Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

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Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Sat Oct 19, 2019 2:38 pm

Hi all. I don't listen to podcasts because I feel I can get similar information more efficiently via text/transcription and my free time is so limited (and I don't drive, or have free alone time etc). So unfortunately I miss out on a lot of stuff I'm otherwise interested in and can learn from.

So I had been really hoping people would volunteer to transcribe the awesome podcasts available at the John C. Bogle Center for Financial Literacy .

No one did, so I did! Well, inspired the the recent Bogleheads annual meeting, and wanting to contribute to the Bogle Center in some way, I just finished transcribing the first third of the first podcast from Sept 14, 2018, which features Bogle himself. It's a great interview conducted by Rick Ferri. I had intended to do the whole thing, but the first 20 minutes took me almost 3 hours (am I really that slow a typist?) and it's a beautiful Saturday with my wife urging me to leave the house, so...well, that's all I can do. And my fingers are raw.

But maybe this will encourage others to do a portion too? There are 14 60-minute podcasts. If every person transcribes only FIVE minutes, we only need 168 volunteers, lol. Anyway, the next post in this thread is what I've got.
Last edited by neurosphere on Sat Oct 19, 2019 3:12 pm, edited 1 time in total.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Sat Oct 19, 2019 2:38 pm

Ferri:
Hello everyone and welcome to Bogleheads on Investing Podcast, podcast episode #1. On this inaugural episode we have a very special guest: John C. Bogle. Founder of the Vanguard Group and creator of the world's first index fund.

Hi everyone, my name is Rick Ferri, and I'm the host of Boglehead on Investing. This podcast is made available by the John C. Bogle Center for Financial Literacy, a 501c3 organization. On each episode, we'll dive deep into the principles of low-fee investing, and other topics of interest with a special guest. All episodes can be found on bogleheads.org and the Bogleheads Wiki site. They will also be available on commercial sites such as iTunes and Soundcloud.

Ladies and gentlemen, I have with us today none other than the man who started it all, Mr John C. Bogle. Let me read to you what Mel Lindauer said to you when he introduced Mr. Bogle at our investing conference. "While some mutual fund managers choose to make billions, Jack Bogle chose to make a difference." And I think that exemplifies more than anything, our guest today. Good morning Mr. Bogle, how are you today?

Bogle:
Rick, good morning, please call me Jack.

Ferri:
Thank you. I had the unique opportunity to review your upcoming book, Stay the Course, The Story of Vanguard and the Index Revolution. And we're going to be talking a lot about that book today. It's a great history of not only Vanguard but of your life as well. Highly recommend when it comes out in November that everyone read it because it's just extremely thorough and a great read for anyone who is interested in the history of Vanguard and in how you got to create this great company.

Let me read one of the quotes from the book, to get this started. And this is from Warren Buffet, the Oracle of Omaha, who at the 2000 annual shareholder meeting which you and you of your family member attended, said this to the audience of 40,000
"Jack Bogle has probably done more for the American investor than any man in the country. Jack, can you stand up?"

And then what happened Mr. Bogle, or Jack? What happened after that?

Bogle:
(laughing) Well, I'm a little embarrassed to say so. There was an explosion of applause, it seemed like everybody in the audience knew about me. And Warren had prefaced his remarks by saying their ought to be a statue for me. And there happens to be one here in Valley Forge, that's another point. But it was embarrassing, and exciting, and very uplifting.

Ferri:
Was that the first annual meeting you had been to?

Bogle:
Yes it is, first annual meeting of Berkshire.

Ferri:
But Mr. Buffet is not new to indexing. In fact, back in 1996 he wrote in his annual report for Berkshire Hathaway this quote: "Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results, after fees and expenses, delivered by a great majority of investment professionals". So he was not new to indexing, he's been a fan of yours for a long long tie.

Bogle:
Well that's 22 years ago Rick, and I think he was a great prophet. P-R-O-P-H-E-T, because the people that listened to him earned great profits, P-R-O-F-I-T.

Ferri:
There was a lot going on though in 1996 in your life, and also at Vanguard. The first time I ever heard you speak was in May of 1996. I was at the Atlanta CFA institute annual conference. And at that time I was a newly minted CFA for about a year and a half. And I was really having a difficult time with active management. I had done a lot of time analyzing the performance of active managers. It wasn't coming out the way I guess CFAs were expecting it to come out. I mean, if you're a CFA and you are picking stocks your suppose to outperform. That's sort of what the CFA institute was all about. Anyway, I'm listening to all the different speakers listing all the ways we could outperform and then you got up on stage. And I remember it quite clearly. You said this was the first public appearance you had made after having your heart transplant.

Bogle:
It was pretty exciting to be back on my feet again, Rick. My son, John Bogle Jr. was the moderator. There were two people, an active manager I think and me, and the moderator was my son John Bogle. That was pretty exciting. And if I can add a little family anecdote. My birthday took place on May 8th a few weeks later. And he gave me a present down there, we had a nice family dinner there. And he gave me a squash racquet. And my wife almost fainted. She didn't think I could ever get back on the squash court. But two weeks later I was back on the squash court. I don't do that any more, but I had a couple of decades or a decade of playing squash. And it's been quite remarkable and fun and productive I think, for me to be given an extra 21 years of life.

Ferri:
And hopefully many more.

Bogle:
I hope so, but the old body...the spirit is willing Rick, but the flesh is weak. (laughing)

Ferri:
But I can tell you the mind is still there, there is no doubt about that. Ok, so what happened is you got up there and started talking to all of these CFAs, who have all been trained that they can outperform the market if they work hard enough. And, you got up there and you started giving us the facts. It was pretty blunt and straightforward. And basically straight out of your book, the first book you wrote back in 1993 called Bogle on Mutual Funds, with probably a little more detail that was even in that book. And I was sitting there listening to this saying, I just went through this long CFA educational process where I'd been trained to believe that if I work hard I can beat the market and he's telling me that I can't. And that's exactly what I'm seeing in my data, as I analyze money managers and mutual funds. I've got to pick up a copy of his book and read this because there is probably something in it. And I did do that, by the way. I did it in October of 1996, so a few months later I bought the book. And I can remember very clearly when I had my epiphany, my big a-ha movement. It was at a "House of Horrors" event where my children were going through this House of Horrors right before Halloween. There was this fake chainsaw in the background and lot's of screaming and yelling. And I was sitting in the car waiting for them and I had the light on and I was reading this book. And I came to some passages in that book that just absolutely blew my mind. Because you said in that book absolutely what I was seeing in the data that I was analyzing on mutual funds. I mean, to the penny. And at that point I realized, I had an epiphany. I realized that I was not alone. That in fact, there was a lot of other people out there, like me, that just didn't believe, that knew something was wrong. And you were doing something about it. And that for me changed my life. And changed the direction I went in my career, and for that of course I greatly thank you. I just wanted to tell you that story. Seeing you that first time, after you had your "change of heart" as you called it, caused me to take a path that changed my life.


Bogle:
I appreciate that, Rick. I do my best and that book was an interesting book. I think it's fair to say that up until that time there was not a single book on mutual funds. Or a single book that looked at them from those various directions. Certainly that's true. And I was recommended as the writer by the head of the CFA to a nice young woman named Amy Hollins, who worked for Dow Jones Erwin publishing, a big publishing house of the day. And she came to me a couple of years earlier, and then again, and again and said everybody says I'm the only one that can do it. She was being flattering. We men like that when women flatter us. But I said look, I'm trying to run a business, my health is terrible, I just can't do it, I'd like to. But when she came in 1992, she'd come each autumn, and came in 1992 and I said I'd like to write the book. I'd like to write weekends so I don't disturb my business stuff. And I'm afraid that I may not live long enough to put it off any longer. Because I was having trouble with my heart since I was 30 years old, when I had my first heart attack. So I did it. It was a tremendous success, publication wise, and it said what I wanted to say. And I look at it once in a while and I'm pretty happy with that book.
Actually, Rick, to be candid, I'm not sure I've written another book that was that good.

Ferri:
Well I would say that book has had the biggest impact. You've written some other books that have had a big impact. But the shockwave that book sent through the industry, and outside the industry, was tremendous. Like I said, it changed lives. But 1996 was also a difficult year for you as well. Because, starting to get into your book a little bit, it was also a difficult year for Vanguard.

Bogle:
Yes it was.


Ferri:
That was the year you actually had to step down as CEO. And I have some questions about that. You were 65 years old at the time, and you had heart issues so you stepped down. There is a rumor out there, and I just want to clear it up whether it's true or not. Did you actually have something in the by-laws at Vanguard that said at 65 you HAD to retire...

Bogle:
(interrupting) Absolutely not.

Ferri:
Oh ok.

Bogle:
I did it for two reasons. First my health was extremely uncertain. Many many years before one doctor told me I would probably not live to 40. I've struggled with it all those years. In and out of hospitals, and whether in Boston or Philadelphia or Bryn Mawr Pennsylvania. And I thought I owed it to the shareholders that there was continuity of management. So that was the first thing I'm dealing with. And second, sometimes in this world we get older and we're not quite aware of it, and we overrate what we can do, and the aging process (although I didn't feel it personally) was very much in my mind. I thought it was time for the old guys to make room for the younger guys.

Ferri:
But by that time Vanguard was the second largest mutual fund company, behind Fidelity, at the time. So you had really grown the company. And you had also by that time introduced all of the basic broad market index funds. Everything from the Total Market, to a bond fund, I think the REIT fund was introduced in '96, the Total International Index Fund. So you had the portfolio of index fund in place, the framework was in place to bring that company forward. Isn't that right?

Bogle:
You are absolutely right. So you could say it was on my mind that I had put together the index basics for the entire enterprise in terms of centrality and acceptance, they were all there. So the die was cast, if you will. Those funds that you identify, 500, Total Bond Market, Total Stock Market, Total International, all those funds that I started are our largest funds today. Which is interesting Rick, and that is, we're talking over a decade ago, and we have had no innovation in any of those funds. They are the same as they were then.
Try and tell that to Steve Jobs, or the guys at Google, a company with no innovation in it's basic product line in what is now 12 year or 14 years (trails off...)

Ferri:
No, and I'll have to tell you something else I learned from you more recently than when I first had the epiphany and started converting all my business and such to indexing. Those core funds are all you need. As I get older, and I just turned 60 this year, my thinking has been shifting more and more to what you've been talking about. Even though I've been a follower of yours for what, almost 22 or 23 years and I made the switch that long ago, I am only now starting to see the true genius of what you've done (laughing).


Bogle:
Thank you (laughing)

Ferri:
As far as simple broad market index funds, bond market, maybe international, maybe some real estate. A simple index fund portfolio is all...you...really...NEED. Everything else is just icing on the cake or the flavor of the icing on the cake that probably cost you more money and in the end probably doesn't do any more for you.

Bogle:
(laughing) You made a good point. Staying the course, the name of the book, or Stay the Course is all about buying something that's solid, well diversified, and holding it forever. And to give the usual phrase I give that follows that "to enjoy the miracle of the compounding returns without it being eaten away by the tyranny of investment costs." If you want to think of anything, someone once said "all this poor guy Bogle's got going for him is an uncanny ability to recognize the obvious." And they say that's a criticism but I say that's a compliment.

Ferri:
Well you called this the "index revolution" in you book, and I think that's what is was. You also tried to coin another phrase, and I want to bring that out. You've been working on coining a phrase called "TIF" or "Traditional Index Funds". I want you to explain what you mean by that, relative to all other index funds.

Bogle:
Well I'm delighted to do that because I've tried it maybe 10 times in speeches and other appearances, and has yet to be adopted. I wanted to contrast ETFs with TIFs. Exchange Traded Funds, with Traditional Index Funds. The basic difference is traditional index funds are passive funds held by passive investors. And ETFs are passive funds held by active investors. And therein lies a world of difference. And what the statistical services do, is talk about ETFs and then mutual funds. So they mix in the other part of the equation, they mix index funds, traditional index funds, with actively managed funds. I mean they make absolutely no sense. I tried and wrote to all the leaders of these statistically things about a year ago and said here's what you have to do, here's what the data look like. And I didn't even get a single answer to my letter.

Ferri:
(shocked) They didn't answer you? Interesting.

Bogle: But I haven't given up hope. You know me.

Ferri:
Ok, I have a thought on this, I did read into this a little bit. When I first heard you say "Traditional Index Funds" my mind said the say, the Vanguard Total Market or the SP500, that tracks a market index and only tries to achieve the return of the market index. I didn't differentiate in my mind whether that was done in an index fund or an exchange traded fund. Because to me, it was the strategy of the fund itself, where you have traditional index funds, and then you have all of these "factor" funds, you know active management that's trying to make believe that it's an index for the purpose of confusing people. So that's what I thought when I first heard you talking about "TIF". I think that might be some of the confusion there.

Bogle:
Well I'm working on it. And I tried to explain it a little more fully, because it's not all a black and white thing. Try this one. There are a thousand ETFs that are concentrated in certain areas. Buy short, single country, and that and this. A thousand out of two thousand. This data is a little old. And 63% in diversified US stocks. In the traditional index area, there are 69 diversified index and only 140 trading funds. So, the distinction is quite clear and when you look at the data, over half of ETF assets are in factor funds or concentrated or speculative funds. Where only 10% of the assets, maybe 12% of such funds, the factors the betas the concentrated funds in those kinds of funds in traditional index fund forms. So it's not a clean break, but it's an obvious break. And I'm going to keep after TIFs until the day I die. So stand back world.

Ferri:
(laughing) Ok, we have been warned! Let's go ahead and continue to get into your book, Stay the Course, the Story of Vanguard and the Index Revolution. There are four parts to it. The History of Vanguard, the Vanguard funds themselves, which I found very interesting, then "Looking ahead" and "A concluding memoire".

Now here is something that you wrote, which I find interesting, and I think it might typify your association with the company Vanguard. You wrote in here that when you were writing this book, that you requested to review to the corporate minutes of the Vanguard mutual funds during the long period which you served as the chairman. But that was denied by Vanguard. You know, a lot of people still think that you run Vanguard in many ways.

Bogle:
I get letters from them every day.

Ferri:
From people? Who are asking you to fix things at Vanguard?

Bogle:
Exactly.

Ferri:
So maybe I can rephrase this to, what is your current relationship with Vanguard. How does it work?

Bogle:
Well, and to be candid, I don't have much of a relationship with Vanguard, because I'm OUT. I don't participate in the management, at all, I think that's appropriate, I'm not complaining about it. I get no information. If a shareholder writes me I have no access to their records. But that's FINE. Because I don't run the place anymore. I moved over to let other people run it, and they are running it. (in audible or cut) If they ever want my advice, they know they can get it at any time. But they think they know more, because they are in the business currently on a daily basis. I have no doubt they think they know more than I do. And they certainly know more than I do about the current moments in the business, cash flows and that nature. Although, I must say there is so much public information, that I'm still very much informed about those areas. But look, when you retire from, and I don't even want to use the word retire because I'm anything but retired. But when you leave position of chief executive, even if you are the founder of the firm and that's an important distinction, the new guys who want to take over should take over. And the old guys should move out of the way, because I think the founder is in a different position than a mere previous CEO. And it's certainly true, as you suggest, that I am still for better or worse the face of Vanguard to many many people, to many shareholders, the public the media and so on.

Ferri:
That's a great answer.

(Transcribed to 22:09 mark of audio file)
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Sat Oct 19, 2019 5:47 pm

Have you tried the voice typing tool in google docs? I haven't had occasion to use the tool myself, but it looks like a possible route to easier transcription could be to play the podcast (or listen to the podcast through headphones and repeat the words) to a google doc which would write the words for later editing. If it works well enough, maybe Rick could even have voice typing on during interviews to make a live rough transcription.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Sat Oct 19, 2019 5:49 pm

I will try voice typing later today and report back if its easy or not.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Sat Oct 19, 2019 5:53 pm

asset_chaos wrote:
Sat Oct 19, 2019 5:49 pm
I will try voice typing later today and report back if its easy or not.
I have done the equivalent with Dragon software, where I transcribed a recording of one of my lectures. The limiting factor is the jargon, acronyms, etc which don't transcribe accurately and need correcting. However, there is certainly a lot less typing. Good luck and thanks!
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by AerialWombat » Sat Oct 19, 2019 6:24 pm

I’d be happy to pay the $60 to have Rev.com professionally transcribe an episode. Are there others willing to do likewise for the other 13?
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Sat Oct 19, 2019 7:11 pm

AerialWombat wrote:
Sat Oct 19, 2019 6:24 pm
I’d be happy to pay the $60 to have Rev.com professionally transcribe an episode. Are there others willing to do likewise for the other 13?
yes. I would also contribute something to paying others to transcribe. In fact I almost posted as much. Or, one option, is to donate to the Bogle Center with instructions that they pay to transcribe the podcasts? For anyone itemizing, it would be like 50% off of the cost. :wink:
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Sun Oct 20, 2019 1:48 am

Voice typing only seems to work with google docs in a chrome browser. I played a podcast on one laptop and had google docs listen on a chromebook. That didn't work so well.

