 We're going to move right into the Q&A after just a few words and we'll move right into your Q&A. Okay, well here I am again! We've got some late and in February of 2009, I ran a room in the hall and we got talking about the markets. And he said, you know, I think this is the greatest opportunity to buy a common stock if I've ever seen it in my entire lifetime. And I said, would you say that publicly? And he said, were you kidding? So we all bear the burden of our own power. He comes at the issue of market returns very clearly from what I do, the way I do, and almost aesthetically. And then we come out in the same place. Gus doesn't seem to be as smart as I am in so many ways. And this may be the most important we needed when he numbers on his prediction. He just said lower than the tax. So I took a look at what I said to you all yesterday. And I looked at a sort of both bearish return, assuming a bunch of things go wrong, about a 4% return on stocks in the next decade. So that's a fairly large decline in the PE. And then I looked at what my system would predict for the next decade. Because I was kind of winging it on my expression. And that's what I had in the chart. And my system, which is also on slide 41, or 43 I could say. And by the way, we're going to put those slides up on Monday on my website. So if you want to help, it would be very easy to do. It's W, it's my book, it's my e-blog. And www.seebogl, no docs, and dot com, there's a dot. And see you'll see in there that the system really could have a 0.1 return. So just for the heck of an average, we're talking about a 6% return, compared to a 9.1% historical. So Gus and I are going to be, if he gives the number I'm going to guess it's 7%, but who knows. So we come out of the same place, but what a difference in the way we get there. And I have a lot of quarrels with the efficient market, hypothesis, and a lot of problems with the MAC. And that is that we talk a lot about risk. Let me put a number like 9 or 14 or whatever it is on that. That is unequivocally not risk. That is the volatility of the stock market with the volatility of your portfolio. Now, I'm guessing all of you know this intuitively. I'd like to have a show of hands here. Bill Bernstein is not allowed to answer this question. What is the volatility, you know, the volatility, the standard deviation of your equity portfolio? If anybody didn't know that, one hand went down. In fact, how you do it with the S&P is around 14%. That doesn't have to do with risk. That has to do with volatility. And the risk of the market I'm persuaded today is quite large and I think the market recognizes some of that risk from a lot of all. And when you think about risk, and what you're really thinking about, you think about the state of the world. You're thinking about war. You're thinking about the state of the economy. You're thinking about financial leverage. You're really accepting all over the world. You're thinking about a lot of things that can go wrong, global warming, health epidemic, growing concentration and the bigness of our world. These are all big risks that we'll have to deal with over the coming time. And I went through my whole list here. I went to come up with a conclusion that when you put all this together, somebody like Larry Siegel, you would absolutely conclude that the world is going to hell on the handbasket. The fact of the matter is in history, it's always been going to hell on the handbasket. But that never quite gets there. So that's called hope and not risk. So I look at it in a very different way, like I'm not about where he does. And so, you know, there's a frontier of changes. And then there's, I've always had this argument, which you may have heard be used from time to time. There's that chart of justice. And there's a percentage point here and a percentage point there. And here's the risk and here's the, I guess the return is over here and the risk is down here. And it kind of equates a percentage point and standard deviation the way that line is drawn with a percentage point in future returns. You take one percentage point for a risk, you get one percentage point for a return. Well, I always argued in kind of a nasty way what sense does that make when an extra percentage point of return is priceless and an extra percentage point of standard deviation is meaningless. Think about that. You're comparing the meaningless with the price. So be a little skeptical of all these things, even though Gus, intellectually honest, University of Chicago, which is in front of your model, probably comes out about the same place I deal with in the future return. So we'll just have to see what happens. I want to mention one other thing about Gus' talk about threats to vanguard and he used complacency. And I have a different kind of threat, which is best exemplified. This is not to do with innovation in the firm. You know, all those wonderful people you saw last night. And I saw a group that didn't even know existed at vanguard, helping them educate children at that grade school, a high school, and a college level. It's a fabulous idea. Lovely looking young ladies. Don't make a joke. And so I'm so happy to meet so many crew members that I haven't met before. These are not the big shots. These are the people that are doing the hard work of keeping this place going every day. When you talk about, I think one of our big risks is a different kind of innovation. That's trying to innovate in the funds we offer. And I think that is a very bad idea. How can you bring out a new fund that you think will do better than the index? Why would it do that? How would it do that? It can't do that. It can come and go. Creates is still an additional risk. So I'm reminded one of my favorite stories, as much as all of them know, is about a fabled shredded wheat biscuit. And there was an ad in the New York Times three or four years ago. And all it has in the middle of the page is a shredded wheat biscuit. Whatever the right size is for a full patient of time. And it says, this is the same biscuit we've made for a hundred years. It has the same ingredients. It's made with the same care. It's made with the same machinery. And it tastes exactly the same. And bites exactly the same. We put the no back in innovation. I think our risk is over innovating. Anybody who's progressive has a typical statement about an aging veteran who thinks there's only one way to do things. Because I am an aging veteran. And I do think there's only one way to do things. What can I say? That's probably the session. And we'll turn it over to you. You can give me a couple minutes at the end. Okay, we'll