WEBVTT - Interview With William McNabb: Masters in Business (Audio) 0:00:00.120 --> 0:00:03.119 Brought to you by Bank of America. Merrill Lynch seeing 0:00:03.120 --> 0:00:06.040 what others have seen, but uncovering what others may not. 0:00:06.519 --> 0:00:10.240 Global Research that helps you harness disruption. Voted top global 0:00:10.280 --> 0:00:13.840 research firm five years running. Merrill Lynch, Pierre, Spinner and 0:00:13.880 --> 0:00:21.320 Smith Incorporated. This is Masters in Business with Barry Ridholes 0:00:21.320 --> 0:00:25.600 on Bloomberg Radio. This week on the podcast, I have 0:00:25.800 --> 0:00:30.520 a spectacular guest. I have a very special guest. His 0:00:30.640 --> 0:00:35.680 name is Bill McNabb. He is chairman and CEO of 0:00:35.800 --> 0:00:39.280 the Vanguard Group, a small little shop in Pennsylvania that 0:00:39.400 --> 0:00:44.040 runs about four trillion dollars um. This is one of 0:00:44.120 --> 0:00:47.120 the few guests we've had back for a second time. 0:00:47.159 --> 0:00:50.639 We had him on eighteen months ago, and there's almost 0:00:50.680 --> 0:00:56.160 no overlap between the two interviews. If you are either 0:00:56.760 --> 0:01:02.600 an individual investor, an institutional investor, a registered investment advisor, 0:01:02.920 --> 0:01:06.959 or a broker, this is a conversation you're going to 0:01:07.080 --> 0:01:10.880 want to hear. This might be one of the most 0:01:11.080 --> 0:01:16.560 influential people in all of finance. Certainly, Vanguard has become 0:01:17.240 --> 0:01:19.800 one of the most influential shops there are. It's called 0:01:19.840 --> 0:01:24.160 the Vanguard effect. Any space they step into sees costs 0:01:24.240 --> 0:01:28.880 to investors Plummet. A Bloomberg article not too long ago 0:01:29.280 --> 0:01:35.600 estimated that Vanguard has helped pull forty billion dollars in 0:01:35.720 --> 0:01:39.200 fees out of wall streets pockets and and put it 0:01:39.280 --> 0:01:43.200 in the hands of investors by not only them charging 0:01:43.200 --> 0:01:47.440 a very low price, but by the competition being forced 0:01:47.480 --> 0:01:52.200 to compete with Vanguard and lower their fees. I'm gonna 0:01:52.240 --> 0:01:56.400 make two recommendations for those of you who are listening 0:01:56.440 --> 0:02:00.400 to this. First, listen to the podcast. Enjoy it. He's 0:02:00.440 --> 0:02:05.520 incredibly knowledgeable and eloquent, and I loved having a conversation 0:02:05.560 --> 0:02:09.640 with him. But second, go back onto iTunes or SoundCloud 0:02:09.840 --> 0:02:13.280 or the Big Picture at Reholts dot com and and 0:02:13.480 --> 0:02:18.320 pull out that previous conversation. I'll link to it on 0:02:18.360 --> 0:02:20.839 the blog when when I when I write about this, 0:02:22.480 --> 0:02:24.960 you should really listen to both of these. They are 0:02:25.160 --> 0:02:30.280 master class in the business of running an investment business. 0:02:30.320 --> 0:02:33.960 There's there's none better than Bill McNabb. With no further ado, 0:02:34.440 --> 0:02:38.880 my conversation with Vanguard Groups CEO and chairman, Bill McNabb. 0:02:42.160 --> 0:02:46.480 This is master's in business with Barry Ridholts on Bloomberg Radio. 0:02:46.960 --> 0:02:50.480 I'm Barry Ridholts. You're listening to Masters in Business on 0:02:50.560 --> 0:02:55.359 Bloomberg Radio. My special guest this week is a returning guest. 0:02:55.919 --> 0:02:59.919 His name is William McNabb. He is Chairman and see 0:03:00.040 --> 0:03:04.640 EO of the Vanguard Group, which currently manages just about 0:03:04.720 --> 0:03:08.839 four trillion dollars. That's trillion with the t uh. Bill 0:03:08.880 --> 0:03:12.600 has been with the Vanguard Group since so his thirtieth 0:03:12.680 --> 0:03:16.200 anniversary was not too long ago. He became CEO in 0:03:16.280 --> 0:03:19.120 two thousand and eight and chairman in oh nine. And 0:03:19.200 --> 0:03:23.920 he is the third CEO and Vanguard's history, following Jack 0:03:24.000 --> 0:03:28.000 Brennan before him, and prior to that, uh, a gentleman 0:03:28.080 --> 0:03:31.880 named John Bogel, the founder of Vanguard. Bill McNabb, welcome 0:03:31.919 --> 0:03:34.200 to Bloomberg. Great to be here, Barry, Thanks, and I 0:03:34.200 --> 0:03:37.680 should say welcome back to Bloomberg. Uh. The last time 0:03:37.680 --> 0:03:41.080 we had a conversation, it was really quite fascinating. So 0:03:41.280 --> 0:03:45.280 I want to jump right into some of the really 0:03:45.320 --> 0:03:48.560 interesting going zones these days and and get the Vanguard 0:03:48.680 --> 0:03:52.960 perspective of things. Uh, let's jump right to your competitors. 0:03:53.200 --> 0:03:55.480 How do you see the lay of the lands when 0:03:55.520 --> 0:03:58.440 it comes to managing other people's money? So I think 0:03:58.480 --> 0:04:01.280 what we're seeing right now, say, um, you know, there's 0:04:01.320 --> 0:04:04.160 a secular change that's gone on and will continue to 0:04:04.160 --> 0:04:06.400 go on in terms of costs being a much more 0:04:06.440 --> 0:04:10.520 important component of investing. Obviously that's played out most purely 0:04:10.640 --> 0:04:14.480 with indexing firms doing better. But I think it's gonna 0:04:14.560 --> 0:04:19.120 lead to further consolidation in the industry. UM. So you know, 0:04:19.160 --> 0:04:22.600 we saw a week ago Janis and Henderson UM big 0:04:22.760 --> 0:04:26.159 big merger that was clearly uh, let's get more economies 0:04:26.160 --> 0:04:28.560 of scale kind of play. I think more of that 0:04:28.600 --> 0:04:31.719 may happen. UM. I also think that you will see 0:04:32.520 --> 0:04:35.480 UM on the other side of it, maybe some boutiques 0:04:35.520 --> 0:04:38.240 emerge who are more specialized, and so you you may 0:04:38.320 --> 0:04:40.680 end up with a more barbeled industry where you've got 0:04:40.720 --> 0:04:43.600 a lot of really you know, nimble small players and 0:04:44.080 --> 0:04:46.839 you know some some larger players who can really exploit 0:04:46.839 --> 0:04:50.680 economies of scale. So is it all about the economies 0:04:50.680 --> 0:04:53.440 of scale or when we look at let's look at 0:04:53.440 --> 0:04:57.360 some of your competitors who are Giant, black Rock, Pimco, 0:04:57.680 --> 0:05:00.720 State Street, these are all trillion all the firms there 0:05:00.720 --> 0:05:04.640 are probably close to a dozen trillion dollar asset managers 0:05:04.680 --> 0:05:07.440 around the world. Is that the cost of admission these 0:05:07.520 --> 0:05:10.080 days in order to to get to where you can 0:05:10.160 --> 0:05:14.280 start driving costs now for investors, you know, I think, um, 0:05:14.320 --> 0:05:16.320 I think you could do it at lower levels than that, 0:05:16.440 --> 0:05:19.159 but certainly when you're at that kind of level, UM, 0:05:19.240 --> 0:05:21.760 you know, you're spreading your fixed costs across a very 0:05:21.839 --> 0:05:25.240 large asset base, and you know that helps. And you know, 0:05:25.279 --> 0:05:29.160 I think Vanguard is like the purest form of transparency 0:05:29.200 --> 0:05:31.360 if you will, into economies of scale, if you look 0:05:31.400 --> 0:05:34.039 at how our costs have come down over time, you 0:05:34.080 --> 0:05:38.120 can see the power of technology, you know, um, spreading 0:05:38.120 --> 0:05:41.799 fixed costs over a broader asset base and so forth. 0:05:42.400 --> 0:05:46.479 It's been called the Vanguard effect, the impact of you 0:05:46.640 --> 0:05:50.680 moving in a particular space. Last time we talked about 0:05:50.720 --> 0:05:54.120 your desire to drive prices lower, but really, how much 0:05:54.120 --> 0:05:56.520 more fat is out there? How much cheaper can invest 0:05:56.520 --> 0:05:59.160 and get It's you know, we're getting down to you know, 0:05:59.320 --> 0:06:02.120 it's an assem taught to kind of relationship at this point. 0:06:02.360 --> 0:06:05.960 And uh, you know, there's room to go, but it's 0:06:06.080 --> 0:06:08.720 not going to be the kind of uh declines we've 0:06:08.760 --> 0:06:11.480 seen in the last decade. Most of the fat has 0:06:11.520 --> 0:06:15.080 been wrong out of I think that's right, But you know, 0:06:15.120 --> 0:06:18.520 again there's still our economies of scale to be gained. Barry. 0:06:18.600 --> 0:06:21.599 You know, I'm such a huge believer in the power 0:06:21.600 --> 0:06:24.560 of technology, and in a sense, I don't know what 0:06:24.640 --> 0:06:28.680 I don't know. And the more you see, UM in 0:06:28.720 --> 0:06:31.599 the technology arena, you know, some of the new things 0:06:31.600 --> 0:06:34.040 that are emerging, you know, the use of big data, 0:06:34.520 --> 0:06:37.400 that the emergence of the cloud. Um, I'm not sure 0:06:37.440 --> 0:06:40.440 we even know what we can do going forward. And 0:06:40.560 --> 0:06:42.120 you know we're spending a lot of time and effort 0:06:42.480 --> 0:06:45.600 in that arena as well. So we're gonna talk more 0:06:45.640 --> 0:06:50.839 about technology, UM shortly. When what about the people who 0:06:50.839 --> 0:06:53.760 are running some of your competitors. Do you ever get 0:06:53.800 --> 0:06:57.800 to chat with the Larry Fins and the Bill Grosses 0:06:57.880 --> 0:07:01.520 of the world. So I was until just a couple 0:07:01.560 --> 0:07:04.480 of weeks ago chairman of the Investment Company Institute, which 0:07:04.560 --> 0:07:07.960 is the Mutual Fund trade Association, and as such I 0:07:08.080 --> 0:07:11.120 met with many of the leaders in our industry on 0:07:11.160 --> 0:07:14.480 a very regular basis, and you know, I get a 0:07:14.560 --> 0:07:17.880 chance to you know, talk about industry issues, talk about 0:07:18.280 --> 0:07:23.360 regulatory changes with them. Uh. You know, I think Larry 0:07:23.360 --> 0:07:25.160 and I have actually shared the stage on a couple 0:07:25.160 --> 0:07:28.280 of occasions. UM, talking about governance for example, talking about 0:07:28.320 --> 0:07:31.240 long term versus short term and so yeah, you know, 0:07:31.280 --> 0:07:33.280 you get a chance every now and then to compare notes. 0:07:33.920 --> 0:07:37.000 So we'll talk more about governance UM in a few minutes. 0:07:37.040 --> 0:07:40.000 Let's talk about the Index Fund. It just had a birthday, 0:07:40.000 --> 0:07:44.640 It just celebrated its forty anniversary. Tell us what what 0:07:44.760 --> 0:07:47.800 that means. You know, it's an amazing thing. So UM 0:07:47.840 --> 0:07:51.440 and this is really the power of Jack Bogel's imagination, 0:07:51.480 --> 0:07:54.840 if you will, in the ninety six so Jack, you know, 0:07:54.920 --> 0:07:57.800 had this concept UM that he had written about extensively 0:07:57.880 --> 0:07:59.800 that you know, this idea of a broad market in 0:08:00.200 --> 0:08:03.880 might make sense, as you know from the history um 0:08:04.040 --> 0:08:06.280 Wells Fargo in particular, I think did some work on 0:08:06.320 --> 0:08:09.160 the pension area, and you know the first separate account. 0:08:09.720 --> 0:08:12.280 And what Jack did was he said, if it's good 0:08:12.360 --> 0:08:16.280 enough for a sophisticated institution, why not for everybody? And 0:08:16.320 --> 0:08:18.360 that was really the concept. And you know when it 0:08:18.440 --> 0:08:22.400 was first introduced in seventy six, people laughed at it. 0:08:22.440 --> 0:08:25.520 They said, it's you know, mediocrity, it's never gonna work 0:08:26.320 --> 0:08:30.200 on American w Jack actually has hanging outside his office 0:08:30.800 --> 0:08:34.000 a print of an ed taken tell us about that. 0:08:34.200 --> 0:08:38.320 So Yeah, it was UM. You know this this because 0:08:38.360 --> 0:08:42.080 it was viewed as almost communistic, UM people called it 0:08:42.120 --> 0:08:44.720 on American And you know, for Jack, it was always 0:08:44.720 --> 0:08:46.560 a game of math. You know, at the end of 0:08:46.600 --> 0:08:49.800 the day, UM investing was going to become a zero 0:08:49.840 --> 0:08:54.360 sum game. And eventually, when you looked at active versus 0:08:54.400 --> 0:08:58.640 index on average, the index guys were gonna win UM 0:08:58.679 --> 0:09:00.439 just because both were gonna add up to the market 0:09:00.440 --> 0:09:02.440 and one had a much higher cost structure than the other. 0:09:02.559 --> 0:09:05.600 I'm Barry Ri Hults. You're listening to Masters in Business 0:09:05.600 --> 0:09:09.600 on Bloomberg Radio. My special guests this week is Bill McNab. 0:09:09.720 --> 0:09:13.560 He is chairman and CEO of the Vanguard Group, which 0:09:13.640 --> 0:09:18.640 manages about four trillion dollars. And let's talk about the 0:09:18.720 --> 0:09:21.600 size of van going and what that means. You guys 0:09:21.720 --> 0:09:26.000 essentially own about five percent of just about every publicly 0:09:26.040 --> 0:09:32.160 traded company in America and some proportion of non US equities. 0:09:33.360 --> 0:09:37.080 What does that due to your thinking about corporate governance issues? 0:09:37.160 --> 0:09:39.640 You guys really are the eight hundred pound gerrilla when 0:09:39.640 --> 0:09:41.839 it comes to that. You know, I think for us, 0:09:41.880 --> 0:09:46.720 Barry it it really underscores the unbelievable responsibility we have 0:09:47.000 --> 0:09:49.880 you know, it's we're here representing, you know, the hopes 0:09:49.880 --> 0:09:53.240 and dreams of millions of investors who have entrusted they're 0:09:53.240 --> 0:09:56.240 hard earned assets into our funds. And so we've got 0:09:56.240 --> 0:09:59.680 to make sure that the port the constituent portfolio companies 0:09:59.679 --> 0:10:03.200 are being governed in in a sense with long term 0:10:03.280 --> 0:10:07.720 value creation for the end investor as a very big goal. 0:10:08.559 --> 0:10:10.400 And we've had to up our game. We've had to 0:10:10.440 --> 0:10:13.960 increase our staff who engage in this. You know, the 0:10:14.000 --> 0:10:17.160 difference between us and say a traditional active manager, and 0:10:17.480 --> 0:10:20.320 we do have as you know, traditional active third at 0:10:21.520 --> 0:10:24.360 that's that's still a trillion and changed a lot of money, um. 0:10:24.760 --> 0:10:27.840 But on the index side, we're a permanent holder of 0:10:27.880 --> 0:10:30.440 these of these companies and so you have to You 0:10:30.480 --> 0:10:32.160 can't sell the stock if you're not happy with the 0:10:32.160 --> 0:10:35.040 way the company is performing, but you can agitate if 0:10:35.080 --> 0:10:38.240 there's something we could talk about gap accounting or stock 0:10:38.280 --> 0:10:42.080 options or CEO pay if you if Vanguard says we're 0:10:42.120 --> 0:10:48.520 not happy about this, you're not a entity without resources. 