Speaker 1: Welcome to Brilliance. I'm Joel Weber and I am Eric Bascnis,
Speaker 1: the author of a new book. Congratulations. Thank you Joel.
Speaker 1: You were a big inspiration. And uh, honestly it wasn't
Speaker 1: for you. I don't think it'd be written. So thank
Speaker 1: you very much. And but yeah, maybe a little bit
Speaker 1: too much credit. Maybe a little bit too much credit.
Speaker 1: But it did start. Once upon a time, we got
Speaker 1: in a car and we went to Malvern, Pennsylvania, and
Speaker 1: we interviewed a legend, Jack Bogel for Trillions, And what
Speaker 1: came out of that interview actually ended up inspiring you.
Speaker 1: What what was the part that lit a lightbulb for
Speaker 1: you to write the book? Uh? I interviewed him two
Speaker 1: other times before that, but that particular interview, what I
Speaker 1: walked away from was how prophetic he was. Remember that's
Speaker 1: the interview where he said, and I had never heard
Speaker 1: him say this before, he was predicting that a lot
Speaker 1: of the large asset managers would mutualize. There would be
Speaker 1: a mass mutualization of the fund industry, which basically means
Speaker 1: they'd convert for for from being sort of for profit
Speaker 1: to the vanguard structure, which nobody has copied since and
Speaker 1: we'd say, well, why would they do that, Well, they're
Speaker 1: going to get that desperate. Why, Well, because nobody's buying
Speaker 1: their stuff anymore. And he went, you know, he basically
Speaker 1: traced out what's going to happen twenty thirty years into
Speaker 1: the future. And while that wasn't the only thing that
Speaker 1: interests me after he passed away, that stuck with me
Speaker 1: of as to like, maybe someone should try to get
Speaker 1: some of this down on paper, not just the stuff
Speaker 1: he predicted, but just how impactful because if some of
Speaker 1: the stuff he predicts comes true, I mean he will
Speaker 1: have really like completely, like not only reformed the industry,
Speaker 1: but but I wouldn't say destroyed is not the right word,
Speaker 1: but seriously shrunk it reformed it um just with just
Speaker 1: his with his his sheer will of personality and that
Speaker 1: Vanguard's structure um. And I think this is I mean,
Speaker 1: how could you not be fascinated by by this guy
Speaker 1: and this topic. So that's what that's what inspired me.
Speaker 1: And it was that an interview in particular. I will
Speaker 1: say I did find out later that he wrote a
Speaker 1: book called Stay the Course, which was his last book,
Speaker 1: and in that book he also talks about the mass mutualization.
Speaker 1: So what we got in our interview, by the way,
Speaker 1: was a lot of the material from what he wrote
Speaker 1: in his last book, and so I was able to
Speaker 1: sort of like tie up a lot of after reading
Speaker 1: that book, our interview in that book, to really nail
Speaker 1: down what he was trying to say. So the name
Speaker 1: of the book is The Bogel Effect. If you're hearing this,
Speaker 1: it is out now. I want you to pre order
Speaker 1: as many copies as you want. We're gonna get Eric's
Speaker 1: sales numbers up on Amazon and turn them into a bestseller.
Speaker 1: And we're gonna be joined today by Annie Massa, our
Speaker 1: colleague in Bloomberg News who covers asset managers and e
Speaker 1: t f s, to talk some about your favorite insights
Speaker 1: about Jack Bogel, who passed away about a year after
Speaker 1: we had that interview with him on Trillions, this time
Speaker 1: on Trillians The Bogel Effect. Annie, welcome back to Trillians. Hi,
Speaker 1: thanks for having me. Are you going to have Eric
Speaker 1: autograph your copy at our book party on May five?