do that, Jack. I know you'd like to respond to questions from people who are attending. So I call your name out just ready to answer Jack knows who he's speaking to. This is from, this question is from Dion. He asks, when Ben Gardner was developed as a mutual company, you thought other companies would follow. Do you think they will? I'm not sure I really thought other companies would follow. I didn't see how they could follow. And I don't think they will follow. Because this is a business. It is basically turned from a professionally managed as it was when I came in. Very small business. We're, as I said yesterday, we sold what we made in this great marketing endeavor. We make a lot of sales, it's gotten bigger and larger because of public ownership. We've become a bomber ownership with so many mutual fund management companies. About 80% has become an entrepreneur's dream to start a mutual fund company and get rich. And when you look at what's going on in the ETF world, exchange traded fund world, we have a lot of entrepreneurs out there. They're managed simply to capture the next moment. They're ready to make money with themselves or other clients. They're one every conference. I think I used this yesterday. Financial Buccaneers. That's not good for the investor. It's great for the entrepreneur. It'll all make a lot of money but their shareholders will not. So if you're making a lot of money and losing some performance all the time to the index, you really can't change. There's somewhere to try and get their costs down. I might have mentioned this briefly yesterday. Get their costs down to the bank artist's expense ratio which I think is a weighted number of that. 15 basis points. We'll take someone like Fidelity or Turo Price or even Dodger and Cox which is a little bit lower. They're running at about 70 basis points and we're paid to expense ratio. And if they destroyed the firm, eliminated marketing, fire and portfolio managers started indexing, took away a little bit of Ned Johnson's 26 billion. It's a living. They probably get their costs down from say 70 basis points weighted to let me say 40. What's the point of that? There's still three times what our expense ratio is. They're not competitive. And they've given up all the purchases and stuff that they have and there's their all the way of doing things. So it's going to be very hard to even a little more clearly. There must be an innovator out there not in the industry saying well I thought that this industry has only one way to go. It is the vanguard. So I'm going to start a mutual coming on. I want to go and raise capital at the end of the business. It's going to take, let me pull a number out of the air, $200 million, a bust into the mutual fund. But how am I going to get that capital? When someone gives me $200 million, they're going to want a 15% minimum return on that capital. So somehow they've got to make $30 million a year. There's no way. What a selling. I got a new IPO. It's wonderful innovation. But it's not going to produce any money for you at all. It's the best now. So I don't know at what point competitive pressure drives people into trying to protect their market share and their cash flow when they're making money now. I think the honest answer to that is the people in this business see that. They see that the future prospects for significant earnings growth are gradually diminishing. But they're sitting on a great cash cow. So this cash cow will generate money to the managers, money to the conglomerates, money to the public shareholders, and what they will be diminishing. And a lot of the companies that are now owned by conglomerates who sell their own fidelity, for example, I would guess would be sold to some kind of a financial firm within, say, five years in a pretty short period. I hate to make five-year predictions because at least possible I'll be a lot to see whether they can. So I don't mean that you can see what's happening and it's dramatic. You saw those charts yesterday. You're doing 140% of the industry's cash flow. But other people aren't going to concede because they're still making a lot of money. They're happy. There's enough money to keep everybody rich. Capital group people private companies, I think, on every ranch in Montana. Well, maybe not quite everyone. I'll give a little hyperbole here. But it's going to be, if it changes, it's going to be a very, very slow change. Well, Jack, did you get any degree of satisfaction when fidelity tried to respond to bank guards index funds or having the Spartan funds out? Do you know you were responsible for that? Yeah, well, the Spartan funds are pretty good. First of all, be clear on the Spartan funds. They are the only fidelity in the only fund, that group only funds sponsored in the entire industry that's taken indexing seriously. They probably have, is it 50 billion, 400 billion? About 150 or so. 150 billion in indexing makes just a problem in the bucket. But nobody else anywhere near that. And they charge, kind of, very high prices. Every once in a while they try to undercut, doesn't seem to do them any good. And then they go back to, you know, try to make a little penny here and there in their index fund. But T-Row Price has an index business. They won't even tell you about it. Well, maybe they will. I'd call them on the phone. 23 basis points. 23 basis points for an S&P 500 fund. You know, I think those directors have reached their fiduciary duty for that fund. And it just, it doesn't work. And I think it's, more insanely, it's even worse. There's a JP Morgan that charges 100 basis points. But they only charge 50 basis points to pay a 5% sales commission. Only, by the way. I don't know how that works. Slipped out. So, it's pretty much monopoly except with BlackRock and WhiteWell and State Street which is just kind of hanging in there and they have the most widely traded stock in the world and that's fighter. But it's not going to be a very profitable business for them. And they're pretty margined in terms of cash flow. So it's basically come down to BlackRock and Van Doren. RETF business. And 75% of the traditional index fund business. And BlackRock is probably 5% of the traditional fund business index fund business. And they're bigger than we are. So they're probably 35% of the RETF business. So we'll be bigger than BlackRock. And that won't give me any satisfaction out of another question. You know, there are ways to use RETF for your satisfactory and important and valuable investors. There seems to be a lot more ways to use them in a very foolish way. Not so much as Van Doren. But when you've got to talk about this