0:10:48.600 --> 0:10:51.880 So and that's a really good segue into what I 0:10:51.880 --> 0:10:55.000 think has been one of the really interesting evolutions in 0:10:55.000 --> 0:10:56.760 the last couple of years, and it's been this whole 0:10:56.800 --> 0:11:00.160 concept of shareholder engagement and one of the things we 0:11:00.280 --> 0:11:03.160 really did agitate for. And you know, we we get 0:11:03.200 --> 0:11:05.520 a couple of us gave talks on this maybe to 0:11:05.720 --> 0:11:09.280 three years ago, and we've really seen a change in 0:11:09.280 --> 0:11:12.240 the way boards are working as a result, we said, 0:11:12.440 --> 0:11:15.880 you need to engage with your big owners, not just Vanguard, 0:11:15.880 --> 0:11:19.320 but anybody who owns a significant UM steak, and you 0:11:19.400 --> 0:11:22.400 need to be thinking about how are you creating long 0:11:22.480 --> 0:11:25.400 term value not short term. No one's interested in the 0:11:25.440 --> 0:11:27.720 short term here. And so we have a set of 0:11:27.720 --> 0:11:30.600 principles that we ask people to follow in terms of governance. 0:11:30.600 --> 0:11:32.800 And that's the first sort of screen for us is 0:11:32.920 --> 0:11:35.200 what what sort of principles? So you know, we we 0:11:35.280 --> 0:11:39.600 want UM transparent, transparency. We want the board you know, 0:11:39.679 --> 0:11:43.280 composition to be right. We want the UM defined by 0:11:43.320 --> 0:11:45.640 what do you mean by right, you know, a complementary 0:11:45.679 --> 0:11:48.680 set of skills, UM independent not not just golf buddies 0:11:48.720 --> 0:11:52.520 of the CEO totally and and real independence. And we 0:11:52.559 --> 0:11:55.719 want there to be linkages between executive pay and long 0:11:55.840 --> 0:11:59.040 term value creation and not short term so another word, 0:11:59.559 --> 0:12:01.960 not pay people on the basis of how well the 0:12:02.080 --> 0:12:05.560 SMP has done recently, because that seems by just granting 0:12:05.600 --> 0:12:09.760 stock options, you basically compensating executives for what the stock 0:12:09.800 --> 0:12:13.640 market does, not how their company does relative to everybody else, Right, 0:12:13.679 --> 0:12:15.600 And you know you've actually written a fair amount of 0:12:15.600 --> 0:12:18.160 this in your blog, and you know, I'm, as you know, 0:12:18.200 --> 0:12:20.360 I'm in big agreement with a lot of your points 0:12:20.360 --> 0:12:24.880 there that in the eighties and nineties, in particular, especially 0:12:24.880 --> 0:12:28.000 in the nineties after the compensation rules changed, um, there 0:12:28.040 --> 0:12:30.920 were a lot of just blanket granting of options and 0:12:30.960 --> 0:12:34.440 it really was a rising tide and closed to performance 0:12:34.679 --> 0:12:39.360 really driving it. Talk about unanticipated effects of a legislative 0:12:39.440 --> 0:12:41.640 change for those those folks who may not be aware 0:12:41.679 --> 0:12:45.800 of this. We changed the rules on exact compensation in 0:12:45.840 --> 0:12:50.000 the United States. We capped dollar compensation and pretty much 0:12:50.280 --> 0:12:54.360 allowed unlimited stock option compensation, and so people were paid 0:12:54.920 --> 0:12:57.280 not based on how well the company did, but how 0:12:57.280 --> 0:13:00.880 well the stock market did. So, so what can Vanguard 0:13:00.960 --> 0:13:04.240 do and what what can a board do to to 0:13:04.360 --> 0:13:06.520 change that? So I think what boards have been doing, 0:13:06.559 --> 0:13:08.480 and you know, there's actually been a couple of academic 0:13:08.520 --> 0:13:10.960 studies recently that have pointed out that there's been real 0:13:11.000 --> 0:13:13.560 progress here is they have been doing a better job 0:13:13.640 --> 0:13:18.559 defining longer term objectives for the company and linking executive 0:13:18.600 --> 0:13:22.280 pay to those objectives, and you're seeing less use of options, 0:13:22.320 --> 0:13:25.320 more use of restricted stock grants, and the grants are 0:13:25.360 --> 0:13:28.240 made only if certain objectives are achieved, and then the 0:13:28.320 --> 0:13:31.360 vesting on those grants may actually take place over pretty 0:13:31.400 --> 0:13:35.679 long periods of time. We think that's actually helping drive 0:13:36.360 --> 0:13:39.800 executive teams to think longer term. It's still not you know, 0:13:40.080 --> 0:13:42.480 we we it's not universal, and it's not where it 0:13:42.480 --> 0:13:44.640 should be. It's not where it should be. M there's 0:13:44.679 --> 0:13:46.760 still too much short termism in the market. Is it? 0:13:46.840 --> 0:13:49.719 Is it safe to say you were in agreement with 0:13:49.920 --> 0:13:53.120 the Larry Fink letter of black Rock basically went out 0:13:53.120 --> 0:13:57.360 to the SMP five hundred and some big European companies saying, hey, 0:13:57.440 --> 0:13:59.760 you're too focused on the quarter and you're none of 0:13:59.800 --> 0:14:01.400 the thing in R and D and you're not thinking 0:14:01.400 --> 0:14:04.040 long term. Yeah. I I give Larry and Blackrock a 0:14:04.040 --> 0:14:06.559 lot of credit for that letter. It was very complimentary 0:14:06.640 --> 0:14:09.120 actually to the letter. The last couple of letters we'd 0:14:09.160 --> 0:14:12.040 sent out, you know, we had um really emphasized with 0:14:12.160 --> 0:14:17.720 our portfolio companies that think long term and you know, 0:14:17.800 --> 0:14:20.880 we we really stressed the need for better engagement. You know, 0:14:20.960 --> 0:14:24.120 he hit particularly hard on the long term issues, and 0:14:24.440 --> 0:14:27.120 you know, I think together it's actually a pretty good message. 0:14:27.880 --> 0:14:31.120 So let's talk a little bit about UM other issues 0:14:31.200 --> 0:14:33.840 in in corporate governance. What do you think about E 0:14:34.080 --> 0:14:38.800 s G investing, Environmental, sustainable and governance seems to be 0:14:38.840 --> 0:14:42.040 a rising UH theme these days. I think it's a 0:14:42.160 --> 0:14:45.320 very complex topic, you know, So UM, I can tell 0:14:45.360 --> 0:14:48.760 you my my mailbox is filled UM every week with 0:14:48.880 --> 0:14:53.920 different UM constituencies having particular social issues UM that they 0:14:53.920 --> 0:14:57.240 want to expressed in the way we run money. Actually, 0:14:57.240 --> 0:14:58.760 I think if I added it all up, we would 0:14:58.760 --> 0:15:01.240 exclude almost every company in the S and P five hundred. 0:15:01.760 --> 0:15:03.880 So one of the things we've done is we created 0:15:04.280 --> 0:15:08.000 UM a socially responsible index fund, the foot see and 0:15:08.120 --> 0:15:09.840 foot See, and you know it hits some of your 0:15:09.880 --> 0:15:13.120 big screens, and I think it's been successful at meeting 0:15:13.160 --> 0:15:16.760 a lot of investor needs we see UM. You know, 0:15:16.760 --> 0:15:19.080 it's a it's a fairly significant fund at this point. 0:15:19.320 --> 0:15:21.880 Is that only European or is that US or global? 0:15:22.120 --> 0:15:26.400 It's actually UM, it is a global phenomenon, and I 0:15:26.440 --> 0:15:29.280 could see US doing more in that product space over time, 0:15:29.360 --> 0:15:32.440 you know, perhaps adding a couple of more complementary kinds 0:15:32.480 --> 0:15:36.920 of offerings. I will say that the other evolution in 0:15:37.040 --> 0:15:40.760 E s G for us is looking at sort of 0:15:40.840 --> 0:15:43.480 broad E s G principles and how do they affect 0:15:43.600 --> 0:15:46.600 long term value creation? And so you know, the easy 0:15:46.640 --> 0:15:49.040 example would be if you have a company who's got 0:15:49.040 --> 0:15:53.080 a bad track record in terms of environmental issues. What 0:15:53.280 --> 0:15:54.960 you know is that's going to hurt the stock price 0:15:55.000 --> 0:15:57.640 over the long run. It's a cost that will eventually 0:15:57.640 --> 0:16:00.440 come back to it is and you see it time 0:16:00.480 --> 0:16:03.920 after time. So one of the things you can agitate 0:16:04.000 --> 0:16:06.200 for as a large owner is, hey, let's make sure 0:16:06.240 --> 0:16:11.040 we've got a long term environmentally sound set of principles 0:16:11.040 --> 0:16:14.080 that were operating under so the shareholder doesn't bear the 0:16:14.160 --> 0:16:17.400 brunt of that cost down the road. UM. That's you 0:16:17.440 --> 0:16:21.360 know that there's judgment involved there obviously in terms of 0:16:21.360 --> 0:16:25.240 how you actually have those conversations. But we're finding companies 0:16:25.280 --> 0:16:27.960 are actually doing a better job beginning to disclose that. 0:16:28.000 --> 0:16:30.560 You're seeing it more and more in UM some of 0:16:30.600 --> 0:16:32.680 the management write ups and so forth, in the proxy 0:16:32.680 --> 0:16:36.000 statements and in the annual reports. Might we see a 0:16:36.360 --> 0:16:39.960 US version of the Footsie E s G portfolio anytime. 0:16:40.000 --> 0:16:44.280 So yeah, I mean we we clearly will have I 0:16:44.320 --> 0:16:48.000 think a range of opportunities for people. I'm Barry rid Hults. 0:16:48.160 --> 0:16:52.000 You're listening to Masters in Business on Bloomberg Radio. My 0:16:52.080 --> 0:16:56.200 special guest today is William McNabb. He is CEO and 0:16:56.320 --> 0:17:00.760 chairman of the Vanguard Group. They manage about four trillion 0:17:00.800 --> 0:17:05.720 dollars and he is the third CEO, following Jack Brennan 0:17:05.920 --> 0:17:11.200 and Vanguard founder Jack Bogel. Um. So, Bill, let's let's 0:17:11.240 --> 0:17:14.520 talk a little bit about technology. You referenced it earlier, 0:17:14.600 --> 0:17:19.800 the impact of it, what's the potential upside for technology 0:17:19.920 --> 0:17:24.719 as well as the downside uh that technology presents. So 0:17:24.800 --> 0:17:28.280 we've historically approached technology as needing to do one of 0:17:28.359 --> 0:17:33.879 three things. You know, First, um, create automation where automation 0:17:34.000 --> 0:17:36.359 is possible, so you can generate economies of scale for 0:17:36.440 --> 0:17:40.760 your investors. That's kind of classic automate things that are, um, 0:17:40.800 --> 0:17:43.639 you know, very manual in nature, you know. Second, can 0:17:43.680 --> 0:17:46.320 you use technology to make your people better, so better 0:17:46.520 --> 0:17:48.800 systems so that when you're talking to clients over the 0:17:48.800 --> 0:17:52.119 phone or you're doing you know, increasingly video conferencing and 0:17:52.160 --> 0:17:54.720 so forth with them. You're you're it's a better experience. 0:17:55.080 --> 0:17:56.720 And then the third is how do you make it 0:17:56.760 --> 0:18:00.879 more convenient for your investors. So we been, you know, 0:18:01.040 --> 0:18:04.720 historically trying to I'll say, you know, Bucket are investing 0:18:04.840 --> 0:18:08.560 that way, and it's been it's been pretty productive for us. UM. 0:18:08.600 --> 0:18:11.320 You know, one of the figures I always love to 0:18:11.520 --> 0:18:15.119 describe to people is UM in two thousand, the Internet 0:18:15.160 --> 0:18:16.760 was just starting to take hold. We had about five 0:18:17.080 --> 0:18:20.679 billion dollars under management, twelve thousand people. You know, today 0:18:20.680 --> 0:18:23.240 we're a little less than fifteen thousand people and we have, 0:18:23.400 --> 0:18:27.960 as you referenced, nearly four trillion. So technology has actually 0:18:28.000 --> 0:18:30.399 made that possible. So it's an eight fold increase in 0:18:30.440 --> 0:18:34.760 assets and you're barely a increase in in personnel. Yeah, 0:18:34.800 --> 0:18:36.720 and and and as you know, during that period, the 0:18:36.760 --> 0:18:39.680 market hasn't been you know, tremendous lift. There a lot 0:18:39.680 --> 0:18:42.480 of that has just been true organic growth, so we're 0:18:42.480 --> 0:18:45.840 able to do more for people. So, you know, technology 0:18:45.880 --> 0:18:49.479 has just been a phenomenal um tail wind for us, 0:18:49.520 --> 0:18:52.480 if you will, UM the you know, one of the 0:18:53.200 --> 0:18:56.400 challenges I think we see in one particular area, and 0:18:56.720 --> 0:18:58.960 you allude to in your question, is you know, the 0:18:59.080 --> 0:19:04.080 rise of social media and instantaneous information on everything, or 0:19:04.119 --> 0:19:06.639 misinformation or misinformation and as you know, one of the 0:19:06.680 --> 0:19:09.720 new sort of fads out there. Maybe it's more than 0:19:09.760 --> 0:19:11.359 a fad. Maybe it's the way it's going to be. 0:19:12.040 --> 0:19:15.359 Is get the headline out there, or get the item 0:19:15.400 --> 0:19:19.000 out there, and then we'll check for veracity later. And 0:19:19.280 --> 0:19:23.440 we're seeing, you know, when when that kind of information proliferates, 0:19:23.920 --> 0:19:27.439 it really does make investors struggle because you know, they're like, 0:19:27.480 --> 0:19:29.719 what should I do? And of course we're trying to 0:19:29.800 --> 0:19:32.680 console them. Hey, there's noise in in the system here. 0:19:32.800 --> 0:19:35.879 You need to avoid, you know, reacting to that noise. 0:19:36.359 --> 0:19:38.520 But the more there is, the hard artist to make 0:19:38.560 --> 0:19:42.679 that point. Last time we spoke, um two things. First, 0:19:42.840 --> 0:19:46.000 you mentioned the web call you did in the midst 0:19:46.040 --> 0:19:49.239 of the crisis. I would tell listeners go find that. 0:19:49.280 --> 0:19:52.679 It's on iTunes and SoundCloud and Bloomberg dot com and 0:19:52.720 --> 0:19:56.000 listen to that. But you were also just launching your 0:19:56.080 --> 0:20:01.879 robo advisor, your automated investment platform. They've all come to 0:20:01.920 --> 0:20:05.240 me known as a robo advisor. So that was with 0:20:05.320 --> 0:20:08.160 a few billion dollars. How has that been working out 0:20:08.280 --> 0:20:11.679 what what's it managing these days? So we launched at 0:20:11.760 --> 0:20:14.840 last May. So it's about eighteen months now. And as 0:20:14.880 --> 0:20:17.679 you as you allude, we had um sort of a 0:20:17.840 --> 0:20:21.600 legacy business of about ten billion at the time. It's 0:20:21.680 --> 0:20:25.359 now approaching fifty UM in eighteen months. And so I 0:20:25.400 --> 0:20:26.720 lose the bed. I said it was going to be 0:20:26.760 --> 0:20:30.040 a hundred in a year. Well, but um, I think 0:20:30.040 --> 0:20:34.679 you're going to be right directionally though. There's there's tremendous 0:20:34.920 --> 0:20:37.639 appetite for this in the marketplace, and you know, our 0:20:37.800 --> 0:20:41.520 our whole thing was to be able to give really sound, 0:20:41.640 --> 0:20:45.560 personalized advice for very small accounts. You know, we wanted 0:20:45.600 --> 0:20:47.680 somebody with fifty thou dollars to be able to get 0:20:47.680 --> 0:20:49.840 the same kind of service that people with a million 0:20:49.880 --> 0:20:52.160 dollars we're getting just five years ago. So you're you're 0:20:52.200 --> 0:20:55.520 anticipating my next question, which is what sort of pushback 0:20:55.560 --> 0:20:59.200 has there been? Van God is very popular amongst advisors 0:20:59.200 --> 0:21:03.119 who are are based. I know some people complained about it. 0:21:03.400 --> 0:21:06.919 They're obviously not interested in the fifty dollar account, But 0:21:06.960 --> 0:21:08.840 what sort of pushback has there been and what does 0:21:08.920 --> 0:21:12.359 Vanguard say in response to that? So, you know, we'd 0:21:12.359 --> 0:21:15.000 be naive to think there's been no pushback UM, although 0:21:15.200 --> 0:21:17.639 I can you know, the mentions are in the dozens, 0:21:17.720 --> 0:21:20.520 if you will, from advisors. We serve something like fifty 0:21:20.560 --> 0:21:24.320 thou advisors today and I think maybe I've heard from 0:21:24.359 --> 0:21:27.720 a hundred over the course of eighteen months, but you know, 0:21:27.760 --> 0:21:31.560 you take it very seriously. I think that my pushback 0:21:31.640 --> 0:21:35.280 is this technology is upon us, and this this is 0:21:35.320 --> 0:21:37.400 going to happen. You can't just ignore it and hope 0:21:37.400 --> 0:21:39.600 it can't ignore it and hope it goes away. And 0:21:39.640 --> 0:21:41.520 you know, if it's not us, it's gonna be somebody else. 0:21:42.160 --> 0:21:45.919 And the real message here is, let us help you 0:21:46.480 --> 0:21:50.080 work on your value proposition. I think it's more important 0:21:50.160 --> 0:21:54.200 than ever for advisors to be able to explain clearly 0:21:54.280 --> 0:21:56.639 what value am I providing to you as a client. 