Speaker 1: What the heck? I already have The Bogel Effect with me,
Speaker 1: but Eric, you didn't autograph it yet. I'm gonna have
Speaker 1: to hang you down in the office. Happily. I didn't
Speaker 1: want to assume I'm not Stephen King. Some people like,
Speaker 1: why didn't you autograph my book? I'm like, well, I mean,
Speaker 1: because you know, there's probably be somebody who's like, why
Speaker 1: did you autograph my book? You're not Stephen King. I
Speaker 1: don't want to presume it, so but Annie, I'm happy
Speaker 1: to do it. I will stop by your total. I
Speaker 1: specifically hunted you out for an advanced copy though, and
Speaker 1: drop it off of your desk. I had to ask
Speaker 1: people around where does Annie sit Actually till I was
Speaker 1: bugging them, they were mid writing. She said, a bunch
Speaker 1: of near a bunch of writers, and they were like,
Speaker 1: I'm there anyway. I found the desk and I put
Speaker 1: it there. You put it there. And one day I
Speaker 1: was working from home and someone actually wrote to me
Speaker 1: and it was like, hey, I saw you have the
Speaker 1: Bogel Effect on your desk? Can I borrow it? And
Speaker 1: I was like, yeah, as long as you give it
Speaker 1: back to me, it's it's already working its way around
Speaker 1: the mek Eric. Eric, We're gonna do five hot takes
Speaker 1: from the Bogel Effect with you and I'm going to
Speaker 1: start with number one, which was we excerpted this in
Speaker 1: the latest issue of Bloomberg Business Week, and I want
Speaker 1: you to talk about how Jack Bogel was actually a
Speaker 1: punk rocker. Yeah, this is a metaphor. Everybody knows. I
Speaker 1: love music. I love my pop culture metaphors, and I
Speaker 1: don't take this lightly. But Bogel, whenever out here him speak,
Speaker 1: I'd be like, man, he looks like a latter day
Speaker 1: Henry Fonda or your grandfather, and you always had like
Speaker 1: a sweater vest. He just looked very approachable and folksy,
Speaker 1: but the words dropping out of his mouth were just
Speaker 1: completely different. Like he'd be on Financial TV basically saying
Speaker 1: like market timing is is an exercise and futility. Why
Speaker 1: would you trade stocks? YadA, YadA? And he would basically,
Speaker 1: you know, the whole the whole network is designed to
Speaker 1: see how you can make money by trading stocks. I
Speaker 1: mean that's just like and so here comes this guy
Speaker 1: and he would do it. At the e t F conference,
Speaker 1: he'd say E t F s are awful and rate
Speaker 1: to an et F crowd. Then he'd go to Morning Star,
Speaker 1: where there's a lot of active managers, say active manager,
Speaker 1: you gotta lower your fees. You guys are awful. And
Speaker 1: I found that to be kind of punkish. I mean,
Speaker 1: this is a guy basically, uh, you know, purposely sort
Speaker 1: of being contrarian in front of an audience. But then,
Speaker 1: as I dug deep breath, thought the punk rock metaphor
Speaker 1: was actually even more apropos because I found this interview
Speaker 1: with Johnny Ramone, who a lot of people think the
Speaker 1: Ramones started punk rock in seventy four, and if you
Speaker 1: listen to that first album, it's pretty much the basis
Speaker 1: of a lot of what came after, including grunge and alternative.
Speaker 1: But he said, all we did was take out the
Speaker 1: stuff from rock music that we didn't like, lose influence,
Speaker 1: guitar solos, nothing that would get in the way of
Speaker 1: the song. And I felt that addition by subtraction was
Speaker 1: exactly what Bogel spent forty five years doing, removing all
Speaker 1: the stuff he didn't think that you needed that got
Speaker 1: in the way of your returns, management fees, turnover, trading costs, brokers,
Speaker 1: human emotion, and he basically left the world with a
Speaker 1: three basis point total market index fund, which is completely
Speaker 1: frictionless exposure to to the whole enchilada. And that's why
Speaker 1: I think it's timeless. Just as you listen to blitz
Speaker 1: creep Bob today, it sounds just the same as it
Speaker 1: did when you first heard it, or when somebody heard
Speaker 1: it in n it's it's just because there's no fat,
Speaker 1: there's no indulgence, there's really nothing that goes bad. And
Speaker 1: to me, that with that metaphor, I think work well.
Speaker 1: And then I talked to your colleague Pat at Business
Speaker 1: we can he added another one, which was punk rock
Speaker 1: back in the day was known to be sort of
Speaker 1: fan owned, and here's Vanguard is customer owned. And so
Speaker 1: I thought, you know, and so some people are gonna
Speaker 1: be like, oh, he's crazy for that metaphor, and I
Speaker 1: I stand by it. I work it out in the book,
Speaker 1: and I acknowledge that it might seem a little crazy
Speaker 1: as certain people, But um, I think it's fun and
Speaker 1: I think it's a it's a fun way to get
Speaker 1: to some of this stuff because let's face it, mutual
Speaker 1: funds are is interesting to most people as c spand
Speaker 1: so I had to like go on Bob and beyond
Speaker 1: to try to make this somewhat spicy. And I also
Speaker 1: really wanted to give um a gen xer's take on
Speaker 1: Bogel Most of the books UH from. He's obviously a
Speaker 1: World War Two generation, but most of the books written
Speaker 1: on Vanguard and Bogeler are written from a much more um,
Speaker 1: you know, older writer, and I felt I wanted to
Speaker 1: really freshen him up through my gen x lens. And
Speaker 1: that's why. Also I took some chances with metaphors. Yeah,
Speaker 1: that that punk rock metaphor really stuck out to me
Speaker 1: in the book. I I love that. That's so, I mean,
Speaker 1: it really sticks in your head. And I think that
Speaker 1: there is like an aspect of Bogel where he was
Speaker 1: so willing to be contrarian. He was so willing to
Speaker 1: say the things that nobody else would say, and and
Speaker 1: he didn't mind if people from either side were would
Speaker 1: get angry with him. But then on the flip side,
Speaker 1: he's also like a fairly religious person. So it's funny
Speaker 1: to think think of them against that that backdrop. Yeah,
Speaker 1: it's funny. Um Bogel I didn't realize just how much
Speaker 1: he thought like a sort of revolutionary type guy. But
Speaker 1: you know, he in his last book, he's eighty nine
Speaker 1: years old. Um, he writes about taking the pathless traveled.
Speaker 1: He was more interested in contrarian ideas. He says, I've
Speaker 1: not I've not done anything in my nine decades but fight.
Speaker 1: And then one of the last quotes is that Dylan
Speaker 1: Thomas quote rage against the Dying of the Light. And
Speaker 1: you know, you you read his book and you think
Speaker 1: it's going to be about you know, expense ratios, but
Speaker 1: there's a lot more in there, and you see this
Speaker 1: guy really had a fiery spirit right till the end. Okay.