yesterday you've got this triple leverage and then you get somebody like WisdomTree that had a decent idea in the beginning and now basically 100% of their cash flow is in Japanese and European index funds which you can trade with your hearts content. And they're making a lot of money but investors are only going to lose with that strategy. So, I mean it's probably a little dumb to say I don't see any real major competitor on the horizon. But the mathematics that I always come back to and it comes with the incentives you've got to look for the motivation. And no matter what they do and I think this is an important point and they want to compete with us if you want to lose money they can forget about the index fund in four or five days of point. But the reason that what we really have going for us is having had the missionary zeal for indexing basically not from day one that was just an idea that goes into the investment management that back in 1975 which from say 1980 1985 on particularly in the 90s is the zeal of perpetuating the value of indexing. Books, academic articles kind of things I've been doing have anxiety and drag kicking and screaming into the index compete with someone who has this missionary zeal as if it's the Holy Writ which is not a fair trade. So, we will sustain our position I'm quite sure unless we over innovate and that would have such a small at the beginning very small impact on what we do with Bangor the three of them require anybody in the indexing to go somewhere else and I would not recommend that. Nothing will be better on opinion. Jack, here's another follow-up question from Dion. In your wildest dream did you ever think Bangor would reach three trillion dollars? But I did I think back in 1989 you could see almost a touch in our firm that was not going to slow down. So in 1989 what was not going to slow down very much we had been growing at a 24% rate annual rate. I mean, you were double every three years and we were doubling every three years this time. So I gave a speech to the crew and to our internal staff previously called the tyranny of compounding. You know, we always talk about numerical compounding and I point out there's a lot of theorem to it. So I said, look if we continue to grow through the 90s I'd say an 18% rate or 15% rate because 24% not sustainable. We're going to be a trillion dollar company. I guess I said 800 billion in 1999 and I would have gotten through this trillion a couple years later. I probably should have repeated that exercise in 2000 but we'll come out and say, what? Our growth rate now is not 24% and it is not 18% it's not 15%. Our cash flow growth rate is 5%, 5.5%. That's what cash flowed up. You get a lot of inflation and growth when you have very good markets then they get a lot of deflation and growth when you have bad markets. So the way to look at a growth rate is cash flow of the percentage of assets and our GDP is growing at maybe 3% a year. So if you can grow at 6, 5 or 6 you're going to do just fine. And of course the dollars get so big that you're dealing at 6% of a free trade and that's 180 billion and that's not too far from a little bit higher I think our cash flow for this year projected to be maybe 165 billion somewhere like that. The bond duration and it says, do you think shorter duration bond funds 2-3 years would be a better choice or stay with intermediates and heavier on copper bonds? Yes and yes. Maybe I'll amplify that. Shorter duration is not a good bet during it because the longer on the bond yield is determined by the coupon bonds the yield probably a percentage point in a quarter something like that for the intermediate term and 2% points for the short term maybe 3. So you will do better in the long bond. I just have been around so long that I can't look at the numbers in the abstract without saying how old people react if interest rates go to 4% and that long term bond drops by 40% back which is roughly what would happen very roughly. And I think most people cannot handle that. So no matter how good the long run is we all have a little we're influenced by the short run. The long run God knows how long it is and retirement playing they do something about it if I can't handle those losses. So it's the psychosomatic or behavioral effect that worries me. So what I do myself is do well at a limited term uni an intermediate term uni so it gets me to a duration of probably maybe 40 years something like that and that's that right Mike? He's a good man. Why don't you say exactly for it. And on my corporate I have some mostly short term we don't have a limited term on the corporate side on the index side and I'm a little down on this I told you yesterday on the total bond market because I just think there's too much of the way of government too much in some abstract way can I prove that? No I cannot prove it and that my big booster David Swenson from Yale thinks the only launch you know I think in the real world that's just not enough return I'm talking real risk it's quite small and you will do significantly worse than the Treasury bond and you have corporates they have a low default rate maybe the corporate return will be less than the coupon for none of them these are all expectations born in too many years of experience perhaps so I'd say yes stay short duration don't over emphasize government troubles me that treasuries and mortgage back Treasury back mortgage back are 70% on a bond index and I just think that's too much and I tried to get vanguard to change it but you can imagine what they think but they get a letter from me saying you know we're doing the bond thing wrong and I started it that way I didn't really do it by thing I'm not sure I looked enough but the returns were so high and the yields were so high when I started that bond index fund first bond index fund in 1986 it just seemed like a no-brainer and the yields were so high let me say 7-8% it didn't look so stark when you get to 2-3% that's a 50% difference so are you looking I think it's Lord Keynes who said that's not what you said the last time he talked to it and Lord Keynes responded when the back changed I changed my mind Jack the comment on that from a lot of people is that you take the risk on the equity side you want your bonds to be your safe heart and there's nothing safer than treasuries so why do you think that the 70% government bond is too risky when we're talking about looking for balance well you have to think a little bit about what that 70% is all about you know what is the proper ratio what is what is the normal government bond for US investors we've got huge amounts of treasuries that are owned by