Interview With William McNabb: Masters in Business (Audio)

name is Bill McNabb. He is chairman and CEO of the Vanguard Group, a small little shop in Pennsylvania that runs about four trillion dollars um. This is one of the few guests we've had back for a second time. We had him on eighteen months ago, and there's almost no overlap between the two interviews. If you are either an individual investor, an institutional investor, a registered investment advisor, or a broker, this is a conversation you're going to want to hear. This might be one of the most

influential people in all of finance. Certainly, Vanguard has become one of the most influential shops there are. It's called the Vanguard effect. Any space they step into sees costs to investors Plummet. A Bloomberg article not too long ago estimated that Vanguard has helped pull forty billion dollars in fees out of wall streets pockets and and put it in the hands of investors by not only them charging a very low price, but by the competition being forced

to compete with Vanguard and lower their fees. I'm gonna make two recommendations for those of you who are listening to this. First, listen to the podcast. Enjoy it. He's incredibly knowledgeable and eloquent, and I loved having a conversation with him. But second, go back onto iTunes or SoundCloud or the Big Picture at Reholts dot com and and pull out that previous conversation. I'll link to it on the blog when when I when I write about this,

you should really listen to both of these. They are master class in the business of running an investment business. There's there's none better than Bill McNabb. With no further ado, my conversation with Vanguard Groups CEO and chairman, Bill McNabb. This is master's in business with Barry Ridholts on Bloomberg Radio. I'm Barry Ridholts. You're listening to Masters in Business on Bloomberg Radio. My special guest this week is a returning guest.

His name is William McNabb. He is Chairman and see EO of the Vanguard Group, which currently manages just about four trillion dollars. That's trillion with the t uh. Bill has been with the Vanguard Group since so his thirtieth anniversary was not too long ago. He became CEO in two thousand and eight and chairman in oh nine. And he is the third CEO and Vanguard's history, following Jack Brennan before him, and prior to that, uh, a gentleman

named John Bogel, the founder of Vanguard. Bill McNabb, welcome to Bloomberg. Great to be here, Barry, Thanks, and I should say welcome back to Bloomberg. Uh. The last time we had a conversation, it was really quite fascinating. So I want to jump right into some of the really interesting going zones these days and and get the Vanguard perspective of things. Uh, let's jump right to your competitors. How do you see the lay of the lands when

it comes to managing other people's money? So I think what we're seeing right now, say, um, you know, there's a secular change that's gone on and will continue to go on in terms of costs being a much more important component of investing. Obviously that's played out most purely with indexing firms doing better. But I think it's gonna

lead to further consolidation in the industry. UM. So you know, we saw a week ago Janis and Henderson UM big big merger that was clearly uh, let's get more economies of scale kind of play. I think more of that

may happen. UM. I also think that you will see UM on the other side of it, maybe some boutiques emerge who are more specialized, and so you you may end up with a more barbeled industry where you've got a lot of really you know, nimble small players and you know some some larger players who can really exploit

economies of scale. So is it all about the economies of scale or when we look at let's look at some of your competitors who are Giant, black Rock, Pimco, State Street, these are all trillion all the firms there are probably close to a dozen trillion dollar asset managers

around the world. Is that the cost of admission these days in order to to get to where you can start driving costs now for investors, you know, I think, um, I think you could do it at lower levels than that, but certainly when you're at that kind of level, UM, you know, you're spreading your fixed costs across a very

large asset base, and you know that helps. And you know, I think Vanguard is like the purest form of transparency if you will, into economies of scale, if you look at how our costs have come down over time, you can see the power of technology, you know, um, spreading fixed costs over a broader asset base and so forth. It's been called the Vanguard effect, the impact of you moving in a particular space. Last time we talked about your desire to drive prices lower, but really, how much

more fat is out there? How much cheaper can invest and get It's you know, we're getting down to you know, it's an assem taught to kind of relationship at this point. And uh, you know, there's room to go, but it's not going to be the kind of uh declines we've seen in the last decade. Most of the fat has been wrong out of I think that's right, But you know, again there's still our economies of scale to be gained. Barry.

You know, I'm such a huge believer in the power of technology, and in a sense, I don't know what I don't know. And the more you see, UM in the technology arena, you know, some of the new things that are emerging, you know, the use of big data, that the emergence of the cloud. Um, I'm not sure we even know what we can do going forward. And you know we're spending a lot of time and effort in that arena as well. So we're gonna talk more about technology, UM shortly. When what about the people who

are running some of your competitors. Do you ever get to chat with the Larry Fins and the Bill Grosses of the world. So I was until just a couple of weeks ago chairman of the Investment Company Institute, which is the Mutual Fund trade Association, and as such I met with many of the leaders in our industry on a very regular basis, and you know, I get a chance to you know, talk about industry issues, talk about

regulatory changes with them. Uh. You know, I think Larry and I have actually shared the stage on a couple of occasions. UM, talking about governance for example, talking about long term versus short term and so yeah, you know, you get a chance every now and then to compare notes. So we'll talk more about governance UM in a few minutes. Let's talk about the Index Fund. It just had a birthday, It just celebrated its forty anniversary. Tell us what what

that means. You know, it's an amazing thing. So UM and this is really the power of Jack Bogel's imagination, if you will, in the ninety six so Jack, you know, had this concept UM that he had written about extensively that you know, this idea of a broad market in might make sense, as you know from the history um Wells Fargo in particular, I think did some work on the pension area, and you know the first separate account. And what Jack did was he said, if it's good

enough for a sophisticated institution, why not for everybody? And that was really the concept. And you know when it was first introduced in seventy six, people laughed at it. They said, it's you know, mediocrity, it's never gonna work on American w Jack actually has hanging outside his office a print of an ed taken tell us about that. So Yeah, it was UM. You know this this because it was viewed as almost communistic, UM people called it on American And you know, for Jack, it was always

a game of math. You know, at the end of the day, UM investing was going to become a zero sum game. And eventually, when you looked at active versus index on average, the index guys were gonna win UM just because both were gonna add up to the market and one had a much higher cost structure than the other. I'm Barry Ri Hults. You're listening to Masters in Business on Bloomberg Radio. My special guests this week is Bill McNab. He is chairman and CEO of the Vanguard Group, which

manages about four trillion dollars. And let's talk about the size of van going and what that means. You guys essentially own about five percent of just about every publicly traded company in America and some proportion of non US equities. What does that due to your thinking about corporate governance issues? You guys really are the eight hundred pound gerrilla when

it comes to that. You know, I think for us, Barry it it really underscores the unbelievable responsibility we have you know, it's we're here representing, you know, the hopes and dreams of millions of investors who have entrusted they're hard earned assets into our funds. And so we've got to make sure that the port the constituent portfolio companies are being governed in in a sense with long term value creation for the end investor as a very big goal. And we've had to up our game. We've had to

increase our staff who engage in this. You know, the difference between us and say a traditional active manager, and we do have as you know, traditional active third at that's that's still a trillion and changed a lot of money, um.

But on the index side, we're a permanent holder of these of these companies and so you have to You can't sell the stock if you're not happy with the way the company is performing, but you can agitate if there's something we could talk about gap accounting or stock options or CEO pay if you if Vanguard says we're not happy about this, you're not a entity without resources.