Speaker 1: Hot take number two I think is the fact that,
Speaker 1: as you write, and I think it's central part of
Speaker 1: the book, crux of the book, if you will, the
Speaker 1: index fund wasn't the thing that made Vanguard vanguard? Was it?
Speaker 1: What was it? Yeah? No, I promised in the book
Speaker 1: that index funds need a Vanguard more than Vanguard needed
Speaker 1: index funds, simply because index funds would not be anywhere
Speaker 1: near the big deal they are if they were expensive.
Speaker 1: They're only a smash hit because they're cheap. And they
Speaker 1: only started becoming a big hit when they sort of
Speaker 1: hit the twenty basis point level, but they started off
Speaker 1: at forty five basis points. But the Vanguard mutual ownership
Speaker 1: structure was able to take them down a little by
Speaker 1: little over forty five years. It took a long time,
Speaker 1: but once they got to that low level, it just
Speaker 1: became like the tipping point. But I'm telling you Wall
Speaker 1: Streets general thing is not to charge anything that cheap,
Speaker 1: especially to retail. They may chart let an institution get
Speaker 1: exposure for under twenty basis points because the institution is
Speaker 1: going to pony so much money. But for retail, um
Speaker 1: they need to charge a lot. They like to charge
Speaker 1: a lot. And even the Wells Fargo Fund and which
Speaker 1: was the company credited with launching the first one, we
Speaker 1: had Mac McGowan on the show about a year ago,
Speaker 1: um that that index fund is still i think forty
Speaker 1: five basis points and has a five percent load. And
Speaker 1: that's with Vanguard in the picture. So you imagine no
Speaker 1: Vanguard and no structure. Index funds probably exists, but they're
Speaker 1: probably seventy maybe they're down to fifty basis points. And
Speaker 1: then there's no way that this becomes a thing because
Speaker 1: active would not within not is be judged by the
Speaker 1: benchmark because you could not invest in the benchmark. You're
Speaker 1: investing in the benchmark plus fifty to a hundred basis points.
Speaker 1: So that is huge. And if the index fund never existed,
Speaker 1: Vanguard's active mutual fund business, in my opinion, would be
Speaker 1: six times bigger than anybody else. They're already the third biggest,
Speaker 1: and that's with Bogel dumping on them constantly, well, I
Speaker 1: should say dumping on active constantly. And if he had
Speaker 1: supported those active funds, they're all cheaper than the average,
Speaker 1: they would be bringing a gun to a knife fight
Speaker 1: in every occasion, and I think they would be huge.
Speaker 1: So also, the mutual ownership structure is now headed to
Speaker 1: wealth management and it's charging a fraction of the feet.
Speaker 1: So in other words, the lack of profit motive is
Speaker 1: really the innovation here. Whatever it touches, it's gonna wreak
Speaker 1: havoc on index funds. Happened to be the first thing
Speaker 1: that it picked, and boy, wasn't a match made in heaven.
Speaker 1: But the index fund, in my opinion, gets way too
Speaker 1: much credit for the index fund revolution, if that makes sense,
Speaker 1: That makes total sense. And I even mentioned I think
Speaker 1: when you look out across the industry at Vanguard's biggest competitors,
Speaker 1: the Fidelities, the black Rocks, those companies are either publicly
Speaker 1: traded or privately held, and the the original goal at
Speaker 1: least is never just how can we save money for investors?
Speaker 1: But at Vanguard it was, and that was that was
Speaker 1: a huge innovation. And now you look at marketing materials
Speaker 1: from other companies and they'll specifically name check Vanguard and say, oh,
Speaker 1: this fund cheaper even than Vanguard, because they know that
Speaker 1: they have to show investors that they're keeping up with
Speaker 1: Vanguard prices. And this is really what we used to call,
Speaker 1: or I called the Vanguard effect, and I've used that
Speaker 1: term a lot in my writing, and I riffed off
Speaker 1: of that phrase with the Bogel Effect, simply because I
Speaker 1: think the book really centers on him, and I feel
Speaker 1: like his character it was so unique, like the structure
Speaker 1: was unique, that they the two of them were powerful combo.
Speaker 1: But I agree with you. What also attracted me to
Speaker 1: this was just how how much of the flows are
Speaker 1: dictated by Vanguard, even if they're not going into Vanguard funds.