China and Japan and if you take them out of the program you're going to all of a sudden have bonds and maybe I don't know the exact number let me say 40% of the portfolio it doesn't matter what China and Japan are doing in terms of your portfolio so if you look at other portfolios pensions on portfolios for example they're going to be more like 35% government I'm not saying that's right and I am saying I'm making a judgment which is a fragile judgment and like everything I've ever done in my entire life it could be wrong but I have a feeling and I think it duty to express it because the point is to remember and I think you touched on this but the question is from Karen Bennett if you care to share what is the personal asset allocation and what not I just actually changed it at the first time in many many years let me go back a little bit in time with you to an interview I had with Don Phillipson Morningstar in I think the spring of 2000 could have been the fall of 1999 could have been a little bit later I am the stock market and he asked me about my asset allocation and I said well right then it was about 65% stocks 35% bonds I'm a conservative person and at that time bond yields were 8% and stock yields were 1% and I said to him when we looked this up in my interview on the Morningstar board a little while ago and I said you know stocks sell on the 30 times earnings and bonds yielding 1% and bonds yielding 8% there's really not a chance in the world but over the next decade stocks will do nearly as well as bond and then I asked myself rhetorically then why am I holding any stocks at all and did something about it very rare for me I just don't fuss around with changing so I went from in very rough terms and I combined various retirement plan accounts personal account trust account and I reduced I wouldn't dare doubt the stock market I'm not smart enough to do that that would have been cool for then you would have been smart to do it but I'm just not smart enough to do it so I reduced in very rough terms and this is out of memory too but I know where it came out I reduced my equities from about 65% of my portfolio to about 40% and I was very happy with that that occurred in the 90s I'm sorry at the end, too bad so I stuck with that and gradually because of the changes in stock and bond market dollars to one another I got to about 55% recent present position 55% equities 45% bonds and these are combining taxable and retirement plan accounts it's a crude number but it will get the point across and not precise, I don't even I don't do precise anyway and I decided at the beginning of the year as I looked around this risky world out there all the things that are going on international conflicts problems in the U.S. the financial system, the kind of thing world's financial system possibility of war even more subtle things like the role of technology in price competition everybody knows that technology has changed the dimensions of price competition in this country and it's been in favor of consumers and therefore against the interest of producers the producers of the companies are making money and you see there's more market for example there's reason for anything so I put them all together and I thought I really wanted to have 55% equities to about 45% and I've had a very difficult to do because in my personal account I have such gains on the index funds I bought 20 years ago I started to have a big tax group and the amount of money involved it's probably a 27% or 28% capital gains tax and so I've got to say well is the market going to get that 27% or 28% and I didn't think that was very likely but I still did a little bit in my personal account and about cash but got down to 50-50 and then in my retirement plan account it was all going to charity anyway and I had a funny way of looking at things but I thought if everything else failed I could always throw all money out of it so I'll be able to consider there I reduced another 5% of the point so now I'm 45 45, 45 stocks in 55 largely short term so that's just the story this is not an interesting related question but it's about your management style of your project today and Janet Heffernan Chase how does your office management style contribute to your productivity and what time of the day do you find to be the most creatively driving the last one which of course has no answer what time of the day do I find to be the most creative well I have this funny line Mike can attest that there's everything all the time that's a lot of thought and it's pretty true and I'll come in every morning with a half dozen new ideas Mike and I will explore them and look at what the data looks like and I trust my judgment but I'd like to see data and on the whole variety of things there's so far a patch you wouldn't even believe it and I had one of them to give you an idea where my mind is working I met with some Australians and I was going to meet the head officer and chief investment officer of ANZ the next morning so these fellows were sitting with a vanguard rep and it happened to be a nice day that were outside and the outside working outside of our galley is almost totally shaving but all the way over coming back on the right side there was this bright sun coming through so I had a nice chat with these guys and I said I don't know what you're doing sitting in the sun like this I mean it's the only YouTube it burned up or something and then I said you don't realize me of that quote from Shakespeare I'm too much either sun as soon as I get back to you I said Mike check that one out for me you see how right I was Mike failed me so that night I did it myself Google I'm too much either sun it's Hamlet Acquan and contain which I never knew until I looked on the Google not just too much in the sun Hamlet being feeling he was too much in the spotlight after his father was murdered and also his uncle and murdered his father you know the story and so it was a pun on I'm too much in the sun as soon from this guy so I learned that to learn a little bit Mike learned a little bit and he also came in the next morning I let him have all the arms so is this useful is this productive no this is crazy it's a sign of a mind and a simple answer to these questions that things put me on I was sitting into an investment company I'll give you another more a reload example many years ago probably 20 I was sitting in the audience at the investment company to do a general membership meeting a little bored I started thinking I thought you know we have a short term an intermediate term but the short term is really too short sorry right now limited term uni next day I mean