The Lasting Impact of The Bogle Effect

for Bloomberg Intelligence here with us. He's also the author of The Bogel Effect, How John Bogel and Vanguard turned Wall Street inside out and saved investors trillions. It's a brand new book. Eric, It's good to have you with us. How are you. I'm good, just you know, enjoying all the Elon Must do and then take taking a break to do my job. Congratulations. Congratulations, we're taking a break from talking about Elon Must to talk Vanguard and e

t S with you. Um. You know one thing that I was surprised to learn here is it's been reading the book is how long it took Vanguard to catch on. This was like decades in the making, because if you look right now, Vanguard is you know, more than eight trillion dollars in assets under management. It's just you know, insert superlative here. Why did it take so long for Vanguard to catch on? Yeah, this is where I think the story has a little more drama than people think.

You know, a lot of Wall Street books are about the rise in the fall and lets bogel it's sort of like he just kept, you know, slowly rising. But this guy lived in oblivion for about years. And the reason it took so long, given what people today think is an obvious trade, why not why wouldn't I own the whole market? For three basis points is that he

operated outside of the system. He just did the Vanguard refused to pay brokers, and at that time, it just there were no R I A S. It was just brokers, and so if you did not give them money or loads or commissions or kickbacks, um, they were not going to sell your funds. So he had to get people to leave that system. He also had to try to explain to people that an index fund was not average.

It sounded average. He had a lot of people trying to position it that way, so he had to go above and beyond to try to explain, hey, this is not average. So those two things made it take a long time. Also, the barguard mutual ownership structure, which lowers fees the more assets it gets, took a while to lower fees because the assets weren't quite there yet. So as the assets started to come in the nineties and two thousand's, that's when the fees really started to dip down.

And once they got below twenty fifteen basis points, it was a done deal. And that's part of the point of making the book. Also is the index fund was a kind of a lucky byproduct. The real core nucleus of all the things we're seeing today that we're from Vogel and Vanguard are the mutual ownership structure UH and the structure of Vogel himself. I must say he was a different kind of guy, and so I think those two things really are what I explore the most in

the book. I think i've I've talked with you about this before, Eric, but I remember one of my first shows that I did in financial television and financial broadcast and it was a mutual fund show, and we would always be like, Okay, you gotta have a Vanguard fun out because it was a low cost, no cost option. And our host was like, why would you pay fees when you can go to Vanguard and get the same strategy and pay no fees. I mean, he really was

iconic in terms of his impact on this industry. Yeah, absolutely, I mean, you know it is it is just a modern miracle that you can just get the whole stock market, the whole bond market, and at this point international stocks for under six seven basis points. A sixty forty now can be gotten for three or four basis points, basically

frictionalist exposure. And that's a big theme in the book I have as well, is that I think, you know, Bogel's called the father of the index fund, but honestly feel like you should be called either the father of low cost investing or I like this phrase addition by subtraction. What he did over forty five years was just remove all the stuff that kind of gets in the way, be it management, fees, brokers, turnover, trading costs, human emotion.

I mean, taking all that out, then you get the total market with its almost frictionalist exposure, and that's why it's a smash it. And it's not just Vanguard, which takes in a billion a day. The rest of the money goes to Vanguard esque index funds, even from Fidelity, right, the fierce rival of Vanguard. That's how fidelities flows come now is through those low costs inex funds. I mean

he totally. The whole industry now basically is governed by Vanguard's mutual ownership structure, which nobody copied, but yet they have to copy it in a way. Eric, When I was reading this, I thought back to this article I read in The Atlantic about a year ago by Annie Lowry. It's entitled could index funds be quote worse than Marxism? And it's actually a quote from analyst at Bernstein. They're called passive investing worse than Marxism. I see you on

the zoom laughing right now about this. What do you make of criticism of passive investing or index funds such as this? Yeah, and most of it's laughable, I mean the Marxism. Somebody else said that they're worse than the misuse of antibiotics. I mean, they're i've heard. I've heard her compared to the Salem, which trials people go crazy with this stuff. Look, if you think about it, all

people have done is moved from closet indexing. If you look at the Fidelion Magellan, it largely owns Apple, Amazon, Google, right, and they've moved to actual indexing and saved about seventy basis points in the process. Everybody own the same stocks, they just now own it in a different format. And indexing isn't really necessarily totally passive. Russell one thousand's different than the SMP. The SMP, by the way, is run by a human committee, has some rules. It's just more

rules based active. So I try to get rid of that, that line between active and passive. What really is going on is low cost. And I premise in the book that let's say indexing wasn't a thing and Vanguard had their mutual ownership structure and only active mutual funds, in my opinion, they would be the biggest active fund manager six times over because they would have been bringing a gun to a knife fight over and over. It's the

low costs that's the thing. And I don't think anybody who writes these articles would really have too much of a problem. The one thing we got to watch for is voting power. Vanguarded black Rock now own about seven eight percent of all stocks, and so we have to wonder how are they going to make sure that they don't vote in a way that is different than their shareholders or misuse that power. So far, I think they're fine, but we have to watch that. That's probably the one

thing I would think about watching Incredible Influence. Hey, we just have about a minute left here. What about Bogel demand I'm surprised to hear about how spiritually was um? Just interesting? Yeah? Look, uh, I asked everybody interviewed this question. Why is has nobody covered banguards mutual ownership structure? They said, well, because people go to Wall Street to get rich, they don't want to drive a Volvo. And then the other question, I said, well then why did Bogel do it? And

they're like, I don't know. Good questions. So a whole chapter is called Explaining Vogel, where I try to explain the ingredients that went in to create this very unusual person. I almost feel he was miscast in this industry, but maybe the industry needed a miscast in this era to sort of bring it to a more fiduciary place. So he was perfectly cast in a way, but definitely not your average Wall Street titan. And I again I explore that in a whole chapter, uh, to try to explain

to you how he happens. It's but but it says so much right because it was such a different, you know, path that he took versus a lot of other financial and Wall Street titans that are out there. Um, Eric, two short a time, come back. We'd love to talk more about what's in this book. Eric Baltuns he's our senior et F analyst to EP Bloomberg Intelligence, joining us via zoom from Philadelphia. Check out his book. Jack Bogel

wrote a lot um. But what's great about Eric is really just a great perspective on this man who really transformed in industry in way of investing. The book is called The Bogel Effect, How John Bogel and Van Guard turned Wall Street inside out and saved investors trillions. Really thinking about the retail investor from from the get count. Yeah, great read. I'm really enjoying it. All right. You are listening to Bloomberg Business Week for tim Stenovik, I'm Carol Master.

Have a good and safe evening.