However, a little more digging finds that it's relatively easy to make a video from a podcast and a single image to upload to youtube. From there one can ask google's speech to text engine to generate closed captions for the video, which produces a transcript that can be opened and cut and pasted into a text editor. The podcast I tested was episode 5 with Gus Sauter, and the result is pretty good. There are a few niggling things like always writing solder for Sauter, but all in all I'd say the words are better than 95% faithfully reproduced without much effort and for free. The biggest area needing editing is that the generated transcript does not differentiate the two voices: it's a continuous line that will have to be manually separated where speaker A stops and speaker B starts.

As a byproduct, I think (but have not yet verified) a corrected transcript can be substituted on youtube for the auto generated transcript, producing a quality closed caption video version of the podcast, if that should be considered desirable by Rick and the Bogleheads advisory board. (And, if it were considered desirable, the Boglehead administration should set up a dedicated youtube channel.)

The private youtube video I made for the test is here. Click on the cc symbol at the bottom of the frame to turn on captions. Click on the three horizontal dots below the video next to the word save and choose open transcript to see the transcript.

I have to go out now, but I'll also pm Rick Ferri later tonight or tomorrow (I'm not in US time zone) to see what he's interested in doing. Since it requires an image to make the video, I'd prefer to use whatever branding image Rick wanted---just in case he does want to publish the closed caption videos---instead of the image I used.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Sun Oct 20, 2019 6:05 am

Wow, that google/youtube transcription is much better than i would have expected. It should be easier to clean up, e g. add punctuation, separate speakers, etc, than typing from scratch.

Maybe if we generate the text files, volunteers can then edit in 5 minute blocks. I'll volunteer to aggregate and harmonize to create a unified standalone transcript.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Sun Oct 20, 2019 7:58 am

asset_chaos wrote:
Sun Oct 20, 2019 1:48 am
The private youtube video I made for the test is here. Click on the cc symbol at the bottom of the frame to turn on captions. Click on the three horizontal dots below the video next to the word save and choose open transcript to see the transcript.
I uploaded podcast #1 to youtube (privately, only available with that link) but it doesn't seemed to have created the captions. Does it take long? Do I need to "force" it to do so? Was hoping to see how much time it would take me create the remaining 2/3 of the transcription when starting with most of the words in text form.

[Edit. It worked, it just took time. But editing the text, adding punctuation, separating speakers is a lot of work. Going through it now.]
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Sun Oct 20, 2019 6:37 pm

I went over the first 20 minutes or so of the episode 5 transcript. It took me about 30 minutes or so, mostly to check the video time marks to separate the speakers. I also fixed errors (but don't guarantee that I found and fixed all) in that time. Below is the 20 minutes with the time marks still in; in the following post I've taken out the time marks and formatted into a more readable paragraph form.
00:00 [Music]
00:09 Hello everyone and welcome to Bogleheads on Investing,
00:12 episode number five.
00:16 Today we have a special guest Gus
00:19 Sauter former chief investment officer
00:23 of the Vanguard group of mutual funds
00:26 [Music]
00:37 My name is Rick Ferri and I'm the host
00:40 of Bogleheads on Investing. This podcast
00:43 is brought to you by the John C Bogle
00:46 Center for financial literacy a 501 C 3
00:50 corporation. Today we have a special
00:53 guest gus Sauter former chief investment
00:57 officer and head of Vanguards indexing
01:00 and quantitative strategies as well as
01:03 the creator of Vanguard's
01:05 exchange-traded funds.
01:07 Let's welcome Gus Sauter. Gus welcome to
01:12 our show.
01:12 [Gus] Thank you Rick glad to be with you.
01:15 [Rick] Gus, you're a favorite among the Bogleheads
01:17 and you've got a really interesting
01:19 background about how you got started in
01:21 investing could you share with us some
01:24 of your earlier ventures into the
01:27 markets as far back as you can remember.
01:29 [Gus] Yeah, I guess I was always intrigued with
01:32 how money could make money for you. I
01:35 guess I used to travel to the bank with
01:38 my parents and watch them make deposits
01:40 and try to figure out what was going on
01:42 in the banking system. This is
01:43 before I was 10 years old and I was
01:46 really intrigued with the notion so I
01:47 actually started my own little bank
01:51 which probably violated hundreds of laws
01:54 but you know I basically collected
01:57 deposits and then invested that in the
01:59 bank and learned a little bit bit of
02:01 return and return that to the investors.
02:03 But it was really kind of my first foray
02:05 into kind of a world of investing if you
02:09 will and I was about, I'm going to say I
02:11 was about 10 years old, when I did that.
02:12 That really piqued my interest and when
02:15 I was 12 years old I had had a paper
02:17 route for a couple of years and made a
02:19 fair amount of money for a little kid
02:21 back in the 60s and had some money to
02:24 invest. My first stock was in a
02:27 local firm called Rough Industries they
02:31 made snowmobiles and actually went under
02:34 after a few years so I don't didn't make
02:36 much money on that. My second investment
02:38 I am proud to say I'm one of the
02:40 original owners of the Cleveland
02:41 Cavaliers so that they went public when
02:44 they first came out when they were first
02:46 formed and I invested in that stock I think it
02:50 was maybe 1969 so I was about 15 years
02:52 old at that point in time. But all of
02:54 this really led to my strong interest in
02:57 investing and led to my academic career
03:00 focusing on economics in finance.
03:04 [Rick] So your undergraduate was from Dartmouth College
03:06 and then right after that you went to
03:09 the University of Chicago for an MBA or
03:12 did you do something in between?
03:15 [Gus] I worked for a couple of years really jobs that
03:17 weren't really getting me towards my
03:19 ultimate goal. I'm graduated from college
03:22 in 1976 which was a tough job market and
03:25 so I kind of took what came along and
03:27 knew that I wanted to go back to
03:28 business school anyway so I worked for
03:30 two years and then they'd go back to the
03:32 University of Chicago.
03:35 [Rick] Back then say early 1970s when you were at the
03:37 University of Chicago was I mean was the
03:39 culture there like it is now where there
03:41 was a belief in the passive investing by
03:44 one side of the finance department and
03:46 then there was also you know belief in
03:48 active investing by the other side is it
03:50 as pronounced as it is today?
03:53 [Gus] It was not as pronounced back then. There was a
03:56 course in behavioral finance back then
03:59 wasn't widely taken but that was kind of
04:03 the initial seed towards a belief in
04:05 active as well I would say that the
04:07 belief in passive really dominated back
04:11 in the 70s at the University of Chicago.
04:14 Today it is more balanced. U Chicago
04:17 has a very large behavioral finance
04:20 group now, lives like Dick Thaler who
04:22 just recently won the Nobel Prize and so
04:25 it's more of a balance than it was back
04:27 then.
04:29 [Rick] After you graduated from the University of Chicago
04:31 what did you do after that?
04:32 [Gus] My initial job I ended up as a
04:35 commercial real estate developer working
04:37 for a national firm but relatively small
04:41 called LaSalle partners which is now
04:42 the LaSalle of Jones Lang LaSalle they
04:45 merged into Jones Lang. It was a great
04:48 firm with very high quality
04:50 professionals and I did enjoy it a lot. I
04:53 was on the analysis side on the
04:54 developments items in building buildings
04:57 and I was doing all the financial
04:58 analysis behind it.
05:00 this is in the Denver office transfer to
05:02 the Denver office and we built several
05:04 large buildings while I was out there
05:06 for a couple of years and then through a
05:08 friend of a friend I came across an
05:12 opportunity to pursue gold mines which
05:14 might save a lot it certainly doesn't
05:16 mean now so I had this opportunity to
05:18 put together a deal to create a gold
05:22 mine so I put a venture capital deal
05:24 together started the gold mine, it was
05:26 south of Las Vegas, our options on the
05:28 analysis side on the development side of
05:31 in building buildings and I was doing
05:33 all the financial analysis behind it and
05:36 this is in the Denver office I was
05:37 transferred as a Denver office and we
05:39 built the second slot at the time at
05:44 that point it became clear to me I
05:46 wanted to pursue a career in investing
05:48 and I had a good friend at the
05:50 University of Chicago who had gone
05:52 immediately to work with PIMCO and he
05:55 kept after me saying I've got to get
05:57 into the investment business he said I
05:58 would love it and so I finally did
06:00 pursue it in 1985 when the gold mine
06:03 went under.
06:05 [Rick] And is that when you interviewed with Vanguard?
06:08 [Gus] No actually I interviewed with PIMCO a couple of
06:10 times and I made the weird decision
06:13 that I wanted to return back to my home
06:16 state of Ohio. The unfortunate thing is
06:18 there are not many investment management
06:20 firms in Ohio but I did move back to
06:22 Ohio and worked for a couple of years in
06:24 a trust investment department and I was
06:27 fortunate in that the head of the trust
06:29 investment department wanted to
06:31 develop a quantitative investing program
06:33 and I was the only person in the group
06:36 that had quantitative investment skills
06:37 because I had focused on quantitative
06:39 finance at the University of Chicago and
06:41 so I basically got the opportunity to
06:44 build that program and it turned out I
06:47 ran into Jack Brennan who subsequently
06:50 became chairman and CEO of Vanguard many
06:53 years later ran into him at our tenth
06:56 reunion at Dartmouth, we were classmates,
06:59 he was asking what I was doing and I
07:01 told him about my work in the regional
07:04 bank and a couple of months later got a
07:06 call from Jeremy Duffield who ended up
07:09 hiring me into Vanguard
07:12 [Rick] And when you went to Vanguard to be hired did you
07:14 get a chance to meet with Jack Bogle?
07:16 [Gus] Yeah I actually interviewed with Jack I
07:19 went out on a Friday afternoon we were
07:22 going to meet Saturday morning and I was
07:23 going directly from an event at my
07:25 wife's employment and so I was wearing
07:29 tennis shoes or basket basketball shoes
07:32 and I had my good shoes in the back of
07:35 the car when she drove me to the airport
07:37 I left my good shoes in the back of the
07:39 car I ended up interviewing in
07:41 basketball shoes which was a little
07:45 nerve-wracking I still ended up getting
07:48 the job I guess Jack thought it was a
07:50 little amusing
07:53 [Rick] Well you were going to be doing a lot of running at Vanguard
07:54 anyway so I guess it was appropriate
07:55 [Gus] yeah good point
07:57 [Rick] So then you started at Vanguard and
08:00 your first job there was to create a
08:05 quantitative investing program at
08:08 Vanguard
08:11 [Gus] That's right yeah exactly. Vanguard had at that point one S&P 500
08:15 index funds the 500 index fund and a
08:19 couple of separate accounts and most of
08:22 the money was in the S&P 500 about a
08:25 billion, 1.2 billion I think to be exact
08:28 Jack wanted to expand the program
08:30 dramatically. His own son had gone into
08:33 active quantitative investing which is
08:35 what I had been doing at the bank and so
08:38 he wanted to build both the index side
08:41 and the active quant side. It turns out
08:44 that active quant and indexing use
08:46 many of the same techniques.
08:48 I think of indexing it's really passive
08:50 quant versus active quant and so I was
08:54 in charge of trying to build out that
08:55 entire program
08:58 [Rick] So Gus in 1987 when you joined Vanguard they had one index fund
09:01 and had less than a couple of billion
09:03 dollars in it and the focus was on
09:05 building out a quant shop and this was
09:08 Jack bogles decision so he was even at
09:10 that time looking at straddling both
09:13 sides of the fence then indexing really
09:16 began to expand and you must have been
09:19 given more and more direction to create
09:22 all these different new index funds
09:25 international fund
09:27 even the real estate fund and so forth.
09:29 So as you started out doing quant and
09:32 you were expanding that and then how did
09:34 you pick up the role of expanding
09:35 indexing as well?
09:39 [Gus] Yes, so you noted we had one index on and actually that was the
09:42 entirety of all of the internally
09:44 managed equity funds. As you know
09:46 Vanguard uses external advisors for
09:49 traditional active equity management and
09:51 we were trying to build out the internal
09:54 management both on the index side the
09:57 passive side and the active quant side
10:00 Jack wanted to build that out as as well
10:03 and the common thread is that they both
10:05 use very similar techniques active core
10:08 versus passive quant so initially the
10:12 one index fund, we follow that with a
10:14 small cap index fund that was in 1989
10:19 and then just kept expanding those
10:22 the offering over time as we gain
10:26 critical mass within the lineup and felt
10:30 the need to add to it we did launch
10:35 new funds as an example and I think in
10:37 1993 we launched total stock market and
10:40 that really is the fund that people
10:43 should most be focused on, it is the
10:45 total US market. I should say that
10:49 actually I started October 5th of 1987
10:53 and the crash happened two weeks later
10:56 October 19th of 1987. In the meantime
11:00 we were trying to develop the extended
11:02 market portfolio and we ultimately
11:04 launched that December 21st 1987, so I
11:07 was there for a total of two months, the
11:10 equity group consisted of one other
11:13 person and me and I was trying to manage
11:16 what was going on with the crash same
11:18 time developed the extended market
11:21 portfolio so there was a lot going on
11:24 managing money under fire and trying to
11:27 develop new funds. We kept rolling up
11:29 more and more funds over the years.
11:32 Indexing was not well accepted at the
11:34 time. I remember going to conference
11:36 after conference so these would be
11:38 retail oriented back in the 90s, trying
11:41 to talk about indexing and the typical
11:43 MO then was I'd be on a panel with one
11:46 other active manager and not
11:48 coincidentally that active manager would
11:49 be a very successful active manager and
11:52 I would be debating the merits of
11:53 indexing and that active manager would
11:55 be talking about how active management
11:57 is so easy and and so it was really a
12:01 tough slog back in the 90s so you know
12:05 it was kind of built brick by brick and
12:08 we kept offering new funds and our
12:10 competition was kind of putting down the
12:12 concept of indexing but it slowly did
12:16 take hold and I think there were several
12:18 reasons that ultimately indexing has
12:20 gotten to the point where it is today.
12:23 [Rick] Just before we get to the the growth
12:26 of the indexing site, how did the quant
12:27 side do during all of this? Were you able
12:29 to develop programs or strategies that
12:32 actually worked, did you find that they
12:36 worked for a while and then they didn't
12:37 work anymore?
12:40 [Gus] Yeah, so in 1989 a couple of years after I
12:43 arrived at Vanguard we actually did
12:45 start working on our active quant
12:48 program and quite honestly that was my
12:50 true love. Most managers want to try to
12:53 beat the market and prove that they have
12:55 some skill and I guess I was no
12:57 different from most other people in the
13:00 industry in that regard so it was very
13:02 intriguing to me to try to put
13:04 quantitative programs together. These
13:07 would be computer programs that would
13:08 actually pick stocks and then try to beat
13:11 various market indexes. We launched our
13:14 first fund I think our first portfolio I
13:17 think it was 1991 it was a portion of
13:20 Windsor - and we had some varying
13:24 success with that, by and large the
13:26 program was successful. We kept adding
13:28 more and more funds. We added a portion
13:30 of Morgan a portion of Explorer and the
13:33 strategic equity fund,
13:35 I think strategic equity was 1994 and so
13:39 we kept growing the quant side along
13:41 side of the index group and we had
13:44 reasonable success. Like any active
13:46 manager we'd have periods where we do
13:49 pretty well and periods where we
13:51 experienced a lot of difficulties.
13:54 Over a longer time period we were
13:56 successful at adding some incremental
13:59 value above and beyond a benchmark
14:02 return and that program continues to
14:04 this day and it is in the tens of
14:07 billions of dollars, which pales in
14:10 comparison to indexing but it's fairly
14:14 large for an active plant shop and so I
14:17 would say that it was ultimately a
14:19 successful program, but then again with
14:22 measured success I mean it's just like
14:24 any active manager it's a very difficult
14:26 game to the extent you can outperform
14:29 market benchmarks you're doing fairly
14:30 well.
14:33 [Rick] So can I drill down into something that you often hear
14:35 about out in the public and advisers say this all the
14:38 time. It's like I'm gonna go out and
14:39 index the easy stuff the big stuff the
14:42 stuff that it's hard to find value
14:44 so I'm going to use index funds for US
14:46 large cap, but there is opportunity in
14:49 US small cap because companies are not
14:52 followed as closely, on and on a lot of
14:55 different reasons. In your experience is
14:57 that true, that there are more
15:00 opportunities to outperform for managers
15:04 in say small cap than large cap?
15:08 [Gus] well it really isn't true? I understand that
15:11 their their arguments really go back
15:13 to the beginning of Modern Portfolio
15:15 theory back in the 60s and 70s and is
15:19 refuting the efficient market hypothesis
15:22 that was developed by a number of academicians
15:24 so primarily Gene Fama who
15:26 won the Nobel Prize for his work and
15:30 most active managers say well the
15:32 markets are not efficient and therefore
15:34 you can add value and they say well
15:35 maybe they're efficient in the large cap
15:37 segment of the market but they're not
15:38 efficient in international markets,
15:40 particularly emerging markets, or small
15:41 cap segments of the US markets. If the
15:45 markets were efficient, perfectly
15:47 efficient, then clearly the only thing
15:49 you should do would be to index.
15:50 Personally I believe markets are not
15:53 perfectly efficient I think they're
15:54 reasonably efficient, and they are
15:56 getting more efficient, so there might be
15:58 some opportunities to add value. The
16:01 interesting thing to me is that my
16:04 belief and Vanguard's belief I believe
16:07 is
16:08 about indexing is not based on the
16:10 efficient market hypothesis it's based
16:12 on what's become known as Sharpe math,
16:16 Bill Sharpe talked in the early 90s
16:19 about the math behind indexing and it's
16:22 a really simple concept that in
16:23 aggregate investors collectively, all
16:26 investors, own the markets. So what rate
16:30 of return can investors possibly get and
16:32 that's the market rate of return because
16:34 collectively they own the market. You
16:36 might guess that some investors could do
16:38 better than the market but it would
16:39 necessarily mean that others would have
16:40 to underperform the market.
16:42 Unfortunately investors do have costs of
16:45 getting the market rate of return so
16:46 collectively they don't get the market
16:48 rate of return, they get something less
16:50 than the market rate of return and
16:51 it's significantly less. It's
16:53 about 1% less. That's roughly the range
16:55 of costs and and arguably even greater
16:58 than that. So somebody who outperforms a
17:01 little bit before costs ends up
17:04 underperforming after costs, and it means
17:05 a majority of investors will
17:08 underperform a market benchmark. And that
17:10 argument does not apply to the S&P 500, it
17:13 does not apply to large stocks in the
17:15 US, it applies to the market, all of the
17:18 market. So whether you're talking small
17:20 cap stocks in the US or emerging markets
17:23 or other international markets that
17:26 simple concept
17:27 Sharpe's math still applies. And in fact
17:31 we see that the data supports that if
17:33 you look at the performance of active
17:35 managers in emerging markets relative to
17:37 an emerging markets benchmark, the
17:39 majority will underperform. The same is
17:42 true when you look at small cap segments
17:44 within the US whether it's small cap
17:46 value, small cap blend, or small cap
17:48 growth, the small cap managers have a
17:50 very difficult time beating the small
17:53 cap segment of the market. So while some
17:56 can in aggregate they can't and don't
17:59 and haven't.
18:00 So if active managers before fees have
18:04 some skill and can outperform for
18:06 whatever reason whether quantitative or
18:08 going out and meeting with companies
18:10 and picking stocks or whatever the
18:12 reason they actually do outperform
18:13 before fee, on average they underperform
18:18 net of fees,
18:21 then why wouldn't we just go out if
18:23 we're going to look for active managers
18:25 and just hire the active managers who
18:28 have the absolute rock bottom lowest
18:30 cost?
18:33 [Rick] Well I think it's a great point.
18:36 [Gus] In fact that is one that we argue that at Vanguard
18:38 endurance still supports that today. That really while people think of
18:42 Vanguard is an index shop and many
18:44 people think that's all Vanguard does,
18:46 we thought of ourselves as low-cost
18:49 investors, you know trying to provide
18:51 low-cost investing to all of the
18:54 investors in our funds, and whether it
18:56 was index funds or active funds, as
18:59 mentioned in the Bill Sharpe math,
19:01 the handicap that active management has
19:04 is costs, and so it's very important to
19:08 keep those costs as low as possible in
19:11 order not to handicap your active
19:13 managers. You can take a great active
19:15 manager and make them a bad active
19:17 manager by overcharging for this. And so
19:20 so you should focus on low cost funds,
19:24 and in fact there's been many many
19:26 studies, Morningstar has done them
19:27 academics have done them,
19:31 that showed that the best predictor of
19:33 future relative performance is cost. So in
19:36 other words the lowest cost funds will
19:39 outperform the highest cost funds on
19:41 average and so you should definitely be
19:44 focusing on that segment of the market
19:46 instead of going after active management - or
19:50 index funds as well - there are high cost
19:52 index funds which make absolutely no
19:53 sense but I would also point out that
19:56 you know even though you go to a low
19:58 cost manager they have to have skill in
20:01 addition to just being low cost. I mean
20:03 not low cost isn't the only recipe, you
20:06 need skill as well because they have to
20:11 be able to take advantage of other
20:12 investors, and it turns out that, you
20:15 know, if you're going to outperform,
20:16 somebody else has to underperform by
20:20 definition if in aggregate everybody
20:22 gets the market rate of return before
20:24 cost. You're proposing that there's a
20:27 greater fool out there that you're going
20:29 to be able to take advantage of, and I
20:32 think that people used to say well the
20:34 retail investors
20:35 are the greater fool those who were
20:37 investing their own money without the
20:38 use of professionals, and it turns out
20:41 that if you go back to the seventies
20:42 there were a lot of retail investors a
20:44 large portion of the US marketplace
20:46 was dominated by retail investors. Today
20:49 that's not the case. Today it's really
20:52 dominated by institutional investors.
20:54 It's a very very difficult game today
20:56 because it's hard to find the greater
20:58 fool out there today
Regards, | | Guy

