NOVEL THINKING

It's great. You walk it as straight as you can. They slip, they stumble.

And, that requires some doing.

We had one lawyer then, we have 140 now. Although a lot of that has changed to advisory fees. Gardner: I don't think that's possible, Jack. Yes, Wellington brought out such a fund. The ABCs of the old days.

Bogle: And by the way, that was the year, in 1976 probably, when all the Fidelity funds had fallen out of bed. Bogle leaves behind a legacy of helping average investors, lowering the cost of investing, and popularizing index funds. Now how you get people to focus on that is a good question, how do you get them to focus on the role of cost in that is a good question, how do you get them to think about the long term, because in two or three or four years the difference in cost, let's face it just doesn't matter. And, I've had it for almost 18 years. Bogle: Well they don't have the sensational returns, they have something above returns or maybe a little bit below par from time to time. The performance was the worst in the industry for any balance fund. In the long run, you'll match the index, but you might beat the index by 50 basis points. Now that we’ve had a few weeks of covering the more well-known and widely-praised stocks, it’s time to look at some companies that not everyone may know about. So, I get to sit down and talk to eight people a quarter. One is fiduciary duty in the mutual funds. That remains to be seen. Bogle: Sure, the economics call it rent-seeking industry, of course it is, it has to be and it has to shrink, it has to get its cost down, the trading volume has to come down and a lot of mutual funds are going to have to fight, they are going to be cash cows, the big mutual funds companies are fabulously profitable and they can't change what they are doing and do what we do because they would not be profitable to their owners. You have a couple of big risks out there. So, we do need fiduciary duty.

That big Wall Street poster. You have to do a lot of numerical work and evaluation, etc., but that's how we have been building our portfolios in our family. How are you spending your time now? But, on the upside, it draws money in.

However, Bogle has faced some criticisms for his investment philosophy. And in a Social Security, those payments are gonna continue. He believed that much of the fluctuation in the market was due to short-term trades based on speculation, not long-term investments. And, thinking about that, what have you learned, or what do you think about?

You looked at the ... and fiduciary duty for the corporation and for the evaluator and for this one and that one.

Talk about anything they want to talk about. So dividends should not be jeopardized, absent some real problem in the world, in the economy. Still got a lot of correspondence. Bogle: Of whatever it is, so I would say, if you have the gambling instinct and most people do, at least start off, I would say start off with an index fund period and for five years don't do anything else and then look around and see what's happened in the five years, see how it felt when the market dropped 50%, see how it felt when it came back, and those five year periods are going to be very different for one investor or another, because they are all over time. Liquidity is the last refuge of the scoundrel. But, we're very ... our mission is very simple.

I've had some very profoundly serious problems and long hospitalizations. And I don't think that it's worthwhile to add that risk. That added to his reputation for standing up for the “little guy”.

And, that fiduciary duty is ... those two fiduciary duties are in direct conflict. In the investment business is really a business of mathematical candor, you can't hide, if you are selling a Mercedes Benz, salesman is selling it he is going to say look at the value you are going to get, your neighbor are going to be envious, blah blah, blah, whatever it is and you like the diesel fuel or the door slaps nicely or it has a great sounds system or air conditioning or I don't know what. You had to know the gross return in the financial markets.

In addition, he supported a measure of the Dodd-Frank Act. Bogle: So, I got Keynes, I've got Adam Smith, I've got one of the industry's founders.

Gardner: We're bound by name. ", Gardner: Mm-hmm (affirmative). He then started Vanguard, the company that would make him famous. That means that managers of these funds don’t have to make decisions in what to invest in and simply track the index.

Day after day after day. And, the other is the fiduciary duty to the shareholders in this publicly held company. How you observe and what conclusions do you draw about capitalization given that?

Bogle: Where we are, I mean, you have to be optimistic. Aren't we buying the largest companies and the most successful companies which have the smallest future market opportunity?