0:21:57.600 --> 0:21:59.840 The second point I think is really important is for 0:22:00.640 --> 0:22:04.159 UM advisors to look at this technology and say, what 0:22:04.240 --> 0:22:07.280 can I use, you know, technologically to make my business 0:22:07.280 --> 0:22:10.080 more efficient UM. I don't think any of the so 0:22:10.200 --> 0:22:14.600 called robo UM firms are gonna put the advisor community 0:22:14.600 --> 0:22:17.120 out of business, but I think people who ignore their 0:22:17.119 --> 0:22:20.360 technology are going to put themselves at risk. To say 0:22:20.359 --> 0:22:23.520 the least. I'm Barry Ridhults. You're listening to Masters in 0:22:23.560 --> 0:22:27.840 Business on Bloomberg Radio. My special guest today is William McNabb. 0:22:28.080 --> 0:22:32.040 He is the chairman and CEO of the Vanguard Group, 0:22:32.400 --> 0:22:35.480 which runs a couple of dollars for investors around the 0:22:35.520 --> 0:22:40.159 world close to four trillion. We briefly talked about the 0:22:40.240 --> 0:22:44.960 forty birthday of indexing and the index funds. Uh, let's 0:22:45.000 --> 0:22:47.440 let's get into a little more detail with that. There 0:22:47.520 --> 0:22:50.000 was a whole special in the Wall Street Journal about 0:22:50.040 --> 0:22:55.439 indexing and active versus passive investing. My favorite headline was 0:22:55.840 --> 0:22:58.480 the dying business of picking stocks. I thought there was 0:22:58.480 --> 0:23:02.880 a little hyperbole. There is stockpicking really a dying business? 0:23:03.440 --> 0:23:05.439 So I don't think so. I you know, look, I 0:23:05.480 --> 0:23:08.959 think there's a secular element to this shift to indexing, 0:23:09.000 --> 0:23:11.560 and it's really less about indexing and it's about cost. 0:23:12.080 --> 0:23:16.240 So I think low cost investing is the secular change here. Um. 0:23:16.280 --> 0:23:19.679 I think there will be opportunities for active managers, but 0:23:19.720 --> 0:23:22.320 I think if you're a high price active manager, you're 0:23:22.640 --> 0:23:26.280 you're going to really struggle. So based on that, how 0:23:26.359 --> 0:23:30.680 can we explain the success of high priced hedge funds, 0:23:30.760 --> 0:23:34.720 high price venture capital, high price private equity, of which 0:23:34.760 --> 0:23:39.000 there is always one shootout the light spectacular funds, and 0:23:39.000 --> 0:23:41.240 then a whole bunch of gee, we wish we were 0:23:41.280 --> 0:23:43.880 performing like that. Well, you know, I think it does. 0:23:44.680 --> 0:23:48.159 It does underscore that human behavior is always looking for 0:23:48.359 --> 0:23:51.160 you know, the home run, right people, people love that 0:23:51.359 --> 0:23:54.719 idea of you know, outsize returns. Look, you know, if 0:23:54.760 --> 0:23:57.120 you if you take each of those three categories in turn, 0:23:57.200 --> 0:23:59.800 you know, venture you should make you should get paid 0:24:00.160 --> 0:24:02.560 for the risk you're taking a lot of capitalists and 0:24:02.600 --> 0:24:04.840 you know, as an asset class over the last fifteen years, 0:24:04.880 --> 0:24:07.880 it's done okay. And you know, even even more broadly 0:24:07.880 --> 0:24:11.840 than just the very very best funds, and you're getting 0:24:11.840 --> 0:24:14.840 a risk premium for liquidity and for you know, the 0:24:14.920 --> 0:24:16.840 kinds of companies that you're investing in. I think it's 0:24:16.880 --> 0:24:21.160 a very vibrant thing not accessible to the average investor. 0:24:21.800 --> 0:24:25.040 You know, private equity is an asset class over time. Um, 0:24:25.680 --> 0:24:27.399 you know, at least the last fifteen years not been 0:24:27.440 --> 0:24:30.320 a great place. And I think your point on the 0:24:30.359 --> 0:24:34.280 fee side there is probably detracted from those returns. And 0:24:34.359 --> 0:24:36.320 again by you know, the way I look at private 0:24:36.359 --> 0:24:39.119 equity is again you should get a significant premium over 0:24:39.160 --> 0:24:41.280 the public markets for the liquidity that you're giving up. 0:24:41.640 --> 0:24:43.760 We don't see that over the last fifteen to twenty years. 0:24:44.320 --> 0:24:47.119 You know, the hedge funds um You've written about that 0:24:47.160 --> 0:24:50.760 better than I'll ever be able to articulate. It makes 0:24:50.760 --> 0:24:52.720 no sense to me. It makes no sense to me. 0:24:53.200 --> 0:24:58.359 The my my perspective has evolved in a minor nuanced way. 0:24:58.520 --> 0:25:00.480 If you're in one of those hedge funds that has 0:25:00.520 --> 0:25:04.480 a long term track record of outperforming and they're continuing 0:25:04.520 --> 0:25:08.680 to outperform, well why not stay with it? But finding 0:25:08.680 --> 0:25:11.520 those guys in advance, and it's almost always guys, but 0:25:11.960 --> 0:25:16.280 finding the emerging managers who are gonna be the superstars, 0:25:16.720 --> 0:25:19.879 it's all but impossible. It's very difficult. You know, a 0:25:19.880 --> 0:25:22.240 few of the big endowments have done a decent job 0:25:22.280 --> 0:25:25.760 identifying people early in their careers, you know, the Yales 0:25:26.359 --> 0:25:28.520 of the world and the notre Dames of the world, 0:25:29.280 --> 0:25:32.719 and uh, very few others have been able to do that. 0:25:32.920 --> 0:25:35.639 And everybody who's imitator, it has has come to rue 0:25:35.680 --> 0:25:37.919 that that chase and by the way, I agree with you, 0:25:37.960 --> 0:25:40.720 there are a handful of people who um their returns 0:25:41.280 --> 0:25:45.639 in retrospect have been pretty persistent as well. So you know, 0:25:45.680 --> 0:25:47.920 you look at the Seth Clarmon's and the Steve Mandel's 0:25:47.920 --> 0:25:50.439 of the world, and you know, I have tremendous respect 0:25:50.480 --> 0:25:52.639 for what they've accomplished. And all you need is a 0:25:52.640 --> 0:25:54.719 time machine to go back twenty years and give them 0:25:54.800 --> 0:25:58.000 money when they were taking its right. So, UM, let's 0:25:58.080 --> 0:26:02.400 let's stay with with the concept of UM indexing. One 0:26:02.440 --> 0:26:05.320 of the criticisms I hear all the time is we're 0:26:05.320 --> 0:26:08.320 at peak indexing. This so much money has flown into 0:26:08.359 --> 0:26:12.800 indexing it can possibly continue to work. So you know, 0:26:12.840 --> 0:26:15.040 I think, UM, one of the things I love about 0:26:15.040 --> 0:26:19.840 your columns. You like data, and so you know, today 0:26:19.920 --> 0:26:23.439 indexing represents about thirty five percent of the mutual fund world, 0:26:23.720 --> 0:26:26.840 and I think that's where people focus a lot. It's 0:26:26.840 --> 0:26:29.520 only of the US equity market. It's less than five 0:26:29.520 --> 0:26:32.199 percent of global markets, so there's a long way to 0:26:32.280 --> 0:26:35.879 go here. Um. Second, when you look at UM, I 0:26:35.920 --> 0:26:39.760 think even more importantly, trading volume. You know in the US, 0:26:39.800 --> 0:26:43.840 indexing is like five trading volume. Well, isn't that because 0:26:43.920 --> 0:26:46.040 by definition there's not a lot of trading going on. 0:26:46.240 --> 0:26:50.000 That's that's exactly right. But the point is there's there. 0:26:50.320 --> 0:26:53.640 We're we're a long way from you know where this 0:26:53.640 --> 0:26:57.000 this could end up. And I think it's a global phenomenon, 0:26:57.200 --> 0:27:00.439 and you're going to see indexing take a bigger share 0:27:00.600 --> 0:27:03.159 of global equity assets over the next decade. I think 0:27:03.200 --> 0:27:08.679 it's almost inexorable. Um, it'll be inexorable progress. At what 0:27:08.920 --> 0:27:12.240 point is it too big? Or is there just no 0:27:12.400 --> 0:27:14.840 point at that? Do we ever see this at fifty 0:27:15.280 --> 0:27:19.040 or seventy five percent? Think theoretically, then then you you 0:27:19.080 --> 0:27:23.840 wonder where price discoveries, you're creating opportunities for stock price exactly. 0:27:25.200 --> 0:27:27.560 I don't think there's a in the in the let's 0:27:27.600 --> 0:27:31.040 say the next ten years. UM. I think it's going 0:27:31.040 --> 0:27:32.960 to continue to grow. Whether it becomes I don't think 0:27:32.960 --> 0:27:35.680 it becomes fifty percent of the US market, um, even 0:27:35.720 --> 0:27:39.119 in that period, could be in the mutual fund market. Really, 0:27:39.440 --> 0:27:43.879 that of which right now it's thirty the mutual fund market, 0:27:43.920 --> 0:27:48.080 it's of US assets five percent of global assets. That 0:27:49.520 --> 0:27:52.399 really that that's that's astounding. Let let me shift it 0:27:52.480 --> 0:27:55.520 up on you a little bit and talk about valuation. 0:27:55.600 --> 0:27:58.840 I keep hearing that stocks in the US are over priced, 0:27:58.880 --> 0:28:00.679 But I've been hearing that now out for four or 0:28:00.680 --> 0:28:03.159 five years, and the market doesn't seem to care. It 0:28:03.240 --> 0:28:05.720 keeps going higher. Where are we in the world of 0:28:06.040 --> 0:28:09.480 stock prices? So I would still say historically there on 0:28:09.560 --> 0:28:13.080 the high end um and you know a lot of 0:28:13.119 --> 0:28:17.679 stins get covered with essentially zero percent short rates. And 0:28:18.640 --> 0:28:22.320 you know, our view is hasn't changed the last couple 0:28:22.359 --> 0:28:25.080 of years. I've been pretty public about UM. If we 0:28:25.119 --> 0:28:27.920 look out over ten years, we think the central tendency 0:28:28.760 --> 0:28:32.000 is for equity returns to be a couple hundred basis 0:28:32.000 --> 0:28:36.040 points below long term averages. That that's Bob Shiller's perspective. 0:28:36.080 --> 0:28:38.680 You don't use CAPE as a timing tool. Just look 0:28:38.720 --> 0:28:40.800 out ten years. It'll tell you if you have average 0:28:40.800 --> 0:28:43.800 above or below. And that's kind of our philosophy as well, burying. 0:28:43.960 --> 0:28:46.240 You know, we run a lot of sophisticated models to 0:28:46.280 --> 0:28:49.360 get there, but that's where it ends up. And you know, 0:28:49.440 --> 0:28:52.600 I think UM from a planning perspective, it's a it's 0:28:52.600 --> 0:28:56.040 a it's it's a reasonable place the other sort of thing. 0:28:56.080 --> 0:28:58.280 And UM, I can't remember if I've read this with 0:28:58.360 --> 0:29:00.360 Schiller or not, but if you look at you know, 0:29:00.440 --> 0:29:05.560 long term treasuries, you know, take the tenure and compare it. UH, 0:29:05.640 --> 0:29:09.080 you know, a kind of typical equity risk premium, you 0:29:09.160 --> 0:29:11.440 get to the same kind of a couple of percentage 0:29:11.440 --> 0:29:14.480 points below long term averages. So I think there's a 0:29:14.520 --> 0:29:19.280 lot of kind of convergence around that. The difference. I 0:29:19.360 --> 0:29:20.960 just read this, and I don't know who I'm stealing 0:29:21.000 --> 0:29:24.320 this from. UH. With bonds, rates could go negative, but 0:29:24.440 --> 0:29:27.520 with yield on stocks you can't get to a negative 0:29:27.600 --> 0:29:29.920 number because you're paying for the equity. That's fair. Let 0:29:30.040 --> 0:29:31.840 let me mix it up with you again and talk 0:29:31.880 --> 0:29:37.280 about politics. We're recording this not too long before the election, 0:29:37.320 --> 0:29:40.720 the day before the last debate. What should the role 0:29:40.960 --> 0:29:47.280 of politics be in the average investors portfolio? So, despite 0:29:47.400 --> 0:29:50.240 all of the headlines, despite all of the noise, despite 0:29:50.240 --> 0:29:52.640 all of the speculation, it really should play no role, 0:29:53.000 --> 0:29:56.080 no role, what's role whatsoever. We've looked at this going 0:29:56.120 --> 0:30:01.080 back to the eighteen fifties. There's no difference. But that's 0:30:01.160 --> 0:30:04.800 measurable between having a Democrat president versus a Republican president. 0:30:05.160 --> 0:30:08.160 There's no difference, you know, on how the House and 0:30:08.240 --> 0:30:12.400 Senate work out, and so everything that goes on, it's 0:30:12.480 --> 0:30:15.960 kind of speculation and what you typically see is some 0:30:16.120 --> 0:30:20.520 dislocations right before and right after, and usually within about 0:30:20.520 --> 0:30:23.000 a hundred days of a new administration being in you 0:30:23.040 --> 0:30:26.000 get back to kind of what what we could call normal. 0:30:26.560 --> 0:30:29.360 So it's it's noisy, you have some short term ebbs 0:30:29.400 --> 0:30:33.120 and flows, and then if it does, I think there 0:30:33.240 --> 0:30:36.440 is a bigger question out here. UM. And you know, 0:30:36.480 --> 0:30:39.120 it always the risk of leading with my chin. UM. 0:30:39.200 --> 0:30:41.520 You know, I would say, Um, there's some really good 0:30:41.560 --> 0:30:44.200 work that's been done. You know, Harvard just issued their 0:30:45.160 --> 0:30:48.760 US competitiveness study. UM. I think just two weeks ago, 0:30:48.840 --> 0:30:52.640 Mike Porter and the Gang and we studied it pretty carefully, 0:30:52.720 --> 0:30:58.240 and you know, it's key takeaway from me was the 0:30:58.320 --> 0:31:03.040 political dysfunction that we're seeing is causing you know, a 0:31:03.080 --> 0:31:06.560 real rise and uncertainty. And I think that uncertainty holds 0:31:06.600 --> 0:31:09.840 back growth. And I think that's a more macro issue, 0:31:09.920 --> 0:31:13.120 if you will, UM, probably somewhat divorced from what's going 0:31:13.160 --> 0:31:15.000 to happen in the stock and bond markets in the 0:31:15.080 --> 0:31:19.120 intermediate term. I can't say I disagree with with a 0:31:19.160 --> 0:31:22.600 single a single word of that. UM. Let's talk a 0:31:22.640 --> 0:31:25.760 little bit about buy backs. So we've seen a huge 0:31:25.840 --> 0:31:28.920 run of buy backs the past five or six years. 