So and that's a really good segue into what I think has been one of the really interesting evolutions in the last couple of years, and it's been this whole concept of shareholder engagement and one of the things we

really did agitate for. And you know, we we get a couple of us gave talks on this maybe to three years ago, and we've really seen a change in the way boards are working as a result, we said, you need to engage with your big owners, not just Vanguard, but anybody who owns a significant UM steak, and you need to be thinking about how are you creating long term value not short term. No one's interested in the

short term here. And so we have a set of principles that we ask people to follow in terms of governance. And that's the first sort of screen for us is what what sort of principles? So you know, we we want UM transparent, transparency. We want the board you know, composition to be right. We want the UM defined by what do you mean by right, you know, a complementary set of skills, UM independent not not just golf buddies

of the CEO totally and and real independence. And we want there to be linkages between executive pay and long term value creation and not short term so another word, not pay people on the basis of how well the SMP has done recently, because that seems by just granting stock options, you basically compensating executives for what the stock market does, not how their company does relative to everybody else, Right, And you know you've actually written a fair amount of

this in your blog, and you know, I'm, as you know, I'm in big agreement with a lot of your points there that in the eighties and nineties, in particular, especially in the nineties after the compensation rules changed, um, there were a lot of just blanket granting of options and it really was a rising tide and closed to performance really driving it. Talk about unanticipated effects of a legislative change for those those folks who may not be aware

of this. We changed the rules on exact compensation in the United States. We capped dollar compensation and pretty much allowed unlimited stock option compensation, and so people were paid not based on how well the company did, but how well the stock market did. So, so what can Vanguard do and what what can a board do to to

change that? So I think what boards have been doing, and you know, there's actually been a couple of academic studies recently that have pointed out that there's been real progress here is they have been doing a better job defining longer term objectives for the company and linking executive pay to those objectives, and you're seeing less use of options, more use of restricted stock grants, and the grants are made only if certain objectives are achieved, and then the

vesting on those grants may actually take place over pretty long periods of time. We think that's actually helping drive executive teams to think longer term. It's still not you know, we we it's not universal, and it's not where it should be. It's not where it should be. M there's still too much short termism in the market. Is it?

Is it safe to say you were in agreement with the Larry Fink letter of black Rock basically went out to the SMP five hundred and some big European companies saying, hey, you're too focused on the quarter and you're none of the thing in R and D and you're not thinking long term. Yeah. I I give Larry and Blackrock a lot of credit for that letter. It was very complimentary

actually to the letter. The last couple of letters we'd sent out, you know, we had um really emphasized with our portfolio companies that think long term and you know, we we really stressed the need for better engagement. You know, he hit particularly hard on the long term issues, and you know, I think together it's actually a pretty good message. So let's talk a little bit about UM other issues

in in corporate governance. What do you think about E s G investing, Environmental, sustainable and governance seems to be a rising UH theme these days. I think it's a very complex topic, you know, So UM, I can tell you my my mailbox is filled UM every week with different UM constituencies having particular social issues UM that they want to expressed in the way we run money. Actually, I think if I added it all up, we would exclude almost every company in the S and P five hundred.

So one of the things we've done is we created UM a socially responsible index fund, the foot see and foot See, and you know it hits some of your big screens, and I think it's been successful at meeting a lot of investor needs we see UM. You know, it's a it's a fairly significant fund at this point. Is that only European or is that US or global?

It's actually UM, it is a global phenomenon, and I could see US doing more in that product space over time, you know, perhaps adding a couple of more complementary kinds of offerings. I will say that the other evolution in E s G for us is looking at sort of broad E s G principles and how do they affect long term value creation? And so you know, the easy example would be if you have a company who's got

a bad track record in terms of environmental issues. What you know is that's going to hurt the stock price over the long run. It's a cost that will eventually come back to it is and you see it time after time. So one of the things you can agitate for as a large owner is, hey, let's make sure we've got a long term environmentally sound set of principles that were operating under so the shareholder doesn't bear the

brunt of that cost down the road. UM. That's you know that there's judgment involved there obviously in terms of how you actually have those conversations. But we're finding companies are actually doing a better job beginning to disclose that. You're seeing it more and more in UM some of the management write ups and so forth, in the proxy statements and in the annual reports. Might we see a US version of the Footsie E s G portfolio anytime. So yeah, I mean we we clearly will have I

think a range of opportunities for people. I'm Barry rid Hults. You're listening to Masters in Business on Bloomberg Radio. My special guest today is William McNabb. He is CEO and chairman of the Vanguard Group. They manage about four trillion dollars and he is the third CEO, following Jack Brennan and Vanguard founder Jack Bogel. Um. So, Bill, let's let's talk a little bit about technology. You referenced it earlier, the impact of it, what's the potential upside for technology

as well as the downside uh that technology presents. So we've historically approached technology as needing to do one of three things. You know, First, um, create automation where automation is possible, so you can generate economies of scale for your investors. That's kind of classic automate things that are, um,

you know, very manual in nature, you know. Second, can you use technology to make your people better, so better systems so that when you're talking to clients over the phone or you're doing you know, increasingly video conferencing and so forth with them. You're you're it's a better experience. And then the third is how do you make it more convenient for your investors. So we been, you know, historically trying to I'll say, you know, Bucket are investing

that way, and it's been it's been pretty productive for us. UM. You know, one of the figures I always love to describe to people is UM in two thousand, the Internet was just starting to take hold. We had about five billion dollars under management, twelve thousand people. You know, today we're a little less than fifteen thousand people and we have, as you referenced, nearly four trillion. So technology has actually made that possible. So it's an eight fold increase in

assets and you're barely a increase in in personnel. Yeah, and and and as you know, during that period, the market hasn't been you know, tremendous lift. There a lot of that has just been true organic growth, so we're

able to do more for people. So, you know, technology has just been a phenomenal um tail wind for us, if you will, UM the you know, one of the challenges I think we see in one particular area, and you allude to in your question, is you know, the rise of social media and instantaneous information on everything, or misinformation or misinformation and as you know, one of the new sort of fads out there. Maybe it's more than a fad. Maybe it's the way it's going to be.

Is get the headline out there, or get the item out there, and then we'll check for veracity later. And we're seeing, you know, when when that kind of information proliferates, it really does make investors struggle because you know, they're like, what should I do? And of course we're trying to console them. Hey, there's noise in in the system here. You need to avoid, you know, reacting to that noise. But the more there is, the hard artist to make

that point. Last time we spoke, um two things. First, you mentioned the web call you did in the midst of the crisis. I would tell listeners go find that. It's on iTunes and SoundCloud and Bloomberg dot com and listen to that. But you were also just launching your robo advisor, your automated investment platform. They've all come to me known as a robo advisor. So that was with a few billion dollars. How has that been working out what what's it managing these days? So we launched at

last May. So it's about eighteen months now. And as you as you allude, we had um sort of a legacy business of about ten billion at the time. It's now approaching fifty UM in eighteen months. And so I lose the bed. I said it was going to be a hundred in a year. Well, but um, I think you're going to be right directionally though. There's there's tremendous appetite for this in the marketplace, and you know, our our whole thing was to be able to give really sound,

personalized advice for very small accounts. You know, we wanted somebody with fifty thou dollars to be able to get the same kind of service that people with a million dollars we're getting just five years ago. So you're you're anticipating my next question, which is what sort of pushback has there been? Van God is very popular amongst advisors who are are based. I know some people complained about it.

They're obviously not interested in the fifty dollar account, But what sort of pushback has there been and what does Vanguard say in response to that? So, you know, we'd be naive to think there's been no pushback UM, although I can you know, the mentions are in the dozens, if you will, from advisors. We serve something like fifty thou advisors today and I think maybe I've heard from a hundred over the course of eighteen months, but you know,

you take it very seriously. I think that my pushback is this technology is upon us, and this this is going to happen. You can't just ignore it and hope it can't ignore it and hope it goes away. And you know, if it's not us, it's gonna be somebody else. And the real message here is, let us help you work on your value proposition. I think it's more important than ever for advisors to be able to explain clearly what value am I providing to you as a client.