Speaker 1: It's astonishing. It's basically all the money in America pretty
Speaker 1: much goes to Vanguard or people who copy their low
Speaker 1: fee index funds. So in a way, the whole industry
Speaker 1: is now governed by the mutual ownership structure, even if
Speaker 1: they aren't mutually owned themselves. And it's really it's just
Speaker 1: crazy the numbers, and it's funny, and we get so
Speaker 1: wrapped up in meme stocks and um, you know, theme
Speaker 1: funds and all the amount of money even crypto, The
Speaker 1: amount of money that goes into Vanguard every day just
Speaker 1: dwarfs all of that. Okay, Hot take number three Eric
Speaker 1: could have been an alternate headline that I played with
Speaker 1: for the excerpt in in Bloomberg business Week, which is
Speaker 1: how Jack Bogel made Cathy Wood. That is crazy to me. Yeah,
Speaker 1: it's it's highly ironic. There's a whole chapter dedicated is
Speaker 1: because obviously think Vanguard Bogie. You think index funds and
Speaker 1: e t f s and costs coming down, and we
Speaker 1: cover all that for sure, but the rise of Vanguard
Speaker 1: and Passive has is completely reforming. Active Active is not dying,
Speaker 1: but it's evolving. And really what's going on, ironically, is
Speaker 1: the more the core of the portfolio is filled with
Speaker 1: cheap index funds for most people, the more they're going
Speaker 1: to seek something completely opposite to add on top of it,
Speaker 1: because they don't need the SP five stocks with some
Speaker 1: small bets around it, which is what Legacy Active does
Speaker 1: because they already own all those stocks. So cathy Wood
Speaker 1: comes along and she's like, I'm going to buy all
Speaker 1: of these really futuristic stocks. I'm gonna have Active Share
Speaker 1: versus the SMP five hundred, which means only one percent
Speaker 1: overlap in their portfolios. And I'm gonna give you a
Speaker 1: chance at some serious upside like a call option, and
Speaker 1: that sells, and it sells because it practically fits into
Speaker 1: a portfolio. I think this also benefits crypto. I think
Speaker 1: it benefits thematic investing. Basically, people are going to stomach
Speaker 1: volatility much better because it's just this little satellite position
Speaker 1: and they already have all the fundamentally sound serious investor
Speaker 1: stocks and bonds covered for for basis points. And even
Speaker 1: further is I think active share, or how different you
Speaker 1: are from the benchmark, is going to replace alpha as
Speaker 1: the main driver for flows for Active which I know
Speaker 1: is something It's some people don't want to hear that,
Speaker 1: but I think that's where it's going because people are
Speaker 1: just seeking out something different, and it explains the durability
Speaker 1: of cathy Wood's assets and thematic etf assets and I
Speaker 1: think crypto to a degree. But um, this was part
Speaker 1: of the chapter where I explained why Legacy Active failed
Speaker 1: or is failing and seeing outflows, but why this new
Speaker 1: crop of Active is popping up and has a real
Speaker 1: spot in the Van Guardian future. That said, it's a
Speaker 1: little bit like Kevin Bacon's acting career started as the
Speaker 1: star of the movies and if you notice, over his
Speaker 1: career shifted to more of a supporting role, and I
Speaker 1: think Active will have to do the same. What do
Speaker 1: you think Vogel would make of that. I feel like
Speaker 1: he would hate to hear that. In any way his
Speaker 1: legacy has gone to like, you know, bolstering arc or
Speaker 1: or crypto. You know, he would not have liked it.
Speaker 1: So Bogel was a Puritan, almost Jesus esque in his
Speaker 1: ability to not take the bait anywhere, but not not
Speaker 1: everybody's built like him. You know, they can buy into
Speaker 1: what he's saying. But also I want to have a
Speaker 1: little fun. You know, people generally like to speculate. He
Speaker 1: would say, you don't need it. One time I was
Speaker 1: an interview with him and I said, remember we had
Speaker 1: smart beta and stuff, And I would say, well, um,
Speaker 1: I think I used an example of an industry t
Speaker 1: F semiconductors. I said, let's say you are you think
Speaker 1: semiconductors are a great business, but there's not a lot
Speaker 1: of semi stocks in the SP five yet, what about
Speaker 1: buying a semiconductor e TF And his answer was, well,
Speaker 1: then you're speculating, and anybody who speculates it is a
Speaker 1: damn fool, you know, in his very like World War
Speaker 1: two language, and that that's a tone when I interviewed him,
Speaker 1: and I kept challenging him with these well what if
Speaker 1: what if I felt like the box that sends out
Speaker 1: the skeets and he was the skeet shooter, just blowing
Speaker 1: each one boom boom boom. There was really nothing that
Speaker 1: he didn't shoot down because at the end of his
Speaker 1: life he was just that all you need is the
Speaker 1: total market fund. But people are are not wired like him.
Speaker 1: They're not maybe as strong or pure. And I think
Speaker 1: I don't think I think he would understand it. I
Speaker 1: just don't think he would agree with it. But this
Speaker 1: is just the reality I'm trying to capture, and that's
Speaker 1: all I want to do is be right and help
Speaker 1: people have a guide for the future, and I think
Speaker 1: there's something to this. But I would also say if
Speaker 1: I if I met with him again now, I would say,
Speaker 1: what about this though, What if the ten to twenty
Speaker 1: that people use to have fun and is exciting and
Speaker 1: has a lot of upside volatility and they speculate, what
Speaker 1: if that has a behavioral benefit of keeping them distracted
Speaker 1: so they don't touch that needs forty years to grow
Speaker 1: to have maxim maximum potential and the compounding to kick in.
Speaker 1: I still think he would shoot that down. But it's
Speaker 1: a pretty good point, you have to admit. I think
Speaker 1: I think he would say probably probably world War two.
Speaker 1: Wouldn't stop bringing it up though. Okay, so hot take
Speaker 1: number four relates to behavior, right, yeah, and this is another.
