WEBVTT - Inside "The Bogle Effect" 0:00:05.440 --> 0:00:08.600 Welcome to Brilliance. I'm Joel Weber and I am Eric Bascnis, 0:00:11.039 --> 0:00:15.280 the author of a new book. Congratulations. Thank you Joel. 0:00:15.480 --> 0:00:18.759 You were a big inspiration. And uh, honestly it wasn't 0:00:18.800 --> 0:00:20.560 for you. I don't think it'd be written. So thank 0:00:20.560 --> 0:00:23.560 you very much. And but yeah, maybe a little bit 0:00:23.600 --> 0:00:25.960 too much credit. Maybe a little bit too much credit. 0:00:26.079 --> 0:00:29.120 But it did start. Once upon a time, we got 0:00:29.120 --> 0:00:32.760 in a car and we went to Malvern, Pennsylvania, and 0:00:32.800 --> 0:00:38.800 we interviewed a legend, Jack Bogel for Trillions, And what 0:00:38.960 --> 0:00:41.680 came out of that interview actually ended up inspiring you. 0:00:41.720 --> 0:00:45.559 What what was the part that lit a lightbulb for 0:00:45.600 --> 0:00:48.239 you to write the book? Uh? I interviewed him two 0:00:48.320 --> 0:00:52.120 other times before that, but that particular interview, what I 0:00:52.280 --> 0:00:55.360 walked away from was how prophetic he was. Remember that's 0:00:55.360 --> 0:00:57.080 the interview where he said, and I had never heard 0:00:57.160 --> 0:01:00.319 him say this before, he was predicting that a lot 0:01:00.360 --> 0:01:03.720 of the large asset managers would mutualize. There would be 0:01:03.760 --> 0:01:07.520 a mass mutualization of the fund industry, which basically means 0:01:07.680 --> 0:01:10.840 they'd convert for for from being sort of for profit 0:01:11.240 --> 0:01:14.760 to the vanguard structure, which nobody has copied since and 0:01:14.800 --> 0:01:16.480 we'd say, well, why would they do that, Well, they're 0:01:16.480 --> 0:01:20.000 going to get that desperate. Why, Well, because nobody's buying 0:01:20.000 --> 0:01:22.560 their stuff anymore. And he went, you know, he basically 0:01:22.560 --> 0:01:25.200 traced out what's going to happen twenty thirty years into 0:01:25.240 --> 0:01:27.520 the future. And while that wasn't the only thing that 0:01:27.600 --> 0:01:30.760 interests me after he passed away, that stuck with me 0:01:30.920 --> 0:01:33.400 of as to like, maybe someone should try to get 0:01:33.440 --> 0:01:35.720 some of this down on paper, not just the stuff 0:01:35.720 --> 0:01:40.080 he predicted, but just how impactful because if some of 0:01:40.120 --> 0:01:42.920 the stuff he predicts comes true, I mean he will 0:01:42.920 --> 0:01:47.120 have really like completely, like not only reformed the industry, 0:01:47.120 --> 0:01:49.520 but but I wouldn't say destroyed is not the right word, 0:01:49.560 --> 0:01:55.080 but seriously shrunk it reformed it um just with just 0:01:55.200 --> 0:01:59.240 his with his his sheer will of personality and that 0:01:59.400 --> 0:02:02.800 Vanguard's structure um. And I think this is I mean, 0:02:03.120 --> 0:02:06.240 how could you not be fascinated by by this guy 0:02:06.360 --> 0:02:09.600 and this topic. So that's what that's what inspired me. 0:02:09.639 --> 0:02:12.240 And it was that an interview in particular. I will 0:02:12.520 --> 0:02:15.640 say I did find out later that he wrote a 0:02:15.639 --> 0:02:18.320 book called Stay the Course, which was his last book, 0:02:18.800 --> 0:02:21.680 and in that book he also talks about the mass mutualization. 0:02:22.400 --> 0:02:24.560 So what we got in our interview, by the way, 0:02:24.720 --> 0:02:27.000 was a lot of the material from what he wrote 0:02:27.000 --> 0:02:29.160 in his last book, and so I was able to 0:02:29.160 --> 0:02:31.960 sort of like tie up a lot of after reading 0:02:32.000 --> 0:02:34.040 that book, our interview in that book, to really nail 0:02:34.080 --> 0:02:36.880 down what he was trying to say. So the name 0:02:36.880 --> 0:02:39.960 of the book is The Bogel Effect. If you're hearing this, 0:02:40.080 --> 0:02:42.960 it is out now. I want you to pre order 0:02:43.360 --> 0:02:47.040 as many copies as you want. We're gonna get Eric's 0:02:47.080 --> 0:02:49.880 sales numbers up on Amazon and turn them into a bestseller. 