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Speaker 1: Brought to you by Bank of America. Merrill Lynch seeing

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Speaker 1: what others have seen, but uncovering what others may not.

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Speaker 1: Global Research that helps you harness disruption. Voted top global

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Speaker 1: research firm five years running. Merrill Lynch, Pierre, Spinner and

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Speaker 1: Smith Incorporated. This is Masters in Business with Barry Ridholes

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Speaker 1: on Bloomberg Radio. This week on the podcast, I have

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Speaker 1: a spectacular guest. I have a very special guest. His

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Speaker 1: name is Bill McNabb. He is chairman and CEO of

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Speaker 1: the Vanguard Group, a small little shop in Pennsylvania that

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Speaker 1: runs about four trillion dollars um. This is one of

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Speaker 1: the few guests we've had back for a second time.

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Speaker 1: We had him on eighteen months ago, and there's almost

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Speaker 1: no overlap between the two interviews. If you are either

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Speaker 1: an individual investor, an institutional investor, a registered investment advisor,

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Speaker 1: or a broker, this is a conversation you're going to

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Speaker 1: want to hear. This might be one of the most

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Speaker 1: influential people in all of finance. Certainly, Vanguard has become

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Speaker 1: one of the most influential shops there are. It's called

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Speaker 1: the Vanguard effect. Any space they step into sees costs

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Speaker 1: to investors Plummet. A Bloomberg article not too long ago

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Speaker 1: estimated that Vanguard has helped pull forty billion dollars in

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Speaker 1: fees out of wall streets pockets and and put it

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Speaker 1: in the hands of investors by not only them charging

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Speaker 1: a very low price, but by the competition being forced

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Speaker 1: to compete with Vanguard and lower their fees. I'm gonna

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Speaker 1: make two recommendations for those of you who are listening

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Speaker 1: to this. First, listen to the podcast. Enjoy it. He's

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Speaker 1: incredibly knowledgeable and eloquent, and I loved having a conversation

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Speaker 1: with him. But second, go back onto iTunes or SoundCloud

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Speaker 1: or the Big Picture at Reholts dot com and and

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Speaker 1: pull out that previous conversation. I'll link to it on

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Speaker 1: the blog when when I when I write about this,

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Speaker 1: you should really listen to both of these. They are

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Speaker 1: master class in the business of running an investment business.

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Speaker 1: There's there's none better than Bill McNabb. With no further ado,

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Speaker 1: my conversation with Vanguard Groups CEO and chairman, Bill McNabb.

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Speaker 1: This is master's in business with Barry Ridholts on Bloomberg Radio.

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Speaker 1: I'm Barry Ridholts. You're listening to Masters in Business on

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Speaker 1: Bloomberg Radio. My special guest this week is a returning guest.

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Speaker 1: His name is William McNabb. He is Chairman and see

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Speaker 1: EO of the Vanguard Group, which currently manages just about

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Speaker 1: four trillion dollars. That's trillion with the t uh. Bill

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Speaker 1: has been with the Vanguard Group since so his thirtieth

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Speaker 1: anniversary was not too long ago. He became CEO in

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Speaker 1: two thousand and eight and chairman in oh nine. And

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Speaker 1: he is the third CEO and Vanguard's history, following Jack

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Speaker 1: Brennan before him, and prior to that, uh, a gentleman

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Speaker 1: named John Bogel, the founder of Vanguard. Bill McNabb, welcome

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Speaker 1: to Bloomberg. Great to be here, Barry, Thanks, and I

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Speaker 1: should say welcome back to Bloomberg. Uh. The last time

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Speaker 1: we had a conversation, it was really quite fascinating. So

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Speaker 1: I want to jump right into some of the really

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Speaker 1: interesting going zones these days and and get the Vanguard

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Speaker 1: perspective of things. Uh, let's jump right to your competitors.

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Speaker 1: How do you see the lay of the lands when

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Speaker 1: it comes to managing other people's money? So I think

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Speaker 1: what we're seeing right now, say, um, you know, there's

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Speaker 1: a secular change that's gone on and will continue to

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Speaker 1: go on in terms of costs being a much more

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Speaker 1: important component of investing. Obviously that's played out most purely

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Speaker 1: with indexing firms doing better. But I think it's gonna

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Speaker 1: lead to further consolidation in the industry. UM. So you know,

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Speaker 1: we saw a week ago Janis and Henderson UM big

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Speaker 1: big merger that was clearly uh, let's get more economies

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Speaker 1: of scale kind of play. I think more of that

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Speaker 1: may happen. UM. I also think that you will see

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Speaker 1: UM on the other side of it, maybe some boutiques

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Speaker 1: emerge who are more specialized, and so you you may

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Speaker 1: end up with a more barbeled industry where you've got

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Speaker 1: a lot of really you know, nimble small players and

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Speaker 1: you know some some larger players who can really exploit

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Speaker 1: economies of scale. So is it all about the economies

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Speaker 1: of scale or when we look at let's look at

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Speaker 1: some of your competitors who are Giant, black Rock, Pimco,

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Speaker 1: State Street, these are all trillion all the firms there

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Speaker 1: are probably close to a dozen trillion dollar asset managers

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Speaker 1: around the world. Is that the cost of admission these

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Speaker 1: days in order to to get to where you can

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Speaker 1: start driving costs now for investors, you know, I think, um,

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Speaker 1: I think you could do it at lower levels than that,

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Speaker 1: but certainly when you're at that kind of level, UM,

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Speaker 1: you know, you're spreading your fixed costs across a very

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Speaker 1: large asset base, and you know that helps. And you know,

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Speaker 1: I think Vanguard is like the purest form of transparency

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Speaker 1: if you will, into economies of scale, if you look

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Speaker 1: at how our costs have come down over time, you

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Speaker 1: can see the power of technology, you know, um, spreading

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Speaker 1: fixed costs over a broader asset base and so forth.

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Speaker 1: It's been called the Vanguard effect, the impact of you

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Speaker 1: moving in a particular space. Last time we talked about

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Speaker 1: your desire to drive prices lower, but really, how much

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Speaker 1: more fat is out there? How much cheaper can invest

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Speaker 1: and get It's you know, we're getting down to you know,

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Speaker 1: it's an assem taught to kind of relationship at this point.

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Speaker 1: And uh, you know, there's room to go, but it's

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Speaker 1: not going to be the kind of uh declines we've

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Speaker 1: seen in the last decade. Most of the fat has

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Speaker 1: been wrong out of I think that's right, But you know,

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Speaker 1: again there's still our economies of scale to be gained. Barry.

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Speaker 1: You know, I'm such a huge believer in the power

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Speaker 1: of technology, and in a sense, I don't know what

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Speaker 1: I don't know. And the more you see, UM in

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Speaker 1: the technology arena, you know, some of the new things

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Speaker 1: that are emerging, you know, the use of big data,

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Speaker 1: that the emergence of the cloud. Um, I'm not sure

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Speaker 1: we even know what we can do going forward. And

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Speaker 1: you know we're spending a lot of time and effort

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Speaker 1: in that arena as well. So we're gonna talk more

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Speaker 1: about technology, UM shortly. When what about the people who

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Speaker 1: are running some of your competitors. Do you ever get

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Speaker 1: to chat with the Larry Fins and the Bill Grosses

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Speaker 1: of the world. So I was until just a couple

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Speaker 1: of weeks ago chairman of the Investment Company Institute, which

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Speaker 1: is the Mutual Fund trade Association, and as such I

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Speaker 1: met with many of the leaders in our industry on

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Speaker 1: a very regular basis, and you know, I get a

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Speaker 1: chance to you know, talk about industry issues, talk about

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Speaker 1: regulatory changes with them. Uh. You know, I think Larry

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Speaker 1: and I have actually shared the stage on a couple

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Speaker 1: of occasions. UM, talking about governance for example, talking about

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Speaker 1: long term versus short term and so yeah, you know,

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Speaker 1: you get a chance every now and then to compare notes.

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Speaker 1: So we'll talk more about governance UM in a few minutes.

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Speaker 1: Let's talk about the Index Fund. It just had a birthday,

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Speaker 1: It just celebrated its forty anniversary. Tell us what what

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Speaker 1: that means. You know, it's an amazing thing. So UM

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Speaker 1: and this is really the power of Jack Bogel's imagination,

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Speaker 1: if you will, in the ninety six so Jack, you know,

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Speaker 1: had this concept UM that he had written about extensively

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Speaker 1: that you know, this idea of a broad market in

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Speaker 1: might make sense, as you know from the history um

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Speaker 1: Wells Fargo in particular, I think did some work on

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Speaker 1: the pension area, and you know the first separate account.

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Speaker 1: And what Jack did was he said, if it's good

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Speaker 1: enough for a sophisticated institution, why not for everybody? And

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Speaker 1: that was really the concept. And you know when it

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Speaker 1: was first introduced in seventy six, people laughed at it.

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Speaker 1: They said, it's you know, mediocrity, it's never gonna work

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Speaker 1: on American w Jack actually has hanging outside his office

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Speaker 1: a print of an ed taken tell us about that.

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Speaker 1: So Yeah, it was UM. You know this this because

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Speaker 1: it was viewed as almost communistic, UM people called it

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Speaker 1: on American And you know, for Jack, it was always

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Speaker 1: a game of math. You know, at the end of

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Speaker 1: the day, UM investing was going to become a zero

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Speaker 1: sum game. And eventually, when you looked at active versus

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Speaker 1: index on average, the index guys were gonna win UM

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Speaker 1: just because both were gonna add up to the market

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Speaker 1: and one had a much higher cost structure than the other.

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Speaker 1: I'm Barry Ri Hults. You're listening to Masters in Business

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Speaker 1: on Bloomberg Radio. My special guests this week is Bill McNab.

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Speaker 1: He is chairman and CEO of the Vanguard Group, which

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Speaker 1: manages about four trillion dollars. And let's talk about the

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Speaker 1: size of van going and what that means. You guys

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Speaker 1: essentially own about five percent of just about every publicly

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Speaker 1: traded company in America and some proportion of non US equities.

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Speaker 1: What does that due to your thinking about corporate governance issues?

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Speaker 1: You guys really are the eight hundred pound gerrilla when

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Speaker 1: it comes to that. You know, I think for us,

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Speaker 1: Barry it it really underscores the unbelievable responsibility we have

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Speaker 1: you know, it's we're here representing, you know, the hopes

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Speaker 1: and dreams of millions of investors who have entrusted they're

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Speaker 1: hard earned assets into our funds. And so we've got

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Speaker 1: to make sure that the port the constituent portfolio companies

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Speaker 1: are being governed in in a sense with long term

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Speaker 1: value creation for the end investor as a very big goal.

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Speaker 1: And we've had to up our game. We've had to

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Speaker 1: increase our staff who engage in this. You know, the

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Speaker 1: difference between us and say a traditional active manager, and

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Speaker 1: we do have as you know, traditional active third at

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Speaker 1: that's that's still a trillion and changed a lot of money, um.

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Speaker 1: But on the index side, we're a permanent holder of

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Speaker 1: these of these companies and so you have to You

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Speaker 1: can't sell the stock if you're not happy with the

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Speaker 1: way the company is performing, but you can agitate if

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Speaker 1: there's something we could talk about gap accounting or stock

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Speaker 1: options or CEO pay if you if Vanguard says we're

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Speaker 1: not happy about this, you're not a entity without resources.

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Speaker 1: So and that's a really good segue into what I

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Speaker 1: think has been one of the really interesting evolutions in

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Speaker 1: the last couple of years, and it's been this whole

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Speaker 1: concept of shareholder engagement and one of the things we

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Speaker 1: really did agitate for. And you know, we we get

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Speaker 1: a couple of us gave talks on this maybe to

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Speaker 1: three years ago, and we've really seen a change in

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Speaker 1: the way boards are working as a result, we said,

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Speaker 1: you need to engage with your big owners, not just Vanguard,

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Speaker 1: but anybody who owns a significant UM steak, and you

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Speaker 1: need to be thinking about how are you creating long

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Speaker 1: term value not short term. No one's interested in the

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Speaker 1: short term here. And so we have a set of

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Speaker 1: principles that we ask people to follow in terms of governance.

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Speaker 1: And that's the first sort of screen for us is

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Speaker 1: what what sort of principles? So you know, we we

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Speaker 1: want UM transparent, transparency. We want the board you know,

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Speaker 1: composition to be right. We want the UM defined by

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Speaker 1: what do you mean by right, you know, a complementary

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Speaker 1: set of skills, UM independent not not just golf buddies

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Speaker 1: of the CEO totally and and real independence. And we

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Speaker 1: want there to be linkages between executive pay and long

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Speaker 1: term value creation and not short term so another word,

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Speaker 1: not pay people on the basis of how well the

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Speaker 1: SMP has done recently, because that seems by just granting

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Speaker 1: stock options, you basically compensating executives for what the stock

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Speaker 1: market does, not how their company does relative to everybody else, Right,

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Speaker 1: And you know you've actually written a fair amount of

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Speaker 1: this in your blog, and you know, I'm, as you know,

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Speaker 1: I'm in big agreement with a lot of your points

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Speaker 1: there that in the eighties and nineties, in particular, especially

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Speaker 1: in the nineties after the compensation rules changed, um, there

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Speaker 1: were a lot of just blanket granting of options and

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Speaker 1: it really was a rising tide and closed to performance

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Speaker 1: really driving it. Talk about unanticipated effects of a legislative

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Speaker 1: change for those those folks who may not be aware

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Speaker 1: of this. We changed the rules on exact compensation in

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Speaker 1: the United States. We capped dollar compensation and pretty much

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Speaker 1: allowed unlimited stock option compensation, and so people were paid

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Speaker 1: not based on how well the company did, but how

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Speaker 1: well the stock market did. So, so what can Vanguard

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Speaker 1: do and what what can a board do to to

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Speaker 1: change that? So I think what boards have been doing,

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Speaker 1: and you know, there's actually been a couple of academic

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Speaker 1: studies recently that have pointed out that there's been real

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Speaker 1: progress here is they have been doing a better job

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Speaker 1: defining longer term objectives for the company and linking executive

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Speaker 1: pay to those objectives, and you're seeing less use of options,

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Speaker 1: more use of restricted stock grants, and the grants are

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Speaker 1: made only if certain objectives are achieved, and then the

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Speaker 1: vesting on those grants may actually take place over pretty

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Speaker 1: long periods of time. We think that's actually helping drive

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Speaker 1: executive teams to think longer term. It's still not you know,

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Speaker 1: we we it's not universal, and it's not where it

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Speaker 1: should be. It's not where it should be. M there's

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Speaker 1: still too much short termism in the market. Is it?

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Speaker 1: Is it safe to say you were in agreement with

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Speaker 1: the Larry Fink letter of black Rock basically went out

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Speaker 1: to the SMP five hundred and some big European companies saying, hey,

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Speaker 1: you're too focused on the quarter and you're none of

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Speaker 1: the thing in R and D and you're not thinking

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Speaker 1: long term. Yeah. I I give Larry and Blackrock a

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Speaker 1: lot of credit for that letter. It was very complimentary

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Speaker 1: actually to the letter. The last couple of letters we'd

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Speaker 1: sent out, you know, we had um really emphasized with

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Speaker 1: our portfolio companies that think long term and you know,

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Speaker 1: we we really stressed the need for better engagement. You know,

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Speaker 1: he hit particularly hard on the long term issues, and

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Speaker 1: you know, I think together it's actually a pretty good message.

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Speaker 1: So let's talk a little bit about UM other issues

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Speaker 1: in in corporate governance. What do you think about E

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Speaker 1: s G investing, Environmental, sustainable and governance seems to be

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Speaker 1: a rising UH theme these days. I think it's a

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Speaker 1: very complex topic, you know, So UM, I can tell

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Speaker 1: you my my mailbox is filled UM every week with

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Speaker 1: different UM constituencies having particular social issues UM that they

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Speaker 1: want to expressed in the way we run money. Actually,

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Speaker 1: I think if I added it all up, we would

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Speaker 1: exclude almost every company in the S and P five hundred.

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Speaker 1: So one of the things we've done is we created

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Speaker 1: UM a socially responsible index fund, the foot see and

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Speaker 1: foot See, and you know it hits some of your

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Speaker 1: big screens, and I think it's been successful at meeting

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Speaker 1: a lot of investor needs we see UM. You know,

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Speaker 1: it's a it's a fairly significant fund at this point.

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Speaker 1: Is that only European or is that US or global?

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Speaker 1: It's actually UM, it is a global phenomenon, and I

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Speaker 1: could see US doing more in that product space over time,

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Speaker 1: you know, perhaps adding a couple of more complementary kinds

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Speaker 1: of offerings. I will say that the other evolution in

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Speaker 1: E s G for us is looking at sort of

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Speaker 1: broad E s G principles and how do they affect

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Speaker 1: long term value creation? And so you know, the easy

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Speaker 1: example would be if you have a company who's got

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Speaker 1: a bad track record in terms of environmental issues. What

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Speaker 1: you know is that's going to hurt the stock price

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Speaker 1: over the long run. It's a cost that will eventually

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Speaker 1: come back to it is and you see it time

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Speaker 1: after time. So one of the things you can agitate

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Speaker 1: for as a large owner is, hey, let's make sure

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Speaker 1: we've got a long term environmentally sound set of principles

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Speaker 1: that were operating under so the shareholder doesn't bear the

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Speaker 1: brunt of that cost down the road. UM. That's you

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Speaker 1: know that there's judgment involved there obviously in terms of

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Speaker 1: how you actually have those conversations. But we're finding companies

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Speaker 1: are actually doing a better job beginning to disclose that.

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Speaker 1: You're seeing it more and more in UM some of

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Speaker 1: the management write ups and so forth, in the proxy

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Speaker 1: statements and in the annual reports. Might we see a

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Speaker 1: US version of the Footsie E s G portfolio anytime.

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Speaker 1: So yeah, I mean we we clearly will have I

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Speaker 1: think a range of opportunities for people. I'm Barry rid Hults.