The second point I think is really important is for UM advisors to look at this technology and say, what can I use, you know, technologically to make my business more efficient UM. I don't think any of the so called robo UM firms are gonna put the advisor community out of business, but I think people who ignore their technology are going to put themselves at risk. To say the least. I'm Barry Ridhults. You're listening to Masters in

Business on Bloomberg Radio. My special guest today is William McNabb. He is the chairman and CEO of the Vanguard Group, which runs a couple of dollars for investors around the world close to four trillion. We briefly talked about the forty birthday of indexing and the index funds. Uh, let's let's get into a little more detail with that. There was a whole special in the Wall Street Journal about indexing and active versus passive investing. My favorite headline was

the dying business of picking stocks. I thought there was a little hyperbole. There is stockpicking really a dying business? So I don't think so. I you know, look, I think there's a secular element to this shift to indexing, and it's really less about indexing and it's about cost. So I think low cost investing is the secular change here. Um. I think there will be opportunities for active managers, but I think if you're a high price active manager, you're

you're going to really struggle. So based on that, how can we explain the success of high priced hedge funds, high price venture capital, high price private equity, of which there is always one shootout the light spectacular funds, and then a whole bunch of gee, we wish we were performing like that. Well, you know, I think it does. It does underscore that human behavior is always looking for you know, the home run, right people, people love that

idea of you know, outsize returns. Look, you know, if you if you take each of those three categories in turn, you know, venture you should make you should get paid for the risk you're taking a lot of capitalists and you know, as an asset class over the last fifteen years, it's done okay. And you know, even even more broadly than just the very very best funds, and you're getting a risk premium for liquidity and for you know, the

kinds of companies that you're investing in. I think it's a very vibrant thing not accessible to the average investor. You know, private equity is an asset class over time. Um, you know, at least the last fifteen years not been a great place. And I think your point on the fee side there is probably detracted from those returns. And again by you know, the way I look at private equity is again you should get a significant premium over the public markets for the liquidity that you're giving up.

We don't see that over the last fifteen to twenty years. You know, the hedge funds um You've written about that better than I'll ever be able to articulate. It makes no sense to me. It makes no sense to me. The my my perspective has evolved in a minor nuanced way. If you're in one of those hedge funds that has a long term track record of outperforming and they're continuing

to outperform, well why not stay with it? But finding those guys in advance, and it's almost always guys, but finding the emerging managers who are gonna be the superstars, it's all but impossible. It's very difficult. You know, a few of the big endowments have done a decent job identifying people early in their careers, you know, the Yales of the world and the notre Dames of the world, and uh, very few others have been able to do that.

And everybody who's imitator, it has has come to rue that that chase and by the way, I agree with you, there are a handful of people who um their returns in retrospect have been pretty persistent as well. So you know, you look at the Seth Clarmon's and the Steve Mandel's of the world, and you know, I have tremendous respect for what they've accomplished. And all you need is a time machine to go back twenty years and give them money when they were taking its right. So, UM, let's

let's stay with with the concept of UM indexing. One of the criticisms I hear all the time is we're at peak indexing. This so much money has flown into indexing it can possibly continue to work. So you know, I think, UM, one of the things I love about your columns. You like data, and so you know, today indexing represents about thirty five percent of the mutual fund world, and I think that's where people focus a lot. It's

only of the US equity market. It's less than five percent of global markets, so there's a long way to go here. Um. Second, when you look at UM, I think even more importantly, trading volume. You know in the US, indexing is like five trading volume. Well, isn't that because by definition there's not a lot of trading going on. That's that's exactly right. But the point is there's there. We're we're a long way from you know where this

this could end up. And I think it's a global phenomenon, and you're going to see indexing take a bigger share of global equity assets over the next decade. I think it's almost inexorable. Um, it'll be inexorable progress. At what point is it too big? Or is there just no point at that? Do we ever see this at fifty or seventy five percent? Think theoretically, then then you you wonder where price discoveries, you're creating opportunities for stock price exactly.

I don't think there's a in the in the let's say the next ten years. UM. I think it's going to continue to grow. Whether it becomes I don't think it becomes fifty percent of the US market, um, even in that period, could be in the mutual fund market. Really, that of which right now it's thirty the mutual fund market, it's of US assets five percent of global assets. That really that that's that's astounding. Let let me shift it up on you a little bit and talk about valuation.

I keep hearing that stocks in the US are over priced, But I've been hearing that now out for four or five years, and the market doesn't seem to care. It keeps going higher. Where are we in the world of stock prices? So I would still say historically there on the high end um and you know a lot of stins get covered with essentially zero percent short rates. And you know, our view is hasn't changed the last couple

of years. I've been pretty public about UM. If we look out over ten years, we think the central tendency is for equity returns to be a couple hundred basis points below long term averages. That that's Bob Shiller's perspective. You don't use CAPE as a timing tool. Just look out ten years. It'll tell you if you have average above or below. And that's kind of our philosophy as well, burying. You know, we run a lot of sophisticated models to

get there, but that's where it ends up. And you know, I think UM from a planning perspective, it's a it's a it's it's a reasonable place the other sort of thing. And UM, I can't remember if I've read this with Schiller or not, but if you look at you know, long term treasuries, you know, take the tenure and compare it. UH, you know, a kind of typical equity risk premium, you get to the same kind of a couple of percentage points below long term averages. So I think there's a

lot of kind of convergence around that. The difference. I just read this, and I don't know who I'm stealing this from. UH. With bonds, rates could go negative, but with yield on stocks you can't get to a negative number because you're paying for the equity. That's fair. Let let me mix it up with you again and talk about politics. We're recording this not too long before the election, the day before the last debate. What should the role

of politics be in the average investors portfolio? So, despite all of the headlines, despite all of the noise, despite all of the speculation, it really should play no role, no role, what's role whatsoever. We've looked at this going back to the eighteen fifties. There's no difference. But that's measurable between having a Democrat president versus a Republican president.

There's no difference, you know, on how the House and Senate work out, and so everything that goes on, it's kind of speculation and what you typically see is some dislocations right before and right after, and usually within about a hundred days of a new administration being in you get back to kind of what what we could call normal. So it's it's noisy, you have some short term ebbs and flows, and then if it does, I think there is a bigger question out here. UM. And you know,

it always the risk of leading with my chin. UM. You know, I would say, Um, there's some really good work that's been done. You know, Harvard just issued their US competitiveness study. UM. I think just two weeks ago, Mike Porter and the Gang and we studied it pretty carefully, and you know, it's key takeaway from me was the political dysfunction that we're seeing is causing you know, a real rise and uncertainty. And I think that uncertainty holds

back growth. And I think that's a more macro issue, if you will, UM, probably somewhat divorced from what's going to happen in the stock and bond markets in the intermediate term. I can't say I disagree with with a single a single word of that. UM. Let's talk a little bit about buy backs. So we've seen a huge run of buy backs the past five or six years. Some people blame or credit those zero rture referencing UM, but they're starting to tail off this year, they've dropped

a bit. What do you think the proper role of buy back should be? Would you rather see dividends or investment or what? What do you think about the general buy back phenomena? So I think the buyback phenomena has definitely UM gotten a lot of UM tail ones, if you will, from the low rates I mean, and I don't think levering up to increased buybacks is a good thing in general. Now, some some companies have done that because their cashes overseas and they don't wanna pay the

taxes on which is a whole broader issue UM. You know. Second, I think the uncertainty that I talked about UM actually has caused a lot of companies to be more conservative with their cash. So they're either keeping it on the balance sheet or doing what they can to keep their stock price up. Because they they're so unsure about what the future is, they don't want to invest in the business. I would love to see us get away from that.