0:02:50.760 --> 0:02:53.560 And we're gonna be joined today by Annie Massa, our 0:02:53.600 --> 0:02:56.920 colleague in Bloomberg News who covers asset managers and e 0:02:57.000 --> 0:03:00.880 t f s, to talk some about your favorite insights 0:03:00.919 --> 0:03:04.320 about Jack Bogel, who passed away about a year after 0:03:04.680 --> 0:03:09.119 we had that interview with him on Trillions, this time 0:03:09.120 --> 0:03:14.639 on Trillians The Bogel Effect. Annie, welcome back to Trillians. Hi, 0:03:14.840 --> 0:03:17.600 thanks for having me. Are you going to have Eric 0:03:17.800 --> 0:03:23.240 autograph your copy at our book party on May five? 0:03:24.080 --> 0:03:26.880 What the heck? I already have The Bogel Effect with me, 0:03:27.040 --> 0:03:29.320 but Eric, you didn't autograph it yet. I'm gonna have 0:03:29.360 --> 0:03:32.399 to hang you down in the office. Happily. I didn't 0:03:32.440 --> 0:03:34.880 want to assume I'm not Stephen King. Some people like, 0:03:34.880 --> 0:03:36.880 why didn't you autograph my book? I'm like, well, I mean, 0:03:37.280 --> 0:03:40.320 because you know, there's probably be somebody who's like, why 0:03:40.400 --> 0:03:42.600 did you autograph my book? You're not Stephen King. I 0:03:42.600 --> 0:03:45.240 don't want to presume it, so but Annie, I'm happy 0:03:45.280 --> 0:03:49.840 to do it. I will stop by your total. I 0:03:50.000 --> 0:03:53.920 specifically hunted you out for an advanced copy though, and 0:03:54.000 --> 0:03:55.720 drop it off of your desk. I had to ask 0:03:55.760 --> 0:03:58.720 people around where does Annie sit Actually till I was 0:03:58.760 --> 0:04:01.240 bugging them, they were mid writing. She said, a bunch 0:04:01.280 --> 0:04:02.880 of near a bunch of writers, and they were like, 0:04:03.120 --> 0:04:06.040 I'm there anyway. I found the desk and I put 0:04:06.040 --> 0:04:08.480 it there. You put it there. And one day I 0:04:08.520 --> 0:04:11.120 was working from home and someone actually wrote to me 0:04:11.600 --> 0:04:13.920 and it was like, hey, I saw you have the 0:04:13.960 --> 0:04:16.360 Bogel Effect on your desk? Can I borrow it? And 0:04:16.400 --> 0:04:17.800 I was like, yeah, as long as you give it 0:04:17.839 --> 0:04:21.239 back to me, it's it's already working its way around 0:04:21.279 --> 0:04:29.440 the mek Eric. Eric, We're gonna do five hot takes 0:04:30.120 --> 0:04:32.000 from the Bogel Effect with you and I'm going to 0:04:32.120 --> 0:04:35.720 start with number one, which was we excerpted this in 0:04:35.760 --> 0:04:38.640 the latest issue of Bloomberg Business Week, and I want 0:04:38.720 --> 0:04:42.960 you to talk about how Jack Bogel was actually a 0:04:42.960 --> 0:04:46.120 punk rocker. Yeah, this is a metaphor. Everybody knows. I 0:04:46.160 --> 0:04:48.599 love music. I love my pop culture metaphors, and I 0:04:48.600 --> 0:04:52.839 don't take this lightly. But Bogel, whenever out here him speak, 0:04:53.000 --> 0:04:55.280 I'd be like, man, he looks like a latter day 0:04:55.320 --> 0:04:57.600 Henry Fonda or your grandfather, and you always had like 0:04:57.600 --> 0:05:00.880 a sweater vest. He just looked very approachable and folksy, 0:05:00.920 --> 0:05:03.360 but the words dropping out of his mouth were just 0:05:03.600 --> 0:05:07.640 completely different. Like he'd be on Financial TV basically saying 0:05:07.680 --> 0:05:11.640 like market timing is is an exercise and futility. Why 0:05:11.720 --> 0:05:14.880 would you trade stocks? YadA, YadA? And he would basically, 0:05:15.720 --> 0:05:17.839 you know, the whole the whole network is designed to 0:05:17.920 --> 0:05:19.880 see how you can make money by trading stocks. I 0:05:19.880 --> 0:05:21.960 mean that's just like and so here comes this guy 0:05:22.000 --> 0:05:23.719 and he would do it. At the e t F conference, 0:05:23.720 --> 0:05:26.680 he'd say E t F s are awful and rate 0:05:26.760 --> 0:05:29.400 to an et F crowd. Then he'd go to Morning Star, 0:05:29.520 --> 0:05:31.719 where