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Speaker 1: You're listening to Masters in Business on Bloomberg Radio. My

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Speaker 1: special guest today is William McNabb. He is CEO and

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Speaker 1: chairman of the Vanguard Group. They manage about four trillion

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Speaker 1: dollars and he is the third CEO, following Jack Brennan

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Speaker 1: and Vanguard founder Jack Bogel. Um. So, Bill, let's let's

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Speaker 1: talk a little bit about technology. You referenced it earlier,

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Speaker 1: the impact of it, what's the potential upside for technology

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Speaker 1: as well as the downside uh that technology presents. So

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Speaker 1: we've historically approached technology as needing to do one of

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Speaker 1: three things. You know, First, um, create automation where automation

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Speaker 1: is possible, so you can generate economies of scale for

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Speaker 1: your investors. That's kind of classic automate things that are, um,

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Speaker 1: you know, very manual in nature, you know. Second, can

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Speaker 1: you use technology to make your people better, so better

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Speaker 1: systems so that when you're talking to clients over the

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Speaker 1: phone or you're doing you know, increasingly video conferencing and

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Speaker 1: so forth with them. You're you're it's a better experience.

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Speaker 1: And then the third is how do you make it

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Speaker 1: more convenient for your investors. So we been, you know,

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Speaker 1: historically trying to I'll say, you know, Bucket are investing

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Speaker 1: that way, and it's been it's been pretty productive for us. UM.

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Speaker 1: You know, one of the figures I always love to

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Speaker 1: describe to people is UM in two thousand, the Internet

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Speaker 1: was just starting to take hold. We had about five

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Speaker 1: billion dollars under management, twelve thousand people. You know, today

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Speaker 1: we're a little less than fifteen thousand people and we have,

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Speaker 1: as you referenced, nearly four trillion. So technology has actually

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Speaker 1: made that possible. So it's an eight fold increase in

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Speaker 1: assets and you're barely a increase in in personnel. Yeah,

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Speaker 1: and and and as you know, during that period, the

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Speaker 1: market hasn't been you know, tremendous lift. There a lot

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Speaker 1: of that has just been true organic growth, so we're

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Speaker 1: able to do more for people. So, you know, technology

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Speaker 1: has just been a phenomenal um tail wind for us,

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Speaker 1: if you will, UM the you know, one of the

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Speaker 1: challenges I think we see in one particular area, and

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Speaker 1: you allude to in your question, is you know, the

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Speaker 1: rise of social media and instantaneous information on everything, or

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Speaker 1: misinformation or misinformation and as you know, one of the

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Speaker 1: new sort of fads out there. Maybe it's more than

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Speaker 1: a fad. Maybe it's the way it's going to be.

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Speaker 1: Is get the headline out there, or get the item

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Speaker 1: out there, and then we'll check for veracity later. And

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Speaker 1: we're seeing, you know, when when that kind of information proliferates,

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Speaker 1: it really does make investors struggle because you know, they're like,

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Speaker 1: what should I do? And of course we're trying to

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Speaker 1: console them. Hey, there's noise in in the system here.

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Speaker 1: You need to avoid, you know, reacting to that noise.

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Speaker 1: But the more there is, the hard artist to make

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Speaker 1: that point. Last time we spoke, um two things. First,

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Speaker 1: you mentioned the web call you did in the midst

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Speaker 1: of the crisis. I would tell listeners go find that.

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Speaker 1: It's on iTunes and SoundCloud and Bloomberg dot com and

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Speaker 1: listen to that. But you were also just launching your

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Speaker 1: robo advisor, your automated investment platform. They've all come to

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Speaker 1: me known as a robo advisor. So that was with

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Speaker 1: a few billion dollars. How has that been working out

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Speaker 1: what what's it managing these days? So we launched at

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Speaker 1: last May. So it's about eighteen months now. And as

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Speaker 1: you as you allude, we had um sort of a

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Speaker 1: legacy business of about ten billion at the time. It's

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Speaker 1: now approaching fifty UM in eighteen months. And so I

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Speaker 1: lose the bed. I said it was going to be

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Speaker 1: a hundred in a year. Well, but um, I think

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Speaker 1: you're going to be right directionally though. There's there's tremendous

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Speaker 1: appetite for this in the marketplace, and you know, our

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Speaker 1: our whole thing was to be able to give really sound,

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Speaker 1: personalized advice for very small accounts. You know, we wanted

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Speaker 1: somebody with fifty thou dollars to be able to get

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Speaker 1: the same kind of service that people with a million

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Speaker 1: dollars we're getting just five years ago. So you're you're

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Speaker 1: anticipating my next question, which is what sort of pushback

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Speaker 1: has there been? Van God is very popular amongst advisors

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Speaker 1: who are are based. I know some people complained about it.

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Speaker 1: They're obviously not interested in the fifty dollar account, But

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Speaker 1: what sort of pushback has there been and what does

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Speaker 1: Vanguard say in response to that? So, you know, we'd

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Speaker 1: be naive to think there's been no pushback UM, although

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Speaker 1: I can you know, the mentions are in the dozens,

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Speaker 1: if you will, from advisors. We serve something like fifty

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Speaker 1: thou advisors today and I think maybe I've heard from

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Speaker 1: a hundred over the course of eighteen months, but you know,

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Speaker 1: you take it very seriously. I think that my pushback

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Speaker 1: is this technology is upon us, and this this is

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Speaker 1: going to happen. You can't just ignore it and hope

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Speaker 1: it can't ignore it and hope it goes away. And

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Speaker 1: you know, if it's not us, it's gonna be somebody else.

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Speaker 1: And the real message here is, let us help you

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Speaker 1: work on your value proposition. I think it's more important

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Speaker 1: than ever for advisors to be able to explain clearly

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Speaker 1: what value am I providing to you as a client.

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Speaker 1: The second point I think is really important is for

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Speaker 1: UM advisors to look at this technology and say, what

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Speaker 1: can I use, you know, technologically to make my business

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Speaker 1: more efficient UM. I don't think any of the so

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Speaker 1: called robo UM firms are gonna put the advisor community

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Speaker 1: out of business, but I think people who ignore their

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Speaker 1: technology are going to put themselves at risk. To say

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Speaker 1: the least. I'm Barry Ridhults. You're listening to Masters in

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Speaker 1: Business on Bloomberg Radio. My special guest today is William McNabb.

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Speaker 1: He is the chairman and CEO of the Vanguard Group,

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Speaker 1: which runs a couple of dollars for investors around the

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Speaker 1: world close to four trillion. We briefly talked about the

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Speaker 1: forty birthday of indexing and the index funds. Uh, let's

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Speaker 1: let's get into a little more detail with that. There

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Speaker 1: was a whole special in the Wall Street Journal about

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Speaker 1: indexing and active versus passive investing. My favorite headline was

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Speaker 1: the dying business of picking stocks. I thought there was

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Speaker 1: a little hyperbole. There is stockpicking really a dying business?

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Speaker 1: So I don't think so. I you know, look, I

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Speaker 1: think there's a secular element to this shift to indexing,

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Speaker 1: and it's really less about indexing and it's about cost.

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Speaker 1: So I think low cost investing is the secular change here. Um.

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Speaker 1: I think there will be opportunities for active managers, but

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Speaker 1: I think if you're a high price active manager, you're

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Speaker 1: you're going to really struggle. So based on that, how

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Speaker 1: can we explain the success of high priced hedge funds,

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Speaker 1: high price venture capital, high price private equity, of which

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Speaker 1: there is always one shootout the light spectacular funds, and

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Speaker 1: then a whole bunch of gee, we wish we were

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Speaker 1: performing like that. Well, you know, I think it does.

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Speaker 1: It does underscore that human behavior is always looking for

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Speaker 1: you know, the home run, right people, people love that

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Speaker 1: idea of you know, outsize returns. Look, you know, if

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Speaker 1: you if you take each of those three categories in turn,

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Speaker 1: you know, venture you should make you should get paid

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Speaker 1: for the risk you're taking a lot of capitalists and

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Speaker 1: you know, as an asset class over the last fifteen years,

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Speaker 1: it's done okay. And you know, even even more broadly

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Speaker 1: than just the very very best funds, and you're getting

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Speaker 1: a risk premium for liquidity and for you know, the

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Speaker 1: kinds of companies that you're investing in. I think it's

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Speaker 1: a very vibrant thing not accessible to the average investor.

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Speaker 1: You know, private equity is an asset class over time. Um,

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Speaker 1: you know, at least the last fifteen years not been

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Speaker 1: a great place. And I think your point on the

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Speaker 1: fee side there is probably detracted from those returns. And

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Speaker 1: again by you know, the way I look at private

429
00:24:36,359 --> 00:24:39,119
Speaker 1: equity is again you should get a significant premium over

430
00:24:39,160 --> 00:24:41,280
Speaker 1: the public markets for the liquidity that you're giving up.

431
00:24:41,640 --> 00:24:43,760
Speaker 1: We don't see that over the last fifteen to twenty years.

432
00:24:44,320 --> 00:24:47,119
Speaker 1: You know, the hedge funds um You've written about that

433
00:24:47,160 --> 00:24:50,760
Speaker 1: better than I'll ever be able to articulate. It makes

434
00:24:50,760 --> 00:24:52,720
Speaker 1: no sense to me. It makes no sense to me.

435
00:24:53,200 --> 00:24:58,359
Speaker 1: The my my perspective has evolved in a minor nuanced way.

436
00:24:58,520 --> 00:25:00,480
Speaker 1: If you're in one of those hedge funds that has

437
00:25:00,520 --> 00:25:04,480
Speaker 1: a long term track record of outperforming and they're continuing

438
00:25:04,520 --> 00:25:08,680
Speaker 1: to outperform, well why not stay with it? But finding

439
00:25:08,680 --> 00:25:11,520
Speaker 1: those guys in advance, and it's almost always guys, but

440
00:25:11,960 --> 00:25:16,280
Speaker 1: finding the emerging managers who are gonna be the superstars,

441
00:25:16,720 --> 00:25:19,879
Speaker 1: it's all but impossible. It's very difficult. You know, a

442
00:25:19,880 --> 00:25:22,240
Speaker 1: few of the big endowments have done a decent job

443
00:25:22,280 --> 00:25:25,760
Speaker 1: identifying people early in their careers, you know, the Yales

444
00:25:26,359 --> 00:25:28,520
Speaker 1: of the world and the notre Dames of the world,

445
00:25:29,280 --> 00:25:32,719
Speaker 1: and uh, very few others have been able to do that.

446
00:25:32,920 --> 00:25:35,639
Speaker 1: And everybody who's imitator, it has has come to rue

447
00:25:35,680 --> 00:25:37,919
Speaker 1: that that chase and by the way, I agree with you,

448
00:25:37,960 --> 00:25:40,720
Speaker 1: there are a handful of people who um their returns

449
00:25:41,280 --> 00:25:45,639
Speaker 1: in retrospect have been pretty persistent as well. So you know,

450
00:25:45,680 --> 00:25:47,920
Speaker 1: you look at the Seth Clarmon's and the Steve Mandel's

451
00:25:47,920 --> 00:25:50,439
Speaker 1: of the world, and you know, I have tremendous respect

452
00:25:50,480 --> 00:25:52,639
Speaker 1: for what they've accomplished. And all you need is a

453
00:25:52,640 --> 00:25:54,719
Speaker 1: time machine to go back twenty years and give them

454
00:25:54,800 --> 00:25:58,000
Speaker 1: money when they were taking its right. So, UM, let's

455
00:25:58,080 --> 00:26:02,400
Speaker 1: let's stay with with the concept of UM indexing. One

456
00:26:02,440 --> 00:26:05,320
Speaker 1: of the criticisms I hear all the time is we're

457
00:26:05,320 --> 00:26:08,320
Speaker 1: at peak indexing. This so much money has flown into

458
00:26:08,359 --> 00:26:12,800
Speaker 1: indexing it can possibly continue to work. So you know,

459
00:26:12,840 --> 00:26:15,040
Speaker 1: I think, UM, one of the things I love about

460
00:26:15,040 --> 00:26:19,840
Speaker 1: your columns. You like data, and so you know, today

461
00:26:19,920 --> 00:26:23,439
Speaker 1: indexing represents about thirty five percent of the mutual fund world,

462
00:26:23,720 --> 00:26:26,840
Speaker 1: and I think that's where people focus a lot. It's

463
00:26:26,840 --> 00:26:29,520
Speaker 1: only of the US equity market. It's less than five

464
00:26:29,520 --> 00:26:32,199
Speaker 1: percent of global markets, so there's a long way to

465
00:26:32,280 --> 00:26:35,879
Speaker 1: go here. Um. Second, when you look at UM, I

466
00:26:35,920 --> 00:26:39,760
Speaker 1: think even more importantly, trading volume. You know in the US,

467
00:26:39,800 --> 00:26:43,840
Speaker 1: indexing is like five trading volume. Well, isn't that because

468
00:26:43,920 --> 00:26:46,040
Speaker 1: by definition there's not a lot of trading going on.

469
00:26:46,240 --> 00:26:50,000
Speaker 1: That's that's exactly right. But the point is there's there.

470
00:26:50,320 --> 00:26:53,640
Speaker 1: We're we're a long way from you know where this

471
00:26:53,640 --> 00:26:57,000
Speaker 1: this could end up. And I think it's a global phenomenon,

472
00:26:57,200 --> 00:27:00,439
Speaker 1: and you're going to see indexing take a bigger share

473
00:27:00,600 --> 00:27:03,159
Speaker 1: of global equity assets over the next decade. I think

474
00:27:03,200 --> 00:27:08,679
Speaker 1: it's almost inexorable. Um, it'll be inexorable progress. At what

475
00:27:08,920 --> 00:27:12,240
Speaker 1: point is it too big? Or is there just no

476
00:27:12,400 --> 00:27:14,840
Speaker 1: point at that? Do we ever see this at fifty

477
00:27:15,280 --> 00:27:19,040
Speaker 1: or seventy five percent? Think theoretically, then then you you

478
00:27:19,080 --> 00:27:23,840
Speaker 1: wonder where price discoveries, you're creating opportunities for stock price exactly.

479
00:27:25,200 --> 00:27:27,560
Speaker 1: I don't think there's a in the in the let's

480
00:27:27,600 --> 00:27:31,040
Speaker 1: say the next ten years. UM. I think it's going

481
00:27:31,040 --> 00:27:32,960
Speaker 1: to continue to grow. Whether it becomes I don't think

482
00:27:32,960 --> 00:27:35,680
Speaker 1: it becomes fifty percent of the US market, um, even

483
00:27:35,720 --> 00:27:39,119
Speaker 1: in that period, could be in the mutual fund market. Really,

484
00:27:39,440 --> 00:27:43,879
Speaker 1: that of which right now it's thirty the mutual fund market,

485
00:27:43,920 --> 00:27:48,080
Speaker 1: it's of US assets five percent of global assets. That

486
00:27:49,520 --> 00:27:52,399
Speaker 1: really that that's that's astounding. Let let me shift it

487
00:27:52,480 --> 00:27:55,520
Speaker 1: up on you a little bit and talk about valuation.

488
00:27:55,600 --> 00:27:58,840
Speaker 1: I keep hearing that stocks in the US are over priced,

489
00:27:58,880 --> 00:28:00,679
Speaker 1: But I've been hearing that now out for four or

490
00:28:00,680 --> 00:28:03,159
Speaker 1: five years, and the market doesn't seem to care. It

491
00:28:03,240 --> 00:28:05,720
Speaker 1: keeps going higher. Where are we in the world of

492
00:28:06,040 --> 00:28:09,480
Speaker 1: stock prices? So I would still say historically there on

493
00:28:09,560 --> 00:28:13,080
Speaker 1: the high end um and you know a lot of

494
00:28:13,119 --> 00:28:17,679
Speaker 1: stins get covered with essentially zero percent short rates. And

495
00:28:18,640 --> 00:28:22,320
Speaker 1: you know, our view is hasn't changed the last couple

496
00:28:22,359 --> 00:28:25,080
Speaker 1: of years. I've been pretty public about UM. If we

497
00:28:25,119 --> 00:28:27,920
Speaker 1: look out over ten years, we think the central tendency

498
00:28:28,760 --> 00:28:32,000
Speaker 1: is for equity returns to be a couple hundred basis

499
00:28:32,000 --> 00:28:36,040
Speaker 1: points below long term averages. That that's Bob Shiller's perspective.

500
00:28:36,080 --> 00:28:38,680
Speaker 1: You don't use CAPE as a timing tool. Just look

501
00:28:38,720 --> 00:28:40,800
Speaker 1: out ten years. It'll tell you if you have average

502
00:28:40,800 --> 00:28:43,800
Speaker 1: above or below. And that's kind of our philosophy as well, burying.

503
00:28:43,960 --> 00:28:46,240
Speaker 1: You know, we run a lot of sophisticated models to

504
00:28:46,280 --> 00:28:49,360
Speaker 1: get there, but that's where it ends up. And you know,

505
00:28:49,440 --> 00:28:52,600
Speaker 1: I think UM from a planning perspective, it's a it's

506
00:28:52,600 --> 00:28:56,040
Speaker 1: a it's it's a reasonable place the other sort of thing.

507
00:28:56,080 --> 00:28:58,280
Speaker 1: And UM, I can't remember if I've read this with

508
00:28:58,360 --> 00:29:00,360
Speaker 1: Schiller or not, but if you look at you know,

509
00:29:00,440 --> 00:29:05,560
Speaker 1: long term treasuries, you know, take the tenure and compare it. UH,

510
00:29:05,640 --> 00:29:09,080
Speaker 1: you know, a kind of typical equity risk premium, you

511
00:29:09,160 --> 00:29:11,440
Speaker 1: get to the same kind of a couple of percentage

512
00:29:11,440 --> 00:29:14,480
Speaker 1: points below long term averages. So I think there's a

513
00:29:14,520 --> 00:29:19,280
Speaker 1: lot of kind of convergence around that. The difference. I

514
00:29:19,360 --> 00:29:20,960
Speaker 1: just read this, and I don't know who I'm stealing

515
00:29:21,000 --> 00:29:24,320
Speaker 1: this from. UH. With bonds, rates could go negative, but

516
00:29:24,440 --> 00:29:27,520
Speaker 1: with yield on stocks you can't get to a negative

517
00:29:27,600 --> 00:29:29,920
Speaker 1: number because you're paying for the equity. That's fair. Let

518
00:29:30,040 --> 00:29:31,840
Speaker 1: let me mix it up with you again and talk

519
00:29:31,880 --> 00:29:37,280
Speaker 1: about politics. We're recording this not too long before the election,

520
00:29:37,320 --> 00:29:40,720
Speaker 1: the day before the last debate. What should the role

521
00:29:40,960 --> 00:29:47,280
Speaker 1: of politics be in the average investors portfolio? So, despite

522
00:29:47,400 --> 00:29:50,240
Speaker 1: all of the headlines, despite all of the noise, despite

523
00:29:50,240 --> 00:29:52,640
Speaker 1: all of the speculation, it really should play no role,

524
00:29:53,000 --> 00:29:56,080
Speaker 1: no role, what's role whatsoever. We've looked at this going

525
00:29:56,120 --> 00:30:01,080
Speaker 1: back to the eighteen fifties. There's no difference. But that's

526
00:30:01,160 --> 00:30:04,800
Speaker 1: measurable between having a Democrat president versus a Republican president.