So let's talk a little bit about that. Overseas cash the rumor, and we've heard it from both political parties, they'll be a some sort of a deal for a cash repatriation overseas capital repatriation, UH, in exchange for some infrastructure spending and some reform of the corporate task code. What what is that feasible, possible, desirable. I think it's feasible, and I think directionally desirable. You know. Look, I think we're our corporate tax code is I think a hindrance

to business here, you know. Um, And again I'm somebody who wants to see the markets do really well, especially here and in my home country. Is um, we we should be doing. We should have economic policies in place that actually our pro economic growth. And I think a more simplified and um you know, probably a net net lower corporate tax code would be UM beneficial in that regard.

I also think getting clarity around international you know, we're we're an outlier, as you know, in the developed world in terms of the way we treat um international earnings. And I think we shouldn't be going forward. I think it again, it's those kind of policies are actually restricting good economic growth and long term thinking, and we should be doing everything from a policy perspective. To clear that up.

The last point I'd make is, um, I I am a believer that infrastructure probably needs improvement here, I don't in fact's not probably it does you know? I travel the world and nice in Europe and Asia, isn't it? You know? You you see things? Um, you know, sometimes I'd like to lift all of our lawmakers up and take them on a global tour. I think in order to promote you know, good economic growth, you need to

have some basic infrastructure in place. Um. You know. No one wants to see um, higher government debt levels and so forth. But I think there's got to be some some balance here. Sure bandwidth in Asia, sell coverage in Europe, and just the roads in Austria, Germany, Brussels and it's amazing. And how about those airports around the world, spectacular, absolutely spectacular. We've been speaking with Bill McNabb. He is CEO and

chairman of the Vanguard Group. If you would like to learn more about bills the shop, you can go to Vanguard dot com. There are regular bulletin's updates. The video from the two thousand and nine crisis is up there as well. And be sure and check out our prior conversation. Be sure and stick around and listen to the podcast extras. Will we keep the tape rolling and continue chatting about

all things investing. Check out my daily column on Bloomberg View dot com or follow me on Twitter at rit Halts. I'm Barry Hults. You've been listening to Masters in Business on Bloomberg Radio, brought to you by Bank of America Merrill Lynch committed to bringing higher finance to lower carbon Named the most innovative investment bank for climate change and sustainability by the banker. That's the power of Global Connections.

Bank of America North America member f D I C. Welcome to the podcast portion Bill, Thank you so much for doing this. I'm really excited about this. You you said something earlier off air that I have to ask you about. Um, we were talking about Lehman Brothers and A I G. And your first day as CEO was September fift oh nine. Is that right? First two weeks? Really? Yeah? I became CEO August thirty one, and um, I was

actually standing on stage. Um where was this event? This was in Washington, d C. And we had our largest pension clients. There and I was giving my first talk as CEO, and the whole emphasis was on long term perspective and the need to tune out the noise and as as the world is falling apart, I have a separate soundtrack going through my head saying the world is ending as I know at how my how, my reconciling. I gotta looked past this. The really funny story Barry

was um our CEO. Gus Souder was due on stage a couple of hours later, and um, we basically drafted his UM replacement and said, you're gonna go give Gus his talk, and we sent Gus to Valley Forge, you know, back to the office is to um, you know, oversee the trading desk and make sure everything was working the way it should. And uh, there were like no rental cars. So he ended up I think, cruising into Vanguard's campus in a Mustang convertible. And if you knew Gusts, that

was not his style. Um, he was like a Pontiac bonavel guy. So coming in, especially with the world melting down, the the only story I know of that's similar to that. Uh. Dave Rosenberg used to be chief economist at Meryl. He was a government economist, like sleepy backwoods in in Canada, and he goes to the private sector and his first day at work is Black Monday crash, and he didn't understand that anything was unusual. He's like, wow, it's so

exciting here. What are you talking about? The markets down? Oh, this is not the normal. No, this is not how it usually uh not how it usually goes well, you know, actually mentioning my former colleague Gus Sauer, that was his second week on the job, really and he was running our then only index fund index and it had about a billion six I think at the beginning of the day and then you know, a billion two at the end of the day. And he went home and his

wife said, do you still have a job? You just lost a quarter of the fund and uh he said, you know, I don't know. I have to go back and see if my batch still works the next day. And so you still you told the story that in the midst of the crisis, you wanted to reassure your staff, all the employee, the twelve thousand plus employees at Vanguard. Hey, you can't be nervous. You can't sound like you're afraid for your job, especially the people who are client facing.

What did you do to try and resolve that sort of tension? So we we told people, don't worry about your job. UM, we're not going to have any enforced reductions where we want people to be there for the client. And you know, we found um and and what we told people we anticipated there'll be some areas where the volume of work might decrease because the world was melting down, and if that happened, we would pick people up and we put them into areas that needed more help. And

we ended up moving several hundred people around. But you know, it turned out to be a great thing for us because the whole focus from that point on was what's the client need? And I think all of us who lived through that, um, you know, you're you certainly have the battle scars, but you also have a lot of pride in what we were able to achieve on behalf of our clients, and I think that message went a long way. So I was at the Vanguard campus in Valley Forge when I met Jack Bogel, and it's a

really large place. It reminds me a little bit of the Microsoft campus, which is just building after building after building that. What first of all, what was the thinking like, um, because you were there, even though you weren't CEO at the time, to create this far away from Wall Street space in the hills of Pennsylvania. Well again, I give I give Jack Bogil a ton of credit for just he he wanted there to be UM, you know, for us not to be Wall Street. You know, it was

a very clear message from him. Actually, our predecessor, firm Wellington, was headquartered in Philly. Jack moved them out to the suburbs, you know he. I think part of it was tax reasons, you know Jack, you know, Jack like to save a buck for the investor. But I also think it was you know, a place too in a sense, create separation so that people weren't unduly influenced by short term h forces. I think Jack Brennan, who succeeded him UM, built on

that UM. I remember interviewing with him, uh and I said, so, you know, what's your view of the future here, you know, what do you want this company to look like? And he said, I'd like to I'd like us to have Wall Street Smarts with Midwestern values. That's a good comment, and you know it really it really resonated with me, Barry and UM, I think the headquarters and the whole

campus atmosphere really reinforces that. Does does that create a challenge at all in finding employees flanks that so you're in you're in Philadelphia. Outside of Philadelphia and Pennsylvania, it's from New York on a two hour drive. Maybe, UM, does it make it difficult to find people? I would imagine that part of the world, it's a different salary

scale than New York or San Francisco. So UM it poses challenges occasionally, and and in the biggest places, if we're trying to bring somebody in at a more senior level from the outside. Sometimes the dual career thing. UM. You know, in New York there's just so many more opportunities and that that actually occasionally imposes a challenge. But it's interesting once we get people to the area and they see the quality of living, UM, it ends up

turning into a selling point. UM. I've just added two new members to our executive team in the last UM six months, and first time we've gone outside in a long time, more than a decade. And that was their reaction. Both their reactions when they came there like, Wow, it's very kicked back, it's very chill. It doesn't feel like a frenetic Wall Street firm. A campus is really a

good time. It feels like you run a college campus and you know one of the UM I would say, better to be lucky than smart aspects of where we are, and lucky you should always acknowledge your luck. There are a hundred and eight universities within two hours of our campus. UM we produce in that region more masters and graduate

degrees per capita than any area in the country. I think on undergraduate degrees, we were it's between us in Boston, and so we got a lot of young people who want to come and you know, they want to stay close to home, and we're really the biggest UM you know, financial services firm, you know, miles around. I read a crazy statistic. I don't know if it's true, something like of the c f as in the state of Pennsylvania worked for Vanguard and Value. Is there any truth to that?