there's a lot of active managers, say active manager, 0:05:31.720 --> 0:05:34.120 you gotta lower your fees. You guys are awful. And 0:05:34.240 --> 0:05:36.320 I found that to be kind of punkish. I mean, 0:05:36.320 --> 0:05:39.560 this is a guy basically, uh, you know, purposely sort 0:05:39.560 --> 0:05:42.240 of being contrarian in front of an audience. But then, 0:05:42.279 --> 0:05:44.160 as I dug deep breath, thought the punk rock metaphor 0:05:44.360 --> 0:05:48.120 was actually even more apropos because I found this interview 0:05:48.160 --> 0:05:52.000 with Johnny Ramone, who a lot of people think the 0:05:52.040 --> 0:05:54.440 Ramones started punk rock in seventy four, and if you 0:05:54.480 --> 0:05:56.440 listen to that first album, it's pretty much the basis 0:05:56.440 --> 0:05:59.400 of a lot of what came after, including grunge and alternative. 0:05:59.480 --> 0:06:02.640 But he said, all we did was take out the 0:06:02.680 --> 0:06:06.360 stuff from rock music that we didn't like, lose influence, 0:06:06.560 --> 0:06:09.359 guitar solos, nothing that would get in the way of 0:06:09.360 --> 0:06:13.359 the song. And I felt that addition by subtraction was 0:06:13.400 --> 0:06:16.960 exactly what Bogel spent forty five years doing, removing all 0:06:17.000 --> 0:06:19.760 the stuff he didn't think that you needed that got 0:06:19.800 --> 0:06:24.640 in the way of your returns, management fees, turnover, trading costs, brokers, 0:06:25.440 --> 0:06:29.279 human emotion, and he basically left the world with a 0:06:29.320 --> 0:06:32.560 three basis point total market index fund, which is completely 0:06:32.600 --> 0:06:38.040 frictionless exposure to to the whole enchilada. And that's why 0:06:38.080 --> 0:06:40.840 I think it's timeless. Just as you listen to blitz 0:06:40.839 --> 0:06:43.400 creep Bob today, it sounds just the same as it 0:06:43.440 --> 0:06:45.680 did when you first heard it, or when somebody heard 0:06:45.720 --> 0:06:48.760 it in n it's it's just because there's no fat, 0:06:49.000 --> 0:06:53.080 there's no indulgence, there's really nothing that goes bad. And 0:06:53.160 --> 0:06:56.520 to me, that with that metaphor, I think work well. 0:06:56.560 --> 0:06:58.599 And then I talked to your colleague Pat at Business 0:06:58.640 --> 0:07:01.440 we can he added another one, which was punk rock 0:07:01.720 --> 0:07:03.280 back in the day was known to be sort of 0:07:04.000 --> 0:07:07.960 fan owned, and here's Vanguard is customer owned. And so 0:07:08.360 --> 0:07:10.080 I thought, you know, and so some people are gonna 0:07:10.200 --> 0:07:12.480 be like, oh, he's crazy for that metaphor, and I 0:07:12.480 --> 0:07:14.280 I stand by it. I work it out in the book, 0:07:14.360 --> 0:07:16.960 and I acknowledge that it might seem a little crazy 0:07:17.000 --> 0:07:19.200 as certain people, But um, I think it's fun and 0:07:19.240 --> 0:07:20.880 I think it's a it's a fun way to get 0:07:20.920 --> 0:07:23.000 to some of this stuff because let's face it, mutual 0:07:23.040 --> 0:07:24.960 funds are is interesting to most people as c spand 0:07:25.280 --> 0:07:27.040 so I had to like go on Bob and beyond 0:07:27.440 --> 0:07:29.760 to try to make this somewhat spicy. And I also 0:07:29.840 --> 0:07:33.080 really wanted to give um a gen xer's take on 0:07:33.160 --> 0:07:36.200 Bogel Most of the books UH from. He's obviously a 0:07:36.200 --> 0:07:38.320 World War Two generation, but most of the books written 0:07:38.320 --> 0:07:41.160 on Vanguard and Bogeler are written from a much more um, 0:07:41.200 --> 0:07:44.000 you know, older writer, and I felt I wanted to 0:07:44.040 --> 0:07:47.760 really freshen him up through my gen x lens. And 0:07:47.840 --> 0:07:51.640 that's why. Also I took some chances with metaphors. Yeah, 0:07:51.720 --> 0:07:54.320 that that punk rock metaphor really stuck out to me 0:07:54.360 --> 0:07:56.920 in the book. I I love that. That's so, I mean, 0:07:56.960 --> 0:07:59.200 it really sticks in your head. And I think that 0:07:59.240 --> 0:08:02.120 there is like