Speaker 1: So there's all these books on behavior and psychology and
Speaker 1: the importance of evidence and behavior and it's great, and
Speaker 1: there's a whole renaissance in the advisory world. They're saying
Speaker 1: that behavior is now our main value add and that's great.
Speaker 1: You have to hang in there, even if it's better
Speaker 1: to actually hang in there with an act of fund
Speaker 1: probably than trade index funds. That the point is, you
Speaker 1: you know, not selling when the market's getting scary and
Speaker 1: maybe not buying at the top. People did that in
Speaker 1: the past, and that behavioral gap became a real problem
Speaker 1: for investors. But just introducing the index fund at three
Speaker 1: basis points, in my opinion, completely changed behavior for the
Speaker 1: better because people who people who are buying index fund
Speaker 1: in their core are resigned to the fact there's nothing
Speaker 1: better they can get, so when the market goes down,
Speaker 1: they don't think themselves, well, my index fund is underperform warming,
Speaker 1: let me hop to a better performing fund the way
Speaker 1: they used to in the nineties with active They're just like, well,
Speaker 1: I own the whole market for three basis points. Where
Speaker 1: where else am I gonna go? This is such a
Speaker 1: good deal, I'm gonna just hold it, And so they
Speaker 1: that resignation is much easier if a three basis point
Speaker 1: index fund exists, and it doesn't get brought up in
Speaker 1: the books a lot. It's a lot about mentally keeping yourself,
Speaker 1: and there is some of that, but just introducing that tool,
Speaker 1: I think may behavior a hell of a lot easier
Speaker 1: and gets it doesn't get enough credit um in my opinion,
Speaker 1: because I have a chapter called the Art of doing
Speaker 1: Nothing and how doing nothing is hard. It's an action
Speaker 1: almost and you know, you've got the media and robin
Speaker 1: Hood and commission free and a lot of things are
Speaker 1: trying to entice you to trade your own brain. But
Speaker 1: a cheap index fun I think, really makes it easy
Speaker 1: um and doesn't really get brought up that much in
Speaker 1: some of the other works around behavior. It's kind of
Speaker 1: a funny twist though, now because host Vogel Vanguard is
Speaker 1: pushing so hard into the advice business, so seemingly they're
Speaker 1: also staking their future. Besides obviously they're a huge index
Speaker 1: fund franchise, they're also staking their future on the ability
Speaker 1: to convince customers that advice is useful, right, Yeah, And
Speaker 1: Vanguard wrote a controversial advisor's Alpha and they said it's
Speaker 1: worth two to three percent a year having an advisor.
Speaker 1: I asked Vogel about advisors, and what he said was, look,
Speaker 1: if an advisor is moving you from this active fund
Speaker 1: to that active fund and trying to pick stuff for you, bad.
Speaker 1: But if they're providing behavioral coaching and they're planning for
Speaker 1: you and doing tax management, that's probably good. And if
Speaker 1: they're using very low cost investments and not turning the
Speaker 1: portfolio over um, then they're probably worth something. So he
Speaker 1: was mixed on it, but it's a good point that
Speaker 1: you bring up. I would almost bring up that that
Speaker 1: Vanguard is in some ways sometimes pushing active a little
Speaker 1: more lately. Although Bogel was never antiactive, he was more
Speaker 1: anti greedy, expensive gravy train active. I think he thought
Speaker 1: they should have shared economies of scale a little more gotten, cheaper,
Speaker 1: and they would have served investors better. But um, Vanguard
Speaker 1: and Bogel have a gap, forming to your point, Annie,
Speaker 1: and that is a ch a chapter called Bogel Versus Vanguard,
Speaker 1: and I explore that gap. I do think the Bogel
Speaker 1: heads get a little too crazed about some of the
Speaker 1: things Vanguard does. But I do think Vanguard is also
Speaker 1: oddly shunning Bogel's legacy a little bit lately, and I
Speaker 1: think they're both. I think for the Bogel Heads, most
Speaker 1: of the money still goes to Bogelian funds like v
Speaker 1: O O and v T I. They're very bogel Ish.
Speaker 1: That's where the ball blob of money really goes. Maybe
Speaker 1: at the edges there's some stuff that isn't Bogel that,
Speaker 1: or there's some cash flowing, but the main stuff still there.
Speaker 1: And for the Vanguard the company. I would say, embrace
Speaker 1: Bogel as much as you can. He was really great.
Speaker 1: I mean, it would be like work. If I worked
Speaker 1: at Apple, I'd be like, hell, yeah, I work at
Speaker 1: the company Steve Jobs created. This guy was great. Let's
Speaker 1: talk to Jobs. Um. I just I would I would
Speaker 1: just think that way. I work for Bloomberg. I'm fine.
Speaker 1: I think Bloomberg's innovative guy would be happy. I'm proud
Speaker 1: of that. I just don't get the sort of veering
Speaker 1: off of of the Bogel DNA in the way they
Speaker 1: have lately. So I do think they're closer than people think.