527
00:30:05,160 --> 00:30:08,160
Speaker 1: There's no difference, you know, on how the House and

528
00:30:08,240 --> 00:30:12,400
Speaker 1: Senate work out, and so everything that goes on, it's

529
00:30:12,480 --> 00:30:15,960
Speaker 1: kind of speculation and what you typically see is some

530
00:30:16,120 --> 00:30:20,520
Speaker 1: dislocations right before and right after, and usually within about

531
00:30:20,520 --> 00:30:23,000
Speaker 1: a hundred days of a new administration being in you

532
00:30:23,040 --> 00:30:26,000
Speaker 1: get back to kind of what what we could call normal.

533
00:30:26,560 --> 00:30:29,360
Speaker 1: So it's it's noisy, you have some short term ebbs

534
00:30:29,400 --> 00:30:33,120
Speaker 1: and flows, and then if it does, I think there

535
00:30:33,240 --> 00:30:36,440
Speaker 1: is a bigger question out here. UM. And you know,

536
00:30:36,480 --> 00:30:39,120
Speaker 1: it always the risk of leading with my chin. UM.

537
00:30:39,200 --> 00:30:41,520
Speaker 1: You know, I would say, Um, there's some really good

538
00:30:41,560 --> 00:30:44,200
Speaker 1: work that's been done. You know, Harvard just issued their

539
00:30:45,160 --> 00:30:48,760
Speaker 1: US competitiveness study. UM. I think just two weeks ago,

540
00:30:48,840 --> 00:30:52,640
Speaker 1: Mike Porter and the Gang and we studied it pretty carefully,

541
00:30:52,720 --> 00:30:58,240
Speaker 1: and you know, it's key takeaway from me was the

542
00:30:58,320 --> 00:31:03,040
Speaker 1: political dysfunction that we're seeing is causing you know, a

543
00:31:03,080 --> 00:31:06,560
Speaker 1: real rise and uncertainty. And I think that uncertainty holds

544
00:31:06,600 --> 00:31:09,840
Speaker 1: back growth. And I think that's a more macro issue,

545
00:31:09,920 --> 00:31:13,120
Speaker 1: if you will, UM, probably somewhat divorced from what's going

546
00:31:13,160 --> 00:31:15,000
Speaker 1: to happen in the stock and bond markets in the

547
00:31:15,080 --> 00:31:19,120
Speaker 1: intermediate term. I can't say I disagree with with a

548
00:31:19,160 --> 00:31:22,600
Speaker 1: single a single word of that. UM. Let's talk a

549
00:31:22,640 --> 00:31:25,760
Speaker 1: little bit about buy backs. So we've seen a huge

550
00:31:25,840 --> 00:31:28,920
Speaker 1: run of buy backs the past five or six years.

551
00:31:28,960 --> 00:31:34,680
Speaker 1: Some people blame or credit those zero rture referencing UM,

552
00:31:34,720 --> 00:31:37,120
Speaker 1: but they're starting to tail off this year, they've dropped

553
00:31:37,160 --> 00:31:39,960
Speaker 1: a bit. What do you think the proper role of

554
00:31:40,000 --> 00:31:43,080
Speaker 1: buy back should be? Would you rather see dividends or

555
00:31:43,320 --> 00:31:46,320
Speaker 1: investment or what? What do you think about the general

556
00:31:46,640 --> 00:31:49,640
Speaker 1: buy back phenomena? So I think the buyback phenomena has

557
00:31:49,720 --> 00:31:55,640
Speaker 1: definitely UM gotten a lot of UM tail ones, if

558
00:31:55,640 --> 00:31:58,480
Speaker 1: you will, from the low rates I mean, and I

559
00:31:58,480 --> 00:32:01,280
Speaker 1: don't think levering up to increased buybacks is a good

560
00:32:01,360 --> 00:32:04,240
Speaker 1: thing in general. Now, some some companies have done that

561
00:32:04,240 --> 00:32:07,440
Speaker 1: because their cashes overseas and they don't wanna pay the

562
00:32:07,480 --> 00:32:11,400
Speaker 1: taxes on which is a whole broader issue UM. You know. Second,

563
00:32:11,640 --> 00:32:15,360
Speaker 1: I think the uncertainty that I talked about UM actually

564
00:32:15,480 --> 00:32:18,600
Speaker 1: has caused a lot of companies to be more conservative

565
00:32:19,120 --> 00:32:21,200
Speaker 1: with their cash. So they're either keeping it on the

566
00:32:21,200 --> 00:32:23,560
Speaker 1: balance sheet or doing what they can to keep their

567
00:32:23,600 --> 00:32:26,960
Speaker 1: stock price up. Because they they're so unsure about what

568
00:32:27,000 --> 00:32:29,080
Speaker 1: the future is, they don't want to invest in the business.

569
00:32:30,160 --> 00:32:32,520
Speaker 1: I would love to see us get away from that.

570
00:32:33,080 --> 00:32:37,160
Speaker 1: So let's talk a little bit about that. Overseas cash

571
00:32:37,400 --> 00:32:40,520
Speaker 1: the rumor, and we've heard it from both political parties,

572
00:32:41,120 --> 00:32:44,640
Speaker 1: they'll be a some sort of a deal for a

573
00:32:44,840 --> 00:32:50,320
Speaker 1: cash repatriation overseas capital repatriation, UH, in exchange for some

574
00:32:50,400 --> 00:32:55,440
Speaker 1: infrastructure spending and some reform of the corporate task code.

575
00:32:55,960 --> 00:33:01,120
Speaker 1: What what is that feasible, possible, desirable. I think it's feasible,

576
00:33:01,120 --> 00:33:04,280
Speaker 1: and I think directionally desirable. You know. Look, I think

577
00:33:04,720 --> 00:33:08,240
Speaker 1: we're our corporate tax code is I think a hindrance

578
00:33:08,360 --> 00:33:12,920
Speaker 1: to business here, you know. Um, And again I'm somebody

579
00:33:12,920 --> 00:33:15,560
Speaker 1: who wants to see the markets do really well, especially

580
00:33:15,560 --> 00:33:19,080
Speaker 1: here and in my home country. Is um, we we

581
00:33:19,120 --> 00:33:22,040
Speaker 1: should be doing. We should have economic policies in place

582
00:33:22,160 --> 00:33:27,760
Speaker 1: that actually our pro economic growth. And I think a

583
00:33:28,200 --> 00:33:33,200
Speaker 1: more simplified and um you know, probably a net net

584
00:33:33,240 --> 00:33:37,360
Speaker 1: lower corporate tax code would be UM beneficial in that regard.

585
00:33:37,640 --> 00:33:40,960
Speaker 1: I also think getting clarity around international you know, we're

586
00:33:41,000 --> 00:33:43,120
Speaker 1: we're an outlier, as you know, in the developed world

587
00:33:43,160 --> 00:33:46,840
Speaker 1: in terms of the way we treat um international earnings.

588
00:33:46,840 --> 00:33:49,400
Speaker 1: And I think we shouldn't be going forward. I think

589
00:33:49,400 --> 00:33:53,840
Speaker 1: it again, it's those kind of policies are actually restricting

590
00:33:54,320 --> 00:33:57,360
Speaker 1: good economic growth and long term thinking, and we should

591
00:33:57,360 --> 00:33:59,920
Speaker 1: be doing everything from a policy perspective. To clear that up.

592
00:34:00,480 --> 00:34:03,640
Speaker 1: The last point I'd make is, um, I I am

593
00:34:03,680 --> 00:34:08,439
Speaker 1: a believer that infrastructure probably needs improvement here, I don't

594
00:34:08,640 --> 00:34:11,000
Speaker 1: in fact's not probably it does you know? I travel

595
00:34:11,080 --> 00:34:14,359
Speaker 1: the world and nice in Europe and Asia, isn't it?

596
00:34:14,760 --> 00:34:17,680
Speaker 1: You know? You you see things? Um, you know, sometimes

597
00:34:17,680 --> 00:34:20,120
Speaker 1: I'd like to lift all of our lawmakers up and

598
00:34:20,239 --> 00:34:23,720
Speaker 1: take them on a global tour. I think in order

599
00:34:23,760 --> 00:34:27,040
Speaker 1: to promote you know, good economic growth, you need to

600
00:34:27,080 --> 00:34:29,680
Speaker 1: have some basic infrastructure in place. Um. You know. No

601
00:34:29,760 --> 00:34:34,200
Speaker 1: one wants to see um, higher government debt levels and

602
00:34:34,200 --> 00:34:37,120
Speaker 1: so forth. But I think there's got to be some

603
00:34:37,120 --> 00:34:43,080
Speaker 1: some balance here. Sure bandwidth in Asia, sell coverage in Europe,

604
00:34:43,160 --> 00:34:47,680
Speaker 1: and just the roads in Austria, Germany, Brussels and it's amazing.

605
00:34:47,719 --> 00:34:51,200
Speaker 1: And how about those airports around the world, spectacular, absolutely spectacular.

606
00:34:51,560 --> 00:34:54,200
Speaker 1: We've been speaking with Bill McNabb. He is CEO and

607
00:34:54,360 --> 00:34:57,520
Speaker 1: chairman of the Vanguard Group. If you would like to

608
00:34:57,600 --> 00:35:01,040
Speaker 1: learn more about bills the shop, you can go to

609
00:35:01,640 --> 00:35:05,800
Speaker 1: Vanguard dot com. There are regular bulletin's updates. The video

610
00:35:05,960 --> 00:35:09,799
Speaker 1: from the two thousand and nine crisis is up there

611
00:35:09,840 --> 00:35:13,560
Speaker 1: as well. And be sure and check out our prior conversation.

612
00:35:14,080 --> 00:35:16,880
Speaker 1: Be sure and stick around and listen to the podcast extras.

613
00:35:16,880 --> 00:35:19,800
Speaker 1: Will we keep the tape rolling and continue chatting about

614
00:35:19,800 --> 00:35:24,480
Speaker 1: all things investing. Check out my daily column on Bloomberg

615
00:35:24,560 --> 00:35:27,960
Speaker 1: View dot com or follow me on Twitter at rit Halts.

616
00:35:28,560 --> 00:35:31,680
Speaker 1: I'm Barry Hults. You've been listening to Masters in Business

617
00:35:31,960 --> 00:35:35,680
Speaker 1: on Bloomberg Radio, brought to you by Bank of America

618
00:35:35,760 --> 00:35:39,280
Speaker 1: Merrill Lynch committed to bringing higher finance to lower carbon

619
00:35:39,520 --> 00:35:42,360
Speaker 1: Named the most innovative investment bank for climate change and

620
00:35:42,400 --> 00:35:46,440
Speaker 1: sustainability by the banker. That's the power of Global Connections.

621
00:35:46,640 --> 00:35:49,440
Speaker 1: Bank of America North America member f D I C.

622
00:35:50,680 --> 00:35:53,279
Speaker 1: Welcome to the podcast portion Bill, Thank you so much

623
00:35:53,320 --> 00:35:56,319
Speaker 1: for doing this. I'm really excited about this. You you

624
00:35:56,440 --> 00:36:00,120
Speaker 1: said something earlier off air that I have to ask

625
00:36:00,160 --> 00:36:02,960
Speaker 1: you about. Um, we were talking about Lehman Brothers and

626
00:36:03,040 --> 00:36:07,200
Speaker 1: A I G. And your first day as CEO was

627
00:36:07,480 --> 00:36:11,759
Speaker 1: September fift oh nine. Is that right? First two weeks? Really? Yeah?

628
00:36:11,800 --> 00:36:15,880
Speaker 1: I became CEO August thirty one, and um, I was

629
00:36:15,880 --> 00:36:20,359
Speaker 1: actually standing on stage. Um where was this event? This

630
00:36:20,440 --> 00:36:24,240
Speaker 1: was in Washington, d C. And we had our largest

631
00:36:24,239 --> 00:36:27,640
Speaker 1: pension clients. There and I was giving my first talk

632
00:36:27,680 --> 00:36:31,200
Speaker 1: as CEO, and the whole emphasis was on long term

633
00:36:31,239 --> 00:36:34,360
Speaker 1: perspective and the need to tune out the noise and

634
00:36:34,480 --> 00:36:36,640
Speaker 1: as as the world is falling apart, I have a

635
00:36:36,680 --> 00:36:38,880
Speaker 1: separate soundtrack going through my head saying the world is

636
00:36:39,000 --> 00:36:41,799
Speaker 1: ending as I know at how my how, my reconciling.

637
00:36:41,840 --> 00:36:45,560
Speaker 1: I gotta looked past this. The really funny story Barry

638
00:36:45,760 --> 00:36:49,720
Speaker 1: was um our CEO. Gus Souder was due on stage

639
00:36:49,719 --> 00:36:53,839
Speaker 1: a couple of hours later, and um, we basically drafted

640
00:36:53,960 --> 00:36:57,919
Speaker 1: his UM replacement and said, you're gonna go give Gus

641
00:36:58,040 --> 00:37:02,160
Speaker 1: his talk, and we sent Gus to Valley Forge, you know,

642
00:37:02,239 --> 00:37:04,840
Speaker 1: back to the office is to um, you know, oversee

643
00:37:04,840 --> 00:37:07,279
Speaker 1: the trading desk and make sure everything was working the

644
00:37:07,280 --> 00:37:10,800
Speaker 1: way it should. And uh, there were like no rental cars.

645
00:37:10,800 --> 00:37:13,360
Speaker 1: So he ended up I think, cruising into Vanguard's campus

646
00:37:13,480 --> 00:37:18,279
Speaker 1: in a Mustang convertible. And if you knew Gusts, that

647
00:37:18,360 --> 00:37:21,120
Speaker 1: was not his style. Um, he was like a Pontiac

648
00:37:21,120 --> 00:37:25,839
Speaker 1: bonavel guy. So coming in, especially with the world melting down,

649
00:37:26,120 --> 00:37:30,440
Speaker 1: the the only story I know of that's similar to that. Uh.

650
00:37:30,520 --> 00:37:33,920
Speaker 1: Dave Rosenberg used to be chief economist at Meryl. He

651
00:37:34,040 --> 00:37:38,320
Speaker 1: was a government economist, like sleepy backwoods in in Canada,

652
00:37:38,760 --> 00:37:41,040
Speaker 1: and he goes to the private sector and his first

653
00:37:41,120 --> 00:37:45,720
Speaker 1: day at work is Black Monday crash, and he didn't

654
00:37:45,840 --> 00:37:48,640
Speaker 1: understand that anything was unusual. He's like, wow, it's so

655
00:37:48,719 --> 00:37:53,239
Speaker 1: exciting here. What are you talking about? The markets down? Oh,

656
00:37:53,360 --> 00:37:56,160
Speaker 1: this is not the normal. No, this is not how

657
00:37:56,160 --> 00:37:59,960
Speaker 1: it usually uh not how it usually goes well, you know,

658
00:38:00,120 --> 00:38:03,239
Speaker 1: actually mentioning my former colleague Gus Sauer, that was his

659
00:38:03,280 --> 00:38:06,360
Speaker 1: second week on the job, really and he was running

660
00:38:06,360 --> 00:38:10,680
Speaker 1: our then only index fund index and it had about

661
00:38:10,680 --> 00:38:14,640
Speaker 1: a billion six I think at the beginning of the

662
00:38:14,719 --> 00:38:17,560
Speaker 1: day and then you know, a billion two at the

663
00:38:17,680 --> 00:38:19,719
Speaker 1: end of the day. And he went home and his

664
00:38:19,760 --> 00:38:22,960
Speaker 1: wife said, do you still have a job? You just

665
00:38:23,040 --> 00:38:26,040
Speaker 1: lost a quarter of the fund and uh he said,

666
00:38:26,120 --> 00:38:27,759
Speaker 1: you know, I don't know. I have to go back

667
00:38:27,800 --> 00:38:29,600
Speaker 1: and see if my batch still works the next day.

668
00:38:29,640 --> 00:38:32,839
Speaker 1: And so you still you told the story that in

669
00:38:32,880 --> 00:38:38,200
Speaker 1: the midst of the crisis, you wanted to reassure your staff,

670
00:38:38,600 --> 00:38:43,800
Speaker 1: all the employee, the twelve thousand plus employees at Vanguard. Hey,

671
00:38:44,000 --> 00:38:46,360
Speaker 1: you can't be nervous. You can't sound like you're afraid

672
00:38:46,400 --> 00:38:49,800
Speaker 1: for your job, especially the people who are client facing.

673
00:38:50,320 --> 00:38:53,200
Speaker 1: What did you do to try and resolve that sort

674
00:38:53,239 --> 00:38:55,640
Speaker 1: of tension? So we we told people, don't worry about

675
00:38:55,640 --> 00:38:58,200
Speaker 1: your job. UM, we're not going to have any enforced

676
00:38:58,239 --> 00:39:02,160
Speaker 1: reductions where we want people to be there for the client.