Is that? A? I think directionally, it's it's close. It's close. I I know certified Financial Planners, which is a broader thing. I think we have FI now of well, the whole state in valley for that's pretty Uh, that's pretty fascinating. Um, let's let me take a look at some of the questions we might have skipped through before. So those are my favorite questions. We really covered a decent amount of stuff.

We covered technology, we covered indexing, we covered E S g um, we we actually discussed buy backs and all right, let's keep going. There's there's so much stuff to do. And and at this point, I'm going to remind people if you haven't heard the first conversation Bill and I add which was eighteen months ago, it's one of the favorite masses in business we've had. We got tremendous feedback

about it. Really, there's almost no overlap between this and that we've really covered very very You've done a good job breaking that apart. I've tried, and you will also make it easy. I know how to anticipate with you know it. There are some people where I ask questions and I have no idea what it's gonna be. I have a general sense of what the vanguard philosophy is. So when I asked Bill McNab about indexing, you're not gonna come out and say, well, you know, I pretty

much know where you're gonna go with that. Um So, let's let's talk a little bit about um the evidence based conference that's coming up, because we were discussing that off air, and and I think it's interesting. Um So, coming up in November, we have an evidence based investing conference. You're one of the speakers, and you said you thought

it was an interesting concept. Let's let's chat about that. Well, I think one of the things that's really fascinating to me is, um you spend a lot of time on data, and we think data rule. You know, it's a there's not just your gun instinct. You don't want to go with how it feels at the moment. Look, you know there's a place for judgment and instinct, there's no question

about that. But um, you know being well informed and you know, to me as an analyst in particular, it's you know, the second and third layers, if you will, when you're peeling that proverbial onion where sometimes you really

get the insights you know we have. Um just as an example, our chief economists has done some really cool work on you know, what's going on from a growth perspective, and he doesn't accept the we're in secular stagnation, and he he talks a lot about the evolution of tasks within occupations, and you know, we take some um comfort, if you will, that actually there's been a lot of change and it's been absorbed and there's a lot more coming. And the question is how well prepared are we for that?

And you know, it goes back to one of our earlier conversations around are there things sort of from a policy standpoint that could be going on to help that. You know, we think infrastructure, we think education, probably the two big categories. But you know, he his his um work is so data driven that it makes you think a little bit differently about the problem. And that's what I loved about your concept and I can't wait to

see it. The the idea behind it is, there are all these things that over the past twenty years worth of academic research we've learned to be true, and it turns out that a lot of things that most of Wall Street used to believe turns out to be false. It looks good, it feels good, but in the real world it doesn't work. So the idea was, hey, let's create a way to have a group of people come and discuss investing in markets strictly from what do we

know to be factually true? What do we know to be have evidence behind it that demonstrates the veracity of a certain investment philosophy. When I sum up Vanguard for people, it's nothing matters more than costs. If you keep costs low, everything else all other good things will follow. But that's not the only truth that we've learned to be true over the past couple of decades. And yet it's amazing. How so this comes back to the four trillion advantguard

and the rise of indexing. And maybe this is a question better asked of Dick Faylor or or Bob Schiller, But why have these truths taken so long to infiltrate the mind of the average investor or the institutional investor? You know, I think it's because there is an irrational expectation that we, you know, many people have that I know, if I pay a little more attention, I can outperform, you know, in the simplest way. You know, one of the best lessons I learned, and you know, it was

kind of a blinding flash of the obvious. But I often say that's all I'm good for these days, is um average is not average. You know people used to say indexing while you're just accepting average returns. Actually that's not true. As you know, if you take the average index funds return and compare it against the whole universe, you're gonna you're gonna be in the top quartile from a performance standpoint over any long period of time. So

you're not accept you're not actually accepting being average. You're you're saying, I'm going to be in the top quartile guaranteed. And you know it's things like that that aren't intuitive to people, and you know you need to sort of lay it out, you know. Um, it's it's interesting you

mentioned Taylor. Um, we are huge fans of their work. Um, you know Thaylor and BERNARDSI on the four oh one case space did some of the best work where they took the behavioral principles and said, Okay, instead of using it just to explain what's happening, let's use them actually to help influence what should happen. And this is where the idea of automatic enrollment, automatic escort everything he told them, you know, changing the default so that it's a positive outcome.

One of the examples in his book that I found fascinating is if you're default organ donor check is set for um, yes, donate my organs. Nine plus percent of people in certain European countries that have that default donate organs. If you don't have that as a default, it's ten or fifteen percent, and there's a giant waiting list. If you change that default, suddenly they're on people dying past

there isn't a kidney available, or it's such a powerful thing. Um. You know, we funded some work that UM they are and BERNARDSI did in the late nineties, well it was probably early two thousand's and it really led us to get much more rest of about you know, the target date phenomenon and these auto four O one K plans, and we've seen better results, I mean, and again to your evidence based principles, it's absolutely clear when you look at the investment results of people who have followed you

know sort of UM where we've used behavioral finance to shape the plan design and shape behavior versus leaving people to their own And you can see it and it boils down to dollars and cents. You have more money if you if you follow these principles. So, so let's talk about four oh one K and best practices UM, and I want to make sure I don't keep you here too long. We were pretty good on time UM best practices. So default should be automatic, regular contributions? And

should it be a target date fund? Should it be? Uh? What should the default be for the typical small companies setting up before oh one K? So I think the target date is the easiest one. I think any you know, UM well diversified balanced option will suffice. But the beauty about the target date fund is you can give you know, you're a lot younger than I am, so you can get that. You can you can get the equity exposure you you need versus what I might need UM automatically,

you don't have to think about it. So that's why I like the target date And you know, I've I've made the point to you know, thousands of investors at this point. I don't care what your income level is in a four oh one K plan, whether you're making dollars year or two d fifty dollars year. A target date fund is a great solution for you if you want to put more time and energy into it, and you you. You know you you love this stuff. Great, you can construct a portfolio and I don't think he'll

do any better. But you know, maybe it's something that you get a lot of satisfaction out out of. But I think this default thing is really powerful. And you know, we're seeing almost every new investor who comes into the system just stay with the default and just leave it

like that. So let's talk a little institutional. UM. I've seen white papers from Vanguard about hey, a sixty forty portfolio has beaten nearly all of the alternatives we've we mentioned earlier, the hedge funds, the private equity, and the venture capital. How does Vanguard present itself to the institutional community. I've spoken at various state pension funds, and I'm astonished at the level of let's just say, influence outside UM

consultants have. How do you get past that? How how does that work when you're dealing with either a CalPERS or and I you obviously don't want to speak to any specific UM client, but a state pension fund or a large retirement or endowment. So UM, there's no question that there's lots of outside influences, whether it's the consultant community, or other. You know, people circling around and complexity usually is the friend. Um. You know, the more complex relationship is,

the more complex they want the solution to be. And again we found simple works better in most cases. Um. So you know, we just go out and we try to tell the story and sometimes it doesn't work right away, and you just keep sort of knocking at the door and you just keep telling the story. In the four

oh one case base, it's worked really well. In the endowments and foundations, we're finding in the sort of up to mid you know, several hundred million dollars were Actually the story is really resonating there the big some of the big pension funds, especially in you know, the States and so forth, we're having you know, we don't have as much access there. Interesting though, you are starting to see some of the messages that we've been promoting actually adopted.

