February 20, 2025 • 52 mins
Barry speaks with Charles Ellis, author and Founder of Greenwich Associates. Prior to founding Greenwich Associates in 1972, Charles worked with the Rockefeller family investments office and Donaldson, Lufkin, and Jenrette. Charles was appointed to the faculty of the Yale School of Management and twice to the Harvard Business School. He also served as a trustee at Yale from 1997 to 2008. After stepping down as Managing Partner at Greenwich, Charles served on the Vanguard Group Board of Directors, was a trustee of the Robert Wood Johnson Foundation, and an advisor to the GIC of Singapore. He currently serves as chair of the Board of Directors at the Whitehead Institute for Biomedical Research. On this episode, Barry and Charles discuss his path through finance, the evolution of his investing philosophy, and his new book Rethinking Investing.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. This is Masters in
Business with Barry Ritholts on Bloomberg Radio.
Speaker 2 (00:16):
This week on the podcast, I have an extra extra
special guest. Charlie Ellis is just a legend in the
world of investing. He started for the Rockefeller Family Office
before going to DLJ and eventually ended up launching Greenwich Associates.
He's published twenty one books. He's won every award you
(00:37):
can win in the world of finance. He was a
member of Vanguard's Board of Director, he was chairman of
the Yales Endowment Investment Committee. And his not only did
he write twenty one books, his new book, Rethinking Investing
is just a delightful snack. It's only one hundred pages
(00:58):
and it distills sixty years of investing women wisdom into
a very very short read. I found the book excellent
and Charlie as delightful as always. I really enjoyed our
conversation and I think you will also with no further ado,
my discussion with Charlie. Alie, thank you Berry, Well, thank
(01:23):
you for being here. First of all, we're going to
talk a lot about the book in a bit which
I really just devoured over a cup of tea. It
was that short and very delightful. But before we do that,
I want people to fully understand what a fascinating background
you've had and how really interesting your career is. Where
you began and where you ended up. You get a
(01:45):
master's in business from Harvard Business School, a PhD from
New York University, and then you sort of happen onto
Rockefeller Foundation. How did you get that first job? How
did you discover your calling?
Speaker 3 (01:59):
Friend of mine and schools said if you got a
job yet? I said, no, not yet, got a couple
of things, and I'm working towards He said, well, I've
got a friend, and I thought he meant the Rockefeller Foundation.
Actually he meant the Rockefeller family in their investment office.
And very very bright guy came up from New York
(02:19):
to Cambridge, Massachusetts, climbed to the third floor of my
apartment building, and we did an interview in what I
would have to describe as shabby graduate student facility. And
at the end of half an hour, I realized it
isn't the Foundation that he's talking about. He's doing about
(02:39):
something else, and I got to figure out what that is.
The end of the second half an hour, I knew
he was trying about investing where there were no courses
at that time at the Harvard Business School on investment management.
Speaker 2 (02:51):
And he's really describing the Rockefeller family office. Yes, not
necessarily the foundation. So what were they doing at that time?
What were their investments like, Well.
Speaker 3 (03:01):
They invested the family's fortune, and at that time, relative
to other family fortunes, it was the large major, so
on and so on. They were also because they'd been
generous philanthropically for years, managing several charitable organizations endowments. So
the combination made us a consequential investment client for Wall
(03:25):
Street as Wall Street was just coming into doing serious
research on individual companies and industries. So it was takeoff
time for what became institutional investing.
Speaker 2 (03:36):
So give us some context as to that era. This
is the nineteen seventies and eighties essentially.
Speaker 3 (03:42):
Went when I was in the nineteen sixties.
Speaker 2 (03:44):
So late sixties, not a lot of data available on
a regular basis, and modern portfolio theory was kind of
just coming around.
Speaker 3 (03:53):
Oh, it was just an academic curiosity. Nobody's right mind
thought it had a chance to be proven. But you know,
if you go back to those days. If we came
back to it, we would all of us agree with
the people who said, no, it's nothing, it's not going
to happen. The transformation of the whole investment management world,
(04:18):
information availability, legislation, who's participating in, what's the trading volume,
what kind of information is available? How fast can you
get it? Wow, every one of those dimensions has changed
and changed and changed. The world is completely different today.
Speaker 2 (04:35):
You detail that in the book. We'll talk about that
a little bit. That if you just go back fifty years,
completely different world, as you mentioned the volume, but who
the players are, how technology allows us to do things
that we couldn't do before, and that we've also learned
a lot since then.