0:31:28.960 --> 0:31:34.680 Some people blame or credit those zero rture referencing UM, 0:31:34.720 --> 0:31:37.120 but they're starting to tail off this year, they've dropped 0:31:37.160 --> 0:31:39.960 a bit. What do you think the proper role of 0:31:40.000 --> 0:31:43.080 buy back should be? Would you rather see dividends or 0:31:43.320 --> 0:31:46.320 investment or what? What do you think about the general 0:31:46.640 --> 0:31:49.640 buy back phenomena? So I think the buyback phenomena has 0:31:49.720 --> 0:31:55.640 definitely UM gotten a lot of UM tail ones, if 0:31:55.640 --> 0:31:58.480 you will, from the low rates I mean, and I 0:31:58.480 --> 0:32:01.280 don't think levering up to increased buybacks is a good 0:32:01.360 --> 0:32:04.240 thing in general. Now, some some companies have done that 0:32:04.240 --> 0:32:07.440 because their cashes overseas and they don't wanna pay the 0:32:07.480 --> 0:32:11.400 taxes on which is a whole broader issue UM. You know. Second, 0:32:11.640 --> 0:32:15.360 I think the uncertainty that I talked about UM actually 0:32:15.480 --> 0:32:18.600 has caused a lot of companies to be more conservative 0:32:19.120 --> 0:32:21.200 with their cash. So they're either keeping it on the 0:32:21.200 --> 0:32:23.560 balance sheet or doing what they can to keep their 0:32:23.600 --> 0:32:26.960 stock price up. Because they they're so unsure about what 0:32:27.000 --> 0:32:29.080 the future is, they don't want to invest in the business. 0:32:30.160 --> 0:32:32.520 I would love to see us get away from that. 0:32:33.080 --> 0:32:37.160 So let's talk a little bit about that. Overseas cash 0:32:37.400 --> 0:32:40.520 the rumor, and we've heard it from both political parties, 0:32:41.120 --> 0:32:44.640 they'll be a some sort of a deal for a 0:32:44.840 --> 0:32:50.320 cash repatriation overseas capital repatriation, UH, in exchange for some 0:32:50.400 --> 0:32:55.440 infrastructure spending and some reform of the corporate task code. 0:32:55.960 --> 0:33:01.120 What what is that feasible, possible, desirable. I think it's feasible, 0:33:01.120 --> 0:33:04.280 and I think directionally desirable. You know. Look, I think 0:33:04.720 --> 0:33:08.240 we're our corporate tax code is I think a hindrance 0:33:08.360 --> 0:33:12.920 to business here, you know. Um, And again I'm somebody 0:33:12.920 --> 0:33:15.560 who wants to see the markets do really well, especially 0:33:15.560 --> 0:33:19.080 here and in my home country. Is um, we we 0:33:19.120 --> 0:33:22.040 should be doing. We should have economic policies in place 0:33:22.160 --> 0:33:27.760 that actually our pro economic growth. And I think a 0:33:28.200 --> 0:33:33.200 more simplified and um you know, probably a net net 0:33:33.240 --> 0:33:37.360 lower corporate tax code would be UM beneficial in that regard. 0:33:37.640 --> 0:33:40.960 I also think getting clarity around international you know, we're 0:33:41.000 --> 0:33:43.120 we're an outlier, as you know, in the developed world 0:33:43.160 --> 0:33:46.840 in terms of the way we treat um international earnings. 0:33:46.840 --> 0:33:49.400 And I think we shouldn't be going forward. I think 0:33:49.400 --> 0:33:53.840 it again, it's those kind of policies are actually restricting 0:33:54.320 --> 0:33:57.360 good economic growth and long term thinking, and we should 0:33:57.360 --> 0:33:59.920 be doing everything from a policy perspective. To clear that up. 0:34:00.480 --> 0:34:03.640 The last point I'd make is, um, I I am 0:34:03.680 --> 0:34:08.439 a believer that infrastructure probably needs improvement here, I don't 0:34:08.640 --> 0:34:11.000 in fact's not probably it does you know? I travel 0:34:11.080 --> 0:34:14.359 the world and nice in Europe and Asia, isn't it? 0:34:14.760 --> 0:34:17.680 You know? You you see things? Um, you know, sometimes 0:34:17.680 --> 0:34:20.120 I'd like to lift all of our lawmakers up and 0:34:20.239 --> 0:34:23.720 take them on a global tour. I think in order 0:34:23.760 --> 0:34:27.040 to promote you know, good economic growth, you need to 0:34:27.080 --> 0:34:29.680 have some basic infrastructure in place. Um. You know. No 0:34:29.760 --> 0:34:34.200 one wants to see um, higher government debt levels and 0:34:34.200 --> 0:34:37.120 so forth. But I think there's got to be some 0:34:37.120 --> 0:34:43.080 some balance here. Sure bandwidth in Asia, sell coverage in Europe, 0:34:43.160 --> 0:34:47.680 and just the roads in Austria, Germany, Brussels and it's amazing. 0:34:47.719 --> 0:34:51.200 And how about those airports around the world, spectacular, absolutely spectacular. 0:34:51.560 --> 0:34:54.200 We've been speaking with Bill McNabb. He is CEO and 0:34:54.360 --> 0:34:57.520 chairman of the Vanguard Group. If you would like to 0:34:57.600 --> 0:35:01.040 learn more about bills the shop, you can go to 0:35:01.640 --> 0:35:05.800 Vanguard dot com. There are regular bulletin's updates. The video 0:35:05.960 --> 0:35:09.799 from the two thousand and nine crisis is up there 0:35:09.840 --> 0:35:13.560 as well. And be sure and check out our prior conversation. 0:35:14.080 --> 0:35:16.880 Be sure and stick around and listen to the podcast extras. 0:35:16.880 --> 0:35:19.800 Will we keep the tape rolling and continue chatting about 0:35:19.800 --> 0:35:24.480 all things investing. Check out my daily column on Bloomberg 0:35:24.560 --> 0:35:27.960 View dot com or follow me on Twitter at rit Halts. 0:35:28.560 --> 0:35:31.680 I'm Barry Hults. You've been listening to Masters in Business 0:35:31.960 --> 0:35:35.680 on Bloomberg Radio, brought to you by Bank of America 0:35:35.760 --> 0:35:39.280 Merrill Lynch committed to bringing higher finance to lower carbon 0:35:39.520 --> 0:35:42.360 Named the most innovative investment bank for climate change and 0:35:42.400 --> 0:35:46.440 sustainability by the banker. That's the power of Global Connections. 0:35:46.640 --> 0:35:49.440 Bank of America North America member f D I C. 0:35:50.680 --> 0:35:53.279 Welcome to the podcast portion Bill, Thank you so much 0:35:53.320 --> 0:35:56.319 for doing this. I'm really excited about this. You you 0:35:56.440 --> 0:36:00.120 said something earlier off air that I have to ask 0:36:00.160 --> 0:36:02.960 you about. Um, we were talking about Lehman Brothers and 0:36:03.040 --> 0:36:07.200 A I G. And your first day as CEO was 0:36:07.480 --> 0:36:11.759 September fift oh nine. Is that right? First two weeks? Really? Yeah? 0:36:11.800 --> 0:36:15.880 I became CEO August thirty one, and um, I was 0:36:15.880 --> 0:36:20.359 actually standing on stage. Um where was this event? This 0:36:20.440 --> 0:36:24.240 was in Washington, d C. And we had our largest 0:36:24.239 --> 0:36:27.640 pension clients. There and I was giving my first talk 0:36:27.680 --> 0:36:31.200 as CEO, and the whole emphasis was on long term 0:36:31.239 --> 0:36:34.360 perspective and the need to tune out the noise and 0:36:34.480 --> 0:36:36.640 as as the world is falling apart, I have a 0:36:36.680 --> 0:36:38.880 separate soundtrack going through my head saying the world is 0:36:39.000 --> 0:36:41.799 ending as I know at how my how, my reconciling. 0:36:41.840 --> 0:36:45.560 I gotta looked past this. The really funny story Barry 0:36:45.760 --> 0:36:49.720 was um our CEO. Gus Souder was due on stage 0:36:49.719 --> 0:36:53.839 a couple of hours later, and um, we basically drafted 0:36:53.960 --> 0:36:57.919 his UM replacement and said, you're gonna go give Gus 0:36:58.040 --> 0:37:02.160 his talk, and we sent Gus to Valley Forge, you know, 0:37:02.239 --> 0:37:04.840 back to the office is to um, you know, oversee 0:37:04.840 --> 0:37:07.279 the trading desk and make sure everything was working the 0:37:07.280 --> 0:37:10.800 way it should. And uh, there were like no rental cars. 0:37:10.800 --> 0:37:13.360 So he ended up I think, cruising into Vanguard's campus 0:37:13.480 --> 0:37:18.279 in a Mustang convertible. And if you knew Gusts, that 0:37:18.360 --> 0:37:21.120 was not his style. Um, he was like a Pontiac 0:37:21.120 --> 0:37:25.839 bonavel guy. So coming in, especially with the world melting down, 0:37:26.120 --> 0:37:30.440 the the only story I know of that's similar to that. Uh. 0:37:30.520 --> 0:37:33.920 Dave Rosenberg used to be chief economist at Meryl. He 0:37:34.040 --> 0:37:38.320 was a government economist, like sleepy backwoods in in Canada, 0:37:38.760 --> 0:37:41.040 and he goes to the private sector and his first 0:37:41.120 --> 0:37:45.720 day at work is Black Monday crash, and he didn't 0:37:45.840 --> 0:37:48.640 understand that anything was unusual. He's like, wow, it's so 0:37:48.719 --> 0:37:53.239 exciting here. What are you talking about? The markets down? Oh, 0:37:53.360 --> 0:37:56.160 this is not the normal. No, this is not how 0:37:56.160 --> 0:37:59.960 it usually uh not how it usually goes well, you know, 0:38:00.120 --> 0:38:03.239 actually mentioning my former colleague Gus Sauer, that was his 0:38:03.280 --> 0:38:06.360 second week on the job, really and he was running 0:38:06.360 --> 0:38:10.680 our then only index fund index and it had about 0:38:10.680 --> 0:38:14.640 a billion six I think at the beginning of the 0:38:14.719 --> 0:38:17.560 day and then you know, a billion two at the 0:38:17.680 --> 0:38:19.719 end of the day. And he went home and his 0:38:19.760 --> 0:38:22.960 wife said, do you still have a job? You just 0:38:23.040 --> 0:38:26.040 lost a quarter of the fund and uh he said, 0:38:26.120 --> 0:38:27.759 you know, I don't know. I have to go back 0:38:27.800 --> 0:38:29.600 and see if my batch still works the next day. 0:38:29.640 --> 0:38:32.839 And so you still you told the story that in 0:38:32.880 --> 0:38:38.200 the midst of the crisis, you wanted to reassure your staff, 0:38:38.600 --> 0:38:43.800 all the employee, the twelve thousand plus employees at Vanguard. Hey, 0:38:44.000 --> 0:38:46.360 you can't be nervous. You can't sound like you're afraid 0:38:46.400 --> 0:38:49.800 for your job, especially the people who are client facing. 0:38:50.320 --> 0:38:53.200 What did you do to try and resolve that sort 0:38:53.239 --> 0:38:55.640 of tension? So we we told people, don't worry about 0:38:55.640 --> 0:38:58.200 your job. UM, we're not going to have any enforced 0:38:58.239 --> 0:39:02.160 reductions where we want people to be there for the client. 0:39:02.440 --> 0:39:05.400 And you know, we found um and and what we 0:39:05.480 --> 0:39:08.440 told people we anticipated there'll be some areas where the 0:39:08.560 --> 0:39:11.719 volume of work might decrease because the world was melting down, 0:39:12.120 --> 0:39:14.440 and if that happened, we would pick people up and 0:39:14.480 --> 0:39:17.359 we put them into areas that needed more help. And 0:39:17.560 --> 0:39:21.080 we ended up moving several hundred people around. But you know, 0:39:21.080 --> 0:39:22.799 it turned out to be a great thing for us 0:39:22.840 --> 0:39:26.480 because the whole focus from that point on was what's 0:39:26.719 --> 0:39:30.000 the client need? And I think all of us who 0:39:30.040 --> 0:39:32.880 lived through that, um, you know, you're you certainly have 0:39:32.920 --> 0:39:34.400 the battle scars, but you also have a lot of 0:39:34.400 --> 0:39:36.480 pride in what we were able to achieve on behalf 0:39:36.480 --> 0:39:38.480 of our clients, and I think that message went a 0:39:38.520 --> 0:39:42.360 long way. So I was at the Vanguard campus in 0:39:42.440 --> 0:39:46.120 Valley Forge when I met Jack Bogel, and it's a 0:39:46.160 --> 0:39:49.600 really large place. It reminds me a little bit of 0:39:49.680 --> 0:39:52.879 the Microsoft campus, which is just building after building after 0:39:52.960 --> 0:39:56.960 building that. What first of all, what was the thinking like, um, 0:39:57.080 --> 0:39:59.440 because you were there, even though you weren't CEO at 0:39:59.480 --> 0:40:03.160 the time, to create this far away from Wall Street 0:40:03.840 --> 0:40:07.359 space in the hills of Pennsylvania. Well again, I give 0:40:07.600 --> 0:40:09.640 I give Jack Bogil a ton of credit for just 0:40:10.080 --> 0:40:14.000 he he wanted there to be UM, you know, for 0:40:14.080 --> 0:40:15.960 us not to be Wall Street. You know, it was 0:40:16.000 --> 0:40:21.840 a very clear message from him. Actually, our predecessor, firm Wellington, 0:40:22.200 --> 0:40:25.840 was headquartered in Philly. Jack moved them out to the suburbs, 0:40:25.880 --> 0:40:28.040 you know he. I think part of it was tax reasons, 0:40:28.160 --> 0:40:30.640 you know Jack, you know, Jack like to save a 0:40:30.640 --> 0:40:33.359 buck for the investor. But I also think it was 0:40:34.160 --> 0:40:37.440 you know, a place too in a sense, create separation 0:40:37.520 --> 0:40:42.040 so that people weren't unduly influenced by short term h forces. 0:40:42.840 --> 0:40:45.960 I think Jack Brennan, who succeeded him UM, built on 0:40:46.040 --> 0:40:50.359 that UM. I remember interviewing with him, uh and I said, so, 0:40:50.960 --> 0:40:52.920 you know, what's your view of the future here, you know, 0:40:52.960 --> 0:40:55.680 what do you want this company to look like? And 0:40:55.719 --> 0:40:57.640 he said, I'd like to I'd like us to have 0:40:57.680 --> 0:41:01.440 Wall Street Smarts with Midwestern values. That's a good comment, 0:41:01.520 --> 0:41:04.120 and you know it really it really resonated with me, 0:41:04.239 --> 0:41:07.120 Barry and UM, I think the headquarters and the whole 0:41:07.160 --> 0:41:11.160 campus atmosphere really reinforces that. Does does that create a 0:41:11.239 --> 0:41:15.120 challenge at all in finding employees flanks that so you're 0:41:15.160 --> 0:41:19.439 in you're in Philadelphia. Outside of Philadelphia and Pennsylvania, it's 0:41:19.560 --> 0:41:23.720 from New York on a two hour drive. Maybe, UM, 0:41:23.800 --> 0:41:26.279 does it make it difficult to find people? I would 0:41:26.320 --> 0:41:29.160 imagine that part of the world, it's a different salary 0:41:29.160 --> 0:41:33.080 scale than New York or San Francisco. So UM it 0:41:33.200 --> 0:41:36.480 poses challenges occasionally, and and in the biggest places, if 0:41:36.520 --> 0:41:38.600 we're trying to bring somebody in at a more senior 0:41:38.680 --> 0:41:42.880 level from the outside. Sometimes the dual career thing. UM. 0:41:43.000 --> 0:41:44.600 You know, in New York there's just so many more 0:41:44.600 --> 0:41:50.200 opportunities and that that actually occasionally imposes a challenge. But 0:41:50.800 --> 0:41:54.440 it's interesting once we get people to the area and 0:41:54.480 --> 0:41:57.440 they see the quality of living, UM, it ends up 0:41:57.480 --> 0:42:00.879 turning into a selling point. UM. I've just added two 0:42:00.880 --> 0:42:03.279 new members to our executive team in the last UM 0:42:03.440 --> 0:42:07.759 six months, and first time we've gone outside in a 0:42:07.840 --> 0:42:11.880 long time, more than a decade. And that was their reaction. 0:42:12.360 --> 0:42:15.319 Both their reactions when they came there like, Wow, it's 0:42:15.440 --> 0:42:18.640 very kicked back, it's very chill. It doesn't feel like 0:42:18.680 --> 0:42:22.840 a frenetic Wall Street firm. A campus is really a 0:42:22.840 --> 0:42:24.680 good time. It feels like you run a college campus 0:42:24.760 --> 0:42:27.239 and you know one of the UM I would say, 0:42:27.280 --> 0:42:29.759 better to be lucky than smart aspects of where we are, 0:42:29.760 --> 0:42:32.400 and lucky you should always acknowledge your luck. There are 0:42:32.440 --> 0:42:36.160 a hundred and eight universities within two hours of our campus. 