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asset_chaos
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Sun Oct 20, 2019 6:39 pm

And in paragraph form:
[Music]

Hello everyone and welcome to Bogleheads on Investing, episode number
five. Today we have a special guest Gus Sauter former chief
investment officer of the Vanguard group of mutual funds

[Music]

My name is Rick Ferri and I'm the host of Bogleheads on Investing.
This podcast is brought to you by the John C Bogle Center for
financial literacy a 501 C 3 corporation. Today we have a special
guest gus Sauter former chief investment officer and head of Vanguards
indexing and quantitative strategies as well as the creator of
Vanguard's exchange-traded funds. Let's welcome Gus Sauter. Gus
welcome to our show.

[Gus] Thank you Rick glad to be with you.

[Rick] Gus, you're a favorite among the Bogleheads and you've got a
really interesting background about how you got started in investing
could you share with us some of your earlier ventures into the markets
as far back as you can remember.

[Gus] Yeah, I guess I was always intrigued with how money could make
money for you. I guess I used to travel to the bank with my parents
and watch them make deposits and try to figure out what was going on
in the banking system. This is before I was 10 years old and I was
really intrigued with the notion so I actually started my own little
bank which probably violated hundreds of laws but you know I basically
collected deposits and then invested that in the bank and learned a
little bit bit of return and return that to the investors. But it was
really kind of my first foray into kind of a world of investing if you
will and I was about, I'm going to say I was about 10 years old, when
I did that. That really piqued my interest and when I was 12 years
old I had had a paper route for a couple of years and made a fair
amount of money for a little kid back in the 60s and had some money to
invest. My first stock was in a local firm called Rough Industries
they made snowmobiles and actually went under after a few years so I
don't didn't make much money on that. My second investment I am proud
to say I'm one of the original owners of the Cleveland Cavaliers so
that they went public when they first came out when they were first
formed and I invested in that stock I think it was maybe 1969 so I was
about 15 years old at that point in time. But all of this really led
to my strong interest in investing and led to my academic career
focusing on economics in finance.

[Rick] So your undergraduate was from Dartmouth College and then right
after that you went to the University of Chicago for an MBA or did you
do something in between?

[Gus] I worked for a couple of years really jobs that weren't really
getting me towards my ultimate goal. I'm graduated from college in
1976 which was a tough job market and so I kind of took what came
along and knew that I wanted to go back to business school anyway so I
worked for two years and then they'd go back to the University of
Chicago.

[Rick] Back then say early 1970s when you were at the University of
Chicago was I mean was the culture there like it is now where there
was a belief in the passive investing by one side of the finance
department and then there was also you know belief in active investing
by the other side is it as pronounced as it is today?

[Gus] It was not as pronounced back then. There was a course in
behavioral finance back then wasn't widely taken but that was kind of
the initial seed towards a belief in active as well I would say that
the belief in passive really dominated back in the 70s at the
University of Chicago. Today it is more balanced. U Chicago has a
very large behavioral finance group now, lives like Dick Thaler who
just recently won the Nobel Prize and so it's more of a balance than
it was back then.

[Rick] After you graduated from the University of Chicago what did you
do after that?

[Gus] My initial job I ended up as a commercial real estate developer
working for a national firm but relatively small called LaSalle
partners which is now the LaSalle of Jones Lang LaSalle they merged
into Jones Lang. It was a great firm with very high quality
professionals and I did enjoy it a lot. I was on the analysis side on
the developments items in building buildings and I was doing all the
financial analysis behind it. this is in the Denver office transfer
to the Denver office and we built several large buildings while I was
out there for a couple of years and then through a friend of a friend
I came across an opportunity to pursue gold mines which might save a
lot it certainly doesn't mean now so I had this opportunity to put
together a deal to create a gold mine so I put a venture capital deal
together started the gold mine, it was south of Las Vegas, our options
on the analysis side on the development side of in building buildings
and I was doing all the financial analysis behind it and this is in
the Denver office I was transferred as a Denver office and we built
the second slot at the time at that point it became clear to me I
wanted to pursue a career in investing and I had a good friend at the
University of Chicago who had gone immediately to work with PIMCO and
he kept after me saying I've got to get into the investment business
he said I would love it and so I finally did pursue it in 1985 when
the gold mine went under.

[Rick] And is that when you interviewed with Vanguard?

[Gus] No actually I interviewed with PIMCO a couple of times and I
made the weird decision that I wanted to return back to my home state
of Ohio. The unfortunate thing is there are not many investment
management firms in Ohio but I did move back to Ohio and worked for a
couple of years in a trust investment department and I was fortunate
in that the head of the trust investment department wanted to develop
a quantitative investing program and I was the only person in the
group that had quantitative investment skills because I had focused on
quantitative finance at the University of Chicago and so I basically
got the opportunity to build that program and it turned out I ran into
Jack Brennan who subsequently became chairman and CEO of Vanguard many
years later ran into him at our tenth reunion at Dartmouth, we were
classmates, he was asking what I was doing and I told him about my
work in the regional bank and a couple of months later got a call from
Jeremy Duffield who ended up hiring me into Vanguard

[Rick] And when you went to Vanguard to be hired did you get a chance
to meet with Jack Bogle?

[Gus] Yeah I actually interviewed with Jack I went out on a Friday
afternoon we were going to meet Saturday morning and I was going
directly from an event at my wife's employment and so I was wearing
tennis shoes or basket basketball shoes and I had my good shoes in the
back of the car when she drove me to the airport I left my good shoes
in the back of the car I ended up interviewing in basketball shoes
which was a little nerve-wracking I still ended up getting the job I
guess Jack thought it was a little amusing

[Rick] Well you were going to be doing a lot of running at Vanguard
anyway so I guess it was appropriate

[Gus] yeah good point

[Rick] So then you started at Vanguard and your first job there was to
create a quantitative investing program at Vanguard

[Gus] That's right yeah exactly. Vanguard had at that point one S&P
500 index funds the 500 index fund and a couple of separate accounts
and most of the money was in the S&P 500 about a billion, 1.2 billion
I think to be exact Jack wanted to expand the program dramatically.
His own son had gone into active quantitative investing which is what
I had been doing at the bank and so he wanted to build both the index
side and the active quant side. It turns out that active quant and
indexing use many of the same techniques. I think of indexing it's
really passive quant versus active quant and so I was in charge of
trying to build out that entire program

[Rick] So Gus in 1987 when you joined Vanguard they had one index fund
and had less than a couple of billion dollars in it and the focus was
on building out a quant shop and this was Jack bogles decision so he
was even at that time looking at straddling both sides of the fence
then indexing really began to expand and you must have been given more
and more direction to create all these different new index funds
international fund even the real estate fund and so forth. So as you
started out doing quant and you were expanding that and then how did
you pick up the role of expanding indexing as well?

[Gus] Yes, so you noted we had one index on and actually that was the
entirety of all of the internally managed equity funds. As you know
Vanguard uses external advisors for traditional active equity
management and we were trying to build out the internal management
both on the index side the passive side and the active quant side Jack
wanted to build that out as as well and the common thread is that they
both use very similar techniques active core versus passive quant so
initially the one index fund, we follow that with a small cap index
fund that was in 1989 and then just kept expanding those the offering
over time as we gain critical mass within the lineup and felt the need
to add to it we did launch new funds as an example and I think in 1993
we launched total stock market and that really is the fund that people
should most be focused on, it is the total US market. I should say
that actually I started October 5th of 1987 and the crash happened two
weeks later October 19th of 1987. In the meantime we were trying to
develop the extended market portfolio and we ultimately launched that
December 21st 1987, so I was there for a total of two months, the
equity group consisted of one other person and me and I was trying to
manage what was going on with the crash same time developed the
extended market portfolio so there was a lot going on managing money
under fire and trying to develop new funds. We kept rolling up more
and more funds over the years. Indexing was not well accepted at the
time. I remember going to conference after conference so these would
be retail oriented back in the 90s, trying to talk about indexing and
the typical MO then was I'd be on a panel with one other active
manager and not coincidentally that active manager would be a very
successful active manager and I would be debating the merits of
indexing and that active manager would be talking about how active
management is so easy and and so it was really a tough slog back in
the 90s so you know it was kind of built brick by brick and we kept
offering new funds and our competition was kind of putting down the
concept of indexing but it slowly did take hold and I think there were
several reasons that ultimately indexing has gotten to the point where
it is today.

[Rick] Just before we get to the the growth of the indexing site, how
did the quant side do during all of this? Were you able to develop
programs or strategies that actually worked, did you find that they
worked for a while and then they didn't work anymore?

[Gus] Yeah, so in 1989 a couple of years after I arrived at Vanguard
we actually did start working on our active quant program and quite
honestly that was my true love. Most managers want to try to beat the
market and prove that they have some skill and I guess I was no
different from most other people in the industry in that regard so it
was very intriguing to me to try to put quantitative programs
together. These would be computer programs that would actually pick
stocks and then try to beat various market indexes. We launched our
first fund I think our first portfolio I think it was 1991 it was a
portion of Windsor - and we had some varying success with that, by and
large the program was successful. We kept adding more and more funds.
We added a portion of Morgan a portion of Explorer and the strategic
equity fund, I think strategic equity was 1994 and so we kept growing
the quant side along side of the index group and we had reasonable
success. Like any active manager we'd have periods where we do pretty
well and periods where we experienced a lot of difficulties. Over a
longer time period we were successful at adding some incremental value
above and beyond a benchmark return and that program continues to this
day and it is in the tens of billions of dollars, which pales in
comparison to indexing but it's fairly large for an active plant shop
and so I would say that it was ultimately a successful program, but
then again with measured success I mean it's just like any active
manager it's a very difficult game to the extent you can outperform
market benchmarks you're doing fairly well.

[Rick] So can I drill down into something that you often hear about
out in the public and advisers say this all the time. It's like I'm
gonna go out and index the easy stuff the big stuff the stuff that
it's hard to find value so I'm going to use index funds for US large
cap, but there is opportunity in US small cap because companies are
not followed as closely, on and on a lot of different reasons. In
your experience is that true, that there are more opportunities to
outperform for managers in say small cap than large cap?

[Gus] Well it really isn't true? I understand that their their
arguments really go back to the beginning of Modern Portfolio theory
back in the 60s and 70s and is refuting the efficient market
hypothesis that was developed by a number of academicians so primarily
Gene Fama who won the Nobel Prize for his work and most active
managers say well the markets are not efficient and therefore you can
add value and they say well maybe they're efficient in the large cap
segment of the market but they're not efficient in international
markets, particularly emerging markets, or small cap segments of the
US markets. If the markets were efficient, perfectly efficient, then
clearly the only thing you should do would be to index. Personally I
believe markets are not perfectly efficient I think they're reasonably
efficient, and they are getting more efficient, so there might be some
opportunities to add value. The interesting thing to me is that my
belief and Vanguard's belief I believe is about indexing is not based
on the efficient market hypothesis it's based on what's become known
as Sharpe math, Bill Sharpe talked in the early 90s about the math
behind indexing and it's a really simple concept that in aggregate
investors collectively, all investors, own the markets. So what rate
of return can investors possibly get and that's the market rate of
return because collectively they own the market. You might guess that
some investors could do better than the market but it would
necessarily mean that others would have to underperform the market.
Unfortunately investors do have costs of getting the market rate of
return so collectively they don't get the market rate of return, they
get something less than the market rate of return and it's
significantly less. It's about 1% less. That's roughly the range of
costs and and arguably even greater than that. So somebody who
outperforms a little bit before costs ends up underperforming after
costs, and it means a majority of investors will underperform a market
benchmark. And that argument does not apply to the S&P 500, it does
not apply to large stocks in the US, it applies to the market, all of
the market. So whether you're talking small cap stocks in the US or
emerging markets or other international markets that simple concept
Sharpe's math still applies. And in fact we see that the data
supports that if you look at the performance of active managers in
emerging markets relative to an emerging markets benchmark, the
majority will underperform. The same is true when you look at small
cap segments within the US whether it's small cap value, small cap
blend, or small cap growth, the small cap managers have a very
difficult time beating the small cap segment of the market. So while
some can in aggregate they can't and don't and haven't. So if active
managers before fees have some skill and can outperform for whatever
reason whether quantitative or going out and meeting with companies
and picking stocks or whatever the reason they actually do outperform
before fee, on average they underperform net of fees, then why
wouldn't we just go out if we're going to look for active managers and
just hire the active managers who have the absolute rock bottom lowest
cost?