I don't know if they got it from us or they're coming up with it independently, but you're starting to hear some of the same things. O, Hey, maybe we're paying too much for investment management overall, and we need to think about a different approach. What do you think happens in that space over the next decade, because clearly everything's in flux. New Jersey turned out to have a

horrific state run pension funds. Lots of money went to hedge funds who coincidentally were donors to various political campaigns. There's a ton of conflicts of interest. New York City announced last year that they were re looking at their alternative investments and what they're getting for their bucks. We've seen that in California, We've seen that all over the country. So so what does this dynamic mean going forward? Is there going to be a big shift um? Is that

already underway? What what's happening in the institutional space? So I think the shift is already underway, and some of the leading UM plans are actually moving pretty quickly in this regard. And you know, I think what you'll end up seeing is a little bit more um bifurcation in what they do. So they will keep some non traditional but it will be more in the liquid space, where again in theory it's less about the manager, although as you and I know, maybe it's more about the manager

than anybody wants to admit. But you should get paid more in some of those spaces, and then for the liquid portion, you're going to see a real emphasis on cost, I think, and you know, so you'll see more passive investing overall. UM, My guess is that continues. UM. I think the big wild card, and it is the most interesting part of the equation is everybody is looking at the expected returns and the equity and bond market and they're looking at their own assumptions for their plans, and

there's a disconnect. You know, you'll you'll see some very prominent, you know, um public plants that have you know, seven and a half eight percent expected returns. I don't know where that's going to come from. I I can answer that question for you. They have an expected return of five percent on the equity, two on the bonds. You add five and two you end up with seven, although any account will tell you the math doesn't really work

out that way. I've had that exact same conversation with people, and the thing that I'm still wrestling with is, so those are fair numbers. Two percent on fixed income, five percent on equity, and yet on the hedge funds they have expected returns of eight nine And I don't know where these numbers came from other than someone wants explained

to me. Well, we're state entity, and if we have a short form our pension in the pensions expected returns, we have to actually add taxpayer dollar, so we'll crank up the hedge fund portion of it. They can't crank up the fixed income of a bond portion because everyone would scream about that. But somehow alternatives are generating a greater return at no greater risk than the asset asses of trading. It doesn't make sense, but it allows them and out to not It allows them to continually underfund

their obligations. And I think you're seeing um at least I don't know if it's a new breed, but you know you're starting to see some serious leaders in that space say wait a minute, we've got to we've got to re examine what's been going on. So I'll be the optimists and say that people are going to start to get their hands around it, but it's gonna it will highlight that there's gonna be some there's some real gaps here in in terms of what's been promised and

what's actually funded and how that plays out politically. UM, I'll leave it to you speculate on. I will before I get to my my favorite questions. I wanted to ask you. Is there anything I didn't ask you or any topics you think are worth mentioning that we we haven't discussed on air. We've covered almost everything we really have. Um, yeah, I think we've hit it. So so let's jump to our our favorite questions. Um, so you joined Vanguard thirty years ago. What were you doing before Vanguard? So? I

had had two jobs before Vanguard. My first job out of college was teaching first year of Latin school. Of course, that leads right to asset management totally in coaching three sports. Um, I was it was nine. It was pretty deep procession. Unemployment was high. I was happy to have a job and and my parents were happy to have me off the doll and it worked out, um and I loved it. It was a great couple of years. And then I went back to business school. My first job out of

business school was at what's now JP Morgan Chase. It was the Chase part, and I did a lot of different things. But the last thing I did was really work on a lot of highly leveraged transactions, actually undoing some in in for the most part, but you was with us. So that was eight three day eighty six and I got hired by Vanguard be a guaranteed investment contract product manager. What does that mean? I had no

idea when they were interviewing me. Um. Guaranteed investment contracts were a fixed income instrument issued by insurance companies as an investment option in four oh one K plans. And we were just getting in the four oh one K business and UM, you know, we we wanted to take a little bit more sophisticated approach. I think we had a couple hundred million dollars in the program at the time.

I'm pretty sure I got hired because Jack Brennan was intrigued by the credit background I had, and it wasn't convinced that we had analyzed the insurance industry properly for the g I C s we were buying, and so I think that had something to do with it. Um. I'm not sure why else, because nothing in my background really pointed toward that, but turned out Again, you'll hear me use the phrase over and over better to be

lucky and smart Sometimes I totally agree. So you mentioned Jack Brennan, who were some of your ment so UM. You know Jack, certainly before I worked directly for him, with somebody I would go to for um, just advice around career, family, UM, how to think about business problems. Jack was one of the great UM strategic thinkers I think of the entire industry during his his time. And you know, he was just a really good sounding board for a lot of things. So he clearly was a mentor.

We also, UM, I became pretty friendly with Charlie Ellis UM before he came on our board. Um, Charlie was running Greenwich Research. You know, I really count Charlie as somebody that I learned a ton from. You know, his book is arguably one of the two or three great his first book, you know, Winning the Losers Game, one of the two or three greatest things I ever written

about investing. And um, Charlie gave me really really good advice UM when I took over running the four oh one K business, and he kept focusing in and don't worry abou growth. Worry about the quality of what you're doing for your existing clientele, and growth will take care of itself. And you know, of course Greenwich did sort of an assessment of who was the highest quality provider, and I don't forget coming when he came in one day and he said, hey, congratulations, you've won UM first time.

And he goes, now you're the hunted, so what are you gonna do? And you know it just it's a great way to describe that, isn't it. Yeah, and you know it just so he was a really positive mentor. But by the way, for people who may not know who Charlie Ellis is. In addition to being on the Vanguard Board, he worked with Swenson on the Yale and down and arguably the most successful endowmen in history. Harvard's

is bigger, but their performance has been appreciably worse. And Greenwich Associates were really a huge, huge institutional advisor for many years. Absolutely um legendary, legendary firm and really changed the nature of how people provided services in the institutional space. And then you know, I have a couple of unconventional mentors. UM. I have a an individual he's eighties six now. He's like a second father to me. He was my rowing coach um when I go out of college, and while

I was teaching, he and I were coaches together. But he was also my coach because I was continuing to compete, and I actually owe him a lot. Um. What's his name? His name is Jim Barker, and we still talk a lot. And I went to him when I was interviewing at Vanguard, and Jim lives in Roxborough, Um, sort of in a

row house in Philly, and uh we went. We got a couple of cheese steaks at what I considered to be the best cheese steak place in all Philadelphia, delessandros and uh six pack of beer and talking about life. And he was the one who really said, you gotta go someplace where your values and your passion match up with what the organizations trying to do. And he said, you know, you've got choice. He said, that's what it

should come down to. And you know, it was that it was sort of the final thing I needed to, you know, like I got to do this because you know Vanguard there was something special about it thirty years ago. Well, you'll have to let us know if it works out. I'm I'm still I'm still striving there. Um, still working at it, Barry, I'm gonna guess it worked out, okay. Um, So let's talk about UM investors that influenced you, be CAUSISTL will lead to a few people other than Charlie Alice,

who clearly is a tremendously influential investor. Who else do you think influenced your your approach to thinking about the world of investing. So, you know, it's interesting, you know, obviously I have to say Jack Bogol just you know, his his just the his analytic approach and the way he tried to simplify everything was really powerful. We had a really great um sort of um duo in we had Jack as UM chairman and CEO, and you know,

Keith Thinker on all this. We also had Bert Malkiel, great Princeton economists on our board, and I got some pretty early exposure to the board. And you know Bert's again random Walked down Wall Street one of the greatest treatise ever written. One point eight million I'm sorry, is it? It's in the eleventh printing. It's a million and a half copies in prints. So you know, so I certainly have to give Bert, you know, a lot of credit. And then, um, this may surprise you, um, given how

important I think indexing is. But there have been a couple of active managers who I had exposure to fairly early on, and I just liked the way they think, and I actually think it's very compatible with the way I described the power of indexing and the great John neff Um, who ran Windsor Fund for thirty years and one of the best track records ever for an active manager. The thing about John that was so powerful and you know, you're evidence it's based investing makes me think about this.