677
00:39:02,440 --> 00:39:05,400
Speaker 1: And you know, we found um and and what we

678
00:39:05,480 --> 00:39:08,440
Speaker 1: told people we anticipated there'll be some areas where the

679
00:39:08,560 --> 00:39:11,719
Speaker 1: volume of work might decrease because the world was melting down,

680
00:39:12,120 --> 00:39:14,440
Speaker 1: and if that happened, we would pick people up and

681
00:39:14,480 --> 00:39:17,359
Speaker 1: we put them into areas that needed more help. And

682
00:39:17,560 --> 00:39:21,080
Speaker 1: we ended up moving several hundred people around. But you know,

683
00:39:21,080 --> 00:39:22,799
Speaker 1: it turned out to be a great thing for us

684
00:39:22,840 --> 00:39:26,480
Speaker 1: because the whole focus from that point on was what's

685
00:39:26,719 --> 00:39:30,000
Speaker 1: the client need? And I think all of us who

686
00:39:30,040 --> 00:39:32,880
Speaker 1: lived through that, um, you know, you're you certainly have

687
00:39:32,920 --> 00:39:34,400
Speaker 1: the battle scars, but you also have a lot of

688
00:39:34,400 --> 00:39:36,480
Speaker 1: pride in what we were able to achieve on behalf

689
00:39:36,480 --> 00:39:38,480
Speaker 1: of our clients, and I think that message went a

690
00:39:38,520 --> 00:39:42,360
Speaker 1: long way. So I was at the Vanguard campus in

691
00:39:42,440 --> 00:39:46,120
Speaker 1: Valley Forge when I met Jack Bogel, and it's a

692
00:39:46,160 --> 00:39:49,600
Speaker 1: really large place. It reminds me a little bit of

693
00:39:49,680 --> 00:39:52,879
Speaker 1: the Microsoft campus, which is just building after building after

694
00:39:52,960 --> 00:39:56,960
Speaker 1: building that. What first of all, what was the thinking like, um,

695
00:39:57,080 --> 00:39:59,440
Speaker 1: because you were there, even though you weren't CEO at

696
00:39:59,480 --> 00:40:03,160
Speaker 1: the time, to create this far away from Wall Street

697
00:40:03,840 --> 00:40:07,359
Speaker 1: space in the hills of Pennsylvania. Well again, I give

698
00:40:07,600 --> 00:40:09,640
Speaker 1: I give Jack Bogil a ton of credit for just

699
00:40:10,080 --> 00:40:14,000
Speaker 1: he he wanted there to be UM, you know, for

700
00:40:14,080 --> 00:40:15,960
Speaker 1: us not to be Wall Street. You know, it was

701
00:40:16,000 --> 00:40:21,840
Speaker 1: a very clear message from him. Actually, our predecessor, firm Wellington,

702
00:40:22,200 --> 00:40:25,840
Speaker 1: was headquartered in Philly. Jack moved them out to the suburbs,

703
00:40:25,880 --> 00:40:28,040
Speaker 1: you know he. I think part of it was tax reasons,

704
00:40:28,160 --> 00:40:30,640
Speaker 1: you know Jack, you know, Jack like to save a

705
00:40:30,640 --> 00:40:33,359
Speaker 1: buck for the investor. But I also think it was

706
00:40:34,160 --> 00:40:37,440
Speaker 1: you know, a place too in a sense, create separation

707
00:40:37,520 --> 00:40:42,040
Speaker 1: so that people weren't unduly influenced by short term h forces.

708
00:40:42,840 --> 00:40:45,960
Speaker 1: I think Jack Brennan, who succeeded him UM, built on

709
00:40:46,040 --> 00:40:50,359
Speaker 1: that UM. I remember interviewing with him, uh and I said, so,

710
00:40:50,960 --> 00:40:52,920
Speaker 1: you know, what's your view of the future here, you know,

711
00:40:52,960 --> 00:40:55,680
Speaker 1: what do you want this company to look like? And

712
00:40:55,719 --> 00:40:57,640
Speaker 1: he said, I'd like to I'd like us to have

713
00:40:57,680 --> 00:41:01,440
Speaker 1: Wall Street Smarts with Midwestern values. That's a good comment,

714
00:41:01,520 --> 00:41:04,120
Speaker 1: and you know it really it really resonated with me,

715
00:41:04,239 --> 00:41:07,120
Speaker 1: Barry and UM, I think the headquarters and the whole

716
00:41:07,160 --> 00:41:11,160
Speaker 1: campus atmosphere really reinforces that. Does does that create a

717
00:41:11,239 --> 00:41:15,120
Speaker 1: challenge at all in finding employees flanks that so you're

718
00:41:15,160 --> 00:41:19,439
Speaker 1: in you're in Philadelphia. Outside of Philadelphia and Pennsylvania, it's

719
00:41:19,560 --> 00:41:23,720
Speaker 1: from New York on a two hour drive. Maybe, UM,

720
00:41:23,800 --> 00:41:26,279
Speaker 1: does it make it difficult to find people? I would

721
00:41:26,320 --> 00:41:29,160
Speaker 1: imagine that part of the world, it's a different salary

722
00:41:29,160 --> 00:41:33,080
Speaker 1: scale than New York or San Francisco. So UM it

723
00:41:33,200 --> 00:41:36,480
Speaker 1: poses challenges occasionally, and and in the biggest places, if

724
00:41:36,520 --> 00:41:38,600
Speaker 1: we're trying to bring somebody in at a more senior

725
00:41:38,680 --> 00:41:42,880
Speaker 1: level from the outside. Sometimes the dual career thing. UM.

726
00:41:43,000 --> 00:41:44,600
Speaker 1: You know, in New York there's just so many more

727
00:41:44,600 --> 00:41:50,200
Speaker 1: opportunities and that that actually occasionally imposes a challenge. But

728
00:41:50,800 --> 00:41:54,440
Speaker 1: it's interesting once we get people to the area and

729
00:41:54,480 --> 00:41:57,440
Speaker 1: they see the quality of living, UM, it ends up

730
00:41:57,480 --> 00:42:00,879
Speaker 1: turning into a selling point. UM. I've just added two

731
00:42:00,880 --> 00:42:03,279
Speaker 1: new members to our executive team in the last UM

732
00:42:03,440 --> 00:42:07,759
Speaker 1: six months, and first time we've gone outside in a

733
00:42:07,840 --> 00:42:11,880
Speaker 1: long time, more than a decade. And that was their reaction.

734
00:42:12,360 --> 00:42:15,319
Speaker 1: Both their reactions when they came there like, Wow, it's

735
00:42:15,440 --> 00:42:18,640
Speaker 1: very kicked back, it's very chill. It doesn't feel like

736
00:42:18,680 --> 00:42:22,840
Speaker 1: a frenetic Wall Street firm. A campus is really a

737
00:42:22,840 --> 00:42:24,680
Speaker 1: good time. It feels like you run a college campus

738
00:42:24,760 --> 00:42:27,239
Speaker 1: and you know one of the UM I would say,

739
00:42:27,280 --> 00:42:29,759
Speaker 1: better to be lucky than smart aspects of where we are,

740
00:42:29,760 --> 00:42:32,400
Speaker 1: and lucky you should always acknowledge your luck. There are

741
00:42:32,440 --> 00:42:36,160
Speaker 1: a hundred and eight universities within two hours of our campus.

742
00:42:36,880 --> 00:42:41,320
Speaker 1: UM we produce in that region more masters and graduate

743
00:42:41,320 --> 00:42:44,759
Speaker 1: degrees per capita than any area in the country. I

744
00:42:44,800 --> 00:42:48,520
Speaker 1: think on undergraduate degrees, we were it's between us in Boston,

745
00:42:48,880 --> 00:42:52,000
Speaker 1: and so we got a lot of young people who

746
00:42:52,040 --> 00:42:54,000
Speaker 1: want to come and you know, they want to stay

747
00:42:54,080 --> 00:42:57,960
Speaker 1: close to home, and we're really the biggest UM you know,

748
00:42:58,040 --> 00:43:02,560
Speaker 1: financial services firm, you know, miles around. I read a

749
00:43:02,600 --> 00:43:05,719
Speaker 1: crazy statistic. I don't know if it's true, something like

750
00:43:06,680 --> 00:43:09,360
Speaker 1: of the c f as in the state of Pennsylvania

751
00:43:10,000 --> 00:43:13,319
Speaker 1: worked for Vanguard and Value. Is there any truth to that?

752
00:43:13,440 --> 00:43:17,320
Speaker 1: Is that? A? I think directionally, it's it's close. It's close.

753
00:43:17,400 --> 00:43:21,600
Speaker 1: I I know certified Financial Planners, which is a broader thing.

754
00:43:21,680 --> 00:43:25,040
Speaker 1: I think we have FI now of well, the whole

755
00:43:25,080 --> 00:43:30,319
Speaker 1: state in valley for that's pretty Uh, that's pretty fascinating. Um,

756
00:43:30,400 --> 00:43:31,799
Speaker 1: let's let me take a look at some of the

757
00:43:31,880 --> 00:43:36,040
Speaker 1: questions we might have skipped through before. So those are

758
00:43:36,080 --> 00:43:40,400
Speaker 1: my favorite questions. We really covered a decent amount of stuff.

759
00:43:40,440 --> 00:43:44,160
Speaker 1: We covered technology, we covered indexing, we covered E S

760
00:43:44,200 --> 00:43:52,040
Speaker 1: g um, we we actually discussed buy backs and all right,

761
00:43:52,200 --> 00:43:54,279
Speaker 1: let's keep going. There's there's so much stuff to do.

762
00:43:54,360 --> 00:43:56,440
Speaker 1: And and at this point, I'm going to remind people

763
00:43:57,080 --> 00:43:59,880
Speaker 1: if you haven't heard the first conversation Bill and I

764
00:44:00,000 --> 00:44:03,400
Speaker 1: add which was eighteen months ago, it's one of the

765
00:44:03,480 --> 00:44:06,720
Speaker 1: favorite masses in business we've had. We got tremendous feedback

766
00:44:06,760 --> 00:44:09,960
Speaker 1: about it. Really, there's almost no overlap between this and

767
00:44:09,960 --> 00:44:12,560
Speaker 1: that we've really covered very very You've done a good

768
00:44:12,600 --> 00:44:15,200
Speaker 1: job breaking that apart. I've tried, and you will also

769
00:44:15,239 --> 00:44:17,600
Speaker 1: make it easy. I know how to anticipate with you

770
00:44:17,600 --> 00:44:19,920
Speaker 1: know it. There are some people where I ask questions

771
00:44:19,960 --> 00:44:22,200
Speaker 1: and I have no idea what it's gonna be. I

772
00:44:22,239 --> 00:44:25,480
Speaker 1: have a general sense of what the vanguard philosophy is.

773
00:44:25,800 --> 00:44:29,080
Speaker 1: So when I asked Bill McNab about indexing, you're not

774
00:44:29,120 --> 00:44:32,080
Speaker 1: gonna come out and say, well, you know, I pretty

775
00:44:32,160 --> 00:44:35,520
Speaker 1: much know where you're gonna go with that. Um So,

776
00:44:35,600 --> 00:44:38,520
Speaker 1: let's let's talk a little bit about um the evidence

777
00:44:38,560 --> 00:44:41,600
Speaker 1: based conference that's coming up, because we were discussing that

778
00:44:41,640 --> 00:44:45,439
Speaker 1: off air, and and I think it's interesting. Um So,

779
00:44:45,600 --> 00:44:49,160
Speaker 1: coming up in November, we have an evidence based investing conference.

780
00:44:49,840 --> 00:44:52,000
Speaker 1: You're one of the speakers, and you said you thought

781
00:44:52,040 --> 00:44:57,319
Speaker 1: it was an interesting concept. Let's let's chat about that. Well,

782
00:44:57,360 --> 00:44:59,560
Speaker 1: I think one of the things that's really fascinating to

783
00:44:59,600 --> 00:45:02,640
Speaker 1: me is, um you spend a lot of time on data,

784
00:45:03,000 --> 00:45:06,799
Speaker 1: and we think data rule. You know, it's a there's

785
00:45:06,840 --> 00:45:08,520
Speaker 1: not just your gun instinct. You don't want to go

786
00:45:08,560 --> 00:45:10,520
Speaker 1: with how it feels at the moment. Look, you know

787
00:45:10,560 --> 00:45:13,040
Speaker 1: there's a place for judgment and instinct, there's no question

788
00:45:13,040 --> 00:45:16,319
Speaker 1: about that. But um, you know being well informed and

789
00:45:16,680 --> 00:45:19,600
Speaker 1: you know, to me as an analyst in particular, it's

790
00:45:19,920 --> 00:45:22,640
Speaker 1: you know, the second and third layers, if you will,

791
00:45:22,680 --> 00:45:25,680
Speaker 1: when you're peeling that proverbial onion where sometimes you really

792
00:45:25,719 --> 00:45:29,239
Speaker 1: get the insights you know we have. Um just as

793
00:45:29,280 --> 00:45:32,040
Speaker 1: an example, our chief economists has done some really cool

794
00:45:32,120 --> 00:45:35,239
Speaker 1: work on you know, what's going on from a growth perspective,

795
00:45:35,360 --> 00:45:40,319
Speaker 1: and he doesn't accept the we're in secular stagnation, and

796
00:45:41,000 --> 00:45:45,239
Speaker 1: he he talks a lot about the evolution of tasks

797
00:45:45,360 --> 00:45:51,360
Speaker 1: within occupations, and you know, we take some um comfort,

798
00:45:51,360 --> 00:45:53,799
Speaker 1: if you will, that actually there's been a lot of

799
00:45:53,880 --> 00:45:57,960
Speaker 1: change and it's been absorbed and there's a lot more coming.

800
00:45:58,200 --> 00:46:01,520
Speaker 1: And the question is how well prepared are we for that?

801
00:46:02,280 --> 00:46:04,239
Speaker 1: And you know, it goes back to one of our

802
00:46:04,280 --> 00:46:08,880
Speaker 1: earlier conversations around are there things sort of from a

803
00:46:08,960 --> 00:46:11,520
Speaker 1: policy standpoint that could be going on to help that.

804
00:46:12,080 --> 00:46:14,759
Speaker 1: You know, we think infrastructure, we think education, probably the

805
00:46:14,800 --> 00:46:20,280
Speaker 1: two big categories. But you know, he his his um

806
00:46:20,320 --> 00:46:24,600
Speaker 1: work is so data driven that it makes you think

807
00:46:24,640 --> 00:46:27,080
Speaker 1: a little bit differently about the problem. And that's what

808
00:46:27,120 --> 00:46:29,759
Speaker 1: I loved about your concept and I can't wait to

809
00:46:29,800 --> 00:46:33,400
Speaker 1: see it. The the idea behind it is, there are

810
00:46:33,400 --> 00:46:36,520
Speaker 1: all these things that over the past twenty years worth

811
00:46:36,600 --> 00:46:40,880
Speaker 1: of academic research we've learned to be true, and it

812
00:46:40,880 --> 00:46:43,400
Speaker 1: turns out that a lot of things that most of

813
00:46:43,440 --> 00:46:47,000
Speaker 1: Wall Street used to believe turns out to be false.

814
00:46:47,400 --> 00:46:49,560
Speaker 1: It looks good, it feels good, but in the real

815
00:46:49,640 --> 00:46:52,840
Speaker 1: world it doesn't work. So the idea was, hey, let's

816
00:46:52,960 --> 00:46:56,120
Speaker 1: create a way to have a group of people come

817
00:46:56,160 --> 00:46:59,880
Speaker 1: and discuss investing in markets strictly from what do we

818
00:47:00,000 --> 00:47:01,799
Speaker 1: know to be factually true? What do we know to

819
00:47:01,840 --> 00:47:06,080
Speaker 1: be have evidence behind it that demonstrates the veracity of

820
00:47:06,120 --> 00:47:10,520
Speaker 1: a certain investment philosophy. When I sum up Vanguard for people,

821
00:47:10,719 --> 00:47:13,960
Speaker 1: it's nothing matters more than costs. If you keep costs low,

822
00:47:14,000 --> 00:47:17,080
Speaker 1: everything else all other good things will follow. But that's

823
00:47:17,120 --> 00:47:19,439
Speaker 1: not the only truth that we've learned to be true

824
00:47:19,480 --> 00:47:22,879
Speaker 1: over the past couple of decades. And yet it's amazing.

825
00:47:23,400 --> 00:47:27,440
Speaker 1: How so this comes back to the four trillion advantguard

826
00:47:27,560 --> 00:47:30,840
Speaker 1: and the rise of indexing. And maybe this is a

827
00:47:30,920 --> 00:47:35,280
Speaker 1: question better asked of Dick Faylor or or Bob Schiller,

828
00:47:35,400 --> 00:47:40,760
Speaker 1: But why have these truths taken so long to infiltrate

829
00:47:41,680 --> 00:47:45,320
Speaker 1: the mind of the average investor or the institutional investor?

830
00:47:46,040 --> 00:47:49,640
Speaker 1: You know, I think it's because there is an irrational

831
00:47:50,360 --> 00:47:53,880
Speaker 1: expectation that we, you know, many people have that I know,

832
00:47:54,680 --> 00:47:58,360
Speaker 1: if I pay a little more attention, I can outperform,

833
00:47:59,120 --> 00:48:02,239
Speaker 1: you know, in the simplest way. You know, one of

834
00:48:02,280 --> 00:48:04,400
Speaker 1: the best lessons I learned, and you know, it was

835
00:48:05,200 --> 00:48:06,920
Speaker 1: kind of a blinding flash of the obvious. But I

836
00:48:06,920 --> 00:48:09,959
Speaker 1: often say that's all I'm good for these days, is

837
00:48:10,200 --> 00:48:13,160
Speaker 1: um average is not average. You know people used to

838
00:48:13,200 --> 00:48:17,279
Speaker 1: say indexing while you're just accepting average returns. Actually that's

839
00:48:17,320 --> 00:48:20,920
Speaker 1: not true. As you know, if you take the average

840
00:48:20,920 --> 00:48:24,800
Speaker 1: index funds return and compare it against the whole universe,

841
00:48:25,320 --> 00:48:27,440
Speaker 1: you're gonna you're gonna be in the top quartile from

842
00:48:27,440 --> 00:48:30,040
Speaker 1: a performance standpoint over any long period of time. So

843
00:48:30,120 --> 00:48:34,000
Speaker 1: you're not accept you're not actually accepting being average. You're

844
00:48:34,120 --> 00:48:37,319
Speaker 1: you're saying, I'm going to be in the top quartile guaranteed.