an aspect of Bogel where he was 0:08:02.280 --> 0:08:04.880 so willing to be contrarian. He was so willing to 0:08:04.920 --> 0:08:08.800 say the things that nobody else would say, and and 0:08:09.360 --> 0:08:12.720 he didn't mind if people from either side were would 0:08:12.760 --> 0:08:15.200 get angry with him. But then on the flip side, 0:08:15.200 --> 0:08:18.200 he's also like a fairly religious person. So it's funny 0:08:18.240 --> 0:08:22.560 to think think of them against that that backdrop. Yeah, 0:08:22.640 --> 0:08:26.680 it's funny. Um Bogel I didn't realize just how much 0:08:26.720 --> 0:08:31.120 he thought like a sort of revolutionary type guy. But 0:08:31.760 --> 0:08:34.280 you know, he in his last book, he's eighty nine 0:08:34.320 --> 0:08:38.280 years old. Um, he writes about taking the pathless traveled. 0:08:38.679 --> 0:08:42.200 He was more interested in contrarian ideas. He says, I've 0:08:42.280 --> 0:08:45.079 not I've not done anything in my nine decades but fight. 0:08:45.600 --> 0:08:47.520 And then one of the last quotes is that Dylan 0:08:47.559 --> 0:08:50.880 Thomas quote rage against the Dying of the Light. And 0:08:51.120 --> 0:08:52.920 you know, you you read his book and you think 0:08:52.920 --> 0:08:55.040 it's going to be about you know, expense ratios, but 0:08:55.040 --> 0:08:56.600 there's a lot more in there, and you see this 0:08:56.600 --> 0:09:00.360 guy really had a fiery spirit right till the end. Okay. 0:09:00.440 --> 0:09:03.520 Hot take number two I think is the fact that, 0:09:04.360 --> 0:09:06.640 as you write, and I think it's central part of 0:09:06.679 --> 0:09:09.600 the book, crux of the book, if you will, the 0:09:09.760 --> 0:09:13.959 index fund wasn't the thing that made Vanguard vanguard? Was it? 0:09:14.559 --> 0:09:16.680 What was it? Yeah? No, I promised in the book 0:09:16.720 --> 0:09:19.800 that index funds need a Vanguard more than Vanguard needed 0:09:19.840 --> 0:09:23.679 index funds, simply because index funds would not be anywhere 0:09:23.720 --> 0:09:26.280 near the big deal they are if they were expensive. 0:09:26.840 --> 0:09:30.280 They're only a smash hit because they're cheap. And they 0:09:30.280 --> 0:09:32.600 only started becoming a big hit when they sort of 0:09:32.679 --> 0:09:35.360 hit the twenty basis point level, but they started off 0:09:35.400 --> 0:09:38.559 at forty five basis points. But the Vanguard mutual ownership 0:09:38.559 --> 0:09:40.560 structure was able to take them down a little by 0:09:40.559 --> 0:09:43.600 little over forty five years. It took a long time, 0:09:43.640 --> 0:09:45.760 but once they got to that low level, it just 0:09:45.840 --> 0:09:49.559 became like the tipping point. But I'm telling you Wall 0:09:49.640 --> 0:09:52.760 Streets general thing is not to charge anything that cheap, 0:09:52.880 --> 0:09:56.320 especially to retail. They may chart let an institution get 0:09:56.360 --> 0:09:59.439 exposure for under twenty basis points because the institution is 0:09:59.480 --> 0:10:02.760 going to pony so much money. But for retail, um 0:10:02.800 --> 0:10:04.760 they need to charge a lot. They like to charge 0:10:04.760 --> 0:10:07.560 a lot. And even the Wells Fargo Fund and which 0:10:07.600 --> 0:10:09.640 was the company credited with launching the first one, we 0:10:09.679 --> 0:10:12.680 had Mac McGowan on the show about a year ago, 0:10:13.520 --> 0:10:16.800 um that that index fund is still i think forty 0:10:16.840 --> 0:10:19.560 five basis points and has a five percent load. And 0:10:19.600 --> 0:10:22.320 that's with Vanguard in the picture. So you imagine no 0:10:22.440 --> 0:10:25.720 Vanguard and no structure. Index funds probably exists, but they're 0:10:25.720 --> 0:10:30.160 probably seventy maybe they're down to fifty basis points. And 0:10:30.200 --> 0:10:33.319 then there's no way that this becomes a thing because 0:10:33.600 --> 0:10:36.360 active would not within not is be judged by the 0:10:36.360 --> 0:10:38.760 benchmark because you could not invest in the benchmark. You're 0:10:38.800 --> 0:10:42.880 investing in the benchmark plus fifty to a hundred basis points. 