0:42:36.880 --> 0:42:41.320 UM we produce in that region more masters and graduate 0:42:41.320 --> 0:42:44.759 degrees per capita than any area in the country. I 0:42:44.800 --> 0:42:48.520 think on undergraduate degrees, we were it's between us in Boston, 0:42:48.880 --> 0:42:52.000 and so we got a lot of young people who 0:42:52.040 --> 0:42:54.000 want to come and you know, they want to stay 0:42:54.080 --> 0:42:57.960 close to home, and we're really the biggest UM you know, 0:42:58.040 --> 0:43:02.560 financial services firm, you know, miles around. I read a 0:43:02.600 --> 0:43:05.719 crazy statistic. I don't know if it's true, something like 0:43:06.680 --> 0:43:09.360 of the c f as in the state of Pennsylvania 0:43:10.000 --> 0:43:13.319 worked for Vanguard and Value. Is there any truth to that? 0:43:13.440 --> 0:43:17.320 Is that? A? I think directionally, it's it's close. It's close. 0:43:17.400 --> 0:43:21.600 I I know certified Financial Planners, which is a broader thing. 0:43:21.680 --> 0:43:25.040 I think we have FI now of well, the whole 0:43:25.080 --> 0:43:30.319 state in valley for that's pretty Uh, that's pretty fascinating. Um, 0:43:30.400 --> 0:43:31.799 let's let me take a look at some of the 0:43:31.880 --> 0:43:36.040 questions we might have skipped through before. So those are 0:43:36.080 --> 0:43:40.400 my favorite questions. We really covered a decent amount of stuff. 0:43:40.440 --> 0:43:44.160 We covered technology, we covered indexing, we covered E S 0:43:44.200 --> 0:43:52.040 g um, we we actually discussed buy backs and all right, 0:43:52.200 --> 0:43:54.279 let's keep going. There's there's so much stuff to do. 0:43:54.360 --> 0:43:56.440 And and at this point, I'm going to remind people 0:43:57.080 --> 0:43:59.880 if you haven't heard the first conversation Bill and I 0:44:00.000 --> 0:44:03.400 add which was eighteen months ago, it's one of the 0:44:03.480 --> 0:44:06.720 favorite masses in business we've had. We got tremendous feedback 0:44:06.760 --> 0:44:09.960 about it. Really, there's almost no overlap between this and 0:44:09.960 --> 0:44:12.560 that we've really covered very very You've done a good 0:44:12.600 --> 0:44:15.200 job breaking that apart. I've tried, and you will also 0:44:15.239 --> 0:44:17.600 make it easy. I know how to anticipate with you 0:44:17.600 --> 0:44:19.920 know it. There are some people where I ask questions 0:44:19.960 --> 0:44:22.200 and I have no idea what it's gonna be. I 0:44:22.239 --> 0:44:25.480 have a general sense of what the vanguard philosophy is. 0:44:25.800 --> 0:44:29.080 So when I asked Bill McNab about indexing, you're not 0:44:29.120 --> 0:44:32.080 gonna come out and say, well, you know, I pretty 0:44:32.160 --> 0:44:35.520 much know where you're gonna go with that. Um So, 0:44:35.600 --> 0:44:38.520 let's let's talk a little bit about um the evidence 0:44:38.560 --> 0:44:41.600 based conference that's coming up, because we were discussing that 0:44:41.640 --> 0:44:45.439 off air, and and I think it's interesting. Um So, 0:44:45.600 --> 0:44:49.160 coming up in November, we have an evidence based investing conference. 0:44:49.840 --> 0:44:52.000 You're one of the speakers, and you said you thought 0:44:52.040 --> 0:44:57.319 it was an interesting concept. Let's let's chat about that. Well, 0:44:57.360 --> 0:44:59.560 I think one of the things that's really fascinating to 0:44:59.600 --> 0:45:02.640 me is, um you spend a lot of time on data, 0:45:03.000 --> 0:45:06.799 and we think data rule. You know, it's a there's 0:45:06.840 --> 0:45:08.520 not just your gun instinct. You don't want to go 0:45:08.560 --> 0:45:10.520 with how it feels at the moment. Look, you know 0:45:10.560 --> 0:45:13.040 there's a place for judgment and instinct, there's no question 0:45:13.040 --> 0:45:16.319 about that. But um, you know being well informed and 0:45:16.680 --> 0:45:19.600 you know, to me as an analyst in particular, it's 0:45:19.920 --> 0:45:22.640 you know, the second and third layers, if you will, 0:45:22.680 --> 0:45:25.680 when you're peeling that proverbial onion where sometimes you really 0:45:25.719 --> 0:45:29.239 get the insights you know we have. Um just as 0:45:29.280 --> 0:45:32.040 an example, our chief economists has done some really cool 0:45:32.120 --> 0:45:35.239 work on you know, what's going on from a growth perspective, 0:45:35.360 --> 0:45:40.319 and he doesn't accept the we're in secular stagnation, and 0:45:41.000 --> 0:45:45.239 he he talks a lot about the evolution of tasks 0:45:45.360 --> 0:45:51.360 within occupations, and you know, we take some um comfort, 0:45:51.360 --> 0:45:53.799 if you will, that actually there's been a lot of 0:45:53.880 --> 0:45:57.960 change and it's been absorbed and there's a lot more coming. 0:45:58.200 --> 0:46:01.520 And the question is how well prepared are we for that? 0:46:02.280 --> 0:46:04.239 And you know, it goes back to one of our 0:46:04.280 --> 0:46:08.880 earlier conversations around are there things sort of from a 0:46:08.960 --> 0:46:11.520 policy standpoint that could be going on to help that. 0:46:12.080 --> 0:46:14.759 You know, we think infrastructure, we think education, probably the 0:46:14.800 --> 0:46:20.280 two big categories. But you know, he his his um 0:46:20.320 --> 0:46:24.600 work is so data driven that it makes you think 0:46:24.640 --> 0:46:27.080 a little bit differently about the problem. And that's what 0:46:27.120 --> 0:46:29.759 I loved about your concept and I can't wait to 0:46:29.800 --> 0:46:33.400 see it. The the idea behind it is, there are 0:46:33.400 --> 0:46:36.520 all these things that over the past twenty years worth 0:46:36.600 --> 0:46:40.880 of academic research we've learned to be true, and it 0:46:40.880 --> 0:46:43.400 turns out that a lot of things that most of 0:46:43.440 --> 0:46:47.000 Wall Street used to believe turns out to be false. 0:46:47.400 --> 0:46:49.560 It looks good, it feels good, but in the real 0:46:49.640 --> 0:46:52.840 world it doesn't work. So the idea was, hey, let's 0:46:52.960 --> 0:46:56.120 create a way to have a group of people come 0:46:56.160 --> 0:46:59.880 and discuss investing in markets strictly from what do we 0:47:00.000 --> 0:47:01.799 know to be factually true? What do we know to 0:47:01.840 --> 0:47:06.080 be have evidence behind it that demonstrates the veracity of 0:47:06.120 --> 0:47:10.520 a certain investment philosophy. When I sum up Vanguard for people, 0:47:10.719 --> 0:47:13.960 it's nothing matters more than costs. If you keep costs low, 0:47:14.000 --> 0:47:17.080 everything else all other good things will follow. But that's 0:47:17.120 --> 0:47:19.439 not the only truth that we've learned to be true 0:47:19.480 --> 0:47:22.879 over the past couple of decades. And yet it's amazing. 0:47:23.400 --> 0:47:27.440 How so this comes back to the four trillion advantguard 0:47:27.560 --> 0:47:30.840 and the rise of indexing. And maybe this is a 0:47:30.920 --> 0:47:35.280 question better asked of Dick Faylor or or Bob Schiller, 0:47:35.400 --> 0:47:40.760 But why have these truths taken so long to infiltrate 0:47:41.680 --> 0:47:45.320 the mind of the average investor or the institutional investor? 0:47:46.040 --> 0:47:49.640 You know, I think it's because there is an irrational 0:47:50.360 --> 0:47:53.880 expectation that we, you know, many people have that I know, 0:47:54.680 --> 0:47:58.360 if I pay a little more attention, I can outperform, 0:47:59.120 --> 0:48:02.239 you know, in the simplest way. You know, one of 0:48:02.280 --> 0:48:04.400 the best lessons I learned, and you know, it was 0:48:05.200 --> 0:48:06.920 kind of a blinding flash of the obvious. But I 0:48:06.920 --> 0:48:09.959 often say that's all I'm good for these days, is 0:48:10.200 --> 0:48:13.160 um average is not average. You know people used to 0:48:13.200 --> 0:48:17.279 say indexing while you're just accepting average returns. Actually that's 0:48:17.320 --> 0:48:20.920 not true. As you know, if you take the average 0:48:20.920 --> 0:48:24.800 index funds return and compare it against the whole universe, 0:48:25.320 --> 0:48:27.440 you're gonna you're gonna be in the top quartile from 0:48:27.440 --> 0:48:30.040 a performance standpoint over any long period of time. So 0:48:30.120 --> 0:48:34.000 you're not accept you're not actually accepting being average. You're 0:48:34.120 --> 0:48:37.319 you're saying, I'm going to be in the top quartile guaranteed. 0:48:38.280 --> 0:48:41.759 And you know it's things like that that aren't intuitive 0:48:41.800 --> 0:48:45.040 to people, and you know you need to sort of 0:48:45.080 --> 0:48:47.839 lay it out, you know. Um, it's it's interesting you 0:48:47.840 --> 0:48:52.000 mentioned Taylor. Um, we are huge fans of their work. Um, 0:48:52.040 --> 0:48:55.399 you know Thaylor and BERNARDSI on the four oh one 0:48:55.400 --> 0:48:57.719 case space did some of the best work where they 0:48:57.960 --> 0:49:02.200 took the behavioral principles and said, Okay, instead of using 0:49:02.200 --> 0:49:06.040 it just to explain what's happening, let's use them actually 0:49:06.080 --> 0:49:09.839 to help influence what should happen. And this is where 0:49:09.880 --> 0:49:15.600 the idea of automatic enrollment, automatic escort everything he told them, 0:49:15.719 --> 0:49:18.600 you know, changing the default so that it's a positive outcome. 0:49:19.200 --> 0:49:20.839 One of the examples in his book that I found 0:49:20.880 --> 0:49:27.120 fascinating is if you're default organ donor check is set 0:49:27.160 --> 0:49:31.640 for um, yes, donate my organs. Nine plus percent of 0:49:31.680 --> 0:49:35.720 people in certain European countries that have that default donate organs. 0:49:35.840 --> 0:49:38.680 If you don't have that as a default, it's ten 0:49:38.760 --> 0:49:41.799 or fifteen percent, and there's a giant waiting list. If 0:49:41.840 --> 0:49:46.239 you change that default, suddenly they're on people dying past 0:49:46.320 --> 0:49:49.719 there isn't a kidney available, or it's such a powerful thing. Um. 0:49:49.760 --> 0:49:52.279 You know, we funded some work that UM they are 0:49:52.320 --> 0:49:55.080 and BERNARDSI did in the late nineties, well it was 0:49:55.080 --> 0:49:58.879 probably early two thousand's and it really led us to 0:49:58.960 --> 0:50:01.520 get much more rest of about you know, the target 0:50:01.600 --> 0:50:04.800 date phenomenon and these auto four O one K plans, 0:50:05.560 --> 0:50:08.480 and we've seen better results, I mean, and again to 0:50:08.560 --> 0:50:14.879 your evidence based principles, it's absolutely clear when you look 0:50:14.920 --> 0:50:18.719 at the investment results of people who have followed you 0:50:18.760 --> 0:50:21.719 know sort of UM where we've used behavioral finance to 0:50:21.760 --> 0:50:25.880 shape the plan design and shape behavior versus leaving people 0:50:25.920 --> 0:50:28.640 to their own And you can see it and it 0:50:29.040 --> 0:50:31.640 boils down to dollars and cents. You have more money 0:50:31.680 --> 0:50:34.719 if you if you follow these principles. So, so let's 0:50:34.719 --> 0:50:38.680 talk about four oh one K and best practices UM, 0:50:38.719 --> 0:50:40.319 and I want to make sure I don't keep you 0:50:40.320 --> 0:50:43.359 here too long. We were pretty good on time UM 0:50:44.520 --> 0:50:51.000 best practices. So default should be automatic, regular contributions? And 0:50:51.560 --> 0:50:55.239 should it be a target date fund? Should it be? Uh? 0:50:55.280 --> 0:50:58.600 What should the default be for the typical small companies 0:50:58.600 --> 0:51:00.920 setting up before oh one K? So I think the 0:51:00.960 --> 0:51:03.759 target date is the easiest one. I think any you know, 0:51:04.120 --> 0:51:07.680 UM well diversified balanced option will suffice. But the beauty 0:51:07.719 --> 0:51:10.480 about the target date fund is you can give you know, 0:51:10.760 --> 0:51:13.160 you're a lot younger than I am, so you can 0:51:13.160 --> 0:51:15.759 get that. You can you can get the equity exposure 0:51:15.800 --> 0:51:19.920 you you need versus what I might need UM automatically, 0:51:19.960 --> 0:51:22.319 you don't have to think about it. So that's why 0:51:22.360 --> 0:51:25.600 I like the target date And you know, I've I've 0:51:25.640 --> 0:51:28.839 made the point to you know, thousands of investors at 0:51:28.880 --> 0:51:31.160 this point. I don't care what your income level is 0:51:31.520 --> 0:51:33.680 in a four oh one K plan, whether you're making 0:51:34.440 --> 0:51:36.800 dollars year or two d fifty dollars year. A target 0:51:36.840 --> 0:51:39.800 date fund is a great solution for you if you 0:51:39.800 --> 0:51:41.560 want to put more time and energy into it, and 0:51:41.640 --> 0:51:43.799 you you. You know you you love this stuff. Great, 0:51:43.800 --> 0:51:46.160 you can construct a portfolio and I don't think he'll 0:51:46.200 --> 0:51:48.400 do any better. But you know, maybe it's something that 0:51:48.440 --> 0:51:51.040 you get a lot of satisfaction out out of. But 0:51:51.320 --> 0:51:55.200 I think this default thing is really powerful. And you know, 0:51:55.239 --> 0:51:58.400 we're seeing almost every new investor who comes into the 0:51:58.480 --> 0:52:01.640 system just stay with the default and just leave it 0:52:01.719 --> 0:52:05.120 like that. So let's talk a little institutional. UM. I've 0:52:05.160 --> 0:52:10.120 seen white papers from Vanguard about hey, a sixty forty 0:52:10.120 --> 0:52:13.920 portfolio has beaten nearly all of the alternatives we've we 0:52:14.000 --> 0:52:17.439 mentioned earlier, the hedge funds, the private equity, and the 0:52:17.719 --> 0:52:23.400 venture capital. How does Vanguard present itself to the institutional community. 0:52:24.000 --> 0:52:28.520 I've spoken at various state pension funds, and I'm astonished 0:52:28.680 --> 0:52:35.560 at the level of let's just say, influence outside UM 0:52:35.760 --> 0:52:39.279 consultants have. How do you get past that? How how 0:52:39.320 --> 0:52:42.640 does that work when you're dealing with either a CalPERS 0:52:42.760 --> 0:52:45.040 or and I you obviously don't want to speak to 0:52:45.080 --> 0:52:50.680 any specific UM client, but a state pension fund or 0:52:50.719 --> 0:52:55.240 a large retirement or endowment. So UM, there's no question 0:52:55.320 --> 0:52:59.840 that there's lots of outside influences, whether it's the consultant community, 0:52:59.920 --> 0:53:05.280 or other. You know, people circling around and complexity usually 0:53:05.360 --> 0:53:08.840 is the friend. Um. You know, the more complex relationship is, 0:53:08.880 --> 0:53:11.560 the more complex they want the solution to be. And 0:53:11.600 --> 0:53:15.600 again we found simple works better in most cases. Um. 0:53:15.719 --> 0:53:18.120 So you know, we just go out and we try 0:53:18.160 --> 0:53:22.680 to tell the story and sometimes it doesn't work right away, 0:53:22.800 --> 0:53:24.640 and you just keep sort of knocking at the door 0:53:24.680 --> 0:53:27.399 and you just keep telling the story. In the four 0:53:27.440 --> 0:53:30.239 oh one case base, it's worked really well. In the 0:53:30.320 --> 0:53:33.080 endowments and foundations, we're finding in the sort of up 0:53:33.120 --> 0:53:36.200 to mid you know, several hundred million dollars were Actually 0:53:36.640 --> 0:53:41.480 the story is really resonating there the big some of 0:53:41.520 --> 0:53:44.520 the big pension funds, especially in you know, the States 0:53:44.520 --> 0:53:46.839 and so forth, we're having you know, we don't have 0:53:46.920 --> 0:53:50.480 as much access there. Interesting though, you are starting to 0:53:50.520 --> 0:53:54.560 see some of the messages that we've been promoting actually adopted. 