845
00:48:38,280 --> 00:48:41,759
Speaker 1: And you know it's things like that that aren't intuitive

846
00:48:41,800 --> 00:48:45,040
Speaker 1: to people, and you know you need to sort of

847
00:48:45,080 --> 00:48:47,839
Speaker 1: lay it out, you know. Um, it's it's interesting you

848
00:48:47,840 --> 00:48:52,000
Speaker 1: mentioned Taylor. Um, we are huge fans of their work. Um,

849
00:48:52,040 --> 00:48:55,399
Speaker 1: you know Thaylor and BERNARDSI on the four oh one

850
00:48:55,400 --> 00:48:57,719
Speaker 1: case space did some of the best work where they

851
00:48:57,960 --> 00:49:02,200
Speaker 1: took the behavioral principles and said, Okay, instead of using

852
00:49:02,200 --> 00:49:06,040
Speaker 1: it just to explain what's happening, let's use them actually

853
00:49:06,080 --> 00:49:09,839
Speaker 1: to help influence what should happen. And this is where

854
00:49:09,880 --> 00:49:15,600
Speaker 1: the idea of automatic enrollment, automatic escort everything he told them,

855
00:49:15,719 --> 00:49:18,600
Speaker 1: you know, changing the default so that it's a positive outcome.

856
00:49:19,200 --> 00:49:20,839
Speaker 1: One of the examples in his book that I found

857
00:49:20,880 --> 00:49:27,120
Speaker 1: fascinating is if you're default organ donor check is set

858
00:49:27,160 --> 00:49:31,640
Speaker 1: for um, yes, donate my organs. Nine plus percent of

859
00:49:31,680 --> 00:49:35,720
Speaker 1: people in certain European countries that have that default donate organs.

860
00:49:35,840 --> 00:49:38,680
Speaker 1: If you don't have that as a default, it's ten

861
00:49:38,760 --> 00:49:41,799
Speaker 1: or fifteen percent, and there's a giant waiting list. If

862
00:49:41,840 --> 00:49:46,239
Speaker 1: you change that default, suddenly they're on people dying past

863
00:49:46,320 --> 00:49:49,719
Speaker 1: there isn't a kidney available, or it's such a powerful thing. Um.

864
00:49:49,760 --> 00:49:52,279
Speaker 1: You know, we funded some work that UM they are

865
00:49:52,320 --> 00:49:55,080
Speaker 1: and BERNARDSI did in the late nineties, well it was

866
00:49:55,080 --> 00:49:58,879
Speaker 1: probably early two thousand's and it really led us to

867
00:49:58,960 --> 00:50:01,520
Speaker 1: get much more rest of about you know, the target

868
00:50:01,600 --> 00:50:04,800
Speaker 1: date phenomenon and these auto four O one K plans,

869
00:50:05,560 --> 00:50:08,480
Speaker 1: and we've seen better results, I mean, and again to

870
00:50:08,560 --> 00:50:14,879
Speaker 1: your evidence based principles, it's absolutely clear when you look

871
00:50:14,920 --> 00:50:18,719
Speaker 1: at the investment results of people who have followed you

872
00:50:18,760 --> 00:50:21,719
Speaker 1: know sort of UM where we've used behavioral finance to

873
00:50:21,760 --> 00:50:25,880
Speaker 1: shape the plan design and shape behavior versus leaving people

874
00:50:25,920 --> 00:50:28,640
Speaker 1: to their own And you can see it and it

875
00:50:29,040 --> 00:50:31,640
Speaker 1: boils down to dollars and cents. You have more money

876
00:50:31,680 --> 00:50:34,719
Speaker 1: if you if you follow these principles. So, so let's

877
00:50:34,719 --> 00:50:38,680
Speaker 1: talk about four oh one K and best practices UM,

878
00:50:38,719 --> 00:50:40,319
Speaker 1: and I want to make sure I don't keep you

879
00:50:40,320 --> 00:50:43,359
Speaker 1: here too long. We were pretty good on time UM

880
00:50:44,520 --> 00:50:51,000
Speaker 1: best practices. So default should be automatic, regular contributions? And

881
00:50:51,560 --> 00:50:55,239
Speaker 1: should it be a target date fund? Should it be? Uh?

882
00:50:55,280 --> 00:50:58,600
Speaker 1: What should the default be for the typical small companies

883
00:50:58,600 --> 00:51:00,920
Speaker 1: setting up before oh one K? So I think the

884
00:51:00,960 --> 00:51:03,759
Speaker 1: target date is the easiest one. I think any you know,

885
00:51:04,120 --> 00:51:07,680
Speaker 1: UM well diversified balanced option will suffice. But the beauty

886
00:51:07,719 --> 00:51:10,480
Speaker 1: about the target date fund is you can give you know,

887
00:51:10,760 --> 00:51:13,160
Speaker 1: you're a lot younger than I am, so you can

888
00:51:13,160 --> 00:51:15,759
Speaker 1: get that. You can you can get the equity exposure

889
00:51:15,800 --> 00:51:19,920
Speaker 1: you you need versus what I might need UM automatically,

890
00:51:19,960 --> 00:51:22,319
Speaker 1: you don't have to think about it. So that's why

891
00:51:22,360 --> 00:51:25,600
Speaker 1: I like the target date And you know, I've I've

892
00:51:25,640 --> 00:51:28,839
Speaker 1: made the point to you know, thousands of investors at

893
00:51:28,880 --> 00:51:31,160
Speaker 1: this point. I don't care what your income level is

894
00:51:31,520 --> 00:51:33,680
Speaker 1: in a four oh one K plan, whether you're making

895
00:51:34,440 --> 00:51:36,800
Speaker 1: dollars year or two d fifty dollars year. A target

896
00:51:36,840 --> 00:51:39,800
Speaker 1: date fund is a great solution for you if you

897
00:51:39,800 --> 00:51:41,560
Speaker 1: want to put more time and energy into it, and

898
00:51:41,640 --> 00:51:43,799
Speaker 1: you you. You know you you love this stuff. Great,

899
00:51:43,800 --> 00:51:46,160
Speaker 1: you can construct a portfolio and I don't think he'll

900
00:51:46,200 --> 00:51:48,400
Speaker 1: do any better. But you know, maybe it's something that

901
00:51:48,440 --> 00:51:51,040
Speaker 1: you get a lot of satisfaction out out of. But

902
00:51:51,320 --> 00:51:55,200
Speaker 1: I think this default thing is really powerful. And you know,

903
00:51:55,239 --> 00:51:58,400
Speaker 1: we're seeing almost every new investor who comes into the

904
00:51:58,480 --> 00:52:01,640
Speaker 1: system just stay with the default and just leave it

905
00:52:01,719 --> 00:52:05,120
Speaker 1: like that. So let's talk a little institutional. UM. I've

906
00:52:05,160 --> 00:52:10,120
Speaker 1: seen white papers from Vanguard about hey, a sixty forty

907
00:52:10,120 --> 00:52:13,920
Speaker 1: portfolio has beaten nearly all of the alternatives we've we

908
00:52:14,000 --> 00:52:17,439
Speaker 1: mentioned earlier, the hedge funds, the private equity, and the

909
00:52:17,719 --> 00:52:23,400
Speaker 1: venture capital. How does Vanguard present itself to the institutional community.

910
00:52:24,000 --> 00:52:28,520
Speaker 1: I've spoken at various state pension funds, and I'm astonished

911
00:52:28,680 --> 00:52:35,560
Speaker 1: at the level of let's just say, influence outside UM

912
00:52:35,760 --> 00:52:39,279
Speaker 1: consultants have. How do you get past that? How how

913
00:52:39,320 --> 00:52:42,640
Speaker 1: does that work when you're dealing with either a CalPERS

914
00:52:42,760 --> 00:52:45,040
Speaker 1: or and I you obviously don't want to speak to

915
00:52:45,080 --> 00:52:50,680
Speaker 1: any specific UM client, but a state pension fund or

916
00:52:50,719 --> 00:52:55,240
Speaker 1: a large retirement or endowment. So UM, there's no question

917
00:52:55,320 --> 00:52:59,840
Speaker 1: that there's lots of outside influences, whether it's the consultant community,

918
00:52:59,920 --> 00:53:05,280
Speaker 1: or other. You know, people circling around and complexity usually

919
00:53:05,360 --> 00:53:08,840
Speaker 1: is the friend. Um. You know, the more complex relationship is,

920
00:53:08,880 --> 00:53:11,560
Speaker 1: the more complex they want the solution to be. And

921
00:53:11,600 --> 00:53:15,600
Speaker 1: again we found simple works better in most cases. Um.

922
00:53:15,719 --> 00:53:18,120
Speaker 1: So you know, we just go out and we try

923
00:53:18,160 --> 00:53:22,680
Speaker 1: to tell the story and sometimes it doesn't work right away,

924
00:53:22,800 --> 00:53:24,640
Speaker 1: and you just keep sort of knocking at the door

925
00:53:24,680 --> 00:53:27,399
Speaker 1: and you just keep telling the story. In the four

926
00:53:27,440 --> 00:53:30,239
Speaker 1: oh one case base, it's worked really well. In the

927
00:53:30,320 --> 00:53:33,080
Speaker 1: endowments and foundations, we're finding in the sort of up

928
00:53:33,120 --> 00:53:36,200
Speaker 1: to mid you know, several hundred million dollars were Actually

929
00:53:36,640 --> 00:53:41,480
Speaker 1: the story is really resonating there the big some of

930
00:53:41,520 --> 00:53:44,520
Speaker 1: the big pension funds, especially in you know, the States

931
00:53:44,520 --> 00:53:46,839
Speaker 1: and so forth, we're having you know, we don't have

932
00:53:46,920 --> 00:53:50,480
Speaker 1: as much access there. Interesting though, you are starting to

933
00:53:50,520 --> 00:53:54,560
Speaker 1: see some of the messages that we've been promoting actually adopted.

934
00:53:54,960 --> 00:53:56,200
Speaker 1: I don't know if they got it from us or

935
00:53:56,239 --> 00:53:58,279
Speaker 1: they're coming up with it independently, but you're starting to

936
00:53:58,360 --> 00:54:00,879
Speaker 1: hear some of the same things. O, Hey, maybe we're

937
00:54:00,920 --> 00:54:04,640
Speaker 1: paying too much for investment management overall, and we need

938
00:54:04,680 --> 00:54:07,279
Speaker 1: to think about a different approach. What do you think

939
00:54:07,320 --> 00:54:11,280
Speaker 1: happens in that space over the next decade, because clearly

940
00:54:12,160 --> 00:54:16,040
Speaker 1: everything's in flux. New Jersey turned out to have a

941
00:54:16,080 --> 00:54:19,520
Speaker 1: horrific state run pension funds. Lots of money went to

942
00:54:19,640 --> 00:54:24,160
Speaker 1: hedge funds who coincidentally were donors to various political campaigns.

943
00:54:24,480 --> 00:54:27,280
Speaker 1: There's a ton of conflicts of interest. New York City

944
00:54:27,400 --> 00:54:31,040
Speaker 1: announced last year that they were re looking at their

945
00:54:31,080 --> 00:54:34,479
Speaker 1: alternative investments and what they're getting for their bucks. We've

946
00:54:34,520 --> 00:54:38,160
Speaker 1: seen that in California, We've seen that all over the country.

947
00:54:38,280 --> 00:54:43,000
Speaker 1: So so what does this dynamic mean going forward? Is

948
00:54:43,040 --> 00:54:45,400
Speaker 1: there going to be a big shift um? Is that

949
00:54:45,480 --> 00:54:49,600
Speaker 1: already underway? What what's happening in the institutional space? So

950
00:54:49,640 --> 00:54:52,120
Speaker 1: I think the shift is already underway, and some of

951
00:54:52,160 --> 00:54:56,279
Speaker 1: the leading UM plans are actually moving pretty quickly in

952
00:54:56,320 --> 00:54:58,719
Speaker 1: this regard. And you know, I think what you'll end

953
00:54:58,800 --> 00:55:02,759
Speaker 1: up seeing is a little bit more um bifurcation in

954
00:55:02,840 --> 00:55:05,680
Speaker 1: what they do. So they will keep some non traditional

955
00:55:06,040 --> 00:55:09,560
Speaker 1: but it will be more in the liquid space, where

956
00:55:10,120 --> 00:55:14,279
Speaker 1: again in theory it's less about the manager, although as

957
00:55:14,320 --> 00:55:16,800
Speaker 1: you and I know, maybe it's more about the manager

958
00:55:16,800 --> 00:55:19,240
Speaker 1: than anybody wants to admit. But you should get paid

959
00:55:19,239 --> 00:55:23,480
Speaker 1: more in some of those spaces, and then for the

960
00:55:23,600 --> 00:55:26,480
Speaker 1: liquid portion, you're going to see a real emphasis on cost,

961
00:55:26,520 --> 00:55:28,880
Speaker 1: I think, and you know, so you'll see more passive

962
00:55:28,920 --> 00:55:34,640
Speaker 1: investing overall. UM, My guess is that continues. UM. I

963
00:55:34,680 --> 00:55:37,520
Speaker 1: think the big wild card, and it is the most

964
00:55:37,600 --> 00:55:40,839
Speaker 1: interesting part of the equation is everybody is looking at

965
00:55:40,920 --> 00:55:45,440
Speaker 1: the expected returns and the equity and bond market and

966
00:55:45,480 --> 00:55:48,799
Speaker 1: they're looking at their own assumptions for their plans, and

967
00:55:48,800 --> 00:55:52,960
Speaker 1: there's a disconnect. You know, you'll you'll see some very prominent,

968
00:55:53,200 --> 00:55:56,200
Speaker 1: you know, um public plants that have you know, seven

969
00:55:56,239 --> 00:55:59,920
Speaker 1: and a half eight percent expected returns. I don't know

970
00:56:00,000 --> 00:56:02,520
Speaker 1: where that's going to come from. I I can answer

971
00:56:02,520 --> 00:56:05,359
Speaker 1: that question for you. They have an expected return of

972
00:56:05,400 --> 00:56:08,800
Speaker 1: five percent on the equity, two on the bonds. You

973
00:56:08,920 --> 00:56:11,560
Speaker 1: add five and two you end up with seven, although

974
00:56:11,600 --> 00:56:13,560
Speaker 1: any account will tell you the math doesn't really work

975
00:56:13,560 --> 00:56:17,560
Speaker 1: out that way. I've had that exact same conversation with people,

976
00:56:18,280 --> 00:56:22,319
Speaker 1: and the thing that I'm still wrestling with is, so

977
00:56:22,800 --> 00:56:25,440
Speaker 1: those are fair numbers. Two percent on fixed income, five

978
00:56:25,480 --> 00:56:29,279
Speaker 1: percent on equity, and yet on the hedge funds they

979
00:56:29,280 --> 00:56:33,200
Speaker 1: have expected returns of eight nine And I don't know

980
00:56:33,239 --> 00:56:37,520
Speaker 1: where these numbers came from other than someone wants explained

981
00:56:37,560 --> 00:56:40,040
Speaker 1: to me. Well, we're state entity, and if we have

982
00:56:40,080 --> 00:56:43,560
Speaker 1: a short form our pension in the pensions expected returns,

983
00:56:44,040 --> 00:56:47,120
Speaker 1: we have to actually add taxpayer dollar, so we'll crank

984
00:56:47,200 --> 00:56:50,399
Speaker 1: up the hedge fund portion of it. They can't crank

985
00:56:50,480 --> 00:56:52,600
Speaker 1: up the fixed income of a bond portion because everyone

986
00:56:52,680 --> 00:56:57,120
Speaker 1: would scream about that. But somehow alternatives are generating a

987
00:56:57,120 --> 00:57:00,320
Speaker 1: greater return at no greater risk than the asset asses

988
00:57:00,400 --> 00:57:03,319
Speaker 1: of trading. It doesn't make sense, but it allows them

989
00:57:03,320 --> 00:57:06,719
Speaker 1: and out to not It allows them to continually underfund

990
00:57:06,760 --> 00:57:10,959
Speaker 1: their obligations. And I think you're seeing um at least

991
00:57:11,440 --> 00:57:13,520
Speaker 1: I don't know if it's a new breed, but you

992
00:57:13,520 --> 00:57:15,960
Speaker 1: know you're starting to see some serious leaders in that

993
00:57:16,040 --> 00:57:18,560
Speaker 1: space say wait a minute, we've got to we've got

994
00:57:18,560 --> 00:57:21,840
Speaker 1: to re examine what's been going on. So I'll be

995
00:57:21,880 --> 00:57:23,840
Speaker 1: the optimists and say that people are going to start

996
00:57:23,880 --> 00:57:26,280
Speaker 1: to get their hands around it, but it's gonna it

997
00:57:26,360 --> 00:57:29,640
Speaker 1: will highlight that there's gonna be some there's some real

998
00:57:29,720 --> 00:57:31,880
Speaker 1: gaps here in in terms of what's been promised and

999
00:57:31,960 --> 00:57:36,440
Speaker 1: what's actually funded and how that plays out politically. UM,

1000
00:57:36,840 --> 00:57:40,320
Speaker 1: I'll leave it to you speculate on. I will before

1001
00:57:40,320 --> 00:57:43,840
Speaker 1: I get to my my favorite questions. I wanted to

1002
00:57:43,880 --> 00:57:46,520
Speaker 1: ask you. Is there anything I didn't ask you or

1003
00:57:46,520 --> 00:57:50,200
Speaker 1: any topics you think are worth mentioning that we we

1004
00:57:50,280 --> 00:57:56,320
Speaker 1: haven't discussed on air. We've covered almost everything we really have. Um, yeah,

1005
00:57:56,320 --> 00:57:58,240
Speaker 1: I think we've hit it. So so let's jump to

1006
00:57:58,320 --> 00:58:05,480
Speaker 1: our our favorite questions. Um, so you joined Vanguard thirty

1007
00:58:05,560 --> 00:58:08,720
Speaker 1: years ago. What were you doing before Vanguard? So? I

1008
00:58:08,760 --> 00:58:11,800
Speaker 1: had had two jobs before Vanguard. My first job out

1009
00:58:11,800 --> 00:58:15,800
Speaker 1: of college was teaching first year of Latin school. Of course,

1010
00:58:15,840 --> 00:58:19,400
Speaker 1: that leads right to asset management totally in coaching three sports. Um,

1011
00:58:19,440 --> 00:58:23,240
Speaker 1: I was it was nine. It was pretty deep procession.

