Vanguard had never really 0:13:11.559 --> 0:13:13.880 been in that business of trying to get it stuff 0:13:13.920 --> 0:13:16.880 into distribution channels. It just it was sort of build 0:13:16.920 --> 0:13:19.480 it and they will come. And I think that's part 0:13:19.520 --> 0:13:22.000 of also why he didn't necessarily love it, because it 0:13:22.040 --> 0:13:25.600 was part to market Vanguard, and he's never been about 0:13:25.640 --> 0:13:29.240 being overtly like into marketing, so that was another reason. 0:13:29.320 --> 0:13:32.560 So that's what he's saying. In the movie of Jack 0:13:32.559 --> 0:13:35.000 Bogo's life. Are you saying Kevin Costner plays Jack Bogel? 0:13:35.400 --> 0:13:37.439 I would say, Henry Fonda. He reminds me of Henry 0:13:37.440 --> 0:13:40.200 Fonda from on Golden Pond. That's that's the kind of 0:13:40.320 --> 0:13:42.560 vibe I get from him. I can see that. Kevin 0:13:42.559 --> 0:13:48.120 Costinger one, right, come on, okay, Well I would be well, look, 0:13:48.160 --> 0:13:50.120 if we did a biopic, Kevin Costomer would be maybe 0:13:50.120 --> 0:13:52.520 like the Middle Years, the Bogol we met that was 0:13:52.559 --> 0:13:55.760 Henry Fonda, Maybe the young would be I don't know, 0:13:55.960 --> 0:14:00.160 um Shia Lebou or something like. So another thing we 0:14:00.160 --> 0:14:02.679 asked about, and we've talked about this in the past episode, 0:14:02.679 --> 0:14:06.480 which is in two thousand eight, Vanguard never saw a 0:14:06.480 --> 0:14:09.200 month of outflows. Every month was in flows, even in October. 0:14:09.360 --> 0:14:13.120 And just to make that perfectly clear, that's insane. It 0:14:13.200 --> 0:14:16.360 is insane in the midst of the biggest financial crisis 0:14:16.720 --> 0:14:20.840 in the past, you know, twenty years, and money only 0:14:20.880 --> 0:14:24.600 goes in. And remember by October everybody was already definitely 0:14:24.600 --> 0:14:26.720 afraid and the market went down another seventeen percent in 0:14:26.800 --> 0:14:29.760 that month. Vanguard took in money. They just think about that. 0:14:29.880 --> 0:14:32.000 So in these sell offs that we've seen in the 0:14:32.000 --> 0:14:35.320 first quarter in February and a couple of times of 0:14:35.400 --> 0:14:38.760 the past eight years, I've studied what happens in sell offs, 0:14:39.160 --> 0:14:42.280 Vanguard takes in money. And so they've taken money when 0:14:42.320 --> 0:14:45.640 it rains and when it's sunny. And so we asked 0:14:45.640 --> 0:14:49.440 about this sort of Navy seals level discipline of the 0:14:49.520 --> 0:14:53.600 Vanguard investor and why they're different. And that is, if 0:14:53.640 --> 0:14:56.360 somebody brings you to a new phone, a salesman and 0:14:56.400 --> 0:15:01.320 so on, and he's gonna want move you when things 0:15:01.360 --> 0:15:03.600 go down and I don't know. They say people get 0:15:03.600 --> 0:15:06.680 itchy and say I gotta get out, but I think 0:15:06.720 --> 0:15:10.440 an awful lot of brokers and advisors say, to protect themselves, 0:15:10.480 --> 0:15:14.080 you better get out now. So having that intermediary airy 0:15:14.160 --> 0:15:18.160 force is a is a force that is a disruptive 0:15:18.160 --> 0:15:23.040 force against long term holdings. So here again he's saying 0:15:23.080 --> 0:15:25.800 that a lot of the reason other fund investors are 0:15:25.840 --> 0:15:29.200 not behaving well is because the intermediary needs to turn 0:15:29.280 --> 0:15:31.080 stuff to make it seem like they're doing their job, 0:15:31.120 --> 0:15:34.920 whereas the people who come directly to Vanguard are. They're 0:15:34.960 --> 0:15:38.760 attracting already discipline investors first of all, and there's no intermediary, 0:15:38.920 --> 0:15:42.200 many of whom you know have gotten into investing through 0:15:42.480 --> 0:15:45.280 through Bogle and his books. What's ironic about all this 0:15:45.360 --> 0:15:47.240 is that a lot of the r A s that 0:15:47.360 --> 0:15:50.360 the sort of new school fee based advisors that love ETFs, 0:15:50.960 --> 0:15:53.800 they're saying their actual value add is to be do 0:15:53.960 --> 0:15:57.120 behavioral coaching, and they do use Vanguard. So I do 0:15:57.240 --> 0:16:00.640 think that Vanguard does also attract inter d areas that 0:16:00.800 --> 0:16:04.640 are well behaved and are into good behavior. Because again, 0:16:05.040 --> 0:16:07.880 if you don't behave well and you pull out at 0:16:07.920 --> 0:16:09.600 the bottom and come back in on the top and 0:16:09.640 --> 0:16:12.280 all that the cost savings of using an et F 0:16:12.360 --> 0:16:14.960 over a mutual phone will get blown away by your behavior. 