0:53:54.960 --> 0:53:56.200 I don't know if they got it from us or 0:53:56.239 --> 0:53:58.279 they're coming up with it independently, but you're starting to 0:53:58.360 --> 0:54:00.879 hear some of the same things. O, Hey, maybe we're 0:54:00.920 --> 0:54:04.640 paying too much for investment management overall, and we need 0:54:04.680 --> 0:54:07.279 to think about a different approach. What do you think 0:54:07.320 --> 0:54:11.280 happens in that space over the next decade, because clearly 0:54:12.160 --> 0:54:16.040 everything's in flux. New Jersey turned out to have a 0:54:16.080 --> 0:54:19.520 horrific state run pension funds. Lots of money went to 0:54:19.640 --> 0:54:24.160 hedge funds who coincidentally were donors to various political campaigns. 0:54:24.480 --> 0:54:27.280 There's a ton of conflicts of interest. New York City 0:54:27.400 --> 0:54:31.040 announced last year that they were re looking at their 0:54:31.080 --> 0:54:34.479 alternative investments and what they're getting for their bucks. We've 0:54:34.520 --> 0:54:38.160 seen that in California, We've seen that all over the country. 0:54:38.280 --> 0:54:43.000 So so what does this dynamic mean going forward? Is 0:54:43.040 --> 0:54:45.400 there going to be a big shift um? Is that 0:54:45.480 --> 0:54:49.600 already underway? What what's happening in the institutional space? So 0:54:49.640 --> 0:54:52.120 I think the shift is already underway, and some of 0:54:52.160 --> 0:54:56.279 the leading UM plans are actually moving pretty quickly in 0:54:56.320 --> 0:54:58.719 this regard. And you know, I think what you'll end 0:54:58.800 --> 0:55:02.759 up seeing is a little bit more um bifurcation in 0:55:02.840 --> 0:55:05.680 what they do. So they will keep some non traditional 0:55:06.040 --> 0:55:09.560 but it will be more in the liquid space, where 0:55:10.120 --> 0:55:14.279 again in theory it's less about the manager, although as 0:55:14.320 --> 0:55:16.800 you and I know, maybe it's more about the manager 0:55:16.800 --> 0:55:19.240 than anybody wants to admit. But you should get paid 0:55:19.239 --> 0:55:23.480 more in some of those spaces, and then for the 0:55:23.600 --> 0:55:26.480 liquid portion, you're going to see a real emphasis on cost, 0:55:26.520 --> 0:55:28.880 I think, and you know, so you'll see more passive 0:55:28.920 --> 0:55:34.640 investing overall. UM, My guess is that continues. UM. I 0:55:34.680 --> 0:55:37.520 think the big wild card, and it is the most 0:55:37.600 --> 0:55:40.839 interesting part of the equation is everybody is looking at 0:55:40.920 --> 0:55:45.440 the expected returns and the equity and bond market and 0:55:45.480 --> 0:55:48.799 they're looking at their own assumptions for their plans, and 0:55:48.800 --> 0:55:52.960 there's a disconnect. You know, you'll you'll see some very prominent, 0:55:53.200 --> 0:55:56.200 you know, um public plants that have you know, seven 0:55:56.239 --> 0:55:59.920 and a half eight percent expected returns. I don't know 0:56:00.000 --> 0:56:02.520 where that's going to come from. I I can answer 0:56:02.520 --> 0:56:05.359 that question for you. They have an expected return of 0:56:05.400 --> 0:56:08.800 five percent on the equity, two on the bonds. You 0:56:08.920 --> 0:56:11.560 add five and two you end up with seven, although 0:56:11.600 --> 0:56:13.560 any account will tell you the math doesn't really work 0:56:13.560 --> 0:56:17.560 out that way. I've had that exact same conversation with people, 0:56:18.280 --> 0:56:22.319 and the thing that I'm still wrestling with is, so 0:56:22.800 --> 0:56:25.440 those are fair numbers. Two percent on fixed income, five 0:56:25.480 --> 0:56:29.279 percent on equity, and yet on the hedge funds they 0:56:29.280 --> 0:56:33.200 have expected returns of eight nine And I don't know 0:56:33.239 --> 0:56:37.520 where these numbers came from other than someone wants explained 0:56:37.560 --> 0:56:40.040 to me. Well, we're state entity, and if we have 0:56:40.080 --> 0:56:43.560 a short form our pension in the pensions expected returns, 0:56:44.040 --> 0:56:47.120 we have to actually add taxpayer dollar, so we'll crank 0:56:47.200 --> 0:56:50.399 up the hedge fund portion of it. They can't crank 0:56:50.480 --> 0:56:52.600 up the fixed income of a bond portion because everyone 0:56:52.680 --> 0:56:57.120 would scream about that. But somehow alternatives are generating a 0:56:57.120 --> 0:57:00.320 greater return at no greater risk than the asset asses 0:57:00.400 --> 0:57:03.319 of trading. It doesn't make sense, but it allows them 0:57:03.320 --> 0:57:06.719 and out to not It allows them to continually underfund 0:57:06.760 --> 0:57:10.959 their obligations. And I think you're seeing um at least 0:57:11.440 --> 0:57:13.520 I don't know if it's a new breed, but you 0:57:13.520 --> 0:57:15.960 know you're starting to see some serious leaders in that 0:57:16.040 --> 0:57:18.560 space say wait a minute, we've got to we've got 0:57:18.560 --> 0:57:21.840 to re examine what's been going on. So I'll be 0:57:21.880 --> 0:57:23.840 the optimists and say that people are going to start 0:57:23.880 --> 0:57:26.280 to get their hands around it, but it's gonna it 0:57:26.360 --> 0:57:29.640 will highlight that there's gonna be some there's some real 0:57:29.720 --> 0:57:31.880 gaps here in in terms of what's been promised and 0:57:31.960 --> 0:57:36.440 what's actually funded and how that plays out politically. UM, 0:57:36.840 --> 0:57:40.320 I'll leave it to you speculate on. I will before 0:57:40.320 --> 0:57:43.840 I get to my my favorite questions. I wanted to 0:57:43.880 --> 0:57:46.520 ask you. Is there anything I didn't ask you or 0:57:46.520 --> 0:57:50.200 any topics you think are worth mentioning that we we 0:57:50.280 --> 0:57:56.320 haven't discussed on air. We've covered almost everything we really have. Um, yeah, 0:57:56.320 --> 0:57:58.240 I think we've hit it. So so let's jump to 0:57:58.320 --> 0:58:05.480 our our favorite questions. Um, so you joined Vanguard thirty 0:58:05.560 --> 0:58:08.720 years ago. What were you doing before Vanguard? So? I 0:58:08.760 --> 0:58:11.800 had had two jobs before Vanguard. My first job out 0:58:11.800 --> 0:58:15.800 of college was teaching first year of Latin school. Of course, 0:58:15.840 --> 0:58:19.400 that leads right to asset management totally in coaching three sports. Um, 0:58:19.440 --> 0:58:23.240 I was it was nine. It was pretty deep procession. 0:58:23.760 --> 0:58:25.960 Unemployment was high. I was happy to have a job 0:58:26.200 --> 0:58:29.280 and and my parents were happy to have me off 0:58:29.280 --> 0:58:32.760 the doll and it worked out, um and I loved it. 0:58:32.760 --> 0:58:34.360 It was a great couple of years. And then I 0:58:34.400 --> 0:58:37.320 went back to business school. My first job out of 0:58:37.400 --> 0:58:40.160 business school was at what's now JP Morgan Chase. It 0:58:40.200 --> 0:58:42.920 was the Chase part, and I did a lot of 0:58:42.920 --> 0:58:45.720 different things. But the last thing I did was really 0:58:45.760 --> 0:58:49.480 work on a lot of highly leveraged transactions, actually undoing 0:58:49.600 --> 0:58:53.240 some in in for the most part, but you was 0:58:53.320 --> 0:58:56.720 with us. So that was eight three day eighty six 0:58:57.080 --> 0:59:02.600 and I got hired by Vanguard be a guaranteed investment 0:59:02.800 --> 0:59:06.760 contract product manager. What does that mean? I had no 0:59:06.840 --> 0:59:09.920 idea when they were interviewing me. Um. Guaranteed investment contracts 0:59:09.920 --> 0:59:14.000 were a fixed income instrument issued by insurance companies as 0:59:14.040 --> 0:59:17.120 an investment option in four oh one K plans. And 0:59:17.120 --> 0:59:18.840 we were just getting in the four oh one K 0:59:19.000 --> 0:59:23.800 business and UM, you know, we we wanted to take 0:59:23.840 --> 0:59:25.920 a little bit more sophisticated approach. I think we had 0:59:25.920 --> 0:59:28.400 a couple hundred million dollars in the program at the time. 0:59:29.080 --> 0:59:33.560 I'm pretty sure I got hired because Jack Brennan was 0:59:33.640 --> 0:59:37.040 intrigued by the credit background I had, and it wasn't 0:59:37.080 --> 0:59:40.240 convinced that we had analyzed the insurance industry properly for 0:59:40.280 --> 0:59:43.240 the g I C s we were buying, and so 0:59:43.320 --> 0:59:46.760 I think that had something to do with it. Um. 0:59:46.880 --> 0:59:49.200 I'm not sure why else, because nothing in my background 0:59:49.280 --> 0:59:53.240 really pointed toward that, but turned out Again, you'll hear 0:59:53.320 --> 0:59:54.840 me use the phrase over and over better to be 0:59:54.920 --> 0:59:57.880 lucky and smart Sometimes I totally agree. So you mentioned 0:59:57.960 --> 1:00:01.440 Jack Brennan, who were some of your ment so UM. 1:00:01.560 --> 1:00:04.360 You know Jack, certainly before I worked directly for him, 1:00:04.440 --> 1:00:07.480 with somebody I would go to for um, just advice 1:00:07.960 --> 1:00:11.920 around career, family, UM, how to think about business problems. 1:00:11.960 --> 1:00:14.800 Jack was one of the great UM strategic thinkers I 1:00:14.840 --> 1:00:19.680 think of the entire industry during his his time. And 1:00:20.240 --> 1:00:22.080 you know, he was just a really good sounding board 1:00:22.120 --> 1:00:24.800 for a lot of things. So he clearly was a mentor. 1:00:25.720 --> 1:00:29.600 We also, UM, I became pretty friendly with Charlie Ellis 1:00:29.800 --> 1:00:32.600 UM before he came on our board. Um, Charlie was 1:00:32.640 --> 1:00:36.480 running Greenwich Research. You know, I really count Charlie as 1:00:36.640 --> 1:00:39.320 somebody that I learned a ton from. You know, his 1:00:39.440 --> 1:00:42.360 book is arguably one of the two or three great 1:00:42.400 --> 1:00:45.280 his first book, you know, Winning the Losers Game, one 1:00:45.280 --> 1:00:47.040 of the two or three greatest things I ever written 1:00:47.040 --> 1:00:51.720 about investing. And um, Charlie gave me really really good 1:00:51.720 --> 1:00:54.880 advice UM when I took over running the four oh 1:00:54.880 --> 1:00:59.600 one K business, and he kept focusing in and don't 1:00:59.640 --> 1:01:03.000 worry abou growth. Worry about the quality of what you're 1:01:03.000 --> 1:01:05.160 doing for your existing clientele, and growth will take care 1:01:05.200 --> 1:01:08.120 of itself. And you know, of course Greenwich did sort 1:01:08.120 --> 1:01:10.880 of an assessment of who was the highest quality provider, 1:01:10.920 --> 1:01:12.920 and I don't forget coming when he came in one 1:01:13.000 --> 1:01:17.680 day and he said, hey, congratulations, you've won UM first time. 1:01:18.320 --> 1:01:20.720 And he goes, now you're the hunted, so what are 1:01:20.760 --> 1:01:23.280 you gonna do? And you know it just it's a 1:01:23.360 --> 1:01:25.560 great way to describe that, isn't it. Yeah, and you 1:01:25.560 --> 1:01:28.360 know it just so he was a really positive mentor. 1:01:29.320 --> 1:01:31.320 But by the way, for people who may not know 1:01:31.360 --> 1:01:34.160 who Charlie Ellis is. In addition to being on the 1:01:34.240 --> 1:01:37.880 Vanguard Board, he worked with Swenson on the Yale and 1:01:37.960 --> 1:01:42.440 down and arguably the most successful endowmen in history. Harvard's 1:01:42.480 --> 1:01:46.400 is bigger, but their performance has been appreciably worse. And 1:01:46.480 --> 1:01:52.160 Greenwich Associates were really a huge, huge institutional advisor for 1:01:52.240 --> 1:01:57.520 many years. Absolutely um legendary, legendary firm and really changed 1:01:57.600 --> 1:02:01.280 the nature of how people provided services in the institutional space. 1:02:02.040 --> 1:02:05.920 And then you know, I have a couple of unconventional mentors. UM. 1:02:05.960 --> 1:02:10.720 I have a an individual he's eighties six now. He's 1:02:10.800 --> 1:02:13.240 like a second father to me. He was my rowing 1:02:13.320 --> 1:02:16.919 coach um when I go out of college, and while 1:02:16.960 --> 1:02:19.520 I was teaching, he and I were coaches together. But 1:02:19.640 --> 1:02:22.360 he was also my coach because I was continuing to compete, 1:02:23.200 --> 1:02:25.960 and I actually owe him a lot. Um. What's his name? 1:02:26.120 --> 1:02:30.520 His name is Jim Barker, and we still talk a lot. 1:02:30.680 --> 1:02:34.400 And I went to him when I was interviewing at Vanguard, 1:02:34.680 --> 1:02:37.880 and Jim lives in Roxborough, Um, sort of in a 1:02:38.000 --> 1:02:41.720 row house in Philly, and uh we went. We got 1:02:41.760 --> 1:02:43.520 a couple of cheese steaks at what I considered to 1:02:43.560 --> 1:02:46.440 be the best cheese steak place in all Philadelphia, delessandros 1:02:46.480 --> 1:02:49.480 and uh six pack of beer and talking about life. 1:02:49.640 --> 1:02:52.480 And he was the one who really said, you gotta 1:02:52.560 --> 1:02:57.480 go someplace where your values and your passion match up 1:02:57.520 --> 1:03:01.600 with what the organizations trying to do. And he said, 1:03:01.600 --> 1:03:03.320 you know, you've got choice. He said, that's what it 1:03:03.320 --> 1:03:05.560 should come down to. And you know, it was that 1:03:05.680 --> 1:03:07.640 it was sort of the final thing I needed to, 1:03:07.880 --> 1:03:09.920 you know, like I got to do this because you 1:03:09.960 --> 1:03:13.600 know Vanguard there was something special about it thirty years ago. Well, 1:03:13.720 --> 1:03:15.360 you'll have to let us know if it works out. 1:03:15.680 --> 1:03:18.560 I'm I'm still I'm still striving there. Um, still working 1:03:18.560 --> 1:03:22.400 at it, Barry, I'm gonna guess it worked out, okay. Um, 1:03:22.440 --> 1:03:27.760 So let's talk about UM investors that influenced you, be 1:03:27.800 --> 1:03:31.600 CAUSISTL will lead to a few people other than Charlie Alice, 1:03:31.640 --> 1:03:36.240 who clearly is a tremendously influential investor. Who else do 1:03:36.280 --> 1:03:40.840 you think influenced your your approach to thinking about the 1:03:40.880 --> 1:03:44.120 world of investing. So, you know, it's interesting, you know, 1:03:44.160 --> 1:03:46.680 obviously I have to say Jack Bogol just you know, 1:03:46.800 --> 1:03:51.080 his his just the his analytic approach and the way 1:03:51.120 --> 1:03:55.320 he tried to simplify everything was really powerful. We had 1:03:55.320 --> 1:04:00.320 a really great um sort of um duo in we 1:04:00.360 --> 1:04:03.560 had Jack as UM chairman and CEO, and you know, 1:04:03.920 --> 1:04:06.720 Keith Thinker on all this. We also had Bert Malkiel, 1:04:07.240 --> 1:04:10.280 great Princeton economists on our board, and I got some 1:04:10.320 --> 1:04:12.800 pretty early exposure to the board. And you know Bert's 1:04:12.960 --> 1:04:15.160 again random Walked down Wall Street one of the greatest 1:04:15.200 --> 1:04:18.880 treatise ever written. One point eight million I'm sorry, is it? 1:04:18.880 --> 1:04:21.080 It's in the eleventh printing. It's a million and a 1:04:21.120 --> 1:04:24.440 half copies in prints. So you know, so I certainly 1:04:24.480 --> 1:04:26.800 have to give Bert, you know, a lot of credit. 