1012
00:58:23,760 --> 00:58:25,960
Speaker 1: Unemployment was high. I was happy to have a job

1013
00:58:26,200 --> 00:58:29,280
Speaker 1: and and my parents were happy to have me off

1014
00:58:29,280 --> 00:58:32,760
Speaker 1: the doll and it worked out, um and I loved it.

1015
00:58:32,760 --> 00:58:34,360
Speaker 1: It was a great couple of years. And then I

1016
00:58:34,400 --> 00:58:37,320
Speaker 1: went back to business school. My first job out of

1017
00:58:37,400 --> 00:58:40,160
Speaker 1: business school was at what's now JP Morgan Chase. It

1018
00:58:40,200 --> 00:58:42,920
Speaker 1: was the Chase part, and I did a lot of

1019
00:58:42,920 --> 00:58:45,720
Speaker 1: different things. But the last thing I did was really

1020
00:58:45,760 --> 00:58:49,480
Speaker 1: work on a lot of highly leveraged transactions, actually undoing

1021
00:58:49,600 --> 00:58:53,240
Speaker 1: some in in for the most part, but you was

1022
00:58:53,320 --> 00:58:56,720
Speaker 1: with us. So that was eight three day eighty six

1023
00:58:57,080 --> 00:59:02,600
Speaker 1: and I got hired by Vanguard be a guaranteed investment

1024
00:59:02,800 --> 00:59:06,760
Speaker 1: contract product manager. What does that mean? I had no

1025
00:59:06,840 --> 00:59:09,920
Speaker 1: idea when they were interviewing me. Um. Guaranteed investment contracts

1026
00:59:09,920 --> 00:59:14,000
Speaker 1: were a fixed income instrument issued by insurance companies as

1027
00:59:14,040 --> 00:59:17,120
Speaker 1: an investment option in four oh one K plans. And

1028
00:59:17,120 --> 00:59:18,840
Speaker 1: we were just getting in the four oh one K

1029
00:59:19,000 --> 00:59:23,800
Speaker 1: business and UM, you know, we we wanted to take

1030
00:59:23,840 --> 00:59:25,920
Speaker 1: a little bit more sophisticated approach. I think we had

1031
00:59:25,920 --> 00:59:28,400
Speaker 1: a couple hundred million dollars in the program at the time.

1032
00:59:29,080 --> 00:59:33,560
Speaker 1: I'm pretty sure I got hired because Jack Brennan was

1033
00:59:33,640 --> 00:59:37,040
Speaker 1: intrigued by the credit background I had, and it wasn't

1034
00:59:37,080 --> 00:59:40,240
Speaker 1: convinced that we had analyzed the insurance industry properly for

1035
00:59:40,280 --> 00:59:43,240
Speaker 1: the g I C s we were buying, and so

1036
00:59:43,320 --> 00:59:46,760
Speaker 1: I think that had something to do with it. Um.

1037
00:59:46,880 --> 00:59:49,200
Speaker 1: I'm not sure why else, because nothing in my background

1038
00:59:49,280 --> 00:59:53,240
Speaker 1: really pointed toward that, but turned out Again, you'll hear

1039
00:59:53,320 --> 00:59:54,840
Speaker 1: me use the phrase over and over better to be

1040
00:59:54,920 --> 00:59:57,880
Speaker 1: lucky and smart Sometimes I totally agree. So you mentioned

1041
00:59:57,960 --> 01:00:01,440
Speaker 1: Jack Brennan, who were some of your ment so UM.

1042
01:00:01,560 --> 01:00:04,360
Speaker 1: You know Jack, certainly before I worked directly for him,

1043
01:00:04,440 --> 01:00:07,480
Speaker 1: with somebody I would go to for um, just advice

1044
01:00:07,960 --> 01:00:11,920
Speaker 1: around career, family, UM, how to think about business problems.

1045
01:00:11,960 --> 01:00:14,800
Speaker 1: Jack was one of the great UM strategic thinkers I

1046
01:00:14,840 --> 01:00:19,680
Speaker 1: think of the entire industry during his his time. And

1047
01:00:20,240 --> 01:00:22,080
Speaker 1: you know, he was just a really good sounding board

1048
01:00:22,120 --> 01:00:24,800
Speaker 1: for a lot of things. So he clearly was a mentor.

1049
01:00:25,720 --> 01:00:29,600
Speaker 1: We also, UM, I became pretty friendly with Charlie Ellis

1050
01:00:29,800 --> 01:00:32,600
Speaker 1: UM before he came on our board. Um, Charlie was

1051
01:00:32,640 --> 01:00:36,480
Speaker 1: running Greenwich Research. You know, I really count Charlie as

1052
01:00:36,640 --> 01:00:39,320
Speaker 1: somebody that I learned a ton from. You know, his

1053
01:00:39,440 --> 01:00:42,360
Speaker 1: book is arguably one of the two or three great

1054
01:00:42,400 --> 01:00:45,280
Speaker 1: his first book, you know, Winning the Losers Game, one

1055
01:00:45,280 --> 01:00:47,040
Speaker 1: of the two or three greatest things I ever written

1056
01:00:47,040 --> 01:00:51,720
Speaker 1: about investing. And um, Charlie gave me really really good

1057
01:00:51,720 --> 01:00:54,880
Speaker 1: advice UM when I took over running the four oh

1058
01:00:54,880 --> 01:00:59,600
Speaker 1: one K business, and he kept focusing in and don't

1059
01:00:59,640 --> 01:01:03,000
Speaker 1: worry abou growth. Worry about the quality of what you're

1060
01:01:03,000 --> 01:01:05,160
Speaker 1: doing for your existing clientele, and growth will take care

1061
01:01:05,200 --> 01:01:08,120
Speaker 1: of itself. And you know, of course Greenwich did sort

1062
01:01:08,120 --> 01:01:10,880
Speaker 1: of an assessment of who was the highest quality provider,

1063
01:01:10,920 --> 01:01:12,920
Speaker 1: and I don't forget coming when he came in one

1064
01:01:13,000 --> 01:01:17,680
Speaker 1: day and he said, hey, congratulations, you've won UM first time.

1065
01:01:18,320 --> 01:01:20,720
Speaker 1: And he goes, now you're the hunted, so what are

1066
01:01:20,760 --> 01:01:23,280
Speaker 1: you gonna do? And you know it just it's a

1067
01:01:23,360 --> 01:01:25,560
Speaker 1: great way to describe that, isn't it. Yeah, and you

1068
01:01:25,560 --> 01:01:28,360
Speaker 1: know it just so he was a really positive mentor.

1069
01:01:29,320 --> 01:01:31,320
Speaker 1: But by the way, for people who may not know

1070
01:01:31,360 --> 01:01:34,160
Speaker 1: who Charlie Ellis is. In addition to being on the

1071
01:01:34,240 --> 01:01:37,880
Speaker 1: Vanguard Board, he worked with Swenson on the Yale and

1072
01:01:37,960 --> 01:01:42,440
Speaker 1: down and arguably the most successful endowmen in history. Harvard's

1073
01:01:42,480 --> 01:01:46,400
Speaker 1: is bigger, but their performance has been appreciably worse. And

1074
01:01:46,480 --> 01:01:52,160
Speaker 1: Greenwich Associates were really a huge, huge institutional advisor for

1075
01:01:52,240 --> 01:01:57,520
Speaker 1: many years. Absolutely um legendary, legendary firm and really changed

1076
01:01:57,600 --> 01:02:01,280
Speaker 1: the nature of how people provided services in the institutional space.

1077
01:02:02,040 --> 01:02:05,920
Speaker 1: And then you know, I have a couple of unconventional mentors. UM.

1078
01:02:05,960 --> 01:02:10,720
Speaker 1: I have a an individual he's eighties six now. He's

1079
01:02:10,800 --> 01:02:13,240
Speaker 1: like a second father to me. He was my rowing

1080
01:02:13,320 --> 01:02:16,919
Speaker 1: coach um when I go out of college, and while

1081
01:02:16,960 --> 01:02:19,520
Speaker 1: I was teaching, he and I were coaches together. But

1082
01:02:19,640 --> 01:02:22,360
Speaker 1: he was also my coach because I was continuing to compete,

1083
01:02:23,200 --> 01:02:25,960
Speaker 1: and I actually owe him a lot. Um. What's his name?

1084
01:02:26,120 --> 01:02:30,520
Speaker 1: His name is Jim Barker, and we still talk a lot.

1085
01:02:30,680 --> 01:02:34,400
Speaker 1: And I went to him when I was interviewing at Vanguard,

1086
01:02:34,680 --> 01:02:37,880
Speaker 1: and Jim lives in Roxborough, Um, sort of in a

1087
01:02:38,000 --> 01:02:41,720
Speaker 1: row house in Philly, and uh we went. We got

1088
01:02:41,760 --> 01:02:43,520
Speaker 1: a couple of cheese steaks at what I considered to

1089
01:02:43,560 --> 01:02:46,440
Speaker 1: be the best cheese steak place in all Philadelphia, delessandros

1090
01:02:46,480 --> 01:02:49,480
Speaker 1: and uh six pack of beer and talking about life.

1091
01:02:49,640 --> 01:02:52,480
Speaker 1: And he was the one who really said, you gotta

1092
01:02:52,560 --> 01:02:57,480
Speaker 1: go someplace where your values and your passion match up

1093
01:02:57,520 --> 01:03:01,600
Speaker 1: with what the organizations trying to do. And he said,

1094
01:03:01,600 --> 01:03:03,320
Speaker 1: you know, you've got choice. He said, that's what it

1095
01:03:03,320 --> 01:03:05,560
Speaker 1: should come down to. And you know, it was that

1096
01:03:05,680 --> 01:03:07,640
Speaker 1: it was sort of the final thing I needed to,

1097
01:03:07,880 --> 01:03:09,920
Speaker 1: you know, like I got to do this because you

1098
01:03:09,960 --> 01:03:13,600
Speaker 1: know Vanguard there was something special about it thirty years ago. Well,

1099
01:03:13,720 --> 01:03:15,360
Speaker 1: you'll have to let us know if it works out.

1100
01:03:15,680 --> 01:03:18,560
Speaker 1: I'm I'm still I'm still striving there. Um, still working

1101
01:03:18,560 --> 01:03:22,400
Speaker 1: at it, Barry, I'm gonna guess it worked out, okay. Um,

1102
01:03:22,440 --> 01:03:27,760
Speaker 1: So let's talk about UM investors that influenced you, be

1103
01:03:27,800 --> 01:03:31,600
Speaker 1: CAUSISTL will lead to a few people other than Charlie Alice,

1104
01:03:31,640 --> 01:03:36,240
Speaker 1: who clearly is a tremendously influential investor. Who else do

1105
01:03:36,280 --> 01:03:40,840
Speaker 1: you think influenced your your approach to thinking about the

1106
01:03:40,880 --> 01:03:44,120
Speaker 1: world of investing. So, you know, it's interesting, you know,

1107
01:03:44,160 --> 01:03:46,680
Speaker 1: obviously I have to say Jack Bogol just you know,

1108
01:03:46,800 --> 01:03:51,080
Speaker 1: his his just the his analytic approach and the way

1109
01:03:51,120 --> 01:03:55,320
Speaker 1: he tried to simplify everything was really powerful. We had

1110
01:03:55,320 --> 01:04:00,320
Speaker 1: a really great um sort of um duo in we

1111
01:04:00,360 --> 01:04:03,560
Speaker 1: had Jack as UM chairman and CEO, and you know,

1112
01:04:03,920 --> 01:04:06,720
Speaker 1: Keith Thinker on all this. We also had Bert Malkiel,

1113
01:04:07,240 --> 01:04:10,280
Speaker 1: great Princeton economists on our board, and I got some

1114
01:04:10,320 --> 01:04:12,800
Speaker 1: pretty early exposure to the board. And you know Bert's

1115
01:04:12,960 --> 01:04:15,160
Speaker 1: again random Walked down Wall Street one of the greatest

1116
01:04:15,200 --> 01:04:18,880
Speaker 1: treatise ever written. One point eight million I'm sorry, is it?

1117
01:04:18,880 --> 01:04:21,080
Speaker 1: It's in the eleventh printing. It's a million and a

1118
01:04:21,120 --> 01:04:24,440
Speaker 1: half copies in prints. So you know, so I certainly

1119
01:04:24,480 --> 01:04:26,800
Speaker 1: have to give Bert, you know, a lot of credit.

1120
01:04:27,560 --> 01:04:30,960
Speaker 1: And then, um, this may surprise you, um, given how

1121
01:04:31,400 --> 01:04:34,160
Speaker 1: important I think indexing is. But there have been a

1122
01:04:34,160 --> 01:04:38,640
Speaker 1: couple of active managers who I had exposure to fairly

1123
01:04:38,680 --> 01:04:41,960
Speaker 1: early on, and I just liked the way they think,

1124
01:04:42,000 --> 01:04:45,360
Speaker 1: and I actually think it's very compatible with the way

1125
01:04:45,400 --> 01:04:48,760
Speaker 1: I described the power of indexing and the great John

1126
01:04:48,840 --> 01:04:52,440
Speaker 1: neff Um, who ran Windsor Fund for thirty years and

1127
01:04:52,560 --> 01:04:55,520
Speaker 1: one of the best track records ever for an active manager.

1128
01:04:56,400 --> 01:04:59,480
Speaker 1: The thing about John that was so powerful and you know,

1129
01:04:59,480 --> 01:05:01,640
Speaker 1: you're evidence it's based investing makes me think about this.

1130
01:05:02,160 --> 01:05:04,680
Speaker 1: John knew the companies better than the companies knew themselves.

1131
01:05:05,280 --> 01:05:07,680
Speaker 1: And I can remember sitting in sessions where he would

1132
01:05:07,720 --> 01:05:10,200
Speaker 1: be going through the details of what was happening at

1133
01:05:10,200 --> 01:05:13,200
Speaker 1: a large, you know, a Fortune fifty company and sitting

1134
01:05:13,200 --> 01:05:15,520
Speaker 1: across from the management teams and they had no idea

1135
01:05:15,560 --> 01:05:17,840
Speaker 1: what he was talking about, and he was so much

1136
01:05:17,840 --> 01:05:21,600
Speaker 1: more in depth. And then Um, there was another fellow

1137
01:05:21,640 --> 01:05:26,800
Speaker 1: at Wellington who sort of flew the public radar. But

1138
01:05:26,840 --> 01:05:28,920
Speaker 1: when you look at his track record at Owens, who

1139
01:05:29,040 --> 01:05:32,360
Speaker 1: ran our healthcare fund and he since handed it over

1140
01:05:32,960 --> 01:05:36,520
Speaker 1: to his successor, who has done a phenomenal job, Gene Hines.

1141
01:05:37,160 --> 01:05:40,520
Speaker 1: But Ed and his team, you know that healthcare fund

1142
01:05:40,560 --> 01:05:43,480
Speaker 1: for thirty years. When Ed retired, no fund in the

1143
01:05:43,520 --> 01:05:47,000
Speaker 1: industry had a better track record. Really it was at

1144
01:05:47,040 --> 01:05:50,920
Speaker 1: the time four basis points ahead of the next best

1145
01:05:51,080 --> 01:05:55,720
Speaker 1: fund in the industry. And the thing when did retire,

1146
01:05:55,880 --> 01:05:59,200
Speaker 1: so about three years ago now. And the thing that

1147
01:05:59,400 --> 01:06:02,640
Speaker 1: was so impressed about Ed and John was their knowledge

1148
01:06:02,640 --> 01:06:06,080
Speaker 1: of their companies was deep. But even as active managers,

1149
01:06:06,160 --> 01:06:10,240
Speaker 1: they were very much into long term value creation. So

1150
01:06:10,280 --> 01:06:12,880
Speaker 1: you look at their portfolio turnover and it was really

1151
01:06:12,960 --> 01:06:16,880
Speaker 1: low compared to other active funds, and they actually took

1152
01:06:16,880 --> 01:06:20,200
Speaker 1: pretty concentrated bets. And you know, I've come to believe

1153
01:06:20,280 --> 01:06:23,160
Speaker 1: that if an active manager is going to add value,

1154
01:06:23,360 --> 01:06:26,120
Speaker 1: it's probably going to be by being very different. So

1155
01:06:26,560 --> 01:06:30,680
Speaker 1: each of them would have of their portfolio in their

1156
01:06:30,720 --> 01:06:34,600
Speaker 1: top ten names, and you know, coupled with an index

1157
01:06:34,640 --> 01:06:36,480
Speaker 1: as a base, that was actually a pretty good way

1158
01:06:36,520 --> 01:06:40,240
Speaker 1: to invest. So that that raises a question not from

1159
01:06:40,280 --> 01:06:44,040
Speaker 1: our our favorite lists, but we talked earlier about recruiting.

1160
01:06:44,120 --> 01:06:47,840
Speaker 1: You you get rock stars like that who can jump

1161
01:06:47,880 --> 01:06:50,840
Speaker 1: ship to another place and and maybe pick up a

1162
01:06:50,840 --> 01:06:53,720
Speaker 1: bunch of stock options and make more money. How does

1163
01:06:53,800 --> 01:06:57,200
Speaker 1: Vanguard retain their top talent like that? Well, so, you know,

1164
01:06:57,280 --> 01:07:00,280
Speaker 1: interesting on the active management side, some of those folks

1165
01:07:00,320 --> 01:07:03,520
Speaker 1: I UM reference, they don't actually work for us. They

1166
01:07:03,560 --> 01:07:06,960
Speaker 1: outside manager outside managers and so you know, they work

1167
01:07:07,000 --> 01:07:09,320
Speaker 1: for Wellington or for prime Cap or you know any

1168
01:07:09,360 --> 01:07:12,320
Speaker 1: of the other firms around the world. Bailey Gifford in Scotland. Um.