John knew the companies better than the companies knew themselves. And I can remember sitting in sessions where he would be going through the details of what was happening at a large, you know, a Fortune fifty company and sitting across from the management teams and they had no idea what he was talking about, and he was so much more in depth. And then Um, there was another fellow

at Wellington who sort of flew the public radar. But when you look at his track record at Owens, who ran our healthcare fund and he since handed it over to his successor, who has done a phenomenal job, Gene Hines. But Ed and his team, you know that healthcare fund for thirty years. When Ed retired, no fund in the industry had a better track record. Really it was at the time four basis points ahead of the next best fund in the industry. And the thing when did retire,

so about three years ago now. And the thing that was so impressed about Ed and John was their knowledge of their companies was deep. But even as active managers, they were very much into long term value creation. So you look at their portfolio turnover and it was really low compared to other active funds, and they actually took pretty concentrated bets. And you know, I've come to believe that if an active manager is going to add value,

it's probably going to be by being very different. So each of them would have of their portfolio in their top ten names, and you know, coupled with an index as a base, that was actually a pretty good way to invest. So that that raises a question not from our our favorite lists, but we talked earlier about recruiting. You you get rock stars like that who can jump ship to another place and and maybe pick up a bunch of stock options and make more money. How does

Vanguard retain their top talent like that? Well, so, you know, interesting on the active management side, some of those folks I UM reference, they don't actually work for us. They outside manager outside managers and so you know, they work for Wellington or for prime Cap or you know any of the other firms around the world. Bailey Gifford in Scotland. Um. And it's a pretty unique arrangement, isn't it. For a big mutual funds. We're the only ones who employ this

strategy as extensively as we do. And really all of our active equity, with a couple of very minor exceptions, is run by external firms and we scour the world for the best firms. And today I think we have about seventy five different mandates run by thirty firms and it's been a really um it's been a really good way to approach active and we find people who are aligned with us in terms of low cost and long term view and so forth. Um, you know, in terms

of the broader question though, how do we retain talent? Um? Yeah, I'd say there are a couple of things. One, you know, we we do compensate people well, I mean in our own firm, our fixed income teams are our index teams are client service people. You know, we pay struct attention to what's going on in the industry, but you you're reputed at the CEO level down. Look, if Jamie Diamond would leave and you would say, hey, knock knocked, sure,

I'll run JP Morgan for you. I imagine JP Morgan with its stock options is a multiple of what you're not. Not that you're underpaid advantguard. I'm sure it's a reasonable check each week, but when you go to any of the publicly traded Goldman, Sachs, Morgan, Stanley, those are crazy numbers. So it gets to the question how much is enough? Right? So you know, at the end of the day, um,

I think the kind of people we've been able to track. Look, we want people to make a good living, We want people to be able to take care of their families and you know, support whatever. It doesn't have to be a hundred million dollars. It doesn't. And you know, we want people who are mission based and the thing. And you know you've been to the campus, you felt it. I mean, everybody there is there because they really believe in the mission of the firm. You don't feel that

there dripping with excess. And I've been to other places that you're like, what do you think that costs? On? Yeah, I had. There's a funny story. Um somebody, um, a reporter came to my office a couple of weeks after I had become CEO, and she sort of looked around and she said, this isn't really what I expected. And she had been somewhere else where I think they had spent a million dollars on art or whatever, and she said, well, how much did that print costs? And then and I said, well,

it's a print. It was fifteen bucks. And then we got it reframed and you know, and a lot of the art was actually went all the way back to Jack Bogel and Jack Brennaday's. You know, it was just stuff we had. Look we we we we remind ourselves. And I know it sounds really Polly Anishberry, but it's not our money. You know. The question always I don't think that there's a there's a there's a question. I get asked a lot out there. People say, what's it like to you know, be have three and a half

trillion or four trillion. I always like, I have no idea. It's not my money, it's you know, we we we go to bed every night. Actually, I think about the responsibility that's been entrusted with us, and I think that's why the people are there. You know, you look at our senior team and people. The tenure of our organization is incredible. Um. You know, we have half the company

has been in Vanguard more than ten years. And I think I don't have this stat right off the top of my head, but I'm going to guess it's at least the company has been more than twenty And that belief in what we do is really palpable. And you know it's and then you know, you make it get pay well, you make it a really good environment, and you know, we try to treat people really well. There's no one this was Jack Bogel is um you know, um, no problem, you know, in a sense differentiating by how

you know people's contributions are to the firm. But from a behavior standpoint, you know, Jack never cared what level you were. You treated everybody with respect. And I remember hearing, you know, learning that like my first three days, they're just watching what was going on, and that really again, for a lot of us, that's what gets us up in the morning. There's a firm culture. It's still there and it hasn't attenuated yet. Uh, you know, we work

really hard at that. All right, back to our favorite questions, Let's talk about favorite books. You You mentioned Winning The Losers Game by Charlie Ellis and Random Walk Down Wall Street by Burton Malkiel. By the way, two previous guests on the show, what are some of your other favorite books? Fiction, non fiction, finance related or not. So I'll give you two.

Finance one, so I can't not mention bail out nations can skip everybody knows, but everybody knows that my so it's but it's you know again, you captured a lot. There's another book that I think does um it's it's less extensive than yours, but gives everybody everything they need to know about that here it's The Lost Bank by Kirsten Grind The Loss Bank. It's about Washington Mutual and it's a fantastic insight into what corporate culture, how corporate culture can go awry. L O s t The Lost

Lost Bank. Um it's it's really a good read. You you'd enjoyed, especially given what you've done. You know. On the fiction side, So I tend to be accused of being very eclectic. Um. I have a huge science fiction collection. Too, and what do you like? Well, I'm i'm so. I love all the classic guys. So I've read everything. I just reread the Lasnie on a plane flight. Um? Which one? This Immortal which is favorite classic? Um Dune obviously, Hyperion by Dan Simmons one of my favorites. I love all

the cyberpunk guys. Neil Stevenson Um in particular, and he's got a new great book out called Seven Eves. I read this summer while I was on vacation and it was fantastic. So. Um, that's kind of how I amuse myself in in the fiction world. How far into the cyberpunk do you go? You William Gibson or so you know? I think Gibson? Um, you know Neuromanswers one of my top books. Mona Lisa Overdrive one of my favorite books. Um, So I I like those guys. Um you know? To me? Um,

how abstract do you get with with science fiction? You can test me, Philip K. Dick, I've read them all. Really, you haven't read you Bick. I've got you Buck. I haven't read you Bick. So you're right, I read you Bick, and I'm the only person I know and I started you Buck, and I couldn't figure it out. It's it's the spray. It's um. People don't realize. Decades after he passed away, his books became these Hollywood Black Blade Runner was based on a short story Do Androids Dream of

Electric Shape? Total Recall was based on We Can Remember It for your Wholesale. So if when someone tells me they've read Philip K. Dick, I know that they've gone through the whole genre. And one of the best, um new TV series on Netflix or is an Amazon Pro It's Amazon Prime and it's The Man in the High Castle. They did it. It's a pretty good treatment. Um, I'm in the first I'm halfway through the first season. It's it's a it's good. It's a good extrapolation and it

looks great. Yeah, it makes me think of what I read. So, yeah, I love all that stuff. Yeah that that was really a fascinating book. A talk show host awakes one morning to discover that America has lost World War Two and the Japanese and Germans have split up America and he can't figure out why. So they haven't quite gone that that route. But in the book, it's this Dick loved alternative levels of reality. It's a so so I I have. I like to say I misspent my youth and my

adulthood reading a lot of science fiction. But you know, for me it's actually very stimulating because things like and you know there's cyberspace, um, virtual reality. This has been part of my world for twenty years. So what technology is always fifty years behind science fiction writer? And so like you could, you could look at every major innovation and somebody has was writing about it half a century ago. Yeah.

