Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, there
Speaker 1: are legendary investors and financial innovators that, over the decades
Speaker 1: still stand out. Warren Buffett, value investing, Fidelities, Peter lynch
Speaker 1: Amid the rise of the mutual fund industry. And then
Speaker 1: there's Jack Bogel, whose idea of indexing and index investing
Speaker 1: was well well ahead of its time. We're pleased to
Speaker 1: have with us. Eric Balcunas, who's senior et F analysts
Speaker 1: for Bloomberg Intelligence here with us. He's also the author
Speaker 1: of The Bogel Effect, How John Bogel and Vanguard turned
Speaker 1: Wall Street inside out and saved investors trillions. It's a
Speaker 1: brand new book. Eric, It's good to have you with us.
Speaker 1: How are you. I'm good, just you know, enjoying all
Speaker 1: the Elon Must do and then take taking a break
Speaker 1: to do my job. Congratulations. Congratulations, we're taking a break
Speaker 1: from talking about Elon Must to talk Vanguard and e
Speaker 1: t S with you. Um. You know one thing that
Speaker 1: I was surprised to learn here is it's been reading
Speaker 1: the book is how long it took Vanguard to catch on.
Speaker 1: This was like decades in the making, because if you
Speaker 1: look right now, Vanguard is you know, more than eight
Speaker 1: trillion dollars in assets under management. It's just you know,
Speaker 1: insert superlative here. Why did it take so long for
Speaker 1: Vanguard to catch on? Yeah, this is where I think
Speaker 1: the story has a little more drama than people think.
Speaker 1: You know, a lot of Wall Street books are about
Speaker 1: the rise in the fall and lets bogel it's sort
Speaker 1: of like he just kept, you know, slowly rising. But
Speaker 1: this guy lived in oblivion for about years. And the
Speaker 1: reason it took so long, given what people today think
Speaker 1: is an obvious trade, why not why wouldn't I own
Speaker 1: the whole market? For three basis points is that he
Speaker 1: operated outside of the system. He just did the Vanguard
Speaker 1: refused to pay brokers, and at that time, it just
Speaker 1: there were no R I A S. It was just brokers,
Speaker 1: and so if you did not give them money or
Speaker 1: loads or commissions or kickbacks, um, they were not going
Speaker 1: to sell your funds. So he had to get people
Speaker 1: to leave that system. He also had to try to
Speaker 1: explain to people that an index fund was not average.
Speaker 1: It sounded average. He had a lot of people trying
Speaker 1: to position it that way, so he had to go
Speaker 1: above and beyond to try to explain, hey, this is
Speaker 1: not average. So those two things made it take a
Speaker 1: long time. Also, the barguard mutual ownership structure, which lowers
Speaker 1: fees the more assets it gets, took a while to
Speaker 1: lower fees because the assets weren't quite there yet. So
Speaker 1: as the assets started to come in the nineties and
Speaker 1: two thousand's, that's when the fees really started to dip down.
Speaker 1: And once they got below twenty fifteen basis points, it
Speaker 1: was a done deal. And that's part of the point
Speaker 1: of making the book. Also is the index fund was
Speaker 1: a kind of a lucky byproduct. The real core nucleus
Speaker 1: of all the things we're seeing today that we're from
Speaker 1: Vogel and Vanguard are the mutual ownership structure UH and
Speaker 1: the structure of Vogel himself. I must say he was
Speaker 1: a different kind of guy, and so I think those
Speaker 1: two things really are what I explore the most in
Speaker 1: the book. I think i've I've talked with you about
Speaker 1: this before, Eric, but I remember one of my first
Speaker 1: shows that I did in financial television and financial broadcast
Speaker 1: and it was a mutual fund show, and we would
Speaker 1: always be like, Okay, you gotta have a Vanguard fun
Speaker 1: out because it was a low cost, no cost option.
Speaker 1: And our host was like, why would you pay fees
Speaker 1: when you can go to Vanguard and get the same
Speaker 1: strategy and pay no fees. I mean, he really was
Speaker 1: iconic in terms of his impact on this industry. Yeah, absolutely,
Speaker 1: I mean, you know it is it is just a
Speaker 1: modern miracle that you can just get the whole stock market,
Speaker 1: the whole bond market, and at this point international stocks
Speaker 1: for under six seven basis points. A sixty forty now
Speaker 1: can be gotten for three or four basis points, basically
Speaker 1: frictionalist exposure. And that's a big theme in the book
Speaker 1: I have as well, is that I think, you know,
Speaker 1: Bogel's called the father of the index fund, but honestly
Speaker 1: feel like you should be called either the father of
Speaker 1: low cost investing or I like this phrase addition by subtraction.
Speaker 1: What he did over forty five years was just remove
Speaker 1: all the stuff that kind of gets in the way,
Speaker 1: be it management, fees, brokers, turnover, trading costs, human emotion.