1:04:27.560 --> 1:04:30.960 And then, um, this may surprise you, um, given how 1:04:31.400 --> 1:04:34.160 important I think indexing is. But there have been a 1:04:34.160 --> 1:04:38.640 couple of active managers who I had exposure to fairly 1:04:38.680 --> 1:04:41.960 early on, and I just liked the way they think, 1:04:42.000 --> 1:04:45.360 and I actually think it's very compatible with the way 1:04:45.400 --> 1:04:48.760 I described the power of indexing and the great John 1:04:48.840 --> 1:04:52.440 neff Um, who ran Windsor Fund for thirty years and 1:04:52.560 --> 1:04:55.520 one of the best track records ever for an active manager. 1:04:56.400 --> 1:04:59.480 The thing about John that was so powerful and you know, 1:04:59.480 --> 1:05:01.640 you're evidence it's based investing makes me think about this. 1:05:02.160 --> 1:05:04.680 John knew the companies better than the companies knew themselves. 1:05:05.280 --> 1:05:07.680 And I can remember sitting in sessions where he would 1:05:07.720 --> 1:05:10.200 be going through the details of what was happening at 1:05:10.200 --> 1:05:13.200 a large, you know, a Fortune fifty company and sitting 1:05:13.200 --> 1:05:15.520 across from the management teams and they had no idea 1:05:15.560 --> 1:05:17.840 what he was talking about, and he was so much 1:05:17.840 --> 1:05:21.600 more in depth. And then Um, there was another fellow 1:05:21.640 --> 1:05:26.800 at Wellington who sort of flew the public radar. But 1:05:26.840 --> 1:05:28.920 when you look at his track record at Owens, who 1:05:29.040 --> 1:05:32.360 ran our healthcare fund and he since handed it over 1:05:32.960 --> 1:05:36.520 to his successor, who has done a phenomenal job, Gene Hines. 1:05:37.160 --> 1:05:40.520 But Ed and his team, you know that healthcare fund 1:05:40.560 --> 1:05:43.480 for thirty years. When Ed retired, no fund in the 1:05:43.520 --> 1:05:47.000 industry had a better track record. Really it was at 1:05:47.040 --> 1:05:50.920 the time four basis points ahead of the next best 1:05:51.080 --> 1:05:55.720 fund in the industry. And the thing when did retire, 1:05:55.880 --> 1:05:59.200 so about three years ago now. And the thing that 1:05:59.400 --> 1:06:02.640 was so impressed about Ed and John was their knowledge 1:06:02.640 --> 1:06:06.080 of their companies was deep. But even as active managers, 1:06:06.160 --> 1:06:10.240 they were very much into long term value creation. So 1:06:10.280 --> 1:06:12.880 you look at their portfolio turnover and it was really 1:06:12.960 --> 1:06:16.880 low compared to other active funds, and they actually took 1:06:16.880 --> 1:06:20.200 pretty concentrated bets. And you know, I've come to believe 1:06:20.280 --> 1:06:23.160 that if an active manager is going to add value, 1:06:23.360 --> 1:06:26.120 it's probably going to be by being very different. So 1:06:26.560 --> 1:06:30.680 each of them would have of their portfolio in their 1:06:30.720 --> 1:06:34.600 top ten names, and you know, coupled with an index 1:06:34.640 --> 1:06:36.480 as a base, that was actually a pretty good way 1:06:36.520 --> 1:06:40.240 to invest. So that that raises a question not from 1:06:40.280 --> 1:06:44.040 our our favorite lists, but we talked earlier about recruiting. 1:06:44.120 --> 1:06:47.840 You you get rock stars like that who can jump 1:06:47.880 --> 1:06:50.840 ship to another place and and maybe pick up a 1:06:50.840 --> 1:06:53.720 bunch of stock options and make more money. How does 1:06:53.800 --> 1:06:57.200 Vanguard retain their top talent like that? Well, so, you know, 1:06:57.280 --> 1:07:00.280 interesting on the active management side, some of those folks 1:07:00.320 --> 1:07:03.520 I UM reference, they don't actually work for us. They 1:07:03.560 --> 1:07:06.960 outside manager outside managers and so you know, they work 1:07:07.000 --> 1:07:09.320 for Wellington or for prime Cap or you know any 1:07:09.360 --> 1:07:12.320 of the other firms around the world. Bailey Gifford in Scotland. Um. 1:07:12.360 --> 1:07:14.840 And it's a pretty unique arrangement, isn't it. For a 1:07:14.840 --> 1:07:18.080 big mutual funds. We're the only ones who employ this 1:07:18.160 --> 1:07:21.640 strategy as extensively as we do. And really all of 1:07:21.680 --> 1:07:24.760 our active equity, with a couple of very minor exceptions, 1:07:25.160 --> 1:07:28.720 is run by external firms and we scour the world 1:07:28.800 --> 1:07:30.600 for the best firms. And today I think we have 1:07:30.640 --> 1:07:34.120 about seventy five different mandates run by thirty firms and 1:07:34.160 --> 1:07:36.800 it's been a really um it's been a really good 1:07:36.840 --> 1:07:40.680 way to approach active and we find people who are 1:07:40.720 --> 1:07:43.720 aligned with us in terms of low cost and long 1:07:43.840 --> 1:07:46.680 term view and so forth. Um, you know, in terms 1:07:46.680 --> 1:07:50.720 of the broader question though, how do we retain talent? Um? Yeah, 1:07:50.760 --> 1:07:52.280 I'd say there are a couple of things. One, you know, 1:07:52.320 --> 1:07:55.040 we we do compensate people well, I mean in our 1:07:55.040 --> 1:07:57.960 own firm, our fixed income teams are our index teams 1:07:58.000 --> 1:08:01.160 are client service people. You know, we pay struct attention 1:08:01.240 --> 1:08:03.200 to what's going on in the industry, but you you're 1:08:03.320 --> 1:08:07.560 reputed at the CEO level down. Look, if Jamie Diamond 1:08:07.560 --> 1:08:11.400 would leave and you would say, hey, knock knocked, sure, 1:08:11.440 --> 1:08:14.800 I'll run JP Morgan for you. I imagine JP Morgan 1:08:14.960 --> 1:08:20.000 with its stock options is a multiple of what you're not. 1:08:20.000 --> 1:08:23.000 Not that you're underpaid advantguard. I'm sure it's a reasonable 1:08:23.080 --> 1:08:25.960 check each week, but when you go to any of 1:08:25.960 --> 1:08:31.080 the publicly traded Goldman, Sachs, Morgan, Stanley, those are crazy numbers. 1:08:31.120 --> 1:08:33.439 So it gets to the question how much is enough? Right? 1:08:34.280 --> 1:08:36.519 So you know, at the end of the day, um, 1:08:36.560 --> 1:08:38.720 I think the kind of people we've been able to track. Look, 1:08:38.840 --> 1:08:40.559 we want people to make a good living, We want 1:08:40.560 --> 1:08:42.200 people to be able to take care of their families 1:08:42.240 --> 1:08:45.880 and you know, support whatever. It doesn't have to be 1:08:45.920 --> 1:08:48.720 a hundred million dollars. It doesn't. And you know, we 1:08:48.760 --> 1:08:51.439 want people who are mission based and the thing. And 1:08:51.560 --> 1:08:53.120 you know you've been to the campus, you felt it. 1:08:53.160 --> 1:08:56.839 I mean, everybody there is there because they really believe 1:08:56.920 --> 1:08:59.439 in the mission of the firm. You don't feel that 1:08:59.479 --> 1:09:02.879 there dripping with excess. And I've been to other places 1:09:02.920 --> 1:09:06.240 that you're like, what do you think that costs? On? Yeah, 1:09:06.240 --> 1:09:10.760 I had. There's a funny story. Um somebody, um, a 1:09:10.800 --> 1:09:12.840 reporter came to my office a couple of weeks after 1:09:12.880 --> 1:09:15.120 I had become CEO, and she sort of looked around 1:09:15.120 --> 1:09:17.439 and she said, this isn't really what I expected. And 1:09:17.520 --> 1:09:19.600 she had been somewhere else where I think they had 1:09:19.640 --> 1:09:22.960 spent a million dollars on art or whatever, and she said, well, 1:09:22.960 --> 1:09:25.040 how much did that print costs? And then and I said, well, 1:09:25.040 --> 1:09:26.680 it's a print. It was fifteen bucks. And then we 1:09:26.720 --> 1:09:29.880 got it reframed and you know, and a lot of 1:09:29.880 --> 1:09:31.880 the art was actually went all the way back to 1:09:32.360 --> 1:09:34.720 Jack Bogel and Jack Brennaday's. You know, it was just 1:09:35.040 --> 1:09:39.200 stuff we had. Look we we we we remind ourselves. 1:09:39.240 --> 1:09:41.880 And I know it sounds really Polly Anishberry, but it's 1:09:41.920 --> 1:09:44.680 not our money. You know. The question always I don't 1:09:44.680 --> 1:09:48.000 think that there's a there's a there's a question. I 1:09:48.000 --> 1:09:50.040 get asked a lot out there. People say, what's it 1:09:50.120 --> 1:09:52.400 like to you know, be have three and a half 1:09:52.400 --> 1:09:54.599 trillion or four trillion. I always like, I have no idea. 1:09:55.240 --> 1:09:57.559 It's not my money, it's you know, we we we 1:09:57.600 --> 1:10:00.840 go to bed every night. Actually, I think about the 1:10:00.880 --> 1:10:04.120 responsibility that's been entrusted with us, and I think that's 1:10:04.160 --> 1:10:06.599 why the people are there. You know, you look at 1:10:06.600 --> 1:10:10.760 our senior team and people. The tenure of our organization 1:10:10.840 --> 1:10:13.439 is incredible. Um. You know, we have half the company 1:10:14.080 --> 1:10:16.680 has been in Vanguard more than ten years. And I 1:10:16.720 --> 1:10:18.680 think I don't have this stat right off the top 1:10:18.720 --> 1:10:19.960 of my head, but I'm going to guess it's at 1:10:20.040 --> 1:10:24.360 least the company has been more than twenty And that 1:10:24.479 --> 1:10:27.840 belief in what we do is really palpable. And you 1:10:27.880 --> 1:10:29.800 know it's and then you know, you make it get 1:10:29.840 --> 1:10:32.920 pay well, you make it a really good environment, and 1:10:32.960 --> 1:10:34.920 you know, we try to treat people really well. There's 1:10:34.960 --> 1:10:40.599 no one this was Jack Bogel is um you know, um, 1:10:41.120 --> 1:10:44.840 no problem, you know, in a sense differentiating by how 1:10:45.040 --> 1:10:48.080 you know people's contributions are to the firm. But from 1:10:48.120 --> 1:10:53.000 a behavior standpoint, you know, Jack never cared what level 1:10:53.080 --> 1:10:57.280 you were. You treated everybody with respect. And I remember hearing, 1:10:57.320 --> 1:10:59.519 you know, learning that like my first three days, they're 1:10:59.560 --> 1:11:03.400 just watching what was going on, and that really again, 1:11:03.840 --> 1:11:05.559 for a lot of us, that's what gets us up 1:11:05.600 --> 1:11:07.800 in the morning. There's a firm culture. It's still there 1:11:07.800 --> 1:11:10.559 and it hasn't attenuated yet. Uh, you know, we work 1:11:10.640 --> 1:11:13.599 really hard at that. All right, back to our favorite questions, 1:11:13.680 --> 1:11:16.519 Let's talk about favorite books. You You mentioned Winning The 1:11:16.600 --> 1:11:21.040 Losers Game by Charlie Ellis and Random Walk Down Wall 1:11:21.080 --> 1:11:25.000 Street by Burton Malkiel. By the way, two previous guests 1:11:25.000 --> 1:11:27.920 on the show, what are some of your other favorite books? Fiction, 1:11:28.000 --> 1:11:30.680 non fiction, finance related or not. So I'll give you two. 1:11:30.800 --> 1:11:33.719 Finance one, so I can't not mention bail out nations 1:11:33.920 --> 1:11:37.840 can skip everybody knows, but everybody knows that my so 1:11:37.920 --> 1:11:40.400 it's but it's you know again, you captured a lot. 1:11:40.520 --> 1:11:43.439 There's another book that I think does um it's it's 1:11:43.560 --> 1:11:47.479 less extensive than yours, but gives everybody everything they need 1:11:47.520 --> 1:11:49.680 to know about that here it's The Lost Bank by 1:11:49.840 --> 1:11:55.519 Kirsten Grind The Loss Bank. It's about Washington Mutual and 1:11:56.880 --> 1:12:02.400 it's a fantastic insight into what corporate culture, how corporate 1:12:02.439 --> 1:12:05.080 culture can go awry. L O s t The Lost 1:12:05.120 --> 1:12:09.040 Lost Bank. Um it's it's really a good read. You 1:12:09.040 --> 1:12:11.960 you'd enjoyed, especially given what you've done. You know. On 1:12:12.040 --> 1:12:14.640 the fiction side, So I tend to be accused of 1:12:14.640 --> 1:12:20.000 being very eclectic. Um. I have a huge science fiction collection. Too, 1:12:20.200 --> 1:12:23.519 and what do you like? Well, I'm i'm so. I 1:12:23.560 --> 1:12:28.240 love all the classic guys. So I've read everything. I 1:12:28.320 --> 1:12:32.479 just reread the Lasnie on a plane flight. Um? Which one? 1:12:32.720 --> 1:12:38.200 This Immortal which is favorite classic? Um Dune obviously, Hyperion 1:12:38.360 --> 1:12:41.320 by Dan Simmons one of my favorites. I love all 1:12:41.360 --> 1:12:45.920 the cyberpunk guys. Neil Stevenson Um in particular, and he's 1:12:45.960 --> 1:12:50.640 got a new great book out called Seven Eves. I 1:12:50.680 --> 1:12:54.360 read this summer while I was on vacation and it 1:12:54.439 --> 1:12:57.439 was fantastic. So. Um, that's kind of how I amuse 1:12:57.520 --> 1:13:00.320 myself in in the fiction world. How far into the 1:13:00.360 --> 1:13:02.920 cyberpunk do you go? You William Gibson or so you know? 1:13:02.960 --> 1:13:05.960 I think Gibson? Um, you know Neuromanswers one of my 1:13:06.280 --> 1:13:10.000 top books. Mona Lisa Overdrive one of my favorite books. Um, 1:13:11.120 --> 1:13:14.360 So I I like those guys. Um you know? To me? Um, 1:13:14.560 --> 1:13:18.000 how abstract do you get with with science fiction? You 1:13:18.000 --> 1:13:21.200 can test me, Philip K. Dick, I've read them all. Really, 1:13:21.960 --> 1:13:24.680 you haven't read you Bick. I've got you Buck. I 1:13:24.680 --> 1:13:26.680 haven't read you Bick. So you're right, I read you Bick, 1:13:26.760 --> 1:13:28.960 and I'm the only person I know and I started 1:13:29.000 --> 1:13:31.479 you Buck, and I couldn't figure it out. It's it's 1:13:31.520 --> 1:13:36.519 the spray. It's um. People don't realize. Decades after he 1:13:36.600 --> 1:13:41.519 passed away, his books became these Hollywood Black Blade Runner 1:13:41.920 --> 1:13:44.000 was based on a short story Do Androids Dream of 1:13:44.000 --> 1:13:47.960 Electric Shape? Total Recall was based on We Can Remember 1:13:47.960 --> 1:13:50.600 It for your Wholesale. So if when someone tells me 1:13:50.640 --> 1:13:53.360 they've read Philip K. Dick, I know that they've gone 1:13:53.360 --> 1:13:55.960 through the whole genre. And one of the best, um 1:13:56.280 --> 1:13:59.880 new TV series on Netflix or is an Amazon Pro 1:14:00.000 --> 1:14:03.040 It's Amazon Prime and it's The Man in the High Castle. 