0:10:42.920 --> 0:10:46.920 So that is huge. And if the index fund never existed, 0:10:47.520 --> 0:10:50.240 Vanguard's active mutual fund business, in my opinion, would be 0:10:50.320 --> 0:10:53.240 six times bigger than anybody else. They're already the third biggest, 0:10:53.480 --> 0:10:56.079 and that's with Bogel dumping on them constantly, well, I 0:10:56.120 --> 0:10:59.040 should say dumping on active constantly. And if he had 0:10:59.080 --> 0:11:02.800 supported those active funds, they're all cheaper than the average, 0:11:03.200 --> 0:11:05.280 they would be bringing a gun to a knife fight 0:11:05.840 --> 0:11:08.960 in every occasion, and I think they would be huge. 0:11:09.000 --> 0:11:11.720 So also, the mutual ownership structure is now headed to 0:11:11.720 --> 0:11:14.480 wealth management and it's charging a fraction of the feet. 0:11:14.840 --> 0:11:18.200 So in other words, the lack of profit motive is 0:11:18.280 --> 0:11:22.400 really the innovation here. Whatever it touches, it's gonna wreak 0:11:22.440 --> 0:11:25.280 havoc on index funds. Happened to be the first thing 0:11:25.320 --> 0:11:27.559 that it picked, and boy, wasn't a match made in heaven. 0:11:28.080 --> 0:11:29.920 But the index fund, in my opinion, gets way too 0:11:30.000 --> 0:11:33.280 much credit for the index fund revolution, if that makes sense, 0:11:33.840 --> 0:11:36.839 That makes total sense. And I even mentioned I think 0:11:36.840 --> 0:11:40.679 when you look out across the industry at Vanguard's biggest competitors, 0:11:40.720 --> 0:11:45.040 the Fidelities, the black Rocks, those companies are either publicly 0:11:45.080 --> 0:11:49.840 traded or privately held, and the the original goal at 0:11:49.880 --> 0:11:53.679 least is never just how can we save money for investors? 0:11:53.720 --> 0:11:55.880 But at Vanguard it was, and that was that was 0:11:55.920 --> 0:11:58.959 a huge innovation. And now you look at marketing materials 0:11:59.000 --> 0:12:03.439 from other companies and they'll specifically name check Vanguard and say, oh, 0:12:03.559 --> 0:12:06.200 this fund cheaper even than Vanguard, because they know that 0:12:06.280 --> 0:12:11.880 they have to show investors that they're keeping up with 0:12:12.080 --> 0:12:15.920 Vanguard prices. And this is really what we used to call, 0:12:16.120 --> 0:12:18.079 or I called the Vanguard effect, and I've used that 0:12:18.200 --> 0:12:21.120 term a lot in my writing, and I riffed off 0:12:21.120 --> 0:12:23.760 of that phrase with the Bogel Effect, simply because I 0:12:23.760 --> 0:12:25.720 think the book really centers on him, and I feel 0:12:25.720 --> 0:12:28.960 like his character it was so unique, like the structure 0:12:29.000 --> 0:12:32.240 was unique, that they the two of them were powerful combo. 0:12:32.800 --> 0:12:35.760 But I agree with you. What also attracted me to 0:12:35.800 --> 0:12:38.240 this was just how how much of the flows are 0:12:38.320 --> 0:12:41.440 dictated by Vanguard, even if they're not going into Vanguard funds. 0:12:42.000 --> 0:12:45.559 It's astonishing. It's basically all the money in America pretty 0:12:45.640 --> 0:12:48.520 much goes to Vanguard or people who copy their low 0:12:48.559 --> 0:12:52.120 fee index funds. So in a way, the whole industry 0:12:52.320 --> 0:12:55.600 is now governed by the mutual ownership structure, even if 0:12:55.640 --> 0:13:00.520 they aren't mutually owned themselves. And it's really it's just 0:13:00.559 --> 0:13:02.560 crazy the numbers, and it's funny, and we get so 0:13:02.640 --> 0:13:06.520 wrapped up in meme stocks and um, you know, theme 0:13:06.720 --> 0:13:10.800 funds and all the amount of money even crypto, The 0:13:10.840 --> 0:13:13.120 amount of money that goes into Vanguard every day just 0:13:13.200 --> 0:13:24.679 dwarfs all of that. Okay, Hot take number three Eric 0:13:25.080 --> 0:13:27.600 could have been an alternate headline that I played with 0:13:27.640 --> 0:13:30.920 