0:16:15.120 --> 0:16:18.920 So what he's talking about here is a complicated, layered 0:16:18.920 --> 0:16:29.200 issue and just really fascinating. What was what was another 0:16:29.280 --> 0:16:32.520 thing that you thought he said that was surprising? Basically 0:16:32.720 --> 0:16:35.440 how big some of these big companies can get, namely 0:16:35.480 --> 0:16:37.280 black Rock and Vanguard. A lot of people are worried 0:16:37.320 --> 0:16:40.040 they're getting too big. They're the top two shareholders of 0:16:40.080 --> 0:16:45.760 about sp F understocks through any any stock stock and 0:16:45.760 --> 0:16:48.560 they black Rock, Vanguard or Vice versa. And that's that. 0:16:48.760 --> 0:16:50.880 And so we asked them about like how big this 0:16:50.960 --> 0:16:53.520 is and there are legal limits to how big they 0:16:53.560 --> 0:16:55.760 can get. Yeah, but they're very liberal. He thinks they 0:16:55.800 --> 0:16:57.880 should be more conservative, which is interesting. So let's hear 0:16:57.920 --> 0:17:01.160 him talk about that right now. For example, on the 0:17:01.200 --> 0:17:02.800 best example I can give you out of the act, 0:17:03.760 --> 0:17:07.960 no neutral may own more than ten percent the voting 0:17:08.080 --> 0:17:12.240 stock of anyone company. What what would happen if we 0:17:12.280 --> 0:17:16.960 said no mutual fun complex con on more than ten 0:17:17.040 --> 0:17:21.280 percent of the voting sum anyone company. Vanguards almost there 0:17:21.520 --> 0:17:26.719 were eight and a half. Black Rock is I think 0:17:26.800 --> 0:17:28.520 just a little bit be honestly not quite clear. But 0:17:28.600 --> 0:17:31.840 let me let make call M seven right, and I 0:17:31.880 --> 0:17:35.280 don't think State Street will ever get there, but they 0:17:35.320 --> 0:17:39.360 are at probably four percent. So basically, if if things 0:17:39.480 --> 0:17:43.240 keep up, Vanguard could be say, owner of all the 0:17:43.320 --> 0:17:47.400 stocks in the country. And the rule now is ten 0:17:47.480 --> 0:17:50.080 percent of a fund. So let's say the Vanguard Total 0:17:50.160 --> 0:17:51.840 Market fund, which I think owns about three or four 0:17:51.880 --> 0:17:56.240 percent of Apple. Maybe if that hits ten, they could 0:17:56.240 --> 0:17:59.200 just create a total market too, and then there is 0:17:59.240 --> 0:18:01.080 no limit effect. What he's saying is what if we 0:18:01.160 --> 0:18:03.680 make at the company which would put Vanguard close to 0:18:03.760 --> 0:18:07.280 that ten percent limit? There black Rock seven And what 0:18:07.440 --> 0:18:09.560 he was also talking about was something you pressed them 0:18:09.560 --> 0:18:11.119 on a lot, which was this. In his book, he's 0:18:11.160 --> 0:18:14.080 writing about the New forty Act, which he thinks should 0:18:14.119 --> 0:18:18.680 be right like that. You know, this thing that's been 0:18:18.760 --> 0:18:22.359 the bedrock of mutual funds, and e t F was 0:18:22.400 --> 0:18:26.560 also introduced in and to his point, one of the 0:18:26.640 --> 0:18:28.320 things he said is that when you go back and 0:18:28.400 --> 0:18:31.160 look at it, most of it no longer applies at all, 0:18:31.640 --> 0:18:33.720 and a lot of it was for closes and fronds funds, 0:18:33.760 --> 0:18:36.879 and they're pretty much minimalized at this point, and I 0:18:36.960 --> 0:18:38.399 think a lot of people would agree with that. I 0:18:38.480 --> 0:18:40.080 think a lot of people in the industry would disagree 0:18:40.119 --> 