Speaker 3 (04:51):
We sure have. It's hard to remember, but I do
because I was new and fresh and submitting impression. Trading
volume three million shares in New York Stock Exchange listed
Now it's six seven eight billion. That's a huge change
order of magnitude. The amount of research that was available
(05:12):
was virtually zero.
Speaker 2 (05:15):
That's amazing.
Speaker 3 (05:15):
Now.
Speaker 2 (05:15):
I recall, well, the CCH binders used to get updates
on a regular basis, the clearing house binders, and then
it was essentially Zax and a whole bunch of different companies.
But that's really late eighties, right, Like when did the
research explosion will really happen?
Speaker 3 (05:34):
Research explosion happened in the seventies and then into the eighties.
But the documents that you were looking at are thinking
about we're all looking.
Speaker 2 (05:45):
Backwards, right, that's right.
Speaker 3 (05:47):
Give you the plane vanilla facts of what's happened in
the last five years in a standardized format with no
analytical or insight available. Now everything research is a future
and it's full of factual information and careful interpretation. It's
(06:07):
really different.
Speaker 2 (06:09):
That's really interesting. So how long are you at Rockefeller
before you launched Greenwich Associates in nineteen seventy two.
Speaker 3 (06:16):
Well, I was there for two and a half years.
Then I went to Wall Street with Donaldson, Lufkin and
General at for six and then I started Greenwich Associates.
Speaker 2 (06:24):
So what led you after less than a decade to
say I'm going to hang my own shingle. It seems
kind of bold at that point you're barely thirty years old.
Speaker 3 (06:35):
It was a little nervy, I have to graduate. There
are a couple of different parts. One is that I
knew from my own personal experience, I had no ability
to get my clients to tell me what I was
doing right or wrong. They'd always say, oh, you're doing fine,
just keep it up, You're doing fine. Then no idea
what my competition was doing. You know, if we could
(06:57):
give factual information on exactly how well each firm is
doing and how every one of their competitors are doing,
we could interpret that in ways that clients would find
really useful, and then we could advise them on specific
recommendations based on the facts, really undeniable facts, based on
(07:18):
three hundred, five hundred, six hundred interviews with people who
made the decisions, and it worked well.
Speaker 2 (07:25):
I can't imagine they're happy with the outcome, because what
you eventually end up learning is that a lot of
people who charge high fees for supposedly expert stockpicking, expert
market timing, expert allocation, they're not doing so well, And
it turns out, at least on the academic side, it
(07:46):
appears that the overall market is beating them.
Speaker 3 (07:51):
I wouldn't quite say it that way, So I wouldn't
deny what you're saying, but I would say it differently. Now,
when the purpose of any market a grocery store, a
drug store, filling station. The purpose of any market is
really to find what's the right price that people will
buy and trade at, and the securities industry is a
(08:15):
very strong illustration of that. Lots of buyers, lots of sellers,
what do they think is the right price to do
a transaction, and they put real money behind it. So
that purpose of a market gets better and better and
better when the participants are more skillful, when the participants
have more information, when the information is really accessible, and
(08:39):
that's what's happened to the securities markets. The ability to
get information from a Bloomberg terminal. You don't mind using mitame,
but seriously, Bloomberg terminal will spew out so much in
the way of factual information. And there are hundreds of
thousands of these terminals all over the world, so everybody
(08:59):
in his right mind has them and uses them. Everybody's
right mind has computing power that would knock the socks
off Anybody who came from nineteen seventy got dropped into
the current period that would just be amazed at the
computing power. And they don't use slide rules anymore. You know,
back in the early seventies, everybody used a slide rule. Wow,
(09:21):
and we were proud of it, and we're pretty skilled
at it. But it's nothing like having computing power behind you.
In those days, there were very few in the way
of federal regulations. Now it's against the law for a
company to have a private luncheon with someone who's in
the investment world.
Speaker 2 (09:40):
Right reg FD said it has to be disclosed to
everybody at once, so it is just whisper it to.
Speaker 3 (09:45):
And everybody gets the same information at the same time.
So basically what you've got is everybody in the game
is competing with everybody knowing everything that everybody else knows
at exactly this right same time. You can be terribly
creative and wonderfully bright and very original, but if everybody
knows exactly what you know, then they've got computing power,
(10:09):
so they can do all kinds of analytics. Then they've
got Bloomberg terminals, so they can do any backgrounding that
they want to find. It's really hard to see how
you're going to be able to beat them by much,
if anything. And the truth is that people who are
actively investing are usually making They don't mean to, but
(10:29):
they are making mistakes. Then those mistakes put them a
little bit behind, a little bit behind, a little bit
behind the market. And then of course they charge fees
that are high enough, so trying to recover those fees
while trading. And you can only trade successfully by beating
the other guy when he's just as good as you are.