1169
01:07:12,360 --> 01:07:14,840
Speaker 1: And it's a pretty unique arrangement, isn't it. For a

1170
01:07:14,840 --> 01:07:18,080
Speaker 1: big mutual funds. We're the only ones who employ this

1171
01:07:18,160 --> 01:07:21,640
Speaker 1: strategy as extensively as we do. And really all of

1172
01:07:21,680 --> 01:07:24,760
Speaker 1: our active equity, with a couple of very minor exceptions,

1173
01:07:25,160 --> 01:07:28,720
Speaker 1: is run by external firms and we scour the world

1174
01:07:28,800 --> 01:07:30,600
Speaker 1: for the best firms. And today I think we have

1175
01:07:30,640 --> 01:07:34,120
Speaker 1: about seventy five different mandates run by thirty firms and

1176
01:07:34,160 --> 01:07:36,800
Speaker 1: it's been a really um it's been a really good

1177
01:07:36,840 --> 01:07:40,680
Speaker 1: way to approach active and we find people who are

1178
01:07:40,720 --> 01:07:43,720
Speaker 1: aligned with us in terms of low cost and long

1179
01:07:43,840 --> 01:07:46,680
Speaker 1: term view and so forth. Um, you know, in terms

1180
01:07:46,680 --> 01:07:50,720
Speaker 1: of the broader question though, how do we retain talent? Um? Yeah,

1181
01:07:50,760 --> 01:07:52,280
Speaker 1: I'd say there are a couple of things. One, you know,

1182
01:07:52,320 --> 01:07:55,040
Speaker 1: we we do compensate people well, I mean in our

1183
01:07:55,040 --> 01:07:57,960
Speaker 1: own firm, our fixed income teams are our index teams

1184
01:07:58,000 --> 01:08:01,160
Speaker 1: are client service people. You know, we pay struct attention

1185
01:08:01,240 --> 01:08:03,200
Speaker 1: to what's going on in the industry, but you you're

1186
01:08:03,320 --> 01:08:07,560
Speaker 1: reputed at the CEO level down. Look, if Jamie Diamond

1187
01:08:07,560 --> 01:08:11,400
Speaker 1: would leave and you would say, hey, knock knocked, sure,

1188
01:08:11,440 --> 01:08:14,800
Speaker 1: I'll run JP Morgan for you. I imagine JP Morgan

1189
01:08:14,960 --> 01:08:20,000
Speaker 1: with its stock options is a multiple of what you're not.

1190
01:08:20,000 --> 01:08:23,000
Speaker 1: Not that you're underpaid advantguard. I'm sure it's a reasonable

1191
01:08:23,080 --> 01:08:25,960
Speaker 1: check each week, but when you go to any of

1192
01:08:25,960 --> 01:08:31,080
Speaker 1: the publicly traded Goldman, Sachs, Morgan, Stanley, those are crazy numbers.

1193
01:08:31,120 --> 01:08:33,439
Speaker 1: So it gets to the question how much is enough? Right?

1194
01:08:34,280 --> 01:08:36,519
Speaker 1: So you know, at the end of the day, um,

1195
01:08:36,560 --> 01:08:38,720
Speaker 1: I think the kind of people we've been able to track. Look,

1196
01:08:38,840 --> 01:08:40,559
Speaker 1: we want people to make a good living, We want

1197
01:08:40,560 --> 01:08:42,200
Speaker 1: people to be able to take care of their families

1198
01:08:42,240 --> 01:08:45,880
Speaker 1: and you know, support whatever. It doesn't have to be

1199
01:08:45,920 --> 01:08:48,720
Speaker 1: a hundred million dollars. It doesn't. And you know, we

1200
01:08:48,760 --> 01:08:51,439
Speaker 1: want people who are mission based and the thing. And

1201
01:08:51,560 --> 01:08:53,120
Speaker 1: you know you've been to the campus, you felt it.

1202
01:08:53,160 --> 01:08:56,839
Speaker 1: I mean, everybody there is there because they really believe

1203
01:08:56,920 --> 01:08:59,439
Speaker 1: in the mission of the firm. You don't feel that

1204
01:08:59,479 --> 01:09:02,879
Speaker 1: there dripping with excess. And I've been to other places

1205
01:09:02,920 --> 01:09:06,240
Speaker 1: that you're like, what do you think that costs? On? Yeah,

1206
01:09:06,240 --> 01:09:10,760
Speaker 1: I had. There's a funny story. Um somebody, um, a

1207
01:09:10,800 --> 01:09:12,840
Speaker 1: reporter came to my office a couple of weeks after

1208
01:09:12,880 --> 01:09:15,120
Speaker 1: I had become CEO, and she sort of looked around

1209
01:09:15,120 --> 01:09:17,439
Speaker 1: and she said, this isn't really what I expected. And

1210
01:09:17,520 --> 01:09:19,600
Speaker 1: she had been somewhere else where I think they had

1211
01:09:19,640 --> 01:09:22,960
Speaker 1: spent a million dollars on art or whatever, and she said, well,

1212
01:09:22,960 --> 01:09:25,040
Speaker 1: how much did that print costs? And then and I said, well,

1213
01:09:25,040 --> 01:09:26,680
Speaker 1: it's a print. It was fifteen bucks. And then we

1214
01:09:26,720 --> 01:09:29,880
Speaker 1: got it reframed and you know, and a lot of

1215
01:09:29,880 --> 01:09:31,880
Speaker 1: the art was actually went all the way back to

1216
01:09:32,360 --> 01:09:34,720
Speaker 1: Jack Bogel and Jack Brennaday's. You know, it was just

1217
01:09:35,040 --> 01:09:39,200
Speaker 1: stuff we had. Look we we we we remind ourselves.

1218
01:09:39,240 --> 01:09:41,880
Speaker 1: And I know it sounds really Polly Anishberry, but it's

1219
01:09:41,920 --> 01:09:44,680
Speaker 1: not our money. You know. The question always I don't

1220
01:09:44,680 --> 01:09:48,000
Speaker 1: think that there's a there's a there's a question. I

1221
01:09:48,000 --> 01:09:50,040
Speaker 1: get asked a lot out there. People say, what's it

1222
01:09:50,120 --> 01:09:52,400
Speaker 1: like to you know, be have three and a half

1223
01:09:52,400 --> 01:09:54,599
Speaker 1: trillion or four trillion. I always like, I have no idea.

1224
01:09:55,240 --> 01:09:57,559
Speaker 1: It's not my money, it's you know, we we we

1225
01:09:57,600 --> 01:10:00,840
Speaker 1: go to bed every night. Actually, I think about the

1226
01:10:00,880 --> 01:10:04,120
Speaker 1: responsibility that's been entrusted with us, and I think that's

1227
01:10:04,160 --> 01:10:06,599
Speaker 1: why the people are there. You know, you look at

1228
01:10:06,600 --> 01:10:10,760
Speaker 1: our senior team and people. The tenure of our organization

1229
01:10:10,840 --> 01:10:13,439
Speaker 1: is incredible. Um. You know, we have half the company

1230
01:10:14,080 --> 01:10:16,680
Speaker 1: has been in Vanguard more than ten years. And I

1231
01:10:16,720 --> 01:10:18,680
Speaker 1: think I don't have this stat right off the top

1232
01:10:18,720 --> 01:10:19,960
Speaker 1: of my head, but I'm going to guess it's at

1233
01:10:20,040 --> 01:10:24,360
Speaker 1: least the company has been more than twenty And that

1234
01:10:24,479 --> 01:10:27,840
Speaker 1: belief in what we do is really palpable. And you

1235
01:10:27,880 --> 01:10:29,800
Speaker 1: know it's and then you know, you make it get

1236
01:10:29,840 --> 01:10:32,920
Speaker 1: pay well, you make it a really good environment, and

1237
01:10:32,960 --> 01:10:34,920
Speaker 1: you know, we try to treat people really well. There's

1238
01:10:34,960 --> 01:10:40,599
Speaker 1: no one this was Jack Bogel is um you know, um,

1239
01:10:41,120 --> 01:10:44,840
Speaker 1: no problem, you know, in a sense differentiating by how

1240
01:10:45,040 --> 01:10:48,080
Speaker 1: you know people's contributions are to the firm. But from

1241
01:10:48,120 --> 01:10:53,000
Speaker 1: a behavior standpoint, you know, Jack never cared what level

1242
01:10:53,080 --> 01:10:57,280
Speaker 1: you were. You treated everybody with respect. And I remember hearing,

1243
01:10:57,320 --> 01:10:59,519
Speaker 1: you know, learning that like my first three days, they're

1244
01:10:59,560 --> 01:11:03,400
Speaker 1: just watching what was going on, and that really again,

1245
01:11:03,840 --> 01:11:05,559
Speaker 1: for a lot of us, that's what gets us up

1246
01:11:05,600 --> 01:11:07,800
Speaker 1: in the morning. There's a firm culture. It's still there

1247
01:11:07,800 --> 01:11:10,559
Speaker 1: and it hasn't attenuated yet. Uh, you know, we work

1248
01:11:10,640 --> 01:11:13,599
Speaker 1: really hard at that. All right, back to our favorite questions,

1249
01:11:13,680 --> 01:11:16,519
Speaker 1: Let's talk about favorite books. You You mentioned Winning The

1250
01:11:16,600 --> 01:11:21,040
Speaker 1: Losers Game by Charlie Ellis and Random Walk Down Wall

1251
01:11:21,080 --> 01:11:25,000
Speaker 1: Street by Burton Malkiel. By the way, two previous guests

1252
01:11:25,000 --> 01:11:27,920
Speaker 1: on the show, what are some of your other favorite books? Fiction,

1253
01:11:28,000 --> 01:11:30,680
Speaker 1: non fiction, finance related or not. So I'll give you two.

1254
01:11:30,800 --> 01:11:33,719
Speaker 1: Finance one, so I can't not mention bail out nations

1255
01:11:33,920 --> 01:11:37,840
Speaker 1: can skip everybody knows, but everybody knows that my so

1256
01:11:37,920 --> 01:11:40,400
Speaker 1: it's but it's you know again, you captured a lot.

1257
01:11:40,520 --> 01:11:43,439
Speaker 1: There's another book that I think does um it's it's

1258
01:11:43,560 --> 01:11:47,479
Speaker 1: less extensive than yours, but gives everybody everything they need

1259
01:11:47,520 --> 01:11:49,680
Speaker 1: to know about that here it's The Lost Bank by

1260
01:11:49,840 --> 01:11:55,519
Speaker 1: Kirsten Grind The Loss Bank. It's about Washington Mutual and

1261
01:11:56,880 --> 01:12:02,400
Speaker 1: it's a fantastic insight into what corporate culture, how corporate

1262
01:12:02,439 --> 01:12:05,080
Speaker 1: culture can go awry. L O s t The Lost

1263
01:12:05,120 --> 01:12:09,040
Speaker 1: Lost Bank. Um it's it's really a good read. You

1264
01:12:09,040 --> 01:12:11,960
Speaker 1: you'd enjoyed, especially given what you've done. You know. On

1265
01:12:12,040 --> 01:12:14,640
Speaker 1: the fiction side, So I tend to be accused of

1266
01:12:14,640 --> 01:12:20,000
Speaker 1: being very eclectic. Um. I have a huge science fiction collection. Too,

1267
01:12:20,200 --> 01:12:23,519
Speaker 1: and what do you like? Well, I'm i'm so. I

1268
01:12:23,560 --> 01:12:28,240
Speaker 1: love all the classic guys. So I've read everything. I

1269
01:12:28,320 --> 01:12:32,479
Speaker 1: just reread the Lasnie on a plane flight. Um? Which one?

1270
01:12:32,720 --> 01:12:38,200
Speaker 1: This Immortal which is favorite classic? Um Dune obviously, Hyperion

1271
01:12:38,360 --> 01:12:41,320
Speaker 1: by Dan Simmons one of my favorites. I love all

1272
01:12:41,360 --> 01:12:45,920
Speaker 1: the cyberpunk guys. Neil Stevenson Um in particular, and he's

1273
01:12:45,960 --> 01:12:50,640
Speaker 1: got a new great book out called Seven Eves. I

1274
01:12:50,680 --> 01:12:54,360
Speaker 1: read this summer while I was on vacation and it

1275
01:12:54,439 --> 01:12:57,439
Speaker 1: was fantastic. So. Um, that's kind of how I amuse

1276
01:12:57,520 --> 01:13:00,320
Speaker 1: myself in in the fiction world. How far into the

1277
01:13:00,360 --> 01:13:02,920
Speaker 1: cyberpunk do you go? You William Gibson or so you know?

1278
01:13:02,960 --> 01:13:05,960
Speaker 1: I think Gibson? Um, you know Neuromanswers one of my

1279
01:13:06,280 --> 01:13:10,000
Speaker 1: top books. Mona Lisa Overdrive one of my favorite books. Um,

1280
01:13:11,120 --> 01:13:14,360
Speaker 1: So I I like those guys. Um you know? To me? Um,

1281
01:13:14,560 --> 01:13:18,000
Speaker 1: how abstract do you get with with science fiction? You

1282
01:13:18,000 --> 01:13:21,200
Speaker 1: can test me, Philip K. Dick, I've read them all. Really,

1283
01:13:21,960 --> 01:13:24,680
Speaker 1: you haven't read you Bick. I've got you Buck. I

1284
01:13:24,680 --> 01:13:26,680
Speaker 1: haven't read you Bick. So you're right, I read you Bick,

1285
01:13:26,760 --> 01:13:28,960
Speaker 1: and I'm the only person I know and I started

1286
01:13:29,000 --> 01:13:31,479
Speaker 1: you Buck, and I couldn't figure it out. It's it's

1287
01:13:31,520 --> 01:13:36,519
Speaker 1: the spray. It's um. People don't realize. Decades after he

1288
01:13:36,600 --> 01:13:41,519
Speaker 1: passed away, his books became these Hollywood Black Blade Runner

1289
01:13:41,920 --> 01:13:44,000
Speaker 1: was based on a short story Do Androids Dream of

1290
01:13:44,000 --> 01:13:47,960
Speaker 1: Electric Shape? Total Recall was based on We Can Remember

1291
01:13:47,960 --> 01:13:50,600
Speaker 1: It for your Wholesale. So if when someone tells me

1292
01:13:50,640 --> 01:13:53,360
Speaker 1: they've read Philip K. Dick, I know that they've gone

1293
01:13:53,360 --> 01:13:55,960
Speaker 1: through the whole genre. And one of the best, um

1294
01:13:56,280 --> 01:13:59,880
Speaker 1: new TV series on Netflix or is an Amazon Pro

1295
01:14:00,000 --> 01:14:03,040
Speaker 1: It's Amazon Prime and it's The Man in the High Castle.

1296
01:14:03,640 --> 01:14:06,160
Speaker 1: They did it. It's a pretty good treatment. Um, I'm

1297
01:14:06,200 --> 01:14:08,720
Speaker 1: in the first I'm halfway through the first season. It's

1298
01:14:08,880 --> 01:14:11,080
Speaker 1: it's a it's good. It's a good extrapolation and it

1299
01:14:11,120 --> 01:14:14,519
Speaker 1: looks great. Yeah, it makes me think of what I read. So, yeah,

1300
01:14:14,520 --> 01:14:16,479
Speaker 1: I love all that stuff. Yeah that that was really

1301
01:14:16,479 --> 01:14:19,599
Speaker 1: a fascinating book. A talk show host awakes one morning

1302
01:14:19,960 --> 01:14:23,320
Speaker 1: to discover that America has lost World War Two and

1303
01:14:23,400 --> 01:14:26,280
Speaker 1: the Japanese and Germans have split up America and he

1304
01:14:26,360 --> 01:14:30,400
Speaker 1: can't figure out why. So they haven't quite gone that

1305
01:14:30,400 --> 01:14:34,360
Speaker 1: that route. But in the book, it's this Dick loved

1306
01:14:34,400 --> 01:14:38,800
Speaker 1: alternative levels of reality. It's a so so I I have.

1307
01:14:39,520 --> 01:14:43,040
Speaker 1: I like to say I misspent my youth and my

1308
01:14:43,600 --> 01:14:46,320
Speaker 1: adulthood reading a lot of science fiction. But you know,

1309
01:14:46,360 --> 01:14:49,680
Speaker 1: for me it's actually very stimulating because things like and

1310
01:14:49,720 --> 01:14:53,880
Speaker 1: you know there's cyberspace, um, virtual reality. This has been

1311
01:14:53,920 --> 01:14:56,520
Speaker 1: part of my world for twenty years. So what technology

1312
01:14:57,000 --> 01:15:00,439
Speaker 1: is always fifty years behind science fiction writer? And so

1313
01:15:00,479 --> 01:15:03,760
Speaker 1: like you could, you could look at every major innovation

1314
01:15:03,840 --> 01:15:06,920
Speaker 1: and somebody has was writing about it half a century ago. Yeah.