[Rick] Well I think it's a great point.

[Gus] In fact that is one that we argue that at Vanguard endurance
still supports that today. That really while people think of Vanguard
is an index shop and many people think that's all Vanguard does, we
thought of ourselves as low-cost investors, you know trying to provide
low-cost investing to all of the investors in our funds, and whether
it was index funds or active funds, as mentioned in the Bill Sharpe
math, the handicap that active management has is costs, and so it's
very important to keep those costs as low as possible in order not to
handicap your active managers. You can take a great active manager and
make them a bad active manager by overcharging for this. And so so
you should focus on low cost funds, and in fact there's been many many
studies, Morningstar has done them academics have done them, that
showed that the best predictor of future relative performance is cost.
So in other words the lowest cost funds will outperform the highest
cost funds on average and so you should definitely be focusing on that
segment of the market instead of going after active management - or
index funds as well - there are high cost index funds which make
absolutely no sense but I would also point out that you know even
though you go to a low cost manager they have to have skill in
addition to just being low cost. I mean not low cost isn't the only
recipe, you need skill as well because they have to be able to take
advantage of other investors, and it turns out that, you know, if
you're going to outperform, somebody else has to underperform by
definition if in aggregate everybody gets the market rate of return
before cost. You're proposing that there's a greater fool out there
that you're going to be able to take advantage of, and I think that
people used to say well the retail investors are the greater fool
those who were investing their own money without the use of
professionals, and it turns out that if you go back to the seventies
there were a lot of retail investors a large portion of the US
marketplace was dominated by retail investors. Today that's not the
case. Today it's really dominated by institutional investors. It's a
very very difficult game today because it's hard to find the greater
fool out there today
Regards, | | Guy

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Sun Oct 20, 2019 6:53 pm

neurosphere wrote:
Sun Oct 20, 2019 7:58 am
asset_chaos wrote:
Sun Oct 20, 2019 1:48 am
The private youtube video I made for the test is here. Click on the cc symbol at the bottom of the frame to turn on captions. Click on the three horizontal dots below the video next to the word save and choose open transcript to see the transcript.
I uploaded podcast #1 to youtube (privately, only available with that link) but it doesn't seemed to have created the captions. Does it take long? Do I need to "force" it to do so? Was hoping to see how much time it would take me create the remaining 2/3 of the transcription when starting with most of the words in text form.

[Edit. It worked, it just took time. But editing the text, adding punctuation, separating speakers is a lot of work. Going through it now.]
It's private enough that youtube won't show it to me. As you've discovered, transcript generation can take a long time. I think it's some combination of how complex the speech is and how busy the engine is. Mine took between 10 minutes and 4 hours because I checked after 10 minutes then left and didn't check again until 4 hours had passed. I don't think you need to force it, but I did go into the youtube editor and set the language manually to English.

As you can see from what I posted above, it does take longer than the podcast to edit the transcript. But instead of taking 3 hours to get through a third of the text, it's now more like 30 minutes to get through a third.

I've sent a PM to Rick Ferri, so he can say what he wants to do. Once I've heard from Rick, you're working on the first podcast, my plan is to start extracting the automatically generated transcripts for all the other podcasts. Then they'll be there (where exactly? maybe in the wiki!) for people to polish until they're good enough to publish.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Mon Oct 21, 2019 9:55 pm

I uploaded all 14 episodes as youtube videos and overnight the AI extracted the transcripts (except for episode 9; something happened and it's done nothing so far). I've saved those off as text files. I'm busy the rest of today, so won't be able to do any more till tomorrow. The question is where to put the files so that editing volunteers can work on them?

I also tested reloading a corrected transcript to the videos, and it turns out youtube does something quite neat with that. It takes no special format (I could remove the time stamps from the transcripts, but I think it might be helpful to editors to leave them until the final edit in order tomove easily to a point in the sound file that needs clarification). Just upload a finished transcript, and the youtube AI automatically syncs up the sound and the captions it makes from the transcript.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Tue Oct 22, 2019 6:47 am

asset_chaos wrote:
Mon Oct 21, 2019 9:55 pm
I uploaded all 14 episodes as youtube videos and overnight the AI extracted the transcripts (except for episode 9; something happened and it's done nothing so far). I've saved those off as text files. I'm busy the rest of today, so won't be able to do any more till tomorrow. The question is where to put the files so that editing volunteers can work on them?

I also tested reloading a corrected transcript to the videos, and it turns out youtube does something quite neat with that. It takes no special format (I could remove the time stamps from the transcripts, but I think it might be helpful to editors to leave them until the final edit in order tomove easily to a point in the sound file that needs clarification). Just upload a finished transcript, and the youtube AI automatically syncs up the sound and the captions it makes from the transcript.
Great!

Perhaps we can put the unedited text on Google Drive?

I've put up the fully completed transcripts of Episodes 1 and 12, which can be downloaded here. Which can be used as a template/model regarding format. I/we can put up the raw text you have from the other episodes. We'll just need a way to ensure people don't duplicate work. Perhaps another file for volunteers, where they can "check out" a portion of an episode by stating their intent to complete a portion of a podcast. For example:

Code: Select all

Episode #2
0-5 mins: neurosphere
5-10 mins: (open)
10-15 mins: asset_chaos

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by Barry Barnitz » Tue Nov 05, 2019 5:23 pm

Hi:

Are there any more transcripts ready for editing?
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Tue Nov 05, 2019 6:01 pm

Barry Barnitz wrote:
Tue Nov 05, 2019 5:23 pm
Hi:

Are there any more transcripts ready for editing?
Depending on what you mean by "ready for editing"....

Machine transcriptions are here: https://drive.google.com/drive/folders/ ... sp=sharing, in the "raw" folder.

In a perfect world, someone would listen to a segment podcast and correct/edit the machine-transcription. I found a ton of inaccuracies in several machine ones which altered the meaning. But, sometimes good enough is good enough. :D
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by Barry Barnitz » Tue Nov 05, 2019 6:27 pm

Hi:

I do not have audio. Thus I need written text.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Tue Nov 05, 2019 6:32 pm

Barry Barnitz wrote:
Tue Nov 05, 2019 6:27 pm
Hi:

I do not have audio. Thus I need written text.
wondering what you think the most efficient approach is. E.g. 1) machine translation, then 2) clean up and format by a human without audio based on machine text (which it seems you are willing to do), followed by 3) human with audio for final edit?

I still think we can solicit volunteers from bogleheads for #3. If no one volunteers, we skip #3. :D

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by pondering » Tue Nov 05, 2019 8:26 pm

Has anyone tried otter.ai to do this?
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by Barry Barnitz » Tue Nov 05, 2019 8:41 pm

Hi:

I was able to copy a very raw version of Episode 002 with Dr. David Blitzer into google docs. I transcribed (without audio) roughly the first five minutes, with two vacant patches, where I could not make a coherent assessment. I put in punctuation and paragraphing, which should make reading and verifying this segment easier.

Neurosphere, I sent you an invite to share the document.

regards,
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Wed Nov 06, 2019 1:18 am

neurosphere wrote:
Tue Nov 05, 2019 6:32 pm
Barry Barnitz wrote:
Tue Nov 05, 2019 6:27 pm
Hi:

I do not have audio. Thus I need written text.
wondering what you think the most efficient approach is. E.g. 1) machine translation, then 2) clean up and format by a human without audio based on machine text (which it seems you are willing to do), followed by 3) human with audio for final edit?

I still think we can solicit volunteers from bogleheads for #3. If no one volunteers, we skip #3. :D
I think ideally the order needs to be 1, 3, 2. At least when I corrected the auto transcription of episode 5, there were several transitions between speakers that I would have gotten wrong if not hearing the voices change. And plenty of small parts where entire phrases were not right and only correctable by hearing what was said.

I think soliciting volunteers from the community should be tried. But it will be a substantial effort to clear the backlog. What's the right protocol for getting volunteers?
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Wed Nov 06, 2019 1:26 am

pondering wrote:
Tue Nov 05, 2019 8:26 pm
Has anyone tried otter.ai to do this?
To my knowledge, no one. As I see there's a free 600 minutes of transcription per month, and since the podcasts are all around 60 minutes, otter may be a viable option, particularly if it does better than google/youtube.

Pondering, do you have an otter.ai account? If so, can you try otter on episode 9? For reasons unknown the google/youtube method has been unable to extract a transcript for episode 9.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by pondering » Wed Nov 06, 2019 9:23 am

asset_chaos wrote:
Wed Nov 06, 2019 1:26 am
pondering wrote:
Tue Nov 05, 2019 8:26 pm
Has anyone tried otter.ai to do this?
To my knowledge, no one. As I see there's a free 600 minutes of transcription per month, and since the podcasts are all around 60 minutes, otter may be a viable option, particularly if it does better than google/youtube.

Pondering, do you have an otter.ai account? If so, can you try otter on episode 9? For reasons unknown the google/youtube method has been unable to extract a transcript for episode 9.
I have an account. Who do I need permission from to do this?
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Wed Nov 06, 2019 9:57 am

pondering wrote:
Wed Nov 06, 2019 9:23 am
asset_chaos wrote:
Wed Nov 06, 2019 1:26 am
pondering wrote:
Tue Nov 05, 2019 8:26 pm
Has anyone tried otter.ai to do this?
To my knowledge, no one. As I see there's a free 600 minutes of transcription per month, and since the podcasts are all around 60 minutes, otter may be a viable option, particularly if it does better than google/youtube.

Pondering, do you have an otter.ai account? If so, can you try otter on episode 9? For reasons unknown the google/youtube method has been unable to extract a transcript for episode 9.
I have an account. Who do I need permission from to do this?
No "permission" needed! Just "do it".

Barry, asset_chaos, should we start a dedicated volunteer thread for this project, so that the title reflects the thread discussion?

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by Barry Barnitz » Wed Nov 06, 2019 11:41 am

Hi:

A dedicated thread is probably a good idea, or a moderator/administrator might revise the title of this thread.

I think I have the first couple of minutes of Episode 2 transcribed accurately. If you all will check this out, I can go ahead and copy this into the Bogle Center page (all fourteen of the podcasts have published pages set up for the transcripts; unfinished pages are "private" so are not visible to the public).

Here is the opening of Episode 2:
Rick Ferri: Welcome everyone to the Bogleheads on Investing Podcast, episode
number two. In this episode we have a special guest, Dr. David
Blitzer, managing director and chairman of the index committee at S&P/Dow Jones indices.

[Music]

Rick Ferri: My name is Rick Ferri and I'm the host of Bogleheads on Investing, a
podcast made available by the John C. Bogle Center for Financial
Literacy, a 501(c)(3) corporation.

In this episode we're talking with David Blitzer, managing director and
chairman of the index committee at S&P/ Dow Jones indices, who has the
overall responsibility for index security selection, as well as index
analysis and management.

Before Dr. Blitzer became the chairman of the index committee he was
Standard & Poor's chief economist. Dr. Blitzer can discuss many
things with us about the Dow Jones Industrial Average and the S&P,
which he is the head of the committee. But there's one thing he cannot
discuss. He cannot tell us is which stocks they are going to be
selecting next for those indexes, which are highly confidential until
the day that they're announced.

However, today we are going to be talking a lot about the methodology
behind the selection of various stocks that go in and out of the Dow Jones
Industrial Average and the S&P 500, as well as many other indexes.
In addition, we'll talk about how the world has changed because of indexing.
It's no longer just a benchmark--it's now an investment strategy--and that has
changed the entire indexing industry.

Finally, we'll talk about how active managers are having a very difficult time
beating indexes, not only in the United States but globally, and how that is expanding
the use of indexing and index products.

Let's get to our podcast. With no further ado let me introduce Dr. David Blitzer of S&P/ Dow Jones indices.
Good morning Dr. Blitzer.

Dr. Blitzer: Good morning. You can call me David, and it's a pleasure to be here.

Rick Ferri: OK, Thank you David. Well you have a lot of responsibilities. How many indexes are
you following at S&P/Dow Jones?
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Wed Nov 06, 2019 12:03 pm

Barry Barnitz wrote:
Wed Nov 06, 2019 11:41 am
I think I have the first couple of minutes of Episode 2 transcribed accurately.
I just verified that the written text you pasted matches the spoken words without any errors.

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Wed Nov 06, 2019 12:24 pm

I created a new thread for this effort: viewtopic.php?f=10&t=294338&p=4826415#p4826415

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Wed Nov 06, 2019 2:53 pm

Barry Barnitz wrote:
Wed Nov 06, 2019 11:41 am
Hi:

A dedicated thread is probably a good idea, or a moderator/administrator might revise the title of this thread.

I think I have the first couple of minutes of Episode 2 transcribed accurately. If you all will check this out, I can go ahead and copy this into the Bogle Center page (all fourteen of the podcasts have published pages set up for the transcripts; unfinished pages are "private" so are not visible to the public).

Here is the opening of Episode 2:
Rick Ferri: Welcome everyone to the Bogleheads on Investing Podcast, episode
number two. In this episode we have a special guest, Dr. David
Blitzer, managing director and chairman of the index committee at S&P/Dow Jones indices.

[Music]

Rick Ferri: My name is Rick Ferri and I'm the host of Bogleheads on Investing, a
podcast made available by the John C. Bogle Center for Financial
Literacy, a 501(c)(3) corporation.

In this episode we're talking with David Blitzer, managing director and
chairman of the index committee at S&P/ Dow Jones indices, who has the
overall responsibility for index security selection, as well as index
analysis and management.

Before Dr. Blitzer became the chairman of the index committee he was
Standard & Poor's chief economist. Dr. Blitzer can discuss many
things with us about the Dow Jones Industrial Average and the S&P,
which he is the head of the committee. But there's one thing he cannot
discuss. He cannot tell us is which stocks they are going to be
selecting next for those indexes, which are highly confidential until
the day that they're announced.

However, today we are going to be talking a lot about the methodology
behind the selection of various stocks that go in and out of the Dow Jones
Industrial Average and the S&P 500, as well as many other indexes.
In addition, we'll talk about how the world has changed because of indexing.
It's no longer just a benchmark--it's now an investment strategy--and that has
changed the entire indexing industry.

Finally, we'll talk about how active managers are having a very difficult time
beating indexes, not only in the United States but globally, and how that is expanding
the use of indexing and index products.

Let's get to our podcast. With no further ado let me introduce Dr. David Blitzer of S&P/ Dow Jones indices.
Good morning Dr. Blitzer.

Dr. Blitzer: Good morning. You can call me David, and it's a pleasure to be here.

Rick Ferri: OK, Thank you David. Well you have a lot of responsibilities. How many indexes are
you following at S&P/Dow Jones?
For all the transcripts in the raw directory I edited the introductory boilerplate and Rick's introduction segments. Transcripts of the first couple of minutes for each episode should be in pretty good shape already.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Wed Nov 06, 2019 6:58 pm

pondering wrote:
Wed Nov 06, 2019 9:23 am
asset_chaos wrote:
Wed Nov 06, 2019 1:26 am
pondering wrote:
Tue Nov 05, 2019 8:26 pm
Has anyone tried otter.ai to do this?
To my knowledge, no one. As I see there's a free 600 minutes of transcription per month, and since the podcasts are all around 60 minutes, otter may be a viable option, particularly if it does better than google/youtube.

Pondering, do you have an otter.ai account? If so, can you try otter on episode 9? For reasons unknown the google/youtube method has been unable to extract a transcript for episode 9.
I have an account. Who do I need permission from to do this?
I had some time this morning, so I created an otter account and got otter to transcribe episode 9. Thank you for mentioning otter. It is much better than the alternatives I had tried. The IBM-Watson machine transcription only did half the podcast and the result was bad. Otter is as least as good as the youtube/google route.