I'm now about to start a new book on um that's about the X Prize and you know, the first group to win the X Prize in in you know, was the space launch of the driverless car Space Launch, And so I'm really interested in what's the name of the book? You know, I'm drawn a blank now. It just came out and um, it's literally it just showed up on my doorstep. And before I so rudely interrupted you talking about science fiction, what was the other fiction

that you were going to reference? Now? I I think that's the where I spend most of my fiction, and then I do a decent amount of history for nonfiction. Um, what have you read recently liked. So my my favorite one in the last couple of years is a book called Valiant Ambition UM by Natt Philbrick. Valiant Ambition, and it's it's basically a follow up to a book he did a couple of years ago called Bunker Hill, and it's the second year of the Revolutionary War and it's

really um he he focuses on Washington and Benedictdonald. You get a really deeper appreciation for what led to Benedict Donald's treason, and it's it's part. It's a story I didn't know, so it was really fasting. That's interesting. And if memory serves you liked McCullough's Wright Brothers. I love Wright Brothers. You loved it, can I tell you it's one of those books that have been in my queue and I just haven't gotten to it. When when you read it, you're so inspired by UM. A lot of

people love that book. So, you know what what's so interesting to me is these guys had a vision and they didn't let anything get in their way and they just kept pursuing it. And the discipline and the passion, um. You know, it's everything I love. You know, it's the American Dream writ large. All right, let's um, let's keep going because I know I only have you for a few more. It's um. So there's a new question I've added to my regular list at the request of of listeners.

What is it that you do to keep mentally and or physically fit? What do you do to relax outside of the office. So I I have a background in endurance sports, and in particular and rowing. Um, you know, I took up rowing in college, and I could argue that it was taking up rowing that's led to everything. You know it really it led me to take the teaching job in Philadelphia so I could continue rowing. It

brought me back to Philadelphia. Um. You know, this coach I mentioned as a mentor gave me the best career advice I've ever gotten. And um, in a sense, everything good that's happened since I can trace back to that decision to start rowing. So I'm pretty passionate about the sport. Are you still rowing regularly? You know it's hard with my schedule, So I'll go out on the weekends. UM, I have a show a single and I will occasionally

jump into a team boat. I'm going to actually race this coming weekend in Boston at the head of the Charles and a master's event, so the age handicap at which in my case is really necessary. And I'm going to row with in one I'm rowing in two events actually which I may regret later and I think they may need oxygen when I'm done. But I'm gonna row with three of my teammates and the first time we got in a boat together was forty one years ago.

Oh really, which so it's pretty cool to reunite. And then I'm going to row with another group of alumni from do they all still still stay active rowing? They do? And and what we do is we we all try to get together and race this race in Boston periodically. And then UM. The other thing I do UM with actually a number of my Vanguard colleagues is I bicycle and we typically do one or two charity events in the summer to raise money for cancer. There's one in

Massachusetts that's again you love it from um UM. Just an economics standpoint, forty million dollars raised in one weekend. That's big to benefit Dana Farber and cancer research and in particular a lot of emphasis on pediatric cancer and UM it's a really cool event. And I think this past year we probably had ten or twelve of us go up and do it. So how do how does the money raising work? Is it a per mile per that?

However you want to do it, you're you, You you tell the organization you will raise a minimum of I think the minimum is probably four or five dollars now, and you get sponsors, friends. You know, I tend to my wife and I tend to you know, it's cancer research pretty important to us, so we tend to do it ourselves. But everybody has their own approach. And UM, it makes you train, you know. You it's two hundred miles and two days double centurion. That's pretty impressive. So

you know, I can't fake it through that anymore. So, UM, I've got to do so again. Long rides on the weekend. Then, UM, we have a gym on campus. I'll do a spinning class a couple of times a week. So there's really a lot of you're you're getting ready to do. That's a that's a big ride, a hundred miles a day. But you know, to your original question, UM, I find that. Um, And this was a lesson I learned from Jack Brennan. The discipline is staying UM fit has helped me immeasurably

career wise. UM, you don't get sick as often. You understandina is great. You know when you go through crises, you you know, long days just sort of bounce off you. And so to me, it's become very self reinforcing of kind of basic leadership principles. You know something that you want to emulate to other people, do it, so you have to take care of yourself so you can take

care of business. That makes sense. Our last two and favorite questions what sort of advice would you give to a millennial or a recent college graduate who might be interested in going into the field of finance or investment management. So I think it's a really interesting time UM for that.

And you know, I first I'd always tell them whatever sector they're going into, the accounty, but in particular and financial services, find a place where your values match up, so you know, really probe a lot around the values of a firm, and you've got to go to a place that you're comfortable with and where your values really match up. I think very related UM is have a passion for it too. UM don't do anything just for

the paycheck, UM. And you know sometimes I mean, you know what it's like coming out of school, You're in debt and you're you're you're tempted to just do whatever to to to h to meet those those obligations. But I think passion is really important. You know, when I first came out of school, I did have a passion around education. So you know, the first couple of years

for me, you know, I got to fulfill that. You know, my first for a into finance, I wasn't is connected um from a mission standpoint, and it was finding vanguard that really reinforced how important that is. I was just so much happier about the work makes sense. And our final question, what is it that you know about the world of investing and running a company today that you wish you knew thirty years ago? Thirty years ago? Um, crazy number? Right, Yeah. I I think the speed with

which technology is evolving UM is much. And you know, here for a science fiction guy to admit this, it's really hard. But I didn't see it all coming as fast as it came. And I think it's because it's not linear. I don't think humans are wired to think exponentially Um, just the smartphone was such a people don't realize there's more power in this than went to them took men to the moon, and it's amazing how that's changed, you know, not having as good an appreciation about that.

And then I think it's probably related. But the globalization that's occurred, especially the last decade. UM, it's spectacular, but also you know, it's it comes with challenges, with a lot of challenges, and I think that's really um. You know, if I could go back in time and anticipate that a little better, I think I would have made smarter decisions in terms of helping us as a firm think through some of those things. I think we've done okay,

But you know it's it's. Um. Those two phenomena, the acceleration of technology and globalization, again probably very inter related. They they really are defining our era in in so many ways, and I think they're going to define the next ten years too. I don't doubt it for a second. Bill, Thank you for being so generous with your time we have been speaking. I want to make sure I say this right. Is it William McNabb The third because I

keep calling you Bill, Bill, is what I prefer. Okay, it's technically Frederick William the third, and my mother insisted that i'd be Bill Um since my father was fred All right, that works. If you enjoy this conversation, be sure and look up an inch or down an inch on Apple iTunes and you can see any of the other hundred and eight or so. Uh such conversations we've had. Uh. If you want more information on Vanguard, UH, they're a small company in Pennsylvania, you could go to Vanguard dot

com and learn all about them. I would be remiss if I failed to thank Taylor Riggs, our booker, Michael bat Nick, my head of research, and Charlie Volmer, our recording engineer. We love your comments, feedbacks and suggestions, and if you've made it this far into the podcast, we'd love to hear from you right to us at m IB podcast at Bloomberg dot net. I'm Barry rid Holtz. You've been listening to Masters in Business on Bloomberg Radio,

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