for the excerpt in in Bloomberg business Week, which is 0:13:31.640 --> 0:13:38.520 how Jack Bogel made Cathy Wood. That is crazy to me. Yeah, 0:13:38.600 --> 0:13:41.400 it's it's highly ironic. There's a whole chapter dedicated is 0:13:41.400 --> 0:13:44.640 because obviously think Vanguard Bogie. You think index funds and 0:13:44.720 --> 0:13:46.600 e t f s and costs coming down, and we 0:13:46.679 --> 0:13:50.360 cover all that for sure, but the rise of Vanguard 0:13:50.400 --> 0:13:55.360 and Passive has is completely reforming. Active Active is not dying, 0:13:55.400 --> 0:13:59.679 but it's evolving. And really what's going on, ironically, is 0:14:00.040 --> 0:14:02.360 the more the core of the portfolio is filled with 0:14:02.440 --> 0:14:05.720 cheap index funds for most people, the more they're going 0:14:05.760 --> 0:14:09.040 to seek something completely opposite to add on top of it, 0:14:09.559 --> 0:14:12.560 because they don't need the SP five stocks with some 0:14:12.559 --> 0:14:14.960 small bets around it, which is what Legacy Active does 0:14:15.200 --> 0:14:18.240 because they already own all those stocks. So cathy Wood 0:14:18.240 --> 0:14:20.200 comes along and she's like, I'm going to buy all 0:14:20.240 --> 0:14:24.320 of these really futuristic stocks. I'm gonna have Active Share 0:14:24.400 --> 0:14:27.040 versus the SMP five hundred, which means only one percent 0:14:27.160 --> 0:14:29.800 overlap in their portfolios. And I'm gonna give you a 0:14:29.880 --> 0:14:33.600 chance at some serious upside like a call option, and 0:14:33.680 --> 0:14:37.240 that sells, and it sells because it practically fits into 0:14:37.240 --> 0:14:40.280 a portfolio. I think this also benefits crypto. I think 0:14:40.280 --> 0:14:44.440 it benefits thematic investing. Basically, people are going to stomach 0:14:44.520 --> 0:14:48.520 volatility much better because it's just this little satellite position 0:14:48.880 --> 0:14:51.840 and they already have all the fundamentally sound serious investor 0:14:51.880 --> 0:14:55.600 stocks and bonds covered for for basis points. And even 0:14:55.640 --> 0:14:58.680 further is I think active share, or how different you 0:14:58.720 --> 0:15:02.520 are from the benchmark, is going to replace alpha as 0:15:02.560 --> 0:15:05.560 the main driver for flows for Active which I know 0:15:06.080 --> 0:15:09.240 is something It's some people don't want to hear that, 0:15:09.320 --> 0:15:13.240 but I think that's where it's going because people are 0:15:13.280 --> 0:15:16.520 just seeking out something different, and it explains the durability 0:15:16.520 --> 0:15:19.960 of cathy Wood's assets and thematic etf assets and I 0:15:19.960 --> 0:15:23.320 think crypto to a degree. But um, this was part 0:15:23.320 --> 0:15:27.440 of the chapter where I explained why Legacy Active failed 0:15:27.680 --> 0:15:30.320 or is failing and seeing outflows, but why this new 0:15:30.360 --> 0:15:33.320 crop of Active is popping up and has a real 0:15:34.160 --> 0:15:37.560 spot in the Van Guardian future. That said, it's a 0:15:37.600 --> 0:15:40.600 little bit like Kevin Bacon's acting career started as the 0:15:40.640 --> 0:15:42.880 star of the movies and if you notice, over his 0:15:42.960 --> 0:15:45.160 career shifted to more of a supporting role, and I 0:15:45.160 --> 0:15:48.000 think Active will have to do the same. What do 0:15:48.040 --> 0:15:50.400 you think Vogel would make of that. I feel like 0:15:50.440 --> 0:15:53.200 he would hate to hear that. In any way his 0:15:53.400 --> 0:15:59.240 legacy has gone to like, you know, bolstering arc or 0:15:59.360 --> 0:16:02.360 or crypto. You know, he would not have liked it. 0:16:02.440 --> 0:16:06.680 So Bogel was a Puritan, almost Jesus esque in his 0:16:06.960 --> 0:16:09.960 ability to not take the bait anywhere, but not not 0:16:10.040 --> 0:16:12.920 everybody's built like him. You know, they can buy into 0:16:12.920 --> 0:16:15.160 what he's saying. But also I want to have a 0:16:15.160 --> 0:16:18.560 little fun. You know, people generally