Speaker 1: But there is a gap forming between the Bogel heads
Speaker 1: and the Vanguard crowd a little bit, and you can
Speaker 1: you can see it on social media, and you literally
Speaker 1: just wrote about the tension between the Bogel heads and Vanguard, right,
Speaker 1: that's right. I wrote this story about how there, to
Speaker 1: Eric's point, how there has become a bit of a
Speaker 1: gap between Vanguard as it is now and Bogel. And
Speaker 1: it's interesting because I think that if you look at
Speaker 1: the competitive landscape, it's so rare that any company, to
Speaker 1: say nothing of a financial services company, has a founder
Speaker 1: that inspires the kind of almost religious zeal And like
Speaker 1: fanaticism that Bogel does. And people are still so excited
Speaker 1: about Bogel and how he shaped investing principles. And the
Speaker 1: Bogol has this online community of real Vanguard adherents who
Speaker 1: are investors in the funds, who who post and share
Speaker 1: uh ideas about investing, but also everything online. Um, they've
Speaker 1: I think they've become a little bit frustrated with Vanguard
Speaker 1: in some respects recently over over things that they feel
Speaker 1: Bogel never would have let happen. One big recurring theme
Speaker 1: and and Eric, I know you um go into this
Speaker 1: in your book as well, is customer service. Some some
Speaker 1: Bogol heads that I spoke to for the story mentioned
Speaker 1: that they feel that there's been a decline in customer
Speaker 1: service over time. Of course, Vanguard's a company that keeps
Speaker 1: its costs low, as we know, but asset management is
Speaker 1: moving in a direction where you need to spend more
Speaker 1: and more money on things like customer service and technology,
Speaker 1: and and some of them have felt that Van Guard
Speaker 1: has left those principles behind a little bit. Yeah, Annie,
Speaker 1: it's really interesting to bring that up. I there's a
Speaker 1: chapter called quote some worry in the book where I
Speaker 1: go over all these worries of passive and most of
Speaker 1: them I think are hogwash, um, largely driven by active
Speaker 1: managers who were a little jealous, or academics who just
Speaker 1: really overthink things. I think at the end of the day,
Speaker 1: a lot of money is just moved from you know,
Speaker 1: an active fund that holds Apple, Google, and Microsoft to
Speaker 1: a cheaper index fund that owns the same stock. That's
Speaker 1: not a big deal, um. But to your point, as
Speaker 1: I went down into some of the worries of passive,
Speaker 1: one of the ones I got to his customer service
Speaker 1: because if you don't charge anything, who will answer the phone?
Speaker 1: This is honestly part of what the pushback on bitcoin
Speaker 1: and DeFi has been. If you go completely off the system,
Speaker 1: like who's gonna who can you call if you need help?
Speaker 1: And this is a that's one of the biggest anti
Speaker 1: DEFY arguments I've heard. Vogel was kind of like had
Speaker 1: the same ethos as Defy in my opinion, um, you
Speaker 1: know o g kind of style but not the same,
Speaker 1: but similar. And there were even people interviewed who were
Speaker 1: fans of Bogel. Uh, they privately told me they had problems,
Speaker 1: you know, getting through. They had recommended Vanguard to some
Speaker 1: relatives and the relatives frustrated on the call lines taking
Speaker 1: too long. Also, if you go to the bogel Head site,
Speaker 1: they even have people crying out there that it's a problem.
Speaker 1: So if the bogel Head site is saying that, then
Speaker 1: you know you have an issue. And I also went
Speaker 1: to yelp dot com where Vanguard gets a one point
Speaker 1: five stars at a five. You know what else? You
Speaker 1: know what else gets one point five stars the Walmart
Speaker 1: on Columbus Boulevard, which if one one user described as
Speaker 1: the seventh circle of hell. Um. So if if you're
Speaker 1: the same as the Walmart in Philly, you need to
Speaker 1: address that. And Vanguard, I think is too good to
Speaker 1: and have worked too hard to have a reputation that
Speaker 1: is really stellar to let this drag them down. So
Speaker 1: you know, my I think they should do is take
Speaker 1: some of them more. Instead of the profits going to
Speaker 1: lowering fees they're already like basically nothing, you know, continue
Speaker 1: to use those to help customer service. I think their
Speaker 1: investors okay paying five instead of four or four instead
Speaker 1: of three, Um, if they have better customer service, because
Speaker 1: you're already at your cheap levels, UM, but bogel Um,
Speaker 1: this is part of what possibly could bring down Vanguard. UM.
Speaker 1: Is this customer service thing at least or at least
Speaker 1: harm them. One person I spoke with, Aaron arvin Land,
Speaker 1: the Philippine inquirer who's covered Vanguard locally, UM said that
Speaker 1: was their achilles heel and a couple of people so
Speaker 1: the same thing. They said. They're dealing with it better,
Speaker 1: but that's something UM that possibly could slower their growth.
Speaker 1: One sort of conspiracy theory I've heard to that point is, uh,
Speaker 1: the idea that Vanguard almost doesn't care, like they're like,
Speaker 1: let people buy Vanguard funds from Fidelity, like in Fidelity accounts,
Speaker 1: no problem, We'll just keep the cost slow here and
Speaker 1: leave the customer service to what you know, choose your platform.