I've now put episode 9 into the raw transcriptions folder with the others still needing human editing. I did the human editing for the introductory section.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Wed Nov 06, 2019 7:11 pm

asset_chaos wrote:
Wed Nov 06, 2019 6:58 pm
I've now put episode 9 into the raw transcriptions folder with the others still needing human editing. I did the human editing for the introductory section.
So you the one who keeps putting two spaces after each period, which I then remove. :D

btw, I think we should move this discussion to here: viewtopic.php?f=10&t=294338, so that newcomers don't have to mine all posts in this thread for instructions and locations of files, etc.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by asset_chaos » Wed Nov 06, 2019 8:36 pm

neurosphere wrote:
Wed Nov 06, 2019 7:11 pm
asset_chaos wrote:
Wed Nov 06, 2019 6:58 pm
I've now put episode 9 into the raw transcriptions folder with the others still needing human editing. I did the human editing for the introductory section.
So you the one who keeps putting two spaces after each period, which I then remove. :D

btw, I think we should move this discussion to here: viewtopic.php?f=10&t=294338, so that newcomers don't have to mine all posts in this thread for instructions and locations of files, etc.
Two spaces after a period; that's what I was taught in typing class 40 years ago, and I've been doing it ever since!-)

Yes on moving further discussion to the new thread.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by neurosphere » Wed Nov 06, 2019 8:44 pm

asset_chaos wrote:
Wed Nov 06, 2019 8:36 pm
neurosphere wrote:
Wed Nov 06, 2019 7:11 pm
asset_chaos wrote:
Wed Nov 06, 2019 6:58 pm
I've now put episode 9 into the raw transcriptions folder with the others still needing human editing. I did the human editing for the introductory section.
So you the one who keeps putting two spaces after each period, which I then remove. :D

btw, I think we should move this discussion to here: viewtopic.php?f=10&t=294338, so that newcomers don't have to mine all posts in this thread for instructions and locations of files, etc.
Two spaces after a period; that's what I was taught in typing class 40 years ago, and I've been doing it ever since!-)

Yes on moving further discussion to the new thread.
I was taught the same. But not only one space now essentially the norm, AND it saves time. There are of course endless debates, but "times have changed" as have fonts, and essentially all modern fonts [e.g. fonts where letters don't all get the same amount of space] look better with one space.

https://en.wikipedia.org/wiki/Sentence_spacing
From around 1950, single sentence spacing became standard in books, magazines, and newspapers, and the majority of style guides that use a Latin-derived alphabet as a language base now prescribe or recommend the use of a single space after the concluding punctuation of a sentence.
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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by pondering » Fri Nov 08, 2019 5:30 pm

Here is the beginning of episode 9:

Bogleheads_009
Welcome to Bogle heads on investing episode number nine and this episode I'll be speaking with Dr. Wesley gray, CEO of alpha architect where he and his colleagues are breaking new ground and the author of three books on quantitative investing.
Hi everyone, my name is Rick ferry and this is Bogle heads on investing. This episode is sponsored by the john c Bogle Center for Financial Literacy, a 501 c three Corporation. Today we're speaking with Dr. Wesley gray. Have to serving in the United States Marine Corps dark degree earned an MBA and a PhD.
in finance from the University of Chicago, where he studied under Nobel Prize winner, Eugene fama, He then took a job in academia before starting his investment management company, where he is on the cutting edge of new insights into factor investing. with no further ado, let's bring in Dr. Wesley gray. Welcome to the show. How are you today? I'm great, Rick, appreciate you bringing me on. Are you very much impressed me the very first time I I learned about you and I talked with you, the stuff you're working on is cutting edge. I really believe that you are the new Jedi out there in the quantum world. Before we get into what you're currently doing now, I want to start at the beginning. Where did you go to your undergraduate degree. I went to undergrad at University of Pennsylvania at the Wharton School. So I kind of started off with Uber finance geek undergrad and my car. My first one
I parlayed my myself into academic researches, I walked into this gentleman's office named Chris gates, he to who now writes a lot of papers on the 200 year history and momentum or relative strength or value or what have you. And I just said, I love this stuff. Can you teach me how to be a professor? And he basically said, Hey, see that shelf right there, grab these 10 books and read them and come back in two weeks. And let's talk that was my initial starting to geek out and getting into academic research and moving along my initial path, which was to be a finance professor. But there was also another side to you. You had this idea that perhaps you could figure out ways of outperforming the market? Well, yeah, kinda simultaneous to decide. I want to be a finance professor. I was also trading my own money doing a lot of investing. I was there from 98 2002. And so that was obviously during the internet bubble. And so I had this exposure where I
Come off, you know, reading every book everything I could get my hands on related to Ben Graham and Warren Buffett and the value investment philosophy. You know, pets, coms going up 1,000% a day, you know, my dad's telling me to go by the Janice global tech fund, and sit here, like, I'm a, I'm a value by nature person. And I'm watching these markets, they could they're crazy, obviously trading in value names getting destroyed, but then on the other side of my life, I'm like, Hey, I just, you know, actually liked this. And, you know, I was like, Hey, I should I want to stay this forever. So it was kind of a weird barbell in the sense that I was, you know, sitting there trading stocks. And then on the other hand, I was reading, you know, stochastic calculus books, just trying to get baselines, you know, essentially to be a research assistant for gates. And so what happened is, I kept doing all the investment stuff, kept doing my stock picking. And then, you know, I started essentially, I became
For the Wharton finance department, the August I don't want to use the computer monkey, how does like the data monkey so if someone needed to have a, something coated up in MATLAB, that was my job. So like, I can't, it kind of became like a little mini, you know, workhorse for the parliament, you know, so like fast for a couple years. And you know, seeing all these guys are also by the way, Chicago PhDs because for whatever reason, Chicago tends to feed, you know, the Wharton faculty in Christian he is like, hey, you're going to apply to Chicago. And that's it. I was like, well, aren't there other schools like, should I consider other PhD programs and like not you got to go to Chicago. They're like, we'll get you in. And I'm like, Okay.
How does that work? They're like a take all your tests and do all your stuff. And it will write your recommendations letters. And then So sure enough, you know, I applied to your Chicago PhD program, just straight out of undergrad which is also not
Normal because typically you go get a masters or what have you. But I had a lot of kind of close holes in the department that were writing letters for me, in PhD programs, they only accept, you know, handful people every year. So it's a much more kind of one off deal. It's not like applying to an MBA program. Long story short, I got in, like, wow, I guess I'm going to actually do this essentially entered the program in 2002. The Chicago School at the time, and it still is, to a certain extent, it's just, we're going to take you in, and we're just going to beat you up, like you are going to get destroyed in problems. That's workload. And let's just see if you survive. And so the first two years are just literally I was studying like 15 hours a day, seven days a week just trying to stay above water, because I came in obviously, without having a lot of experience or grad school or what have you. So it's actually a pretty difficult
And so after the first two years there, I, I don't say I was burned out, but I was 24 I'd been slaving away doing porn academic geek stuff forever. And I just thought, hey, I need to maybe take a break or do something else. So you, you really did do something else, I would say that what you did was quite radical. And of course, I'm proud of you for it. So what I did is I decided that I was going to join the Marine Corps, which you're alumnus of. And it certainly seems radical. But what was super interesting at the time, is I would say good 20 to 30% of the Chicago finance PhD program. Were actually former military officers a lot of them from Israel or, or Finland, or what have you. So they were all like, Oh, yeah, of course you should do that. Whereas many people outside are like, but you must be the first time anyone's ever done that. But it was super interesting is inside the program like my other fellow PhD
Mater like hey, that's, that's pretty cool. And so yeah, I went down to Professor Fila and at the time Professor sailor who, which is crazy it has these two Nobel Prize winners were actually like the, you know, it wasn't my dissertation, but are my curriculum paper advisors? And I just had to ask them permission to get a four year sabbatical in Professor farmer was actually like, super cool about it. He's just like, Oh, that's awesome, like, proud of you. Yeah, happy to sign, you know, didn't even think twice about it. And then your professor Taylor, he was more curious. He was definitely like, you're going to what? But eventually, I got both those gentlemen to sign off and then submitted it to the PhD program coordinator and took a four year sabbatical. That's amazing that you could actually do that take four years off. Well, you so you can you can take technically one year off. And so that's the reason I had to go and have them sign off on this special kind of extended sabbatical.
Because it was a unique circumstance where most people don't go on sabbatical to do service, the PC program director kind of agreed, like, Hey, this is unique circumstance, as long as you get your, you know, advisors to sign off on it. We're cool with it. And so I had to do a few extra hoops to jump through to actually make it happen. Well, that's great. And then you went down to Quantico and went through Officer Candidate School. Yep. So then I went OCS which is Officer Candidate School, then went to TBS, the basic school, and then my MLS was a ground intelligence officer. You go through your job corps, you kind of do everything that the officers do, and then they go pick up their platoons, whereas ground intelligence officers then go down to damn neck and do another six months of intelligence officer training, and then you go hit the fleet. So it's the longest pipeline Besides, you know, Hilo and 6 million people. But you know, it's about a year and a half, almost two years of trade.
pipeline. And from there, they shipped to you off to open our I went right to Okinawa and then right when I was in Okinawa, they sent me down to one of the islands in Japan, and did a bunch of like joint training missions with them spent about a month there. And then I got sent directly down to the Philippines. And at the time, this was, I think, was at 2004 2005. That were there's a bunch of activity going on on this island called holo, which is a bunch of Muslim extremists and what have you, but then there was this thing called the late a mudslide disaster and a coup. So I, the Philippines, you know, going crazy for a couple of months there. And then right when I got back to Okinawa, which I was assigned there, but I rarely ever hung out there for like maybe a day or two. The colonel calls me and office and he's basically says, hey, you're going to Hawaii? And I was like, all right, what
am I going to Hawaii like
They're like, Oh, you're on a MIT team, a military transition training team, and you're going to get deployed to Iraq. So that, you know, then I went out to Hawaii did a big workout. And then yeah, then we deployed out, I was on one of the training teams read in bed with Iraqis and try to help them avoid shooting themselves in the foot. Back to you wrote an entire book, about your experience working with the Iraqis the name of the book was called embedded. And it was a fascinating insight into what was going on. Yeah, so I kind of went in to the service. I didn't join the service because I want to go to war, per se. I just, I just wanted to do my time. But I'm certainly under the belief when you probably remember but Colin Pollock showed that little powder of that white powder and said, Hey, we're all going to die. Kind of believe that. I was like, all right, we need to do some hair. Fast forward. Now. I'm actually deployed, living in an Iraqi battalion training of these Iraqi soldiers to
You know, kind of take over their defense duties. And I really got opportunity to, you know, actually live with these people, either these people talk to these people and kind of get a better insight to the culture and kind of how they operate. In that experience, honestly just floored me and I took a whole 180 right, I said, I don't know what we're doing here. This is crazy. Like, I was not expecting this, these deeper tribal, they're totally different. Like, what we're trying to achieve here does does not jive at all with their society. I need to tell the story because there's probably a lot of guys like me that you know, rah, rah, let's go to war in you know, they don't realize it so so that I just got inspires like, I gotta share the story. So I had just read a whole book basically, about my time being embedded with the, you know, Iraqis and just trying to explain like their cultural nuance, and why what we were trying to do like, you know, bring freedom and democracy
to their society, you seem like a, you know, maybe it wasn't a great idea. That's pretty much what that that book was about just sharing my experiences there, which were, you know, highly enlightening to me and I just wanted to make sure other people got to really experience it through at least my book, even if they can't be there themselves. I understand that you speak Arabic and that you taught yourself. I did. So I mean, I could probably conversion it as if I got warmed up. But yeah, so I was the intelligence officer in the more I read beforehand, it because I knew we were going to warn these areas that like, you know, speaking Arabic air, like the actual language there is it means a heck of a lot more because its associated with the religion, you know, because it's, you know, from a lot, so, you know, it's kind of a big deal. So the more you want to win in those sort of culture wars, you got to really, you know, establish bonds with the people you're working with. And so learning the language is
thought was a main effort. So yeah, I just put a ton of time up front to train extremely hard, you know, both on learn how to kill people in everything, but also how to learn this language. And then when I got there, I just forced myself to literally in bed with the people and not use a term. And then, you know, if you sit there long enough and get tired of using hand signals and not understand each other, you know, eventually you can start maneuvering. So yeah, I got to a point where I actually serve as a Terp for our team, and we were convoys, and I would be the tariff, you know, to interface between our team and the Iraqis. Yes, and I definitely highly recommend, if anyone, you know, has to do that mission ever again to spend way more time learning the language and lot less on, you know, tactics per se, because it gives you a lot more, let's say, with what the Iraqis called wasps, like, you know, kind of Carmen and the ability to interact with them and have them actually listened to you. If you actually
their language. That's fascinating. Well, you did that. Did you stay for four years? Yep, did my did the four year active duty? And then after that, you went back to the University of Chicago. Got out what it was, like, early 2008. And then I just I, my mind will, you know, being in services just obviously, way different than being in a PhD program at University Chicago, so I got out. Yeah, yeah, kind of like what at it and so literally, for the first three months, I just had to relearn everything because my curriculum paper had a bunch of math in it. And honestly, I can read my own paper. I was like, I don't even know what this person is talking about. But it was me so I just I just put the basics I'm like, hey, here, I gotta relearn calculus, all this stuff. And it is true that it is like, you know, riding a bike where you know how to do it. If you just get you know, back into it, you do quickly learn. So, so yeah, re enter the program.
Move back Chicago. And you know, I was in much more like, it was in discipline mode versus a lot of my, you know, comrades there at the PhD program who were in students because I'd kind of come out with a new look on life. So I was like, I'm getting out of here in two years. And because usually you don't get out of the PC program and in a collective for years, usually it's five, six years, but I just didn't want to mess around. So I spent three months relearn everything, and then I nearly went to work on dissertation. So yeah, and that because I my goal was I need to get out of this by 2010 or my wife's GZ not going to be happy living on a ramen noodle salary for for longer than that.
And who was your mentor on your dissertation?
So I so I went back to my old curriculum paper visors, and it was sailor and pharma were the top two and then another gentleman, Andrea for z.
--Robert Sterbal | 412-977-3526 call/text, I find speech easier than writing

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by Barry Barnitz » Fri Nov 08, 2019 7:10 pm

First draft clean-up (without an audio check) of this segment of Episode nine.


Rick Ferri: Welcome to Bogleheads on Investing episode number nine. And this episode I'll be speaking with Dr. Wesley Gray, CEO of Alpha Architect where he and his colleagues are breaking new ground. And the author of three books on quantitative investing.


Rick Ferri: Hi everyone, my name is Rick Ferri and this is Bogleheads on Investing. This episode is sponsored by the John C. Bogle Center for Financial Literacy a 501(c)(3) corporation. Today we're speaking with Dr. Wesley Gray. Have to serving in the United States Marine Corps dark degree earned an MBA and a PhD.in finance from the University of Chicago, where he studied under Nobel Prize winner, Eugene Fama, He then took a job in academia before starting his investment management company, where he is on the cutting edge of new insights into factor investing.

With no further ado, let's bring in Dr. Wesley Gray. Welcome to the show. How are you today?

Wesley Gray: I'm great, Rick, appreciate you bringing me on.

Rick Ferri: Are you very much impressed me the very first time I I learned about you and I talked with you, the stuff you're working on is cutting edge. I really believe that you are the new jedi out there in the quantum world. Before we get into what you're currently doing now, I want to start at the beginning. Where did you go to your undergraduate degree?

Wesley Gray: I went to undergrad at University of Pennsylvania at the Wharton School. So I kind of started off with uber finance geek undergrad and my car. My first one I parlayed my myself into academic researches, I walked into this gentleman's office named Chris Gates, he to who now writes a lot of papers on the 200 year history and momentum or relative strength or value or what have you. And I just said, I love this stuff. Can you teach me how to be a professor? And he basically said, Hey, see that shelf right there, grab these ten books and read them and come back in two weeks. And let's talk. That was my initial starting to geek out and getting into academic research and moving along my initial path, which was to be a finance professor.

Rick Ferri: But there was also another side to you. You had this idea that perhaps you could figure out ways of outperforming the market?

Wesley Gray: Well, yeah, kinda simultaneous to decide I want to be a finance professor. I was also trading my own money doing a lot of investing. I was there from ‘98-2002. And so that was obviously during the internet bubble. And so I had this exposure where Icome off, you know, reading every book everything I could get my hands on related to Ben Graham and Warren Buffett and the value investment philosophy. You know, pets.coms going up 1,000% a day, you know, my dad's telling me to go by the Janus Global Tech Fund, and sit here, like, I'm a, I'm a value by nature person. And I'm watching these markets, they could they're crazy, obviously trading in value names getting destroyed, but then on the other side of my life, I'm like, Hey, I just, you know, actually liked this. And, you know, I was like, Hey, I should I want to stay this forever. So it was kind of a weird barbell in the sense that I was, you know, sitting there trading stocks. And then on the other hand, I was reading, you know, stochastic calculus books, just trying to get baselines, you know, essentially to be a research assistant for Gates.