like to speculate. He 0:16:18.600 --> 0:16:20.480 would say, you don't need it. One time I was 0:16:20.480 --> 0:16:23.080 an interview with him and I said, remember we had 0:16:23.120 --> 0:16:27.000 smart beta and stuff, And I would say, well, um, 0:16:27.040 --> 0:16:28.800 I think I used an example of an industry t 0:16:28.880 --> 0:16:32.360 F semiconductors. I said, let's say you are you think 0:16:32.360 --> 0:16:34.800 semiconductors are a great business, but there's not a lot 0:16:34.800 --> 0:16:37.600 of semi stocks in the SP five yet, what about 0:16:37.640 --> 0:16:41.000 buying a semiconductor e TF And his answer was, well, 0:16:41.040 --> 0:16:43.680 then you're speculating, and anybody who speculates it is a 0:16:43.760 --> 0:16:46.480 damn fool, you know, in his very like World War 0:16:46.520 --> 0:16:50.720 two language, and that that's a tone when I interviewed him, 0:16:50.720 --> 0:16:53.280 and I kept challenging him with these well what if 0:16:53.320 --> 0:16:56.000 what if I felt like the box that sends out 0:16:56.040 --> 0:16:58.680 the skeets and he was the skeet shooter, just blowing 0:16:58.720 --> 0:17:03.160 each one boom boom boom. There was really nothing that 0:17:03.320 --> 0:17:05.760 he didn't shoot down because at the end of his 0:17:05.800 --> 0:17:07.919 life he was just that all you need is the 0:17:07.960 --> 0:17:11.960 total market fund. But people are are not wired like him. 0:17:11.960 --> 0:17:14.800 They're not maybe as strong or pure. And I think 0:17:15.040 --> 0:17:16.639 I don't think I think he would understand it. I 0:17:16.680 --> 0:17:18.359 just don't think he would agree with it. But this 0:17:18.440 --> 0:17:21.440 is just the reality I'm trying to capture, and that's 0:17:21.440 --> 0:17:23.400 all I want to do is be right and help 0:17:23.440 --> 0:17:25.760 people have a guide for the future, and I think 0:17:25.760 --> 0:17:27.439 there's something to this. But I would also say if 0:17:27.440 --> 0:17:29.359 I if I met with him again now, I would say, 0:17:29.600 --> 0:17:32.040 what about this though, What if the ten to twenty 0:17:32.440 --> 0:17:35.760 that people use to have fun and is exciting and 0:17:35.800 --> 0:17:38.199 has a lot of upside volatility and they speculate, what 0:17:38.280 --> 0:17:43.919 if that has a behavioral benefit of keeping them distracted 0:17:43.920 --> 0:17:47.720 so they don't touch that needs forty years to grow 0:17:47.800 --> 0:17:51.080 to have maxim maximum potential and the compounding to kick in. 0:17:51.640 --> 0:17:53.439 I still think he would shoot that down. But it's 0:17:53.480 --> 0:17:55.560 a pretty good point, you have to admit. I think 0:17:55.640 --> 0:18:00.520 I think he would say probably probably world War two. 0:18:00.520 --> 0:18:04.200 Wouldn't stop bringing it up though. Okay, so hot take 0:18:04.359 --> 0:18:09.439 number four relates to behavior, right, yeah, and this is another. 0:18:09.840 --> 0:18:12.320 So there's all these books on behavior and psychology and 0:18:12.359 --> 0:18:15.960 the importance of evidence and behavior and it's great, and 0:18:16.000 --> 0:18:18.359 there's a whole renaissance in the advisory world. They're saying 0:18:18.359 --> 0:18:21.960 that behavior is now our main value add and that's great. 0:18:22.080 --> 0:18:25.440 You have to hang in there, even if it's better 0:18:25.440 --> 0:18:27.160 to actually hang in there with an act of fund 0:18:27.160 --> 0:18:31.520 probably than trade index funds. That the point is, you 0:18:31.520 --> 0:18:34.800 you know, not selling when the market's getting scary and 0:18:34.880 --> 0:18:36.720 maybe not buying at the top. People did that in 0:18:36.760 --> 0:18:39.720 the past, and that behavioral gap became a real problem 0:18:39.760 --> 0:18:43.600 for investors. But just introducing the index fund at three 0:18:43.640 --> 0:18:47.119 basis points, in my opinion, completely changed behavior for the 0:18:47.160 --> 0:18:51.000 better because people who people who are buying index fund 0:18:51.000 --> 0:18:53.920 in their