the law was gathered by a little stack around probably 4 people and say we're going to start a limited term in a small amount of time that's how the process worked and it seems crazy it seems stupid it seems arrogant rarely did I consult with anybody and I told you in a couple other contexts but it all seemed to work out well and it says something I think and I'm not sure about any of this but something about the individual compared to the consensus I wanted to start an insured municipal bond fund so my friend Jeremy Duffield said we're going to do a survey and see if anybody wanted one no do you want an insured municipal bond fund I said we're going to start an insured municipal bond fund I know a lot of trouble out in the Pacific Coast Washington State Power Authority went bankrupt and I thought it would just be a good idea the abstract so we started it's been a big success one of the great things about a very small company run by a dictator I mean I'm sorry the way it was it was that way and there's something to be said for that if you're trying to do something that no one has done before when you get big it's much more difficult to do you go through a process judgment takes a back seat so I guess it's just I'm not sure it's healthy by the way at least some of my thought process involves things other than investing I'm not sure enough and at least I try and keep spending a good amount of time with my family and mine I'm not sure I do a great job on that I do an adequate one and I think everybody understands so it's idea generation is much more impulsive and much less processed than anybody can imagine and you know it goes to a consultant who's going to tell you some damn thing like for the expression if you can measure it you can manage it of all the idiotic comments ever made I mean is it all about measuring things I mean really what about people how do you measure character how do you measure integrity how do you measure loyalty oh we have some tests that measure so I'm afraid I'm showing you reluctantly well not so reluctantly my very worst side Jack the number one topic that we had on the forum questions for you and I looked at the members here and probably the forum members was about the thoughts and views on international investing which you talked about yesterday but an interesting question absolutely state of course it says if you were born on the same day in Japan and grew up as Jack Shinkaharu for example but you still had the same further with your home country buyers and equity investing as you do as Jack Bockel born and raised in America that's so easy to answer Japan is not America America is the most diversified economy in the world and entrepreneurship the greatest productivity the greatest technology base the greatest protections for shareholders and ownership of private property of any company in the world and last but not least of Great Britain and Switzerland these things are vital these things underlie America none of them underlie Japan they're barely getting out of the imperial age of the bear they have terrible demographics Gus mentioned this morning they have a very structured economy where you go up these little chairs and sing the company song oh my god I'm actually having a good time this next question is from Brian he says there have been recent studies that propose starting in town over draws at a lower stock bond mix and later raises the stock bond mix after you have avoided the stock market volatility risk in the initial phase of retirement what do you think about this proposal versus a more traditional get more conservative as your age approach to the mix of retirement well to begin with I think it's appropriate to challenge the age based kind of working and to be clear I have never said this is some kind of geometrical thing automatically I say it's a good place to begin think about your age think about your bond position equaling your age why? because the yield of bonds the income yield the interest rate on bonds is higher given that yield of bonds and stocks so as you get older you want more protection and you want more income so that kind of logic permeates the idea and that's a decent logic as far as it goes and Rob Arnott not exactly my year's range of business who runs the FAA RAPE R-A-F-I Research Association at R-A-F-I and does the smart pay that kind of thing with his fundamental indexing thing which is not crudely settled for all yet but he's only had 10 years I did not have to say that but I don't think there are easy answers and I do think, and I struggle a lot with this mill I do think there's a difference when I started talking about that and bond yield for maybe 7% and stock yield for maybe 2% not the extreme for the year 2000 I do think we have to think to ourselves the idea is to get more income by having bonds when you're older and the dividend yield on stocks is 2.1% and the best you can do on a reasonable is maybe 2% and 3.4% 3% I think we have to challenge our assumption that there's not a lot that's permanent in this year I don't know how I don't have the answer to that I don't have to be able to change the way we do our target date funds but I'm a little suspicious and I wonder if those like strategy funds just take one and have a permanent ratio is not a bad idea yes, what do we know about rebalance so we will relate it to that we know that it is an unwise thing to do for a long term investor because when you rebalance you're selling the higher returning asset usually common stocks and buying the lower the long term return asset funds so the more you rebalance the less what you do compared to just hanging on to stocks and keeping the higher and higher and just leaving the bonds back in the lower return of the smaller and smaller portion of the portfolio that's not a like a mantra for me but it is something that we all want to think about funds change, conditions change, interest rates change so that basically the answer is there is no answer but I do think that the target date approach is a reasonable approach I think it should be compared to the strategy approach which is a permanently conservative road of income objective series objective, probably I don't even know 30% equities 50% equities, 70% equities or something like that maybe a little higher is another way to do it there's no guarantee in any of this there is a behavioral element comfort level if you will if you get older I know this feeling I didn't even talk about this what you need is an older age income for example but there's also this human factor you know we get a little bit crotchy and nervous when we get old I don't but everybody else I