And so what happened is, I kept doing all the investment stuff, kept doing my stock picking. And then, you know, I started essentially, I became for the Wharton finance department, the August I don't want to use the computer monkey, how does like the data monkey so if someone needed to have a, something coated up in MATLAB, that was my job. So like, I can't, it kind of became like a little mini, you know, workhorse for the parliament, you know, so like fast for a couple years. And you know, seeing all these guys are also by the way, Chicago PhDs because for whatever reason, Chicago tends to feed, you know, the Wharton faculty in Christian he is like, hey, you're going to apply to Chicago. And that's it. I was like, well, aren't there other schools like, should I consider other PhD programs and like not you got to go to Chicago. They're like, we'll get you in. And I'm like, okay. How does that work? They're like a take all your tests and do all your stuff. And it will write your recommendations letters. And then so sure enough, you know, I applied to your Chicago PhD program, just straight out of undergrad which is also not normal because typically you go get a masters or what have you. But I had a lot of kind of close holes in the department that were writing letters for me, in PhD programs, they only accept, you know, handful people every year. So it's a much more kind of one off deal. It's not like applying to an MBA program. Long story short, I got in, like, wow, I guess I'm going to actually do this essentially entered the program in 2002. The Chicago School at the time, and it still is, to a certain extent, it's just, we're going to take you in, and we're just going to beat you up, like you are going to get destroyed in problems. That's workload. And let's just see if you survive. And so the first two years are just literally I was studying like fifteen hours a day, seven days a week just trying to stay above water, because I came in obviously, without having a lot of experience or grad school or what have you. So it's actually a pretty difficult And so after the first two years there, I, I don't say I was burned out, but I was 24 I'd been slaving away doing porn academic geek stuff forever. And I just thought, hey, I need to maybe take a break or do something else.

Rick Ferri: So you, you really did do something else, I would say that what you did was quite radical. And of course, I'm proud of you for it.

Wesley Gray: So what I did is I decided that I was going to join the Marine Corps, which you're alumnus of. And it certainly seems radical. But what was super interesting at the time, is I would say good 20 to 30% of the Chicago finance PhD program. Were actually former military officers a lot of them from Israel or, or Finland, or what have you. So they were all like, Oh, yeah, of course you should do that. Whereas many people outside are like, but you must be the first time anyone's ever done that. But it was super interesting is inside the program like my other fellow PhDMater like hey, that's, that's pretty cool. And so yeah, I went down to Professor Fama and at the time Professor Thayer who, which is crazy it has these two Nobel Prize winners were actually like the, you know, it wasn't my dissertation, but are my curriculum paper advisors? And I just had to ask them permission to get a four year sabbatical in Professor Fama was actually like, super cool about it. He's just like, Oh, that's awesome, like, proud of you. Yeah, happy to sign, you know, didn't even think twice about it. And then your professor Thayer, he was more curious. He was definitely like, you're going to what? But eventually, I got both those gentlemen to sign off and then submitted it to the PhD program coordinator and took a four year sabbatical. That's amazing that you could actually do that take four years off. Well, you so you can you can take technically one year off. And so that's the reason I had to go and have them sign off on this special kind of extended sabbatical. Because it was a unique circumstance where most people don't go on sabbatical to do service, the PC program director kind of agreed, like, Hey, this is unique circumstance, as long as you get your, you know, advisors to sign off on it. We're cool with it. And so I had to do a few extra hoops to jump through to actually make it happen.

Rick Ferri: Well, that's great. And then you went down to Quantico and went through Officer Candidate School.

Wesley Gray: Yep. So then I went OCS which is Officer Candidate School, then went to TBS, the basic school, and then my MLS was a ground intelligence officer. You go through your job corps, you kind of do everything that the officers do, and then they go pick up their platoons, whereas ground intelligence officers then go down to Dam Neck and do another six months of intelligence officer training, and then you go hit the fleet. So it's the longest pipeline Besides, you know, Hilo and 6 million people. But you know, it's about a year and a half, almost two years of trade pipeline. And from there, they shipped to you off to open our I went right to Okinawa and then right when I was in Okinawa, they sent me down to one of the islands in Japan, and did a bunch of like joint training missions with them spent about a month there. And then I got sent directly down to the Philippines. And at the time, this was, I think, was at 2004 2005. That were there's a bunch of activity going on on this island called holo, which is a bunch of Muslim extremists and what have you, but then there was this thing called the late a mudslide disaster and a coup. So I, the Philippines, you know, going crazy for a couple of months there. And then right when I got back to Okinawa, which I was assigned there, but I rarely ever hung out there for like maybe a day or two. The colonel calls me and office and he's basically says, hey, you're going to Hawaii? And I was like, all right, what am I going to Hawaii like they're like, Oh, you're on a MIT team, a military transition training team, and you're going to get deployed to Iraq. So that, you know, then I went out to Hawaii did a big workout. And then yeah, then we deployed out, I was on one of the training teams read in bed with Iraqis and try to help them avoid shooting themselves in the foot. Back to you wrote an entire book, about your experience working with the Iraqis the name of the book was called embedded. And it was a fascinating insight into what was going on. Yeah, so I kind of went in to the service. I didn't join the service because I want to go to war, per se. I just, I just wanted to do my time. But I'm certainly under the belief when you probably remember but Colin Pollock showed that little powder of that white powder and said, Hey, we're all going to die. Kind of believe that. I was like, all right, we need to do some hair. Fast forward. Now. I'm actually deployed, living in an Iraqi battalion training of these Iraqi soldiers to you know, kind of take over their defense duties. And I really got opportunity to, you know, actually live with these people, either these people talk to these people and kind of get a better insight to the culture and kind of how they operate. In that experience, honestly just floored me and I took a whole 180 right, I said, I don't know what we're doing here. This is crazy. Like, I was not expecting this, these deeper tribal, they're totally different. Like, what we're trying to achieve here does does not jive at all with their society. I need to tell the story because there's probably a lot of guys like me that you know, rah, rah, let's go to war in you know, they don't realize it so so that I just got inspires like, I gotta share the story. So I had just read a whole book basically, about my time being embedded with the, you know, Iraqis and just trying to explain like their cultural nuance, and why what we were trying to do like, you know, bring freedom and democracy to their society, you seem like a, you know, maybe it wasn't a great idea. That's pretty much what that that book was about just sharing my experiences there, which were, you know, highly enlightening to me and I just wanted to make sure other people got to really experience it through at least my book, even if they can't be there themselves.

Rick Ferri: I understand that you speak Arabic and that you taught yourself.

Wesley Gray: I did. So I mean, I could probably conversion it as if I got warmed up. But yeah, so I was the intelligence officer in the more I read beforehand, it because I knew we were going to warn these areas that like, you know, speaking Arabic air, like the actual language there is it means a heck of a lot more because its associated with the religion, you know, because it's, you know, from a lot, so, you know, it's kind of a big deal. So the more you want to win in those sort of culture wars, you got to really, you know, establish bonds with the people you're working with. And so learning the language is thought was a main effort. So yeah, I just put a ton of time up front to train extremely hard, you know, both on learn how to kill people in everything, but also how to learn this language. And then when I got there, I just forced myself to literally in bed with the people and not use a term. And then, you know, if you sit there long enough and get tired of using hand signals and not understand each other, you know, eventually you can start maneuvering. So yeah, I got to a point where I actually serve as a Terp for our team, and we were convoys, and I would be the tariff, you know, to interface between our team and the Iraqis. Yes, and I definitely highly recommend, if anyone, you know, has to do that mission ever again to spend way more time learning the language and lot less on, you know, tactics per se, because it gives you a lot more, let's say, with what the Iraqis called wasps, like, you know, kind of Carmen and the ability to interact with them and have them actually listened to you. If you actually
their language.

Rick Ferri: That's fascinating. Well, you did that. Did you stay for four years?

Wesley Gray: Yep, did my did the four year active duty? And then after that, you went back to the University of Chicago. Got out what it was, like, early 2008. And then I just I, my mind will, you know, being in services just obviously, way different than being in a PhD program at University Chicago, so I got out. Yeah, yeah, kind of like what at it and so literally, for the first three months, I just had to relearn everything because my curriculum paper had a bunch of math in it. And honestly, I can read my own paper. I was like, I don't even know what this person is talking about. But it was me so I just I just put the basics I'm like, hey, here, I gotta relearn calculus, all this stuff. And it is true that it is like, you know, riding a bike where you know how to do it. If you just get you know, back into it, you do quickly learn. So, so yeah, re enter the program. Move back Chicago. And you know, I was in much more like, it was in discipline mode versus a lot of my, you know, comrades there at the PhD program who were in students because I'd kind of come out with a new look on life. So I was like, I'm getting out of here in two years. And because usually you don't get out of the PC program and in a collective for years, usually it's five, six years, but I just didn't want to mess around. So I spent three months relearn everything, and then I nearly went to work on dissertation. So yeah, and that because I my goal was I need to get out of this by 2010 or my wife's GZ not going to be happy living on a ramen noodle salary for for longer than that. And who was your mentor on your dissertation? So I so I went back to my old curriculum paper visors, and it was sailor and pharma were the top two and then another gentleman, Andrea for z.
Additional administrative tasks: Financial Page affiliate blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; Wiki Bogleheads® España.

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by pondering » Fri Nov 08, 2019 8:40 pm

This is the basic transcription on episode 9 by Otter.ai

Unknown Speaker 0:09
Welcome to Bogle heads on investing episode number nine and this episode I'll be speaking with Dr. Wesley gray, CEO of alpha architect where he and his colleagues are breaking new ground and the author of three books on quantitative investing.

Unknown Speaker 0:37
Hi everyone, my name is Rick ferry and this is Bogle heads on investing. This episode is sponsored by the john c Bogle Center for Financial Literacy, a 501 c three Corporation. Today we're speaking with Dr. Wesley gray. Have to serving in the United States Marine Corps dark degree earned an MBA and a PhD. in finance from the University of Chicago, where he studied under Nobel Prize winner, Eugene fama, He then took a job in academia before starting his investment management company, where he is on the cutting edge of new insights into factor investing. with no further ado, let's bring in Dr. Wesley gray. Welcome to the show. How are you today?

Unknown Speaker 1:25
I'm great, Rick, appreciate you bringing me on.

Unknown Speaker 1:28
Are you very much impressed me the very first time I I learned about you and I talked with you, the stuff

Unknown Speaker 1:33
you're working on is

Unknown Speaker 1:35
cutting edge. I really believe that you are the new Jedi out there in the quantum world. Before we get into what you're currently doing now, I want to start at the beginning. Where did you go to your undergraduate degree.

Unknown Speaker 1:49
I went to undergrad at University of Pennsylvania at the Wharton School. So I kind of started off with Uber finance geek undergrad and my car. My first one I parlayed my myself into academic researches, I walked into this gentleman's office named Chris gates, he to who now writes a lot of papers on the 200 year history and momentum or relative strength or value or what have you. And I just said, I love this stuff. Can you teach me how to be a professor? And he basically said, Hey, see that shelf right there, grab these 10 books and read them and come back in two weeks. And let's talk that was my initial starting to geek out and getting into academic research and moving along my initial path, which was to be a finance professor.

Unknown Speaker 2:35
But there was also another side to you.

Unknown Speaker 2:38
You had this idea that perhaps you could figure out ways of outperforming the market?

Unknown Speaker 2:43
Well, yeah, kinda simultaneous to decide. I want to be a finance professor. I was also trading my own money doing a lot of investing. I was there from 98 2002. And so that was obviously during the internet bubble. And so I had this exposure where I Come off, you know, reading every book everything I could get my hands on related to Ben Graham and Warren Buffett and the value investment philosophy. You know, pets, coms going up 1,000% a day, you know, my dad's telling me to go by the Janice global tech fund, and sit here, like, I'm a, I'm a value by nature person. And I'm watching these markets, they could they're crazy, obviously trading in value names getting destroyed, but then on the other side of my life, I'm like, Hey, I just, you know, actually liked this. And, you know, I was like, Hey, I should I want to stay this forever. So it was kind of a weird barbell in the sense that I was, you know, sitting there trading stocks. And then on the other hand, I was reading, you know, stochastic calculus books, just trying to get baselines, you know, essentially to be a research assistant for gates. And so what happened is, I kept doing all the investment stuff, kept doing my stock picking. And then, you know, I started essentially, I became For the Wharton finance department, the August I don't want to use the computer monkey, how does like the data monkey so if someone needed to have a, something coated up in MATLAB, that was my job. So like, I can't, it kind of became like a little mini, you know, workhorse for the parliament, you know, so like fast for a couple years. And you know, seeing all these guys are also by the way, Chicago PhDs because for whatever reason, Chicago tends to feed, you know, the Wharton faculty in Christian he is like, hey, you're going to apply to Chicago. And that's it. I was like, well, aren't there other schools like, should I consider other PhD programs and like not you got to go to Chicago. They're like, we'll get you in. And I'm like, Okay. How does that work? They're like a take all your tests and do all your stuff. And it will write your recommendations letters. And then So sure enough, you know, I applied to your Chicago PhD program, just straight out of undergrad which is also not Normal because typically you go get a masters or what have you. But I had a lot of kind of close holes in the department that were writing letters for me, in PhD programs, they only accept, you know, handful people every year. So it's a much more kind of one off deal. It's not like applying to an MBA program. Long story short, I got in, like, wow, I guess I'm going to actually do this essentially entered the program in 2002. The Chicago School at the time, and it still is, to a certain extent, it's just, we're going to take you in, and we're just going to beat you up, like you are going to get destroyed in problems. That's workload. And let's just see if you survive. And so the first two years are just literally I was studying like 15 hours a day, seven days a week just trying to stay above water, because I came in obviously, without having a lot of experience or grad school or what have you. So it's actually a pretty difficult And so after the first two years there, I, I don't say I was burned out, but I was 24 I'd been slaving away doing porn academic geek stuff forever. And I just thought, hey, I need to maybe take a break or do something else.

Unknown Speaker 6:17
So you, you really did do something else, I would say that what you did was quite radical. And of course, I'm proud of you for it.

Unknown Speaker 6:24
So what I did is I decided that I was going to join the Marine Corps, which you're alumnus of. And it certainly seems radical. But what was super interesting at the time, is I would say good 20 to 30% of the Chicago finance PhD program. Were actually former military officers a lot of them from Israel or, or Finland, or what have you. So they were all like, Oh, yeah, of course you should do that. Whereas many people outside are like, but you must be the first time anyone's ever done that. But it was super interesting is inside the program like my other fellow PhD Mater like hey, that's, that's pretty cool. And so yeah, I went down to Professor Fila and at the time Professor sailor who, which is crazy it has these two Nobel Prize winners were actually like the, you know, it wasn't my dissertation, but are my curriculum paper advisors? And I just had to ask them permission to get a four year sabbatical in Professor farmer was actually like, super cool about it. He's just like, Oh, that's awesome, like, proud of you. Yeah, happy to sign, you know, didn't even think twice about it. And then your professor Taylor, he was more curious. He was definitely like, you're going to what? But eventually, I got both those gentlemen to sign off and then submitted it to the PhD program coordinator and took a four year sabbatical.

Unknown Speaker 7:46
That's amazing that you could actually do that take four years off.

Unknown Speaker 7:49
Well, you so you can you can take technically one year off. And so that's the reason I had to go and have them sign off on this special kind of extended sabbatical. Because it was a unique circumstance where most people don't go on sabbatical to do service, the PC program director kind of agreed, like, Hey, this is unique circumstance, as long as you get your, you know, advisors to sign off on it. We're cool with it. And so I had to do a few extra hoops to jump through to actually make it happen.

Unknown Speaker 8:20
Well, that's great. And then you went down to Quantico and went through Officer Candidate School.

Unknown Speaker 8:24
Yep. So then I went OCS which is Officer Candidate School, then went to TBS, the basic school, and then my MLS was a ground intelligence officer. You go through your job corps, you kind of do everything that the officers do, and then they go pick up their platoons, whereas ground intelligence officers then go down to damn neck and do another six months of intelligence officer training, and then you go hit the fleet. So it's the longest pipeline Besides, you know, Hilo and 6 million people. But you know, it's about a year and a half, almost two years of trade. pipeline.

Unknown Speaker 9:01
And from there, they shipped to you off to

Unknown Speaker 9:03
open our I went right to Okinawa and then right when I was in Okinawa, they sent me down to one of the islands in Japan, and did a bunch of like joint training missions with them spent about a month there. And then I got sent directly down to the Philippines. And at the time, this was, I think, was at 2004 2005. That were there's a bunch of activity going on on this island called holo, which is a bunch of Muslim extremists and what have you, but then there was this thing called the late a mudslide disaster and a coup. So I, the Philippines, you know, going crazy for a couple of months there. And then right when I got back to Okinawa, which I was assigned there, but I rarely ever hung out there for like maybe a day or two. The colonel calls me and office and he's basically says, hey, you're going to Hawaii? And I was like, all right, what am I going to Hawaii like They're like, Oh, you're on a MIT team, a military transition training team, and you're going to get deployed to Iraq. So that, you know, then I went out to Hawaii did a big workout. And then yeah, then we deployed out, I was on one of the training teams read in bed with Iraqis and try to help them avoid shooting themselves in the foot.

Unknown Speaker 10:18
Back to you wrote an entire book, about your experience working with the Iraqis the name of the book was called embedded. And it was a fascinating insight into what was going on.