0:18:42.400 with his what he's thinking of doing, which is one 0:18:42.480 --> 0:18:44.600 creating these limits. The other thing I thought that he 0:18:44.680 --> 0:18:46.480 talked about was it was interesting is he don't he 0:18:46.520 --> 0:18:49.280 doesn't think that any company that is public list and 0:18:49.400 --> 0:18:52.960 has shareholders should also be fiduciary or vice versa, which, 0:18:54.160 --> 0:18:56.719 unless I'm reading this wrong, it basically means that all 0:18:56.760 --> 0:18:58.879 these asset managers that trade on the exchange and have 0:18:59.000 --> 0:19:02.960 to serve shareholders, uh, would have to just stop or 0:19:03.080 --> 0:19:05.639 delist or something, because I think what he's saying is 0:19:05.680 --> 0:19:07.800 you're trying to serve two masters. You can make your 0:19:07.800 --> 0:19:10.480 shareholders happy with revenue, but that's sort of against making 0:19:10.520 --> 0:19:13.399 your investors happy with lower fees and whatnot and being fiduciary. 0:19:13.720 --> 0:19:15.800 He thinks those are two gods that are clashing, and 0:19:16.359 --> 0:19:18.800 I think he's calling for a new Fordi Act that 0:19:18.840 --> 0:19:22.679 would eliminate that, which is again radical, radical Bernie Sanders 0:19:22.720 --> 0:19:25.760 type stuff. So we also threw a few grenades, you know, 0:19:25.840 --> 0:19:28.199 we've been throwing him at that the industry, and then 0:19:28.240 --> 0:19:30.560 he went to an industry group which is called the 0:19:31.119 --> 0:19:33.159 I see I or the Investment Company Institute, the biggest 0:19:33.200 --> 0:19:35.760 lobby and group of asset managers. And I guess he 0:19:35.880 --> 0:19:38.879 was uninvited or wasn't invited. And you know he was 0:19:38.920 --> 0:19:42.439 a president once, Yeah, and Vanguard's a huge member, and uh, 0:19:42.760 --> 0:19:44.760 I think he was a little had some hurt feelings 0:19:44.760 --> 0:19:47.240 about that, and he talks about it here. That's why 0:19:47.280 --> 0:19:49.240 if you recently read, if you read the whole article 0:19:50.080 --> 0:19:51.520 at the i C. I doesn't want me to come 0:19:51.560 --> 0:19:54.480 down there and speak to him, which I thought was 0:19:54.600 --> 0:20:00.040 really weird. You know, here I am the founder of 0:20:00.119 --> 0:20:02.520 the most successful company in the history of this industry, 0:20:03.720 --> 0:20:08.679 a former governor, a former attendant I mean former at 0:20:08.720 --> 0:20:12.920 the general membership meeting every year, and I understand why 0:20:13.000 --> 0:20:18.440 they don't like me, But I don't understand what Stay 0:20:18.520 --> 0:20:24.439 Street and black Rock and Vanguard, why it isn't much 0:20:24.520 --> 0:20:30.000 more of a index fund oriented institute. I mean, those 0:20:30.040 --> 0:20:35.840 three firms are pretty close to the industries asset And 0:20:35.920 --> 0:20:38.040 by the way, that article that he was referring to 0:20:38.240 --> 0:20:42.119 in that clip was cover story in Barren's recently that 0:20:42.280 --> 0:20:45.440 you can check out to the grenades man. Well, look, 0:20:46.000 --> 0:20:48.280 I explained to him after this second, I was basically 0:20:48.400 --> 0:20:51.440 trying to say, I think when you think about what's 0:20:51.480 --> 0:20:54.720 happening in the industry, people can get sensitive because while 0:20:54.720 --> 0:20:56.560 he's saying index fund should be a bigger part of it, 0:20:57.080 --> 0:21:00.399 the problem is what he's saying doesn't make people a 0:21:00.440 --> 0:21:03.159 lot of money, and people have families to support. It 0:21:03.240 --> 0:21:07.399 can get a little sensitive for people. I've experienced this 0:21:07.640 --> 0:21:11.600 experiences myself on Twitter. I can step on toes when 0:21:11.640 --> 0:21:14.080 I go to pro passive because I think people are 0:21:14.160 --> 0:21:17.760 like scared, and I think he taps into that. He's 0:21:17.840 --> 0:21:20.399 the face of what of what they kind of know 0:21:20.640 --> 0:21:23.280 is happening and may not want to admit or fan 0:21:23.400 --> 0:21:25.440