The expense ratio is the cost of managing a fund expressed as a percentage of total assets under management. When all the financial companies pretty much eliminated their dividends. We all think we're better drivers. But you can do a perfectly good job. And a fund for trustees, called Trustees Equity Fund, first one. So those are decisions investors really have to think a little bit about, it's not just me buying the bond index to be sure and that turns out to be an intermediate-term bond in fact, and that's perfectly satisfactory.

Then you have to decide how you want to balance risk and return, obviously the higher yields no matter how depressed they are, are in long bonds but the greatest risk is there and the lowest yield is in short, but the greatest principle stability is there. He did so because he thought that most investors could not outperform the stock market. And then, make sure that they hire nice people.

Gardner: I want to talk a little bit about financial advice and how that side of the business works because Vanguard has at least perceived to be exclusively a mutual fund company so a lot of individuals are trying to figure out how to put a portfolio together, it's helpful to hear the number of funds that you would put into a account for an individual and it's relatively small and it should manageable and a decision that an individual should make on their own, but yet many people come to their finances and say, please Jack just do it for me, I will literally give you the authority to make all transactions in my account, I don't want to know anything about which of course sets up a lot of people to be taken advantage of by financial advisors. And, even with that 5% commission we did 50% better. And that dividend, if you look at the stream of dividends, it makes the stock market look violently volatile.

Gardner: Is there anything good about trading, in your opinion? Gardner: You're in the unique position of having started, run the company, and now, sit as an observer of your creation. And you don't look at it that way. But, we have human conversations, talk about commitment, talk about opportunity. So, we talked a little bit and she started to go out of the office. And, even the people that have been there for a very short period of time seem to know who I am.

I'm talking about our proxy voting policies.

I don't know, Microsoft is two percent of the index, you just put two percent of the portfolio in Microsoft.

We listen to all these theories and big old boring indexing is the answer. After graduation, he went to work for Wellington Fund, which was a fund management company.

And people should be aware of that. And so, we of course, quote the bible.

Gardner: There's a Gallup Survey that shows that seven out of 10 people going to work in America today basically say that they're indifferent or even downright negative about the organization they're working for. Gardner: Can you describe fundamentally how an index fund works? You'd be as honest as you can.

Gardner: Oh we're gonna ... no.

When he put together the First Index Investment Trust, it was a mutual fund, which prices at the end of the day and cannot be traded during normal market hours. And if Social Security, when you begin it, has a capitalized value of maybe ... the stream of future payments that you will get is capitalized at around, say $350,000. Someone whose business is trying to serve you rather than serve the marketplace.

But, it's the change from a little, tiny organizational, embryonic organization, where there is a captain. The better it is in the past, the more the regression to the mean it's gonna be, the greater that's gonna be in the future. So the reality though in the market place is that the first actor, the fee-only financial fiduciary is living a relatively lean existence in terms of the financial make up and the VP of the big investment firm that has country house and is making a million dollar a year selling load funds and a whole bunch of booby traps in the portfolio to keep you locked in in different products. And, that's obviously oversimplified. He has forever changed investing—for the better or the worse. I took the simple example for him, we have 60 bond funds, 60, why is that, well we invented or created or developed a system that you tell us the maturity, how much risk and how much income you want, so we have short, medium and long and also a couple of variations around that and then in the municipal area you only have the funds itself in different states and then we have some bond index funds and we probably have 60 bond funds out there. The people that you work with, you know, what were some of the cultural features of Vanguard during your leadership? And the worse thing of all is not investing at all, that is the one guarantee we have in the financial business, actually two, one if you buy the index fund you will get the market return and guarantee too is if you don't invest you will get nothing. Physical trail. But that's a rule of thumb. Is Now a Good Time to Build an ESG Portfolio? Well, hindsight is always 20/20. The reversion to the mean is a constant pattern.

Or are there human choices that are going into the index?

Or as Warren says, Warren Buffett says, "A fat wallet is the enemy of superior returns."

So we have got 7%, that nominal and so we go to real and if are lucky to get 2% inflation that's 5 and a typical fund manager is taking 2, that's 3, and if you give 1% to an investment advisor that is a third of three and you are down to 2.

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