Unknown Speaker 10:29
Yeah, so I kind of went in to the service. I didn't join the service because I want to go to war, per se. I just, I just wanted to do my time. But I'm certainly under the belief when you probably remember but Colin Pollock showed that little powder of that white powder and said, Hey, we're all going to die. Kind of believe that. I was like, all right, we need to do some hair. Fast forward. Now. I'm actually deployed, living in an Iraqi battalion training of these Iraqi soldiers to You know, kind of take over their defense duties. And I really got opportunity to, you know, actually live with these people, either these people talk to these people and kind of get a better insight to the culture and kind of how they operate. In that experience, honestly just floored me and I took a whole 180 right, I said, I don't know what we're doing here. This is crazy. Like, I was not expecting this, these deeper tribal, they're totally different. Like, what we're trying to achieve here does does not jive at all with their society. I need to tell the story because there's probably a lot of guys like me that you know, rah, rah, let's go to war in you know, they don't realize it so so that I just got inspires like, I gotta share the story. So I had just read a whole book basically, about my time being embedded with the, you know, Iraqis and just trying to explain like their cultural nuance, and why what we were trying to do like, you know, bring freedom and democracy to their society, you seem like a, you know, maybe it wasn't a great idea. That's pretty much what that that book was about just sharing my experiences there, which were, you know, highly enlightening to me and I just wanted to make sure other people got to really experience it through at least my book, even if they can't be there themselves.

Unknown Speaker 12:20
I understand that you speak Arabic and that you taught yourself.

Unknown Speaker 12:25
I did. So I mean, I could probably conversion it as if I got warmed up. But yeah, so I was the intelligence officer in the more I read beforehand, it because I knew we were going to warn these areas that like, you know, speaking Arabic air, like the actual language there is it means a heck of a lot more because its associated with the religion, you know, because it's, you know, from a lot, so, you know, it's kind of a big deal. So the more you want to win in those sort of culture wars, you got to really, you know, establish bonds with the people you're working with. And so learning the language is thought was a main effort. So yeah, I just put a ton of time up front to train extremely hard, you know, both on learn how to kill people in everything, but also how to learn this language. And then when I got there, I just forced myself to literally in bed with the people and not use a term. And then, you know, if you sit there long enough and get tired of using hand signals and not understand each other, you know, eventually you can start maneuvering. So yeah, I got to a point where I actually serve as a Terp for our team, and we were convoys, and I would be the tariff, you know, to interface between our team and the Iraqis. Yes, and I definitely highly recommend, if anyone, you know, has to do that mission ever again to spend way more time learning the language and lot less on, you know, tactics per se, because it gives you a lot more, let's say, with what the Iraqis called wasps, like, you know, kind of Carmen and the ability to interact with them and have them actually listened to you. If you actually their language.

Unknown Speaker 14:01
That's fascinating. Well, you did that. Did you stay for four years?

Unknown Speaker 14:07
Yep, did my did the four year active duty?

Unknown Speaker 14:10
And then after that, you went back to the University of Chicago.

Unknown Speaker 14:13
Got out what it was, like, early 2008. And then I just I, my mind will, you know, being in services just obviously, way different than being in a PhD program at University Chicago, so I got out. Yeah, yeah, kind of like what at it and so literally, for the first three months, I just had to relearn everything because my curriculum paper had a bunch of math in it. And honestly, I can read my own paper. I was like, I don't even know what this person is talking about. But it was me so I just I just put the basics I'm like, hey, here, I gotta relearn calculus, all this stuff. And it is true that it is like, you know, riding a bike where you know how to do it. If you just get you know, back into it, you do quickly learn. So, so yeah, re enter the program. Move back Chicago. And you know, I was in much more like, it was in discipline mode versus a lot of my, you know, comrades there at the PhD program who were in students because I'd kind of come out with a new look on life. So I was like, I'm getting out of here in two years. And because usually you don't get out of the PC program and in a collective for years, usually it's five, six years, but I just didn't want to mess around. So I spent three months relearn everything, and then I nearly went to work on dissertation. So yeah, and that because I my goal was I need to get out of this by 2010 or my wife's GZ not going to be happy living on a ramen noodle salary for for longer than that.

Unknown Speaker 15:44
And who was your mentor on your dissertation?

Unknown Speaker 15:49
So I so I went back to my old curriculum paper visors, and it was sailor and pharma were the top two and then another gentleman, Andrea for z. Who's also famous now but he actually left and went to AQR so when I came back basically for Xenia already gone to go be a you know, millionaire over AQR sailor gotten to famous, so he was gonna mess with PhD students anymore. So really, what I was left with was fama because he was the only link in the chain that hadn't been broken. So, so essentially went to him. And he was kind of like, you know, my core, you know, advisor and then another gentleman Stavros panic. Yes, he helped me a lot because he had a theory paper as well as part of my dissertation. Pietro Viren, se was another one since I had a handful of them but I'd say the most influential in obviously the one had the most experience in political asset pricing work was obviously Professor farmer. So he was kind of a the one that haze me the most I would say in the dissertation writing stage.

Unknown Speaker 16:56
Your paper, if I'm not mistaken was about active management.

Unknown Speaker 17:00
Yeah, so you know, being a marine and probably a little hard headed, I came back and I'd always been like a standing before a stock picker, specifically a big believer in value investing in value investing, stock picking. And so what I decided was, I want to highlight to Professor pharma that, you know, active stock picking can add value, because this whole efficient market thing seems a little too crazy to me.

Unknown Speaker 17:26
So you're gonna tell Eugene fama, the future Nobel laureate that he was wrong,

Unknown Speaker 17:32
is at least out that was my going in. And so what I did is like, well, how am I going to highlight this? Well, it turns out that there's this organization called value investors club, where a bunch of super sophisticated stock pickers a lot of them associated with hedge funds, they would submit huge theses on Macy stock pitches, right so you know, Best Buy's undervalue. Here's my DCs. Here's the hundred reasons why. And so what I thought is like, hey, I've been following this club Since 2000, I'm a member of this club. You know, I think they add a lot of value, they seem to have really good ideas. I'm going to read every single one of these stock pitches, systematically interment a database and do the quantum analysis on it to then assess, hey, do these people actually add value or have clinical alpha? Long story short, they do at the margin? And so I submitted this, you know, as part of my dissertation, and somehow by the grace of God, you know, agreed with the dialysis he had some quibbles on, you know, takeaways, but at least at the margin, I highlighted that there is some segment of the market where, you know, active stock picking might work at the margin. So that was a small victory for me.

Unknown Speaker 18:49
How did you meet up with jack Bogle who you ultimately became partners with alpha architect?

Unknown Speaker 18:54
Sure. So what happened is, is when I graduated from the program, there Went on the academic Professor market. And they're also my wife was going on the academic market. She's a PhD in history, which is a way less, I'd say marketable profession than being a finance professor. So I went out to market and my wife's from Philly. And she needed a job as a history professor. And I ran into Drexel, who gave me what they call an exploding offer. So they gave me this offer I couldn't refuse. It gave me three days to decide on it. They say, hey, come to Philly, your wife's from here, we'll get her job. And we'll give you the best gig ever. And we'll assign you a PhD student who will do all your dirty work. So I was like, Okay, well Sign me up. You know, what are you gonna do how often you gotta twist my arm? So I interject sold and then part of my package was having a dedicated research assistant. And that happened to be jack Bogle. So just by circumstance and a lot of great luck, you know, I just Had a gentleman who was you know, insanely smart, extremely well and are extremely good at computer programming and doing all this data analysis and we just hit it off immediately so we've been working ever since you know 2010 when I took that job so the

Unknown Speaker 20:16
way I understood it was you know, jack had read your dissertation and he said yeah, all this is great these these people have alpha they've they're they're outperforming the market but I can replicate that using a computer. So are they really outperforming the market can you tell me about that?

Unknown Speaker 20:35
Well, yeah, so so that was that was an insight that that that actually I had before I met jack and kind of the takeaway from will the interesting takeaway from the dissertation was we cannot all this data on these individual stock pickers and it's sure enough they had alpha your relative to you know, fama, French miles, what have you, but essentially what they were Doing for all intents and purposes was small cap value investing in certain element of concentration because there's only so many ideas that they would produce. It's not like you go by 500 names at a time. So there used to be like five or six ideas a month, sometimes 10. So on a rolling basis, this portfolio would have anywhere from 50 to 100 stocks. So but for essentially what they were doing from a quantum perspective is buying smaller stocks that were super cheap, generally higher quality and doing it in somewhat concentrated fashion. And sure enough, you could also just have a computer essentially do the same idea, right, concentrated, small, cheap quality. And lo and behold, it basically replicates what all these stock pickers were doing, which was certainly the road was kind of disheartening because at the time I was still kind of believing in stock picking because I was thinking stock picker. But that kind of analysis there proved to me, why am I saying in my head against the wall so hard to you know, do these dissertations on these stocks when you can essentially replicate a lot of the you know, the core ideas with just use an algorithm. And so that that was really kind of the the straw that broke the camel's back as they say, they moved me much more heavy into just pure quadrant and less into, you know, thing I was going to be Warren Buffett, I think the proof was in the numbers.

Unknown Speaker 22:34
And jack Bogle, your research assistant was doing a dissertation similar to that.

Unknown Speaker 22:40
So Jack's dissertation was a little bit different. So what he looked at is there's a huge argument over whether value investing which in define an academic term just means buying cheap stocks right on book the market or price earnings or what have you. He was looking into argument is this is a risk based phenomenon? Or is this a behavioral based phenomenon? Where just to explain the two ideas simply, the risk based hypothesis essentially says that the reason cheap stocks earn higher returns is because cheapness is a proxy for fundamental risk. So the reason you're getting paid more on average is because these stocks are just fundamentally riskier. The behavioral argument, which is on the other side of the coin, is like, no, it's not because the stocks are riskier. It's because the market generally throws the baby out with the bathwater. And that's more related to a mispricing story that, you know, sentiment, you know, throws these names out and beats him up too bad. And so his dissertation was about how do we empirically identify whether value is risk, or mispricing. And the short story is that it seems like if anything, it's more likely mispricing versus risk that explains the value premium. In obviously, this is highly debatable, but that's what his dissertation was all about.

Unknown Speaker 24:07
And after all of that, you decided you were going to go out and create a company together.

Unknown Speaker 24:12
Well, kinda it actually all this happens simultaneously. And it's one of the probably the craziest stories in our industry. So right when I actually got my job, it actually was during the time I was on the professor markets, at the time was writing a blog. And obviously, my dissertation is out there. I got cold call by a very large real estate family in New York and the sun had been put in charge of essentially managing it was around $4 billion. It's like their liquid wealth. And they were in the middle of just living through 2008. And they were big and hedge funds, big and active management, and they got smoked and they're like, we're firing every one of these people. We're going to take control of our wealth. We're going Do this in house. We're going to do croissant. We need someone to help us and he had just been out there googling around some sounds me, and he calls me up. He's like, Hey, can you help me manage them is $4 billion? We were to use computers. I really like your dissertation. How do we do this? So went up there, madam. Again, this is all at the same time I'm sitting here like thinking I'm going to be a professor. It gives I wasn't 100% sure if this would actually lead to anything, but initially kind of led to like a basic consulting gig, where the gentleman said, help me for a couple years. If you guys do a great job, you know, we'll we'll see your business on the asset management side because because they just got out of the whole Asset Management hedge fund world, they're like, we're never going to see it or do that ever again. And then I was putting ask on the table, so but they said, Hey, give me two years. And so since I kind of helped them initially, and then I got jack involved Amelie, because it kept scaling up bigger and bigger and in After two years, in 2012, they essentially seated $20 million in, in the quantitative value strategy, which we have a book about. And then very quickly, they ramped it up to 50. And they put the other part in the international quantitative value. And this was all going on simultaneous to when I was being a professor as my day job. It just things kept happening in the background. So it was very hectic time in my life, I would say,

Unknown Speaker 26:29
and you were having children at the same time.

Unknown Speaker 26:31
Yeah, I was I was up to two and we're working on three. And yeah, it was getting crazy. And then essentially what what happened is after I think was around three years into it, like this was clearly becoming a real business because we were managing $50 million managed account, we've got like a huge consulting contract. I'm also date, you know, moonlight now at this point, basically, as a finance professor, and I was just thinking, hey, I need to One way or the other hair. And so I talked to my boss address the head of the department, I just told him I was like, Listen, I, I think I need to resign. But I don't want to screw you over here. But you know, because recruiting for professors is like a total nightmare like at least like a one year cycle. So he's like, hey, put in one more year, so we can least recruit for your position, and then you can, you know, go out into the sunset. So that's essentially what happened. I after my third year, being a prof for all intensive purposes, I was all in on the business, but I was still technically professing until they can recruit for my position. And then then, you know, basically kicked me out the door. Another interesting thing along the way, is through this whole time period, it wasn't just this large family office. For whatever reason, people like what we were putting out there. We were just being super transparent about putting our research putting our ideas. So a bunch of random rich people would call us up and say how do I do this? And we'd say, well, we have a managed account. That's how you could do it. And so we can't build the business up. We do tax loss harvesting to try to minimize tax impact, because everyone we're dealing with was is taxable money, and not our thing happen along this way. Another couple hundred million gentlemen out in the Midwest, we're working for them as well. And he had a tax problem. And it was wearing situations where he had a low basis stock that was going to get bought out by a large conglomerate for cash. And he was very afraid that he was going to have to incur like a huge capital gain event. So he says, Go figure this out. And you know, this is like one of these impossible things were like, hey, go figure out how to not pay tax but you know, the rich guy says jump, you know, I say how high and so that's what I did. I went on this mission how much this problem in a rarity into a gala at a bacon structure product in this is not Sunday. could really do any more but but it was all related to the ETFs structure. And I started learning about how the ETFs structure essentially allows assets to come in at mark to market basis, the ETFs can then don't you know, any asset out even if it has low basis onto a market maker with no tax liability, and it's essentially kind of a laundry mat for capital gains, liabilities, and just, you know, a light went off in my head, like, holy cow, if I'm doing strategies that involve trading and turning over in taxes, or, you know, essentially Uncle Sam's 50% performance fee. You know, this seemed like a good idea. So, long story short, we doubt in around 2014 we say we're going to get into this ETF business, because we thought it was a better structure to deliver these, you know, concentrated factor portfolios than doing them an estimate with tax loss harvesting.

Unknown Speaker 29:55
Just out of curiosity, all that works, it did on the ETFs Structure of how it yep. But the creation and the redemption, how you can push out any unrealized gains on to the authorized participants. You had that one client in the Midwest who had this big capital gain problem. And then you had this ETFs here. I've always wondered, is there any kind of a structured product? Or can they be a structured product where you could take people who have the stocks out there and put them all together, and bring it in and just issue them shares of an ETF and then take the stock, then that they put in kind into the ETF, and then give it to an authorized participant to get rid of and now their cost basis? is in the ETF? Yeah, it's diversified is is

Unknown Speaker 30:40
that possible? Yes. Yes. And no, the long story short is, in the old days, yes. But what happened is, all the big banks got smoked out on a bunch of tax things a few years ago, and they just caught off anything that could even be perceived. As you know, being on the edge because they didn't want to make Treasury angry. So my understanding from the inside baseball of talking to people that that deal in this world is in the old days, they would actually do stuff like that for for like super ultra high net worth clients and you know, where they control like the the cussing and clearing pipes. But my understanding is nowadays, that doesn't go on. But I certainly feel like an enterprising entrepreneur that had the time and energy to try to figure that out. It could be possible. We've looked into it from like 50 different angles and have mil figure it out. But yeah, there's certainly there's something there. I just haven't solved it.

Unknown Speaker 31:45
I believe there's something there too. I believe that, you know, this thing called direct indexing where you can, you know, you buy 250 or 300 stocks and then you individually sell off the ones that that are at a loss and do a tech swap in at the end when that's all played out. For Five years down the road, when there is no really longer any ability to do a lot of tech swapping, you've got this portfolio of 200 300 stocks that have low cost basis, but that looks an awful lot like an index. So yeah, if you could just take that and just turn that into an ETF provider, and get shares of a more diversified ETF with a cost basis of the ETFs is the cost basis of all your stocks in aggregate, but it's a lot more easy to manage one security than 400

Unknown Speaker 32:30
Yeah, so Yeah, I agree. 100% and I get insights all the time with people arguing over you do you do you do the ETF structure Do you do the tax loss harvesting structures? in you know, it's, it's kind of I still believe there's a marginal benefit, like even if you're doing pure passes, like say for example, like the parametric solution like s&p with tax loss harvesting, or just go by the vanguard fund. I still believe that the veins It's fun is better, because a lot of people also forget into your point that eventually you get basis and everything. But the index changes like firms get bought out for cash, guess what you can deal with that prominent ETFs structure. You can't if you have security, right, like if you have low basis and you know, Joe Blow wants to buy the company out for cash, you're going to eat tax liability that's easy to cleanse in an ETF. So I think and then there's the fee differential, like those tax loss harvesting solutions are, you know, 20 3040 pips, you know, an s&p 500 ETF is basically zero. So if you're new at times that cost differential over, you know, the life of investment, you know, the lump sum of that's maybe two 3% of your wealth like that makes sense? Probably not. You know that the value of the tax loss shield you're going to get? I don't think so. So, I think tax loss harvesting direct indexing is total hype. overblown versus just buying the passive index or an ETF structure for zero, that that seems like a better long term solution to me. But I agree, people can disagree.