Speaker 1: There are plenty of places to buy Vanguard funds, so
Speaker 1: that's not you know, that's just kind of a conspiracy
Speaker 1: theory that's out there. But advisors I spoke to you
Speaker 1: have said, We've seen people say I'm fed up with
Speaker 1: the direct from Vanguard customer service. I love the funds
Speaker 1: and I still want to be in the funds, but
Speaker 1: I just go to some other brokerage to buy them. Yeah,
Speaker 1: and it's funny you say that. I've also heard a
Speaker 1: conspiracy theory to that point, that that's why they're subtly
Speaker 1: making the e t F share class a little cheaper
Speaker 1: so people migrate into that share which then put them
Speaker 1: over other brokers and away from the Vanguard sort of
Speaker 1: mutual fund family. And I mean, honestly, they didn't start
Speaker 1: doing that until after Bogill passed away, and I'm sure
Speaker 1: he wouldn't have loved it, given he had some complicated
Speaker 1: feelings with E t S. Okay, hot take number five.
Speaker 1: There are many more hot takes in the book. Bogel's
Speaker 1: dream is far from realized. That's a little crazy to me.
Speaker 1: I mean, of us funds are Vanguard, and that's not
Speaker 1: good enough. Eric. What's the number gonna be? How big
Speaker 1: does Vanguard have to get before his dream is realized? Yeah?
Speaker 1: You know when we when I wrote the E t
Speaker 1: F book six years ago, that's how you and I
Speaker 1: actually met. I discovered something in my research that just
Speaker 1: blew me away, excited me and made me um. You know,
Speaker 1: it was one of those moments when you when you
Speaker 1: go into a research project that you need to give
Speaker 1: you energy and inspiration, and that in our case was
Speaker 1: that the SEC helped invent the E t F. I
Speaker 1: did not know that from all the books I read.
Speaker 1: In this case, that thing in this research was this
Speaker 1: sentence that was buried in one of Bogel's books that
Speaker 1: hardly anybody read, called Character Counts, which is just his
Speaker 1: speeches to the crew. He says this, The first sign
Speaker 1: that Vanguard's mission has created a better world for the
Speaker 1: investor will be when our market share begins to erode.
Speaker 1: Can someone out there find me another example of where
Speaker 1: the CEO told the crew and the staff like, I
Speaker 1: want our market share to a road. I mean, I
Speaker 1: just not just asset management, Let's try all of business.
Speaker 1: I just has that ever happened? It really hits to
Speaker 1: the different trip he was on. But he said this
Speaker 1: in when Vanguard had less than one percent of the
Speaker 1: assets they had today. That's how far into the future
Speaker 1: he could see. He saw Vanguard getting big and it
Speaker 1: was starting to coin draction in ninety one. That was
Speaker 1: about sixteen seventeen years after it started. And now we're
Speaker 1: in a world where their market share is growing and
Speaker 1: growing and growing. It's not quite thirty pc, but it's
Speaker 1: it's over a quarter and it's quickly going there though,
Speaker 1: and I think it might hit fort before there's any erosion.
Speaker 1: And what Bogel said that for were was because he
Speaker 1: knows that the only way to stop Vanguard is to
Speaker 1: get cheap like them. Get He liked the word stewardship fiduciary.
Speaker 1: He would force everyone else sort of kicking and screaming
Speaker 1: to his level or Vanguard's level, and at that point,
Speaker 1: possibly the Vanguard's market share would would begin to top
Speaker 1: off and then a road And the problem with that
Speaker 1: vision for asset managers it means you're selling stuff that
Speaker 1: makes you no money. So it's almost as if he
Speaker 1: envisioned a utopia for investors, but is a total healthscape
Speaker 1: for the asset management industry. And this will take twenty
Speaker 1: years to play out. But again, that's why I said,
Speaker 1: this book is as much about the past and the
Speaker 1: president as is about the future. But that is again
Speaker 1: and he said it in and the whole things it
Speaker 1: blew my mind helped me kind of really cement the
Speaker 1: fact this guy was just marching to a beat of
Speaker 1: a different drummer and excited me to sort of finish
Speaker 1: off this book and have his name in the title.
Speaker 1: I struggled with titles, but I was like, I think
Speaker 1: Bogel should be in the title. I think he should
Speaker 1: be put forth front and center. I put Vanguard in
Speaker 1: the subtitle. But anyway, so that's I think. Another sort
Speaker 1: of hot take from the book is Bogel's dream hasn't
Speaker 1: even quote begun, not even begun to be realized, based
Speaker 1: on what he said, and he thought that way all
Speaker 1: the way up until the end of his life. Another
Speaker 1: kind of surprising thing he said in his final years
Speaker 1: was he mentioned this whole debate over UH over common
Speaker 1: ownership and how index fund firms like Vandguard and Blackrock
Speaker 1: have become such huge shareholders in corporate America. It causes
Speaker 1: these weird distortions, and it I think it shows to
Speaker 1: your point on on that speech that he was willing
Speaker 1: to think through I think way ahead about how something
Speaker 1: he created could have of unintended consequences, um and and
Speaker 1: he just saw so far out into the future and
Speaker 1: and was willing to be open about it in a
Speaker 1: way that I think it's pretty rare for any kind
Speaker 1: of person in a position of leadership, certainly in corporate
Speaker 1: America to be. It's also, um, you know, this was
Speaker 1: the nineties. This is just as the nineties economy was starting.