1:14:03.640 --> 1:14:06.160 They did it. It's a pretty good treatment. Um, I'm 1:14:06.200 --> 1:14:08.720 in the first I'm halfway through the first season. It's 1:14:08.880 --> 1:14:11.080 it's a it's good. It's a good extrapolation and it 1:14:11.120 --> 1:14:14.519 looks great. Yeah, it makes me think of what I read. So, yeah, 1:14:14.520 --> 1:14:16.479 I love all that stuff. Yeah that that was really 1:14:16.479 --> 1:14:19.599 a fascinating book. A talk show host awakes one morning 1:14:19.960 --> 1:14:23.320 to discover that America has lost World War Two and 1:14:23.400 --> 1:14:26.280 the Japanese and Germans have split up America and he 1:14:26.360 --> 1:14:30.400 can't figure out why. So they haven't quite gone that 1:14:30.400 --> 1:14:34.360 that route. But in the book, it's this Dick loved 1:14:34.400 --> 1:14:38.800 alternative levels of reality. It's a so so I I have. 1:14:39.520 --> 1:14:43.040 I like to say I misspent my youth and my 1:14:43.600 --> 1:14:46.320 adulthood reading a lot of science fiction. But you know, 1:14:46.360 --> 1:14:49.680 for me it's actually very stimulating because things like and 1:14:49.720 --> 1:14:53.880 you know there's cyberspace, um, virtual reality. This has been 1:14:53.920 --> 1:14:56.520 part of my world for twenty years. So what technology 1:14:57.000 --> 1:15:00.439 is always fifty years behind science fiction writer? And so 1:15:00.479 --> 1:15:03.760 like you could, you could look at every major innovation 1:15:03.840 --> 1:15:06.920 and somebody has was writing about it half a century ago. Yeah. 1:15:06.920 --> 1:15:11.479 I'm now about to start a new book on um 1:15:11.520 --> 1:15:14.519 that's about the X Prize and you know, the first 1:15:14.520 --> 1:15:16.559 group to win the X Prize in in you know, 1:15:16.920 --> 1:15:20.160 was the space launch of the driverless car Space Launch, 1:15:20.600 --> 1:15:23.600 And so I'm really interested in what's the name of 1:15:23.640 --> 1:15:25.280 the book? You know, I'm drawn a blank now. It 1:15:25.320 --> 1:15:30.080 just came out and um, it's literally it just showed 1:15:30.120 --> 1:15:33.200 up on my doorstep. And before I so rudely interrupted 1:15:33.200 --> 1:15:37.040 you talking about science fiction, what was the other fiction 1:15:37.280 --> 1:15:39.639 that you were going to reference? Now? I I think 1:15:39.640 --> 1:15:42.080 that's the where I spend most of my fiction, and 1:15:42.080 --> 1:15:46.320 then I do a decent amount of history for nonfiction. Um, 1:15:46.400 --> 1:15:50.000 what have you read recently liked. So my my favorite 1:15:50.040 --> 1:15:51.679 one in the last couple of years is a book 1:15:51.680 --> 1:15:58.280 called Valiant Ambition UM by Natt Philbrick. Valiant Ambition, and 1:15:58.320 --> 1:16:01.120 it's it's basically a follow up to a book he 1:16:01.160 --> 1:16:03.760 did a couple of years ago called Bunker Hill, and 1:16:03.800 --> 1:16:07.160 it's the second year of the Revolutionary War and it's 1:16:07.200 --> 1:16:12.360 really um he he focuses on Washington and Benedictdonald. You 1:16:12.400 --> 1:16:15.719 get a really deeper appreciation for what led to Benedict 1:16:15.800 --> 1:16:19.120 Donald's treason, and it's it's part. It's a story I 1:16:19.160 --> 1:16:21.800 didn't know, so it was really fasting. That's interesting. And 1:16:21.840 --> 1:16:26.519 if memory serves you liked McCullough's Wright Brothers. I love 1:16:26.640 --> 1:16:28.880 Wright Brothers. You loved it, can I tell you it's 1:16:28.920 --> 1:16:31.160 one of those books that have been in my queue 1:16:31.640 --> 1:16:33.600 and I just haven't gotten to it. When when you 1:16:33.640 --> 1:16:37.559 read it, you're so inspired by UM. A lot of 1:16:37.600 --> 1:16:40.080 people love that book. So, you know what what's so 1:16:40.200 --> 1:16:44.519 interesting to me is these guys had a vision and 1:16:44.600 --> 1:16:47.200 they didn't let anything get in their way and they 1:16:47.320 --> 1:16:52.280 just kept pursuing it. And the discipline and the passion, um. 1:16:52.320 --> 1:16:53.960 You know, it's everything I love. You know, it's the 1:16:53.960 --> 1:16:57.840 American Dream writ large. All right, let's um, let's keep 1:16:57.880 --> 1:16:59.439 going because I know I only have you for a 1:16:59.479 --> 1:17:03.040 few more. It's um. So there's a new question I've 1:17:03.080 --> 1:17:07.480 added to my regular list at the request of of listeners. 1:17:08.360 --> 1:17:12.200 What is it that you do to keep mentally and 1:17:12.600 --> 1:17:15.280 or physically fit? What do you do to relax outside 1:17:15.280 --> 1:17:19.240 of the office. So I I have a background in 1:17:19.320 --> 1:17:22.200 endurance sports, and in particular and rowing. Um, you know, 1:17:22.200 --> 1:17:25.519 I took up rowing in college, and I could argue 1:17:25.600 --> 1:17:28.639 that it was taking up rowing that's led to everything. 1:17:28.880 --> 1:17:31.760 You know it really it led me to take the 1:17:31.800 --> 1:17:35.240 teaching job in Philadelphia so I could continue rowing. It 1:17:35.320 --> 1:17:38.880 brought me back to Philadelphia. Um. You know, this coach 1:17:38.920 --> 1:17:41.639 I mentioned as a mentor gave me the best career 1:17:41.640 --> 1:17:46.240 advice I've ever gotten. And um, in a sense, everything 1:17:46.360 --> 1:17:48.800 good that's happened since I can trace back to that 1:17:48.880 --> 1:17:51.799 decision to start rowing. So I'm pretty passionate about the sport. 1:17:51.920 --> 1:17:54.400 Are you still rowing regularly? You know it's hard with 1:17:54.439 --> 1:17:56.840 my schedule, So I'll go out on the weekends. UM, 1:17:56.880 --> 1:18:00.520 I have a show a single and I will occasionally 1:18:00.560 --> 1:18:02.720 jump into a team boat. I'm going to actually race 1:18:02.800 --> 1:18:05.519 this coming weekend in Boston at the head of the 1:18:05.600 --> 1:18:09.880 Charles and a master's event, so the age handicap at 1:18:09.880 --> 1:18:13.320 which in my case is really necessary. And I'm going 1:18:13.400 --> 1:18:15.880 to row with in one I'm rowing in two events 1:18:15.920 --> 1:18:18.760 actually which I may regret later and I think they 1:18:18.760 --> 1:18:21.960 may need oxygen when I'm done. But I'm gonna row 1:18:22.000 --> 1:18:23.720 with three of my teammates and the first time we 1:18:23.800 --> 1:18:25.559 got in a boat together was forty one years ago. 1:18:26.000 --> 1:18:29.559 Oh really, which so it's pretty cool to reunite. And 1:18:29.560 --> 1:18:31.639 then I'm going to row with another group of alumni 1:18:32.120 --> 1:18:35.240 from do they all still still stay active rowing? They do? 1:18:35.560 --> 1:18:38.360 And and what we do is we we all try 1:18:38.360 --> 1:18:42.640 to get together and race this race in Boston periodically. 1:18:43.280 --> 1:18:45.960 And then UM. The other thing I do UM with 1:18:46.080 --> 1:18:49.400 actually a number of my Vanguard colleagues is I bicycle 1:18:50.160 --> 1:18:54.160 and we typically do one or two charity events in 1:18:54.160 --> 1:18:57.240 the summer to raise money for cancer. There's one in 1:18:57.280 --> 1:19:00.920 Massachusetts that's again you love it from um UM. Just 1:19:00.960 --> 1:19:05.439 an economics standpoint, forty million dollars raised in one weekend. 1:19:06.080 --> 1:19:09.439 That's big to benefit Dana Farber and cancer research and 1:19:09.520 --> 1:19:13.320 in particular a lot of emphasis on pediatric cancer and 1:19:13.600 --> 1:19:16.400 UM it's a really cool event. And I think this 1:19:16.439 --> 1:19:18.320 past year we probably had ten or twelve of us 1:19:18.400 --> 1:19:20.200 go up and do it. So how do how does 1:19:20.240 --> 1:19:23.040 the money raising work? Is it a per mile per that? 1:19:23.880 --> 1:19:25.840 However you want to do it, you're you, You you 1:19:25.920 --> 1:19:29.320 tell the organization you will raise a minimum of I 1:19:29.360 --> 1:19:32.040 think the minimum is probably four or five dollars now, 1:19:32.720 --> 1:19:36.800 and you get sponsors, friends. You know, I tend to 1:19:36.880 --> 1:19:38.920 my wife and I tend to you know, it's cancer 1:19:38.960 --> 1:19:40.760 research pretty important to us, so we tend to do 1:19:40.800 --> 1:19:44.959 it ourselves. But everybody has their own approach. And UM, 1:19:45.040 --> 1:19:47.679 it makes you train, you know. You it's two hundred 1:19:47.680 --> 1:19:51.320 miles and two days double centurion. That's pretty impressive. So 1:19:51.400 --> 1:19:55.320 you know, I can't fake it through that anymore. So, UM, 1:19:55.760 --> 1:20:01.040 I've got to do so again. Long rides on the weekend. Then, UM, 1:20:01.120 --> 1:20:03.080 we have a gym on campus. I'll do a spinning 1:20:03.080 --> 1:20:05.280 class a couple of times a week. So there's really 1:20:05.280 --> 1:20:07.519 a lot of you're you're getting ready to do. That's 1:20:07.520 --> 1:20:09.840 a that's a big ride, a hundred miles a day. 1:20:09.920 --> 1:20:15.400 But you know, to your original question, UM, I find that. Um, 1:20:15.439 --> 1:20:17.600 And this was a lesson I learned from Jack Brennan. 1:20:18.080 --> 1:20:23.920 The discipline is staying UM fit has helped me immeasurably 1:20:24.080 --> 1:20:27.519 career wise. UM, you don't get sick as often. You 1:20:28.080 --> 1:20:30.640 understandina is great. You know when you go through crises, 1:20:30.720 --> 1:20:33.160 you you know, long days just sort of bounce off you. 1:20:34.000 --> 1:20:37.040 And so to me, it's become very self reinforcing of 1:20:37.400 --> 1:20:40.320 kind of basic leadership principles. You know something that you 1:20:40.360 --> 1:20:42.800 want to emulate to other people, do it, so you 1:20:42.840 --> 1:20:44.360 have to take care of yourself so you can take 1:20:44.400 --> 1:20:48.160 care of business. That makes sense. Our last two and 1:20:48.360 --> 1:20:51.840 favorite questions what sort of advice would you give to 1:20:51.920 --> 1:20:54.760 a millennial or a recent college graduate who might be 1:20:54.840 --> 1:20:58.880 interested in going into the field of finance or investment management. 1:20:59.640 --> 1:21:02.920 So I think it's a really interesting time UM for that. 1:21:03.120 --> 1:21:07.160 And you know, I first I'd always tell them whatever 1:21:07.960 --> 1:21:10.120 sector they're going into, the accounty, but in particular and 1:21:10.120 --> 1:21:13.800 financial services, find a place where your values match up, 1:21:14.400 --> 1:21:18.160 so you know, really probe a lot around the values 1:21:18.200 --> 1:21:20.160 of a firm, and you've got to go to a 1:21:20.160 --> 1:21:24.759 place that you're comfortable with and where your values really 1:21:24.800 --> 1:21:29.000 match up. I think very related UM is have a 1:21:29.000 --> 1:21:31.960 passion for it too. UM don't do anything just for 1:21:32.000 --> 1:21:35.040 the paycheck, UM. And you know sometimes I mean, you 1:21:35.080 --> 1:21:36.800 know what it's like coming out of school, You're in 1:21:36.840 --> 1:21:39.679 debt and you're you're you're tempted to just do whatever 1:21:39.840 --> 1:21:44.559 to to to h to meet those those obligations. But 1:21:44.640 --> 1:21:47.200 I think passion is really important. You know, when I 1:21:47.200 --> 1:21:49.200 first came out of school, I did have a passion 1:21:49.280 --> 1:21:51.400 around education. So you know, the first couple of years 1:21:51.400 --> 1:21:54.840 for me, you know, I got to fulfill that. You know, 1:21:54.920 --> 1:21:59.920 my first for a into finance, I wasn't is connected 1:22:00.360 --> 1:22:04.439 um from a mission standpoint, and it was finding vanguard 1:22:04.439 --> 1:22:07.040 that really reinforced how important that is. I was just 1:22:07.080 --> 1:22:10.439 so much happier about the work makes sense. And our 1:22:10.560 --> 1:22:13.479 final question, what is it that you know about the 1:22:13.479 --> 1:22:17.800 world of investing and running a company today that you 1:22:17.880 --> 1:22:22.840 wish you knew thirty years ago? Thirty years ago? Um, 1:22:23.400 --> 1:22:27.960 crazy number? Right, Yeah. I I think the speed with 1:22:28.040 --> 1:22:33.160 which technology is evolving UM is much. And you know, 1:22:33.200 --> 1:22:35.639 here for a science fiction guy to admit this, it's 1:22:35.680 --> 1:22:37.880 really hard. But I didn't see it all coming as 1:22:37.960 --> 1:22:40.680 fast as it came. And I think it's because it's 1:22:40.720 --> 1:22:43.439 not linear. I don't think humans are wired to think 1:22:43.479 --> 1:22:48.160 exponentially Um, just the smartphone was such a people don't 1:22:48.200 --> 1:22:50.120 realize there's more power in this than went to them 1:22:50.160 --> 1:22:53.759 took men to the moon, and it's amazing how that's changed, 1:22:54.200 --> 1:22:57.200 you know, not having as good an appreciation about that. 1:22:57.320 --> 1:23:01.519 And then I think it's probably related. But the globalization 1:23:01.920 --> 1:23:07.320 that's occurred, especially the last decade. UM, it's spectacular, but 1:23:07.439 --> 1:23:10.120 also you know, it's it comes with challenges, with a 1:23:10.120 --> 1:23:14.120 lot of challenges, and I think that's really um. You know, 1:23:14.160 --> 1:23:17.320 if I could go back in time and anticipate that 1:23:17.360 --> 1:23:19.920 a little better, I think I would have made smarter 1:23:20.040 --> 1:23:22.599 decisions in terms of helping us as a firm think 1:23:22.640 --> 1:23:24.960 through some of those things. I think we've done okay, 1:23:25.160 --> 1:23:29.600 But you know it's it's. Um. Those two phenomena, the 1:23:29.640 --> 1:23:33.559 acceleration of technology and globalization, again probably very inter related. 1:23:34.600 --> 1:23:38.600 They they really are defining our era in in so 1:23:38.640 --> 1:23:40.000 many ways, and I think they're going to define the 1:23:40.000 --> 1:23:43.960 next ten years too. I don't doubt it for a second. Bill, 1:23:44.000 --> 1:23:47.080 Thank you for being so generous with your time we 1:23:47.200 --> 1:23:49.000 have been speaking. I want to make sure I say 1:23:49.000 --> 1:23:51.439 this right. Is it William McNabb The third because I 1:23:51.520 --> 1:23:54.240 keep calling you Bill, Bill, is what I prefer. Okay, 1:23:54.800 --> 1:23:58.080 it's technically Frederick William the third, and my mother insisted 1:23:58.320 --> 1:24:00.960 that i'd be Bill Um since my father was fred 1:24:01.280 --> 1:24:04.880 All right, that works. If you enjoy this conversation, be 1:24:04.920 --> 1:24:06.679 sure and look up an inch or down an inch 1:24:07.040 --> 1:24:09.080 on Apple iTunes and you can see any of the 1:24:09.120 --> 1:24:13.960 other hundred and eight or so. Uh such conversations we've had. Uh. 1:24:14.000 --> 1:24:17.479 If you want more information on Vanguard, UH, they're a 1:24:17.479 --> 1:24:19.920 small company in Pennsylvania, you could go to Vanguard dot 1:24:20.000 --> 1:24:23.519 com and learn all about them. I would be remiss 1:24:23.640 --> 1:24:27.280 if I failed to thank Taylor Riggs, our booker, Michael 1:24:27.320 --> 1:24:30.840 bat Nick, my head of research, and Charlie Volmer, our 1:24:30.960 --> 1:24:35.640 recording engineer. We love your comments, feedbacks and suggestions, and 1:24:35.720 --> 1:24:38.679 if you've made it this far into the podcast, we'd 1:24:38.680 --> 1:24:41.840 love to hear from you right to us at m 1:24:41.880 --> 1:24:46.080 IB podcast at Bloomberg dot net. I'm Barry rid Holtz. 1:24:46.240 --> 1:24:49.960 You've been listening to Masters in Business on Bloomberg Radio, 1:24:53.040 --> 1:24:56.160 brought to you by Bank of America. Merrill Lynch, committed 1:24:56.200 --> 1:24:59.200 to bringing higher finance to lower carbon named the most 1:24:59.240 --> 1:25:02.680 innovative and spent bank for Climate change and Sustainability by 1:25:02.680 --> 1:25:06.120 the Banker that's the power of global connections. 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