Unknown Speaker 34:12
Let's move on a little bit. So all of a sudden you decide you're going to launch alpha architect and you open the world headquarters, which I've been to several times now.

Unknown Speaker 34:23
Yeah, for sure. So, so the original world headquarters was in a little house I had in New Jersey. But that was five minutes from my mother in law. So both my wife and I agree that hey, was probably move a little bit further away. So we moved over here to the Pennsylvania side. And at that I'd spent a year doing a commute from Baltimore to Philly when I was first year as a professor there because we still had a place down there. And it you know, I came out as service i'd swore off commuting, because I actually wanted to hang out my kids. I like exercising. So I said, You know what, I'm going to set up a business in my head. house and if people don't like it, like that's fine but it's good for my mental physical health it's going to make me operate more efficiently. Why not? And so we bought this place out in Pennsylvania it's kind of a compound of sorts. And now it's your alpha architect global headquarters. But yeah, since we just built an office inside this residence you know God zone and everything and you know, start off with obviously no AUM hardly at all and you know, now we're have almost a billion but you know, it functionally achieves the goal, we keep our costs down low and it keeps commuting time down, so we're stuck with it. So it's a bit awkward, but in the, in the world of, you know, zero percent management fees, you got to do weird things sometimes. And understand some interesting artifacts went along with that house. Yeah, so so we got this place from a big game hunter, who was basically Had a tragic situation he had pancreatic cancer. And he was basically going to die in three months. So it was kind of a liquidation opportunity of some sort both the House and our friends we have, he was a, like I said, a big game hunter. So we acquired a grizzly bear leopard and much other really cool taxidermy mounts, and one of which we keep in the office, the grizzly bear, because we like to say that, you know, we try to kill bear markets, and we have evidence of it by having our grizzly bear here. So it's definitely a unique experience, visiting alpha architect headquarters.

Unknown Speaker 36:38
It was for me because when I first time I went to visit you I'm driving down this residential street and I'm saying this can't be it.

Unknown Speaker 36:44
Yeah, we've had many of very, very wealthy people and a lot of famous folks roll through here with that exact same expression, but it's the world this guy talked me into Why am I hanging out in a residence in the suburbs of Philadelphia? Is this person crazy or what?

Unknown Speaker 37:07
So things have gone? Well, you've launched several ETFs. And the way in which you do ETFs and factor investing, I find it to be kind of the right way of doing it. It's almost like the next generation factor investing because it's so deep and so concentrated, that if you want to do factor investing, that it seems to me, you should be paying for as much exposure to these factors in a in a concentrated form as you can get. So it appealed to me right away when I found out, you know how you were doing it?

Unknown Speaker 37:47
Yeah. So essentially, the the genesis of this idea is, when we're working for the family office, they were going to do the typical thing where they're like, let's go buy our cheap beta. They we need to figure out how to replicate a lot of these different exposures that we used to get from these hedge fund people. And hedge funds obviously aren't doing like cheap beta stuff. They're usually doing concentrated bets in, you know, with stock picking. But what's essentially is factors like small value quality, but they're doing in a much more focused way. So we naturally thought, Well, if we want to replicate these more unique exposures out there, we need to replicate them how they need to be replicated, and that means we're going to do maybe factors but we're not going to hold 500 securities and focus so much on how how close this tracks the index, we're going to do 50 stock portfolios, and just tell people up front that this is not a closet index, with a little tilt to like the value factor. This is pure value, where we're literally buying the cheapest, you know, 40 or 50 These securities on you know, are, you know, a different metric we use enterprise multiples, but keep it simple, like PE ratio. So yeah, and that's just what we did. And we just told people up front of the downside, which is, of course, the tracking error and the relative performance, that this stuff can bounce around both good and bad, you know, over long time periods, and should just be prepared for that. It's not the vanguard fund, and we just wanted to deliver it, you know, transparently, affordably, and be very upfront about the potential pain associated with the style of investing.

Unknown Speaker 39:37
And I think that's all very interesting. Let's say that you want to have a slice of your portfolio to additional risk factors. And the reason is additional risk factors is because I actually interviewed Jean fama one time, and I said, yo, you know, if beta beta is a factor, so what do you call these other things? You call them Smart beta, do you call them? What do you call them a nice his answer was they are additional risk factors. So there are additional betas. I said, Okay, yeah. So let's say you wanted to expose you to something other than beta. I guess you could do it by going long. Short. You're right. But that would be expensive. In many ways. Yeah. So long, only what you're doing is very concentrated and you keeping the cost down.

Unknown Speaker 40:26
Yes, that's right. So you got it. So So the concept, Professor farmers point in our portfolios are constructed in a way that is much more akin to how can academics form portfolios, and that's what all the evidence shows like, look how great they are. The idea is, we're not going to go long, short to your point, because it's much more expensive to run operate in just access those exposures. And so it's a we're going to stick on the long side, but it's not going to be broad mark. Beta exposure, it's going to be some beta, obviously because it's long only, but we're going to focus as much as we can on capturing. You know the value risk premia, or the momentum risk premia. And again, it's very important for us to communicate this element that this is a risk premia. And this is very different, because frankly, the biggest issue with doing different risk is that they're different than what a lot of people see on the news channel, like on the sp 500. And if they're not mentally prepared for that, you know, they're oftentimes going to be in at the wrong time out at the wrong time, and kind of ruin the whole reason for holding additional risk for me, which is to help your long long term performance and to kind of diversify away from just owning, generic beta.

Unknown Speaker 41:50
The UU and I went back and forth on Twitter a little bit about what What does the word long term holding mean? You know, how long How long is long and I think I said it A lifetime and you said no, it's only 20 years. And I said, Okay, we will compromise at 25 years. But, you know, this idea of holding these factors for a long, long time is really critical to the success of an investor.

Unknown Speaker 42:16
Yeah, it's just the advice from a Vogel's is actually timeless and it applies everywhere. Like when he talks about holding, you know, equity, he doesn't suggest you should go buy the s&p 505 or VT or VTI and just you know, traded every year he's like, no, this is like basically your permanent holding, because you want to capture the equity risk premia will same thing here. We're trying to capture, you know, some specific factor risk premia. And the same advice applies, you're not going to capture it by trying to time it, day traded, bounce around all over the place. You've got to hold the thing and actually earn the associated risk premia with it. Which means you need to look at it more as a long term strategic holding, and not as a, you know, kind of a short term trading vehicle, because that's not what it's really designed for.

Unknown Speaker 43:12
So let's get down to the nitty gritty than the bottom line on all this, it's going to cost me more money to go after those additional betas because they have to pay a fee every year. That's higher than the basically beta is free now. Yeah, so anything other than beta, which is now free out there. I'm going to use it to add additional betas or additional factors to my portfolio. Using Yeah, using your funds, but your funds are not free. Your funds have cost. So number one have to get over that hurdle rate of the cost. Yeah. And the thing out there called a where we talk about it as an alpha decay or a premium decay that's going on as more and more people are doing what you're doing. There. Yeah, seems to Be a decay going on as to the expected return from these additional factors, can you? Yeah. Can you see that? Have you measured it to? What are your funds going to produce? Because I have to take money out of beta to put it into the additional factors they have. Yeah, literally, oh, it's a long only. So I'm taking a slice of my total market index fund. And I'm going to add to your fund, and I'm going to pay you a higher fee. And yeah, I need to at least get beta, which I know I'm going to get in the market. Yeah, I gotta get above and beyond that. Is it worth it?

Unknown Speaker 44:40
So yeah, so that, that there's a lot of questions in there. And it's all about costs and benefits. So in general, when you look at any of these sort of factors, like the cheaper you can get them, the better, right? And a lot of times the price is going to be associated with the scarcity. Have Said factor if if something has massive, insane capacity? Well, at the margin, that's something that Vanguard can deliver at scale. An example of a factor like that might be market beta, right? That's obviously something that has trillions of dollars a capacity, you can jam tons of money into it not not infinite amount of money, by the way, but you know, in general, that would make sense. But then there's other sort of strategies where if you're actually going to do the actual factor, like, for example, like what we do 40 stocks, you know, mid cap, lot of times small cap weight, like you just can't jam a trillion dollars into that strategy, right? So there's going to be a natural limit on capacity, which means you can't just scale it to infinity, which means the cost can't be free, because gotta pay the fixed costs and the bills and operational things for running this damn thing, right. So that's just kind of the economics of Generally capturing any exposure that doesn't have infinite scale. The second question relates to, well, what do these premiums actually deliver. So for example, value, let's say, and you could do value investing just generic, let's just call it low p investing, you could do it one of two ways we'll just make up one way is you could go buy a portfolio of, say, 40 stocks that have low PE. Another way is you could go and wait, you could go take the s&p 500 stocks and kind of tilt more weight towards the low p less way to the high P. But our net, you're basically not really doing much you're kind of tilt in one way or the other. So clearly, the potential value add from the so called value factor is going to be a lot higher in the concentrated one than in the diluted one. So that's one element like how's the thing constructed, but then the other important element is is this premium Going to pay off in the first place. Because if let's just say value just doesn't work at all, well, then if I have it in a concentrated format or having a diluted format, it's not going to do anything for me. And that gets back to the question of, well, why does a factor pay off in the first place? In because it's an open secret? And because a lot of people know about it, and because a lot of people are perceived to be doing it, will that make it decay? Will why that's we got to step back and say, Why did these things get why did they pay off? in historical sense? Well, value generally paid off, because the farmers point it's riskier. So unless you were to believe that risk preferences have changed, then one would probably want to believe that exposure to the value factor will probably pay off at some point in the future. Currently, it hasn't paid off very well in the last five or 10 years. But just like generic market beta doesn't pay off all the time, you know, it's had 1020 year jobs as well. There's a reason to believe from economic perspective, that value will pay off. Just because a lot of times it's fundamentally riskier. And then the second point is that if someone is going to do value, and you believe even in the mispricing component of value, like they people throw the baby out with the bathwater. There's this aspect of what they call career risk. So just because everyone knows about something, doesn't mean they may go and do it. Because if you go out and buy concentrated portfolios of value stocks, like right now, it's very likely that you have a high probability of getting fired. Because these things can bounce all over the place. You know, you're going to get destroyed by the s&p 500 sometimes and people think you're an idiot, and you get booted out of the you know the job. So this is its own where we call career risk. premium. So to the extent that, you know, a lot of people are, quote unquote, doing these things, but these strategies earn premium for a reason, ie, they're risky, and they stink to do, one would expect that over the long haul, they're probably going to earn some premium. I don't know what that will be, you know, historically, like a concentrated value portfolio like, like what we're doing, you know, maybe, I don't know, maybe three to 4% over like a generic index, which is going to be being sourced from being smaller being cheaper. You know, for the most part, let's say that cuts in half to 2%. Right, because at the margin, it gets more efficient, that you may earn this 2% premium, but this is not like an arbitrage. This means you're going to deal with probably more risk, probably more evolved, probably will definitely way more pain and anguish in a relative This sense to like common benchmarks, so you're probably going to earn this return. But then the question is, well, how much does it cost me to access this 2% Premium? Well, if it cost me 200 pips, that's probably a bad idea. Is it cost me, you know, zero? That'd be a great idea. Right? And then and then there's somewhere in between. So what we do is like, on our stuff, we, you know, for the domestics, we charge 49 basis points. So just under 50 bets, which is obviously, way more expensive than zero. I wouldn't call it outrageous. But the idea is, we're the bet on our stuff would be Hey, over the next 20 years, do I believe that the excess return associated with the factor exposures that I'm getting here are in excess of 49 basis points? If not, then why would I do this? If so, okay. I might want to do this. But then the second question would be will Can someone else deliver it even cheaper? Because maybe Vanguards got some concentrated value factor fun for 30 minutes. Right. And the process is very similar. I like it. Well, okay, I think I project it's worth 1%, you know, over the long haul or 2%. You know, it cost me 30 minutes here, I'll go to that one. Right. So so it's just it comes down to the trade off between, what do you expect this premium to pay off or the long haul? What do I gotta pay for it? And obviously, you want to pay less and earn more as best you can. Which is what I argue a lot of these people that do factor investing are doing today are not buying and holding, you know, our fund for 20 years, they're like day trading, you know, the shares, factor funds that that's not that's not arbitrage, extra premiums, that's, that's in the end, probably contributing to make them even higher in the future. But that's a baby speed dating factor funds rather than

Unknown Speaker 52:01
marrying one?

Unknown Speaker 52:03
Yeah, yeah, exactly that the only way you can pull premium out of the market is you need to have massive amounts of permanent capital sticking in something because it's kind of taking supply off the market. But if all you got is more day traders, you know, throwing money around sloshing around and factors, that's not arbitrage going away the factor that's just money sloshing around and it's adding volatility to the factor but unless that money is like all many Warren Buffett's, you know, holding for 20 years, through thick and thin, it's not going to depress the risk premium associated with them, or it'd be very unlikely to do so. And I frankly don't see that sort of mentality amongst factor investors in the in the marketplace. Nor do I see that as an incentive for product manufacturers because they're, they're in the business of of activity. So the more I can get you like day trade Do this and the other thing that's, that's good for the business out there. So I think people have an incentive to promote activity in factors. And you've written a lot about this. You've got three books

Unknown Speaker 53:13
out there, numerous papers, the books are quantitative value, quantitative momentum, and then DIY Do It Yourself financial advisor. I've read the book and

Unknown Speaker 53:26
it's not as easy as I think you make it out to be in that book how you can do all of this as a do it yourself investor, but

Unknown Speaker 53:33
Well, yeah, I would say just like a Bogo heads, you can go review to start here, here's how it's done. And yeah, you can read it and there's the cookbook, but at the right price, sometimes people will still like, you know what, thanks. I really appreciate the transparency. I understand what you're going to do, but I have better uses for my time, and rather pay you to do this for me. So but there are people that definitely are DIY, but there's certainly a lot People, you know, like my grandma, for example, where she's probably, she's probably not well suited to DIY, even if she read the book and thought it was cool because her grandson wrote it with a bit of a misnomer on the title.

Unknown Speaker 54:14
We're coming up on the end of our time. Just like to switch gears here for one last second. Could you talk about your march for the fall and, and what that's all about?

Unknown Speaker 54:24
Yeah, so March, the following is a 20 mile March held at the Pennsylvania National Guard Training Unit. And the the idea here is, you're out there representing for on behalf of those who lost loved ones in the military, so we're supporting Gold Star families and people who have lost people in war. It's not a charity in the sense that you give money. It's a charity in the sense that people that have lost their loved ones like to know that other people are remembering and honoring the fallen. So that's what you're doing. there and your charities, kind of your blood, sweat and tears to represent and, you know, let them know that we still appreciate, you know, sacrifices they gave as a family, and to go out there and hang out. And it's a great cause and you meet a lot of great people. And I really enjoy, you know, promoting it and trying to encourage as many folks as possible to come out.

Unknown Speaker 55:21
And if somebody was interested in joining your group, you you've got a pretty large group that you've put together.

Unknown Speaker 55:27
Yep, so you got so last year we had around 150. This year, I imagine will have probably 200 Plus, all you got to do is you want to be on notifications, obviously, reach out direct or just go to alpha architect comm slash MFPS. There's a whole website about training plans, nutrition, how to sign up and all these sort of other things. And all you gotta do is just show up, we take care of lodging and Chow and I think it's like 35 bucks. You got to pay to the National Guard. So very low cost. super efficient, great cause you mean a bunch of great people. And I think everyone should at least do one time in their life.

Unknown Speaker 56:10
Thank you Wes. It's been a great conversation. I really appreciate you joining us here on Bogle heads on investing

Unknown Speaker 56:15
you got it's been an honor and keep doing what you guys do over Bogo had the love education and and love the effort for DIY investors out there.

Unknown Speaker 56:24
This concludes the ninth episode of Bogle heads on

Unknown Speaker 56:28
investing. I'm your host, Rick ferry. Join us each month to hear a new special guest. In the meantime, visit Bogle heads.org and the Bogle heads wiki, participate in the forum and help others find the forum. Thanks for listening

Transcribed by https://otter.ai
--Robert Sterbal | 412-977-3526 call/text, I find speech easier than writing

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Re: Boglehead on Investing Podcast, partial transcription of Episode 1 with John C. Bogle

Post by Barry Barnitz » Fri Nov 08, 2019 9:38 pm

Hi:

Here is a google doc for editing: Wesley Gray 009.
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