can test some of the life strategy funds and the target date funds do you have any idea when an investor looks, let's say retarded books and they're looking thinking being conservative and income is 40% equity the life strategy target the target date income fund is 30% equity do you have any idea why Vanguard has the same income in portfolios that are 10% more in equity I started those funds and I didn't know that there is in all my bragging about the number of things that are on my mind in everything that's on my mind and I'd actually be very surprised if that guy's going to check that out for me okay, or do you know it's true I'm not sure it's the first time he's ever answered that I know my strategy so we'll check it out, it seems very funny because at 10% there's a 10% point difference and in polo class they expect to stop and they expect to fly in return and it really doesn't change your risk or your return very much so I think sometimes we're too dark mathematical and it's basically what are you comfortable with what are the numbers telling you to do how much do you think your risk how much money do you have to stay someone has a huge amount of money to stay it can be very different someone's struggling for every penny so they don't have to call on their kids when they retire but none of this is easy and that's why N came to this too formulaic kind of worries me okay, vocal, gross return minus cost equals never return that sounds kind of formulaic to me so I guess what I'm saying is anyone that uses my formula is okay, but anyone who uses other people's formulas will probably want to be careful I am trying to make by a serious point there read my book called Don't Count On Jack, I made a misquote of those numbers I think I've been running a black strategy conservative versus the targeted retirement so well see that would depend on which retirement right, the targeted retirement income is the final thought of everything but you'd be picking a particular target date retirement to get that 30% I don't know what that is that all functions end up in the target retirement income fund which is 30% target retirement doesn't have an income fund as such as scaling I think they call it the target retirement income fund well they should stop that we'll check those out we'll move on question from Nisi what do you make of predictions that investment returns going forward will be forward to producers I think we all know your answer do you think this they will be lower than normal or longer or let me say a couple of things about that and then when you look at things in 10-year average let me use one kind of simple number which is a 6% future return so the bottom line is not start with the knowledge certain that it's not going to be 6666666 it's going to be plus 20 and minus 40 and it's going to jump all over the place so that in itself it kind of gives a lie to thinking about things as a time continuity the reality is that this could all be and Gus kind of hinted at this or maybe you can't close it to hinting at it we got a good solid 40% market decline and all would be well and if you think about it for a minute I don't think too many of you here are in this category it's going to be unknown but if you're building a fund for retirement for a 40% market decline not just Sunday but Monday, Tuesday, Wednesday, Thursday Friday and Saturday because you'll be investing a lower price for years so we have this kind of funny bias that market highs or rising markets are good and falling markets are bad and the fact of the matter is that everybody must know rising markets are good for sellers and bad for buyers is this eternal equation and nobody can challenge that and they can challenge the growth of retirement just so you get the full point minus all these will never return Jack, you said the first two words you said Taylor I have a message for you from Taylor dear Jack no one in the mutual fund industry has a greater combination of character practical experience knowledge, inventive genius wisdom, perseverance accountability, literary ability kindness, honesty and a desire to help others what are your most important words of wisdom to give your audience well first of all my wife would agree a lot of that she said who's he talking to as always my wife was right I spent celebrating our 60th wedding anniversary next step never and so I don't want to do anything I don't argue about that but the advice really is simple look at investment principles know what the game is about understand where we're to the sources of returns, one of my big themes promote for a lot of the stock and just try and figure out how much risk you can tolerate you know it's easy to put in a questionnaire what would you do with the mark with that 50% and people say follow me at all that's a bare-faced lie it's easy to honestly say fine I know it's going to come back then it goes down 50% you're on your way out the door so it's it's behavior it's who you are and always be who you are I like this too short for anybody else but take into account the fundamentals listen to what people like me are telling future market returns and conservative I would always mean the conservative because you will then be in the awful position of oversaving which is so much better than being in a position of under-saving when that great retirement date comes and then I would add and I'll throw a little anecdote here that I had this expression don't peak at your 401k envelope when it comes in your IRA envelope when it comes in every month and your anecdote just throw the darn thing in the wastebasket and to keep doing that until you retire and when you retire open the envelope but be sure and have a cardiologist because you're going to have a heart problem and you won't believe what you've accumulated and the anecdote part of this and every once in a while you find out yes, in spite of the odds somebody is actually reading this stuff and somebody is getting the point and I've been saying that for a long time and I got a letter from an airline pod that was just retired not so long ago, a long letter and a couple long follow-ups and his first letter began Dear Mr. Bogle, I have just opened the envelope it gave me such gratification you know, a TSP because the next question was from a backpacker and it says you said the investor shouldn't peak at their portfolio say once I believe your exact words were don't peak, don't peak, don't peak this helps them save the course and when they look at their portfolio it's right before retirement they'll be forward to how much they save how does that work in practice though don't investors need to monitor