core are resigned to the fact there's nothing 0:18:53.960 --> 0:18:56.480 better they can get, so when the market goes down, 0:18:56.920 --> 0:19:00.240 they don't think themselves, well, my index fund is underperform warming, 0:19:00.320 --> 0:19:02.199 let me hop to a better performing fund the way 0:19:02.240 --> 0:19:05.200 they used to in the nineties with active They're just like, well, 0:19:05.240 --> 0:19:07.240 I own the whole market for three basis points. Where 0:19:07.240 --> 0:19:08.639 where else am I gonna go? This is such a 0:19:08.680 --> 0:19:11.480 good deal, I'm gonna just hold it, And so they 0:19:11.800 --> 0:19:16.240 that resignation is much easier if a three basis point 0:19:16.240 --> 0:19:18.600 index fund exists, and it doesn't get brought up in 0:19:18.640 --> 0:19:21.440 the books a lot. It's a lot about mentally keeping yourself, 0:19:21.520 --> 0:19:24.720 and there is some of that, but just introducing that tool, 0:19:25.320 --> 0:19:27.720 I think may behavior a hell of a lot easier 0:19:28.080 --> 0:19:31.879 and gets it doesn't get enough credit um in my opinion, 0:19:31.920 --> 0:19:33.480 because I have a chapter called the Art of doing 0:19:33.520 --> 0:19:37.800 Nothing and how doing nothing is hard. It's an action 0:19:37.840 --> 0:19:41.240 almost and you know, you've got the media and robin 0:19:41.280 --> 0:19:43.479 Hood and commission free and a lot of things are 0:19:43.480 --> 0:19:45.879 trying to entice you to trade your own brain. But 0:19:46.440 --> 0:19:48.920 a cheap index fun I think, really makes it easy 0:19:49.119 --> 0:19:51.679 um and doesn't really get brought up that much in 0:19:51.960 --> 0:19:57.639 some of the other works around behavior. It's kind of 0:19:57.680 --> 0:20:02.000 a funny twist though, now because host Vogel Vanguard is 0:20:02.040 --> 0:20:06.640 pushing so hard into the advice business, so seemingly they're 0:20:06.680 --> 0:20:11.679 also staking their future. Besides obviously they're a huge index 0:20:11.720 --> 0:20:15.720 fund franchise, they're also staking their future on the ability 0:20:15.800 --> 0:20:21.080 to convince customers that advice is useful, right, Yeah, And 0:20:21.160 --> 0:20:25.480 Vanguard wrote a controversial advisor's Alpha and they said it's 0:20:25.520 --> 0:20:29.000 worth two to three percent a year having an advisor. 0:20:29.480 --> 0:20:33.480 I asked Vogel about advisors, and what he said was, look, 0:20:33.600 --> 0:20:35.720 if an advisor is moving you from this active fund 0:20:35.720 --> 0:20:38.240 to that active fund and trying to pick stuff for you, bad. 0:20:39.080 --> 0:20:42.640 But if they're providing behavioral coaching and they're planning for 0:20:42.680 --> 0:20:46.160 you and doing tax management, that's probably good. And if 0:20:46.160 --> 0:20:48.399 they're using very low cost investments and not turning the 0:20:48.440 --> 0:20:51.919 portfolio over um, then they're probably worth something. So he 0:20:52.040 --> 0:20:54.960 was mixed on it, but it's a good point that 0:20:55.000 --> 0:20:56.560 you bring up. I would almost bring up that that 0:20:56.640 --> 0:20:59.560 Vanguard is in some ways sometimes pushing active a little 0:20:59.560 --> 0:21:03.160 more lately. Although Bogel was never antiactive, he was more 0:21:03.760 --> 0:21:07.520 anti greedy, expensive gravy train active. I think he thought 0:21:07.560 --> 0:21:10.520 they should have shared economies of scale a little more gotten, cheaper, 0:21:10.560 --> 0:21:14.320 and they would have served investors better. But um, Vanguard 0:21:14.359 --> 0:21:16.840 and Bogel have a gap, forming to your point, Annie, 0:21:16.840 --> 0:21:19.520 and that is a ch a chapter called Bogel Versus Vanguard, 0:21:19.720 --> 0:21:22.400 and I explore that gap. I do think the Bogel 0:21:22.400 --> 0:21:25.359 heads get a little too crazed about some of the 0:21:25.359 --> 0:21:28.280 things Vanguard does. But I do think Vanguard is also 0:21:28.359 --> 0:21:32.320 oddly shunning Bogel's legacy a little bit lately, and I 0:21:32.359 --> 0:21:35.240