1315
01:15:06,920 --> 01:15:11,479
Speaker 1: I'm now about to start a new book on um

1316
01:15:11,520 --> 01:15:14,519
Speaker 1: that's about the X Prize and you know, the first

1317
01:15:14,520 --> 01:15:16,559
Speaker 1: group to win the X Prize in in you know,

1318
01:15:16,920 --> 01:15:20,160
Speaker 1: was the space launch of the driverless car Space Launch,

1319
01:15:20,600 --> 01:15:23,600
Speaker 1: And so I'm really interested in what's the name of

1320
01:15:23,640 --> 01:15:25,280
Speaker 1: the book? You know, I'm drawn a blank now. It

1321
01:15:25,320 --> 01:15:30,080
Speaker 1: just came out and um, it's literally it just showed

1322
01:15:30,120 --> 01:15:33,200
Speaker 1: up on my doorstep. And before I so rudely interrupted

1323
01:15:33,200 --> 01:15:37,040
Speaker 1: you talking about science fiction, what was the other fiction

1324
01:15:37,280 --> 01:15:39,639
Speaker 1: that you were going to reference? Now? I I think

1325
01:15:39,640 --> 01:15:42,080
Speaker 1: that's the where I spend most of my fiction, and

1326
01:15:42,080 --> 01:15:46,320
Speaker 1: then I do a decent amount of history for nonfiction. Um,

1327
01:15:46,400 --> 01:15:50,000
Speaker 1: what have you read recently liked. So my my favorite

1328
01:15:50,040 --> 01:15:51,679
Speaker 1: one in the last couple of years is a book

1329
01:15:51,680 --> 01:15:58,280
Speaker 1: called Valiant Ambition UM by Natt Philbrick. Valiant Ambition, and

1330
01:15:58,320 --> 01:16:01,120
Speaker 1: it's it's basically a follow up to a book he

1331
01:16:01,160 --> 01:16:03,760
Speaker 1: did a couple of years ago called Bunker Hill, and

1332
01:16:03,800 --> 01:16:07,160
Speaker 1: it's the second year of the Revolutionary War and it's

1333
01:16:07,200 --> 01:16:12,360
Speaker 1: really um he he focuses on Washington and Benedictdonald. You

1334
01:16:12,400 --> 01:16:15,719
Speaker 1: get a really deeper appreciation for what led to Benedict

1335
01:16:15,800 --> 01:16:19,120
Speaker 1: Donald's treason, and it's it's part. It's a story I

1336
01:16:19,160 --> 01:16:21,800
Speaker 1: didn't know, so it was really fasting. That's interesting. And

1337
01:16:21,840 --> 01:16:26,519
Speaker 1: if memory serves you liked McCullough's Wright Brothers. I love

1338
01:16:26,640 --> 01:16:28,880
Speaker 1: Wright Brothers. You loved it, can I tell you it's

1339
01:16:28,920 --> 01:16:31,160
Speaker 1: one of those books that have been in my queue

1340
01:16:31,640 --> 01:16:33,600
Speaker 1: and I just haven't gotten to it. When when you

1341
01:16:33,640 --> 01:16:37,559
Speaker 1: read it, you're so inspired by UM. A lot of

1342
01:16:37,600 --> 01:16:40,080
Speaker 1: people love that book. So, you know what what's so

1343
01:16:40,200 --> 01:16:44,519
Speaker 1: interesting to me is these guys had a vision and

1344
01:16:44,600 --> 01:16:47,200
Speaker 1: they didn't let anything get in their way and they

1345
01:16:47,320 --> 01:16:52,280
Speaker 1: just kept pursuing it. And the discipline and the passion, um.

1346
01:16:52,320 --> 01:16:53,960
Speaker 1: You know, it's everything I love. You know, it's the

1347
01:16:53,960 --> 01:16:57,840
Speaker 1: American Dream writ large. All right, let's um, let's keep

1348
01:16:57,880 --> 01:16:59,439
Speaker 1: going because I know I only have you for a

1349
01:16:59,479 --> 01:17:03,040
Speaker 1: few more. It's um. So there's a new question I've

1350
01:17:03,080 --> 01:17:07,480
Speaker 1: added to my regular list at the request of of listeners.

1351
01:17:08,360 --> 01:17:12,200
Speaker 1: What is it that you do to keep mentally and

1352
01:17:12,600 --> 01:17:15,280
Speaker 1: or physically fit? What do you do to relax outside

1353
01:17:15,280 --> 01:17:19,240
Speaker 1: of the office. So I I have a background in

1354
01:17:19,320 --> 01:17:22,200
Speaker 1: endurance sports, and in particular and rowing. Um, you know,

1355
01:17:22,200 --> 01:17:25,519
Speaker 1: I took up rowing in college, and I could argue

1356
01:17:25,600 --> 01:17:28,639
Speaker 1: that it was taking up rowing that's led to everything.

1357
01:17:28,880 --> 01:17:31,760
Speaker 1: You know it really it led me to take the

1358
01:17:31,800 --> 01:17:35,240
Speaker 1: teaching job in Philadelphia so I could continue rowing. It

1359
01:17:35,320 --> 01:17:38,880
Speaker 1: brought me back to Philadelphia. Um. You know, this coach

1360
01:17:38,920 --> 01:17:41,639
Speaker 1: I mentioned as a mentor gave me the best career

1361
01:17:41,640 --> 01:17:46,240
Speaker 1: advice I've ever gotten. And um, in a sense, everything

1362
01:17:46,360 --> 01:17:48,800
Speaker 1: good that's happened since I can trace back to that

1363
01:17:48,880 --> 01:17:51,799
Speaker 1: decision to start rowing. So I'm pretty passionate about the sport.

1364
01:17:51,920 --> 01:17:54,400
Speaker 1: Are you still rowing regularly? You know it's hard with

1365
01:17:54,439 --> 01:17:56,840
Speaker 1: my schedule, So I'll go out on the weekends. UM,

1366
01:17:56,880 --> 01:18:00,520
Speaker 1: I have a show a single and I will occasionally

1367
01:18:00,560 --> 01:18:02,720
Speaker 1: jump into a team boat. I'm going to actually race

1368
01:18:02,800 --> 01:18:05,519
Speaker 1: this coming weekend in Boston at the head of the

1369
01:18:05,600 --> 01:18:09,880
Speaker 1: Charles and a master's event, so the age handicap at

1370
01:18:09,880 --> 01:18:13,320
Speaker 1: which in my case is really necessary. And I'm going

1371
01:18:13,400 --> 01:18:15,880
Speaker 1: to row with in one I'm rowing in two events

1372
01:18:15,920 --> 01:18:18,760
Speaker 1: actually which I may regret later and I think they

1373
01:18:18,760 --> 01:18:21,960
Speaker 1: may need oxygen when I'm done. But I'm gonna row

1374
01:18:22,000 --> 01:18:23,720
Speaker 1: with three of my teammates and the first time we

1375
01:18:23,800 --> 01:18:25,559
Speaker 1: got in a boat together was forty one years ago.

1376
01:18:26,000 --> 01:18:29,559
Speaker 1: Oh really, which so it's pretty cool to reunite. And

1377
01:18:29,560 --> 01:18:31,639
Speaker 1: then I'm going to row with another group of alumni

1378
01:18:32,120 --> 01:18:35,240
Speaker 1: from do they all still still stay active rowing? They do?

1379
01:18:35,560 --> 01:18:38,360
Speaker 1: And and what we do is we we all try

1380
01:18:38,360 --> 01:18:42,640
Speaker 1: to get together and race this race in Boston periodically.

1381
01:18:43,280 --> 01:18:45,960
Speaker 1: And then UM. The other thing I do UM with

1382
01:18:46,080 --> 01:18:49,400
Speaker 1: actually a number of my Vanguard colleagues is I bicycle

1383
01:18:50,160 --> 01:18:54,160
Speaker 1: and we typically do one or two charity events in

1384
01:18:54,160 --> 01:18:57,240
Speaker 1: the summer to raise money for cancer. There's one in

1385
01:18:57,280 --> 01:19:00,920
Speaker 1: Massachusetts that's again you love it from um UM. Just

1386
01:19:00,960 --> 01:19:05,439
Speaker 1: an economics standpoint, forty million dollars raised in one weekend.

1387
01:19:06,080 --> 01:19:09,439
Speaker 1: That's big to benefit Dana Farber and cancer research and

1388
01:19:09,520 --> 01:19:13,320
Speaker 1: in particular a lot of emphasis on pediatric cancer and

1389
01:19:13,600 --> 01:19:16,400
Speaker 1: UM it's a really cool event. And I think this

1390
01:19:16,439 --> 01:19:18,320
Speaker 1: past year we probably had ten or twelve of us

1391
01:19:18,400 --> 01:19:20,200
Speaker 1: go up and do it. So how do how does

1392
01:19:20,240 --> 01:19:23,040
Speaker 1: the money raising work? Is it a per mile per that?

1393
01:19:23,880 --> 01:19:25,840
Speaker 1: However you want to do it, you're you, You you

1394
01:19:25,920 --> 01:19:29,320
Speaker 1: tell the organization you will raise a minimum of I

1395
01:19:29,360 --> 01:19:32,040
Speaker 1: think the minimum is probably four or five dollars now,

1396
01:19:32,720 --> 01:19:36,800
Speaker 1: and you get sponsors, friends. You know, I tend to

1397
01:19:36,880 --> 01:19:38,920
Speaker 1: my wife and I tend to you know, it's cancer

1398
01:19:38,960 --> 01:19:40,760
Speaker 1: research pretty important to us, so we tend to do

1399
01:19:40,800 --> 01:19:44,959
Speaker 1: it ourselves. But everybody has their own approach. And UM,

1400
01:19:45,040 --> 01:19:47,679
Speaker 1: it makes you train, you know. You it's two hundred

1401
01:19:47,680 --> 01:19:51,320
Speaker 1: miles and two days double centurion. That's pretty impressive. So

1402
01:19:51,400 --> 01:19:55,320
Speaker 1: you know, I can't fake it through that anymore. So, UM,

1403
01:19:55,760 --> 01:20:01,040
Speaker 1: I've got to do so again. Long rides on the weekend. Then, UM,

1404
01:20:01,120 --> 01:20:03,080
Speaker 1: we have a gym on campus. I'll do a spinning

1405
01:20:03,080 --> 01:20:05,280
Speaker 1: class a couple of times a week. So there's really

1406
01:20:05,280 --> 01:20:07,519
Speaker 1: a lot of you're you're getting ready to do. That's

1407
01:20:07,520 --> 01:20:09,840
Speaker 1: a that's a big ride, a hundred miles a day.

1408
01:20:09,920 --> 01:20:15,400
Speaker 1: But you know, to your original question, UM, I find that. Um,

1409
01:20:15,439 --> 01:20:17,600
Speaker 1: And this was a lesson I learned from Jack Brennan.

1410
01:20:18,080 --> 01:20:23,920
Speaker 1: The discipline is staying UM fit has helped me immeasurably

1411
01:20:24,080 --> 01:20:27,519
Speaker 1: career wise. UM, you don't get sick as often. You

1412
01:20:28,080 --> 01:20:30,640
Speaker 1: understandina is great. You know when you go through crises,

1413
01:20:30,720 --> 01:20:33,160
Speaker 1: you you know, long days just sort of bounce off you.

1414
01:20:34,000 --> 01:20:37,040
Speaker 1: And so to me, it's become very self reinforcing of

1415
01:20:37,400 --> 01:20:40,320
Speaker 1: kind of basic leadership principles. You know something that you

1416
01:20:40,360 --> 01:20:42,800
Speaker 1: want to emulate to other people, do it, so you

1417
01:20:42,840 --> 01:20:44,360
Speaker 1: have to take care of yourself so you can take

1418
01:20:44,400 --> 01:20:48,160
Speaker 1: care of business. That makes sense. Our last two and

1419
01:20:48,360 --> 01:20:51,840
Speaker 1: favorite questions what sort of advice would you give to

1420
01:20:51,920 --> 01:20:54,760
Speaker 1: a millennial or a recent college graduate who might be

1421
01:20:54,840 --> 01:20:58,880
Speaker 1: interested in going into the field of finance or investment management.

1422
01:20:59,640 --> 01:21:02,920
Speaker 1: So I think it's a really interesting time UM for that.

1423
01:21:03,120 --> 01:21:07,160
Speaker 1: And you know, I first I'd always tell them whatever

1424
01:21:07,960 --> 01:21:10,120
Speaker 1: sector they're going into, the accounty, but in particular and

1425
01:21:10,120 --> 01:21:13,800
Speaker 1: financial services, find a place where your values match up,

1426
01:21:14,400 --> 01:21:18,160
Speaker 1: so you know, really probe a lot around the values

1427
01:21:18,200 --> 01:21:20,160
Speaker 1: of a firm, and you've got to go to a

1428
01:21:20,160 --> 01:21:24,759
Speaker 1: place that you're comfortable with and where your values really

1429
01:21:24,800 --> 01:21:29,000
Speaker 1: match up. I think very related UM is have a

1430
01:21:29,000 --> 01:21:31,960
Speaker 1: passion for it too. UM don't do anything just for

1431
01:21:32,000 --> 01:21:35,040
Speaker 1: the paycheck, UM. And you know sometimes I mean, you

1432
01:21:35,080 --> 01:21:36,800
Speaker 1: know what it's like coming out of school, You're in

1433
01:21:36,840 --> 01:21:39,679
Speaker 1: debt and you're you're you're tempted to just do whatever

1434
01:21:39,840 --> 01:21:44,559
Speaker 1: to to to h to meet those those obligations. But

1435
01:21:44,640 --> 01:21:47,200
Speaker 1: I think passion is really important. You know, when I

1436
01:21:47,200 --> 01:21:49,200
Speaker 1: first came out of school, I did have a passion

1437
01:21:49,280 --> 01:21:51,400
Speaker 1: around education. So you know, the first couple of years

1438
01:21:51,400 --> 01:21:54,840
Speaker 1: for me, you know, I got to fulfill that. You know,

1439
01:21:54,920 --> 01:21:59,920
Speaker 1: my first for a into finance, I wasn't is connected

1440
01:22:00,360 --> 01:22:04,439
Speaker 1: um from a mission standpoint, and it was finding vanguard

1441
01:22:04,439 --> 01:22:07,040
Speaker 1: that really reinforced how important that is. I was just

1442
01:22:07,080 --> 01:22:10,439
Speaker 1: so much happier about the work makes sense. And our

1443
01:22:10,560 --> 01:22:13,479
Speaker 1: final question, what is it that you know about the

1444
01:22:13,479 --> 01:22:17,800
Speaker 1: world of investing and running a company today that you

1445
01:22:17,880 --> 01:22:22,840
Speaker 1: wish you knew thirty years ago? Thirty years ago? Um,

1446
01:22:23,400 --> 01:22:27,960
Speaker 1: crazy number? Right, Yeah. I I think the speed with

1447
01:22:28,040 --> 01:22:33,160
Speaker 1: which technology is evolving UM is much. And you know,

1448
01:22:33,200 --> 01:22:35,639
Speaker 1: here for a science fiction guy to admit this, it's

1449
01:22:35,680 --> 01:22:37,880
Speaker 1: really hard. But I didn't see it all coming as

1450
01:22:37,960 --> 01:22:40,680
Speaker 1: fast as it came. And I think it's because it's

1451
01:22:40,720 --> 01:22:43,439
Speaker 1: not linear. I don't think humans are wired to think

1452
01:22:43,479 --> 01:22:48,160
Speaker 1: exponentially Um, just the smartphone was such a people don't

1453
01:22:48,200 --> 01:22:50,120
Speaker 1: realize there's more power in this than went to them

1454
01:22:50,160 --> 01:22:53,759
Speaker 1: took men to the moon, and it's amazing how that's changed,

1455
01:22:54,200 --> 01:22:57,200
Speaker 1: you know, not having as good an appreciation about that.

1456
01:22:57,320 --> 01:23:01,519
Speaker 1: And then I think it's probably related. But the globalization

1457
01:23:01,920 --> 01:23:07,320
Speaker 1: that's occurred, especially the last decade. UM, it's spectacular, but

1458
01:23:07,439 --> 01:23:10,120
Speaker 1: also you know, it's it comes with challenges, with a

1459
01:23:10,120 --> 01:23:14,120
Speaker 1: lot of challenges, and I think that's really um. You know,

1460
01:23:14,160 --> 01:23:17,320
Speaker 1: if I could go back in time and anticipate that

1461
01:23:17,360 --> 01:23:19,920
Speaker 1: a little better, I think I would have made smarter

1462
01:23:20,040 --> 01:23:22,599
Speaker 1: decisions in terms of helping us as a firm think

1463
01:23:22,640 --> 01:23:24,960
Speaker 1: through some of those things. I think we've done okay,

1464
01:23:25,160 --> 01:23:29,600
Speaker 1: But you know it's it's. Um. Those two phenomena, the

1465
01:23:29,640 --> 01:23:33,559
Speaker 1: acceleration of technology and globalization, again probably very inter related.

1466
01:23:34,600 --> 01:23:38,600
Speaker 1: They they really are defining our era in in so

1467
01:23:38,640 --> 01:23:40,000
Speaker 1: many ways, and I think they're going to define the

1468
01:23:40,000 --> 01:23:43,960
Speaker 1: next ten years too. I don't doubt it for a second. Bill,

1469
01:23:44,000 --> 01:23:47,080
Speaker 1: Thank you for being so generous with your time we

1470
01:23:47,200 --> 01:23:49,000
Speaker 1: have been speaking. I want to make sure I say

1471
01:23:49,000 --> 01:23:51,439
Speaker 1: this right. Is it William McNabb The third because I

1472
01:23:51,520 --> 01:23:54,240
Speaker 1: keep calling you Bill, Bill, is what I prefer. Okay,

1473
01:23:54,800 --> 01:23:58,080
Speaker 1: it's technically Frederick William the third, and my mother insisted

1474
01:23:58,320 --> 01:24:00,960
Speaker 1: that i'd be Bill Um since my father was fred

1475
01:24:01,280 --> 01:24:04,880
Speaker 1: All right, that works. If you enjoy this conversation, be

1476
01:24:04,920 --> 01:24:06,679
Speaker 1: sure and look up an inch or down an inch

1477
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Speaker 1: on Apple iTunes and you can see any of the

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01:24:09,120 --> 01:24:13,960
Speaker 1: other hundred and eight or so. Uh such conversations we've had. Uh.

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Speaker 1: If you want more information on Vanguard, UH, they're a

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01:24:17,479 --> 01:24:19,920
Speaker 1: small company in Pennsylvania, you could go to Vanguard dot

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01:24:20,000 --> 01:24:23,519
Speaker 1: com and learn all about them. I would be remiss

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01:24:23,640 --> 01:24:27,280
Speaker 1: if I failed to thank Taylor Riggs, our booker, Michael

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01:24:27,320 --> 01:24:30,840
Speaker 1: bat Nick, my head of research, and Charlie Volmer, our

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Speaker 1: recording engineer. We love your comments, feedbacks and suggestions, and

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01:24:35,720 --> 01:24:38,679
Speaker 1: if you've made it this far into the podcast, we'd

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01:24:38,680 --> 01:24:41,840
Speaker 1: love to hear from you right to us at m

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Speaker 1: IB podcast at Bloomberg dot net. I'm Barry rid Holtz.

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01:24:46,240 --> 01:24:49,960
Speaker 1: You've been listening to Masters in Business on Bloomberg Radio,

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01:24:53,040 --> 01:24:56,160
Speaker 1: brought to you by Bank of America. Merrill Lynch, committed

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01:24:56,200 --> 01:24:59,200
Speaker 1: to bringing higher finance to lower carbon named the most

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01:24:59,240 --> 01:25:02,680
Speaker 1: innovative and spent bank for Climate change and Sustainability by

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01:25:02,680 --> 01:25:06,120
Speaker 1: the Banker that's the power of global connections. Bank of

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Speaker 1: America North America member f d I C