their portfolio or rebalance, maintain and watch the draw well you got distinguished between the real world and the hypothetical world I mean, you know, read the tortoise and the hare it's a great story and no better story for an investor but it's over-drawn, it's hyperbolic and none of us are tortoises or hares so the question is how much of us is a tortoise and how much of a hare you read these things and all people are divided into two classes are you kidding me I'm looking at 220 people or something here I mean, this group is divided into 220 different classes and so you have to recognize people's individuality and you have to recognize the difference and I'm not sure I'm good at this by the way the difference between kind of a little hyperbole to make a point and hoping that people understand it's like a real deal or a fable or a moral that you adjust around to deal with who you are yourself and that scene is a little bit like one of my commencement speeches in one of my books I guess it's in in don't count on it this above all that I don't self-betrue then they'll count as not people as any man you probably would have said man over man or woman and it's also for Pamela for those who care so the idea that there's some answer young people remember this woman come to see me and say I'd love to come and meet you and I do my best to accommodate them and they basically if I can simplify the conversation say okay, what's the secret what's the secret and how do you get to be the head of a three trillion dollar company on the last minute and I say look you have a lot of assets that I do not have and I have a lot of liability that you do not have with different people every person's secret is different so just learn what you can watch others, watch what they do see what you've identified get what you can but for God's sake that's kind of confusion sort of wisdom but I do have a certain kind of wisdom that calls for perspective and maybe I'd use the word modesty but I'll say modesty and the extravity of my views on human being so we all struggle on different family circumstances everything is so different when someone says I can tell you what the rule is there is no rule I mean there's common sense there's mathematics there's what stage of life you're at it's family what your objectives are to leave money to your children or make enough money to yourself to have a comfortable retirement to abstract goals but ultimately are measured with a dollar sign a certain number of different things to do so I know you know I'd love to have some really why send this money why send this stay in the course that's good this section is run by Jane says vanguard has publicly maintained that HFT high frequency creators are needed as market makers given that fidelity and other large fund companies are starting their own dark rule why is the vanguard joining them to potentially get the best price for the customer is there a disadvantage in placing trades within the internal dark rule first before going to X-ray well that's actually particularly in this day and age out of my pay grade I don't know exactly how we do it the idea that we are doing other than the best execution and maximum shares volume I think given price is I think eternal and that has to be the rule for a firm like vanguard and the extent to which we use dark rules I imagine we use them but I don't know and how you even define a dark rule is a little bit funny so I just have to bagel the first question I've been asked in two days I really have to bagel off the answer this is an interesting question it's not investing related but I've always wondered why Mr. Morrow decided to keep vanguard headquarters in Malibu as opposed to moving to one of the money center cities well the answer to that is pretty easy and I'll give you a little anecdote to go with this too which very few people know and that is for a whole lot of reasons including Philadelphia tax we were in Philadelphia at Wellington from 1928 to 1974 and kind of early in 74 we decided we'd get better real estate prices better workforce eliminating Philadelphia wage tax and therefore being able to recruit better workforce just on a financial basis and so we moved out to well what do we call it right around the corner small building and then when the company blew up so we then built the building and Chester broke and we got a little bit bigger and that was back in 74 the first one then we moved to Chester in 1983 so we got out of Philadelphia number one tax rate even when we got out of Philadelphia we had a big problem with the Pennsylvania taxes a very peculiar way of taxing investment coming in it was finally unacceptable so we could have moved to a county without any personal property taxes say not sure what the county is not what the county may be but Harrisburg is and solved the whole problem but nobody wanted to go to Harrisburg nobody will think big and so I got a really good lobbyist for Governor Ernie Fine and when I say a good lobbyist I mean someone that is totally above board not a contingent for any guy we pay them the normal legal fees get great contacts up there explain to the people we were going to believe to say unless they changed the law and within about a year oh by the way I should tell you if you want to know on Pennsylvania probably six companies in Pennsylvania smaller than we were but some of them were pieces of it and they said we'll work with you on this we'll help pay the bills and I said no you will not we're going to do this on our own happy to pay the bills but I don't want anybody mucking up the precision process around here so we did it all by ourselves and they got the benefit too and they got the tax and it went flat in probably 1976 probably the Senate unanimous the House was signed by the Governor and all of a sudden the tax problem was gone the taxes would have cost us now about 10 basis points a year so add that in the 17 basis point of expense ratio or 15 and you get the same 25 to 25 would not be something that the fiduciary people were to do. So when all else fails, change the law. I have all the questions in that. Do you feel that being in Malvern as opposed to one of the money centers helped to keep the distinct culture of that? I guess it helps in a way. First, we have a much, much better ability to draw people from the community, from the counties around, say our counties and towns, around Bandora, and don't have to deal with the problems of the Philadelphia population. Because basically, in a nation of far too much property, far too much poverty. And so you get, and I'm sad to say this, a better workforce, although it's still