Speaker 1: It's interesting to me going back to that one book,
Speaker 1: Character Counts, which while it was one of his lesser
Speaker 1: selling books, is really interesting because you get to see
Speaker 1: Bogel speaking in the in the eighties and in the nineties,
Speaker 1: and you know, I'm old enough to remember those decades,
Speaker 1: especially the eighties. There's a speech he gives in at
Speaker 1: the Christmas party and that's when the movie Wall Street
Speaker 1: came out where Gordon Gecko is out there saying greed
Speaker 1: is good, and Oliver Stone said he did it as
Speaker 1: a warning movie, but it inspired all these traders to
Speaker 1: go in and try to make a ton of money
Speaker 1: on Wall Street at the same time, within the month
Speaker 1: basically the movie that audiences are watching that speech, Bogel
Speaker 1: is talking to the to the crew about like, well,
Speaker 1: if we can, you're gonna keep lowering fees a little bit,
Speaker 1: we'll be on the right tracks, stay the course, YadA, YadA.
Speaker 1: It sounded exactly like the way he spoke in and
Speaker 1: that is interesting to me is how laser focused he
Speaker 1: could be despite the culture and the times changing and seven.
Speaker 1: Nobody was asking for cheap They didn't. It just wasn't
Speaker 1: a big deal in the nineties, they weren't. Um. That's
Speaker 1: again that the serious vision by him. That was fun
Speaker 1: to deconstruct for sure. Okay, Eric, congrats again on the book. Um,
Speaker 1: although we failed to mention my favorite quote in the book,
Speaker 1: which you got to speak to Michael Lewis, What did
Speaker 1: Michael Lewis have to say about Jack Bogel? Yeah. I
Speaker 1: was really curious what Michael Lewis thought of Bogel, because
Speaker 1: Michael Lewis seems like a very curious guy, and he's
Speaker 1: going to all these interesting corners of the financial world,
Speaker 1: and I thought, you know, I wonder why he's never
Speaker 1: written about Vanguard, and also read he had vest in Vanguard,
Speaker 1: and so I sort of asked them, you know, I
Speaker 1: asked then interview him and he said yes, and we
Speaker 1: talked for about half an hour, and over the interview,
Speaker 1: I think he started to see what I saw. Um,
Speaker 1: And I won't go into details, but one of the
Speaker 1: things he asked, he goes, you know, um, he was
Speaker 1: shocked that indexing took so long to take off, because
Speaker 1: when he read when he first read A Random Walk
Speaker 1: down Wall Street by Bert Malkiel in the eighties. He thought,
Speaker 1: why isn't everybody doing this so obvious? Um, So he
Speaker 1: was really interested in that aspect. So I explored why
Speaker 1: it took so long heavily in the book, because I'm like,
Speaker 1: if Michael Lewis thinks that's interesting, I should probably hang
Speaker 1: there for a little bit. Um. But then he said, um,
Speaker 1: he started to get It's funny. Michael Lewis started asking
Speaker 1: me questions halfway through the interview, and he says, like,
Speaker 1: how much money did Bogel have when he died? And
Speaker 1: I said eighty million? And he about fell off his cherry, said,
Speaker 1: I thought you were going to say two billion, and
Speaker 1: even then I would have thought, wow, he really left
Speaker 1: a lot on the table. And then he said this,
Speaker 1: which is very eloquent. He could, he commented, are trillions
Speaker 1: of dollar or and he only made a few million
Speaker 1: for himself. In the history of Wall Street, the ratio
Speaker 1: of money touched the money taken was never so high,
Speaker 1: which I almost put that on the cover because I
Speaker 1: thought that really captured it. Um. But again I didn't
Speaker 1: want it to be so much about Bogel, the sort
Speaker 1: of like saintly guy who took less money because let's
Speaker 1: face at eighty millions and most people still a ton.
Speaker 1: And people close to him back in the seventies said
Speaker 1: that he was well paid. He never he always had
Speaker 1: a nice house. He just didn't go crazy with the
Speaker 1: billionaire thing. He just kept a nice, upper middle class
Speaker 1: sort of existence. Um. He just didn't need more. And
Speaker 1: one of his books is called enough Even. But I
Speaker 1: did find one thing he did need a lot of,
Speaker 1: and that was adulation. You know, he could never get
Speaker 1: enough praise. And that was something his son talked about.
Speaker 1: And in the chapter on explaining Bogel, I talked about
Speaker 1: his ego and some of his deficits. But um, I
Speaker 1: think that made a miscast for Wall Street. Most people
Speaker 1: who want agilation make go in the arts of the priesthood. Um,
Speaker 1: he's being able to do a mutual of fun management. Um.
Speaker 1: And but it actually worked out well to have somebody
Speaker 1: who was arguably miscast in this industry, as it really helped,
Speaker 1: I think, move the industry towards a better, more fiduciary place. Eric,
Speaker 1: congrats again on the Bogel effect any thanks too much
Speaker 1: for joining us on trillion. Thanks thanks for listening to
Speaker 1: Trillions until next time. You can find us on the
Speaker 1: Bloomberg terminal, Bloomberg dot com, Apple Podcasts, Spotify, and Warber.
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Speaker 1: We're on Twitter. I'm at Joel Webber Show. He's at
Speaker 1: Eric Faltunas. This episode of Trillions was produced by Magneth Hendrickson.
Speaker 1: Francesca Leave is the head of Bloomberg podcast by