Speaker 1: I mean, taking all that out, then you get the
Speaker 1: total market with its almost frictionalist exposure, and that's why
Speaker 1: it's a smash it. And it's not just Vanguard, which
Speaker 1: takes in a billion a day. The rest of the
Speaker 1: money goes to Vanguard esque index funds, even from Fidelity, right,
Speaker 1: the fierce rival of Vanguard. That's how fidelities flows come
Speaker 1: now is through those low costs inex funds. I mean
Speaker 1: he totally. The whole industry now basically is governed by
Speaker 1: Vanguard's mutual ownership structure, which nobody copied, but yet they
Speaker 1: have to copy it in a way. Eric, When I
Speaker 1: was reading this, I thought back to this article I
Speaker 1: read in The Atlantic about a year ago by Annie Lowry.
Speaker 1: It's entitled could index funds be quote worse than Marxism?
Speaker 1: And it's actually a quote from analyst at Bernstein. They're
Speaker 1: called passive investing worse than Marxism. I see you on
Speaker 1: the zoom laughing right now about this. What do you
Speaker 1: make of criticism of passive investing or index funds such
Speaker 1: as this? Yeah, and most of it's laughable, I mean
Speaker 1: the Marxism. Somebody else said that they're worse than the
Speaker 1: misuse of antibiotics. I mean, they're i've heard. I've heard
Speaker 1: her compared to the Salem, which trials people go crazy
Speaker 1: with this stuff. Look, if you think about it, all
Speaker 1: people have done is moved from closet indexing. If you
Speaker 1: look at the Fidelion Magellan, it largely owns Apple, Amazon, Google, right,
Speaker 1: and they've moved to actual indexing and saved about seventy
Speaker 1: basis points in the process. Everybody own the same stocks,
Speaker 1: they just now own it in a different format. And
Speaker 1: indexing isn't really necessarily totally passive. Russell one thousand's different
Speaker 1: than the SMP. The SMP, by the way, is run
Speaker 1: by a human committee, has some rules. It's just more
Speaker 1: rules based active. So I try to get rid of that,
Speaker 1: that line between active and passive. What really is going
Speaker 1: on is low cost. And I premise in the book
Speaker 1: that let's say indexing wasn't a thing and Vanguard had
Speaker 1: their mutual ownership structure and only active mutual funds, in
Speaker 1: my opinion, they would be the biggest active fund manager
Speaker 1: six times over because they would have been bringing a
Speaker 1: gun to a knife fight over and over. It's the
Speaker 1: low costs that's the thing. And I don't think anybody
Speaker 1: who writes these articles would really have too much of
Speaker 1: a problem. The one thing we got to watch for
Speaker 1: is voting power. Vanguarded black Rock now own about seven
Speaker 1: eight percent of all stocks, and so we have to
Speaker 1: wonder how are they going to make sure that they
Speaker 1: don't vote in a way that is different than their
Speaker 1: shareholders or misuse that power. So far, I think they're fine,
Speaker 1: but we have to watch that. That's probably the one
Speaker 1: thing I would think about watching Incredible Influence. Hey, we
Speaker 1: just have about a minute left here. What about Bogel
Speaker 1: demand I'm surprised to hear about how spiritually was um?
Speaker 1: Just interesting? Yeah? Look, uh, I asked everybody interviewed this question.
Speaker 1: Why is has nobody covered banguards mutual ownership structure? They said, well,
Speaker 1: because people go to Wall Street to get rich, they
Speaker 1: don't want to drive a Volvo. And then the other question,
Speaker 1: I said, well then why did Bogel do it? And
Speaker 1: they're like, I don't know. Good questions. So a whole
Speaker 1: chapter is called Explaining Vogel, where I try to explain
Speaker 1: the ingredients that went in to create this very unusual person.
Speaker 1: I almost feel he was miscast in this industry, but
Speaker 1: maybe the industry needed a miscast in this era to
Speaker 1: sort of bring it to a more fiduciary place. So
Speaker 1: he was perfectly cast in a way, but definitely not
Speaker 1: your average Wall Street titan. And I again I explore
Speaker 1: that in a whole chapter, uh, to try to explain
Speaker 1: to you how he happens. It's but but it says
Speaker 1: so much right because it was such a different, you know,
Speaker 1: path that he took versus a lot of other financial
Speaker 1: and Wall Street titans that are out there. Um, Eric,
Speaker 1: two short a time, come back. We'd love to talk
Speaker 1: more about what's in this book. Eric Baltuns he's our
Speaker 1: senior et F analyst to EP Bloomberg Intelligence, joining us
Speaker 1: via zoom from Philadelphia. Check out his book. Jack Bogel
Speaker 1: wrote a lot um. But what's great about Eric is
Speaker 1: really just a great perspective on this man who really
Speaker 1: transformed in industry in way of investing. The book is
Speaker 1: called The Bogel Effect, How John Bogel and Van Guard
Speaker 1: turned Wall Street inside out and saved investors trillions. Really
Speaker 1: thinking about the retail investor from from the get count. Yeah,
Speaker 1: great read. I'm really enjoying it. All right. You are
Speaker 1: listening to Bloomberg Business Week for tim Stenovik, I'm Carol Master.
Speaker 1: Have a good and safe evening.