possible for you to get a workforce from Philadelphia. And we still do it. They come out from the train. Mike comes out from the train himself. Don't go out to be a president of the town. And so I think we have a better work. Whether it's some intellectual, are we free from the influence of Wall Street? Well, if you're an indexer, you're free from the influence of Wall Street, anyway. So I'd say we could have gone to Harrisburg. We could be in Pittsburgh. Oh, god, no. I'm sorry. Sorry about Pittsburghers. And so that being outside the city is kind of, it sounds great, but then you're away from all that funny influence on all that trading, blah, blah. I don't think it matters that much. So what keeps us keep going is not necessarily being in Malvern, or if I still say Valley Courage, what keeps us going is two great innovations. One is mutual structure, which is easier to do in Pennsylvania once the law comes changed. And the idea of indexing. Any firm that has done that, like we had done it, I don't really matter whether they were in Syracuse. That's an interesting place to be, I guess. And we're not so happy. I think it's mostly a workforce issue. We have really good people working here. I was really impressed last night. 114 sell-ease. I have an actual account with the one of the young people that we recruit here. And I think it helps them in that workforce play. I'm not even sure of that. I think this next thing is not a question. It's for a nice comment from Miriam and what impacts this along. He says, I just received my beautiful heart cover of 2015 edition of John Bogle on Investing the first 50 years from Wally Muggleson. Mark is that dedication states, and especially with Bogle heads of the internet, that dedicated and loyal colleague of Ben Carter to give me strength to carry on my mission. It's incredible to think that we, or foreign members, give him the strength to carry on his mission. Perhaps we could thank him for his dedication. It is nice to know how important Bogle heads have been to him. And we really appreciate that dedication. The Bogle heads came out there for, I guess, Bogle heads, two or three. Two. And so it was easy for me to come out there. People are still telling stories about my take-home. I have to say I'm trying to finish it. I'm finished by now. I was in my past. And then the next year, we decided to invite him to come to the campus. I was told you would not be allowed to come into that. That seemed ridiculous to me. I know quite a lot to do about it. I was trying to figure out what to do with that. I truly would have done something. There's one chemist who's with me. And he made signs, welcomed the Bogle heads. He was standing out there in the driveway to welcome you in. We were told, shut up dad. They're not coming in here. What happened the day before you came, there was an article that even filled up the inquire about the Bogle heads. They had voted for us, that kind of thing. And all of a sudden management changed its mind. They said, OK, they can come in. And they said, however, we don't really like the fact that you blackmailed us into this. The day before I placed the article. And I wish I had that power. But I did not. And did not. But then even we had a really nice meeting. And then the next year, we got a little bit of religion. Hal was kidding me about this. A few minutes ago, a little bit of religion. And we got little paper cups with popcorn. I'm sorry. It was delicious, wasn't it, Hal? And then the next year, I think it was mainly Glen Reeves, one of the head ma'am. Fairly new in Van Gogh, one of the managing directors. Come on, let's welcome them. They're important to us. Let's give them the full treatment. And boy, I saw last night on the TV, aren't you overdoing it a little bit? It's a blockbuster, buddy. So that will turn around. I think it shows you an asset. I imagine we have some reader there at Van Gogh who reads your comments full-time over your valuable resource. When something goes wrong and you put them up on your board, we listen. And I still get letters from shareholders. And I still write back handwritten letters to every single one of them. I have to pass them on to somebody else because I don't have any, I can't get access to our shareholder records by that who's right or who's wrong. But I give them personal attention. And I think the biggest single thing we want to be careful of here is to make sure we don't forget the coin of praise I've used, 10,000, the honest of God, down to earth, human beings, who are our clients and who are our crew members who serve those clients, each one with its own hopes and fears and financial goals. And we don't forget, I was in Harvard Business School and one of the wise acres in the class had a few years ago. What's all this about human beings? Why do you have a chapter in our whole section in your book Common Sense on Mutual Fund? Human beings, what's that all about? And I said, I can quite say it this way, look, pal, who do you think we're investing all that money for? You know, it's not some big abstract, probably a trillion dollars, it's people, humans with their own needs. And if we ever forget that, either we respect our crew or we respect our clients, that would be all of the things we want to happen. All of me, the kids are dead. So how do you keep humanity in the picture? You know, I'm doing my best every day to do it. I may not be here forever, although sometimes I entertain the contrary side of that property. And so. Jeff has to leave at the 40 BC, wants to say a few words. About the selfies, you have not got a picture of themselves, wait a minute. Find yourself, I'll reach you out in the lobby later on. And it's just been a thrilling experience, but it's part of the fact I don't even know how they recognize me. There's a lot of, a lot of hero worship and a lot of appreciation, a lot of joy for the young people about the situation in which they find themselves at the stage that they're in. So this has been a wonderful time, and I want to thank you for that. Number two, I thank you for my walking stick. A lot of what we gave to Jack is, you can lean on us, we support you. So that's a nice touch, and I certainly want to thank Mel for the leadership of this thing. And also this whole group of you, and not only Mel and Marlene, but Ted and Linda. Four of them, I should say. Gail Cox, of course Gail Cox. Mel and Kathy, and I think maybe Eden Patty. We're so great. You're kind of become old pals and we get together once a year. We'll build a little bit like a family holiday. And that's a big fun of me doing this over and over again for years. And so, thank you all.