He's got just as big a computer as you have,
(10:50):
got just the same factual information you have. Then all
those other different dimensions, there's no way that you could think, oh, yeah,
this is a good opportunity to do well. That's why
people increasingly, in my view, sensibly turned index funds to
cut down on the cost.
Speaker 2 (11:07):
So it's interesting how well you express that, because sometime
in the nineteen seventies you start writing your thoughts down
and publishing them. Not long after, in nineteen seventy seven,
you win a Gram and DoD Award. Tell us what
you were writing about back in the nineteen seventies and
what were you using for a data series when there
(11:29):
really wasn't a lot of data.
Speaker 3 (11:30):
Well, the data did come, but it came later, and
fortunately it proved out to be very strong confirmation for
what I've been thinking. But I was in institutional sales
and I would go around from one investor to another,
to another, to another to another, and I knew pretty
quickly they're all really bright guys. They're all very competitive,
(11:53):
they're all very well informed. They're all very serious students
trying to get better and better and better. Their job
is to beat the other guys. But the other guys
are getting better and better and better all the time,
striving to be best informed. They get up early, they
study on through the night, they take work home on weekends.
(12:14):
Competition competition, competition, competition. How are you going to do
better than those other guys when there's so much in
the way of raw input is the same and the
answer is no, you can't.
Speaker 2 (12:26):
Michael Mobison calls that the paradox of skill. As all
the players in a specific area get more and more skillful,
outcomes tend to be determined more by random luck because
everybody playing is so good at the game.
Speaker 3 (12:41):
Absolutely true.
Speaker 2 (12:42):
So I'm fascinated by this quote. We've been talking about
errors and making mistakes. One of the things from your
book that really resonated is quote, we are surrounded by
temptations to be wrong in both investing and in life.
Speaker 3 (12:59):
Explain well, we all know about life that were tempted
by beautiful men beautiful women who are tempted by whiskey,
gin other drinks, where some of us get tempted by
drugs and other things like that. So there are lots
of temptations out and around. You think about all of
(13:22):
us in the investment world are striving to be rational,
which is a terribly difficult thing to do. Warren Buffett
is rational and is brilliantly rational. He also does an
enormous amount of homework. He also has terrific ability to
remember things that he studied, and he spends most of
(13:43):
his time reading, studying, memorizing, and reusing. Very few people
have that kind of ability natural ability that he has.
But most of us now have equipment that will damn
near do the same thing, and you could call up
things from the historical record anytime you want to. It
(14:04):
puts everybody in a position of being able to compete
more and more skillfully all the time. And therefore, candidly
I think the fees are a big problem. And then
the second problem is, yes, we've got opportunities to be
born more skillful and more and more effective, but actually
what we also have, which really drives anybody who seares
(14:28):
about examining the data drives some nuts. And anybody who
is an investor wants to deny it. And that is
that we make mistakes. We get scared by the market
after it's gone down, we get excited about the market
positively after it's gone up, and we interpret and make
mistakes in our judgment. Now, it's a wonderful section in
(14:49):
this little bitty book that I've just finished, wonderful section
on behavioral economics. Terrific book by Daniel Konnaman Thinking Fast,
Thinking Slow, several hundred pages, and anybody in the investment
world or to read it because it tells you all
about what we need to know about ourselves. And I've
got one chapter that just ticks off a whole bunch
(15:10):
of things, Like eighty percent of people think they're above
average dancers, eighty percent of people think they're above average drivers.
If you ask men a question, are you really above
average various kinds of skills, they get up to pretty
ninety ninety five percent saying they're very, very very good. Now,
(15:32):
if you look at a college group, are you going
to have happier life than your classmates? Yes, by far
are you going to get divorced as much as your classmates?
Oh no, that won't happen to me. Then all kinds
of other things that anybody looking at it objectively would say,
you know, Barry, that just isn't the way it's going
to happen. These guys aren't that much better drivers than
(15:54):
the normal crowd. In fact, they are part of the
normal crowd.
Speaker 2 (15:58):
You know, we all that we're separate from the crowd.
I love the expression I'm stuck in traffic, when the
reality is, if you're near a major urban center during
rush hour on workday, you're not stuck in traffic. You
are traffic. And we all tend to think of ourselves
as separate. Really really fascinating stuff. I'm fascinated by the
(16:20):
evolution of your investing philosophy. You start with Rockefeller Family Office.
I assume back in the nineteen sixties that was a
fairly active form of investing. Tell us a little bit
about how you began, what sort of strategies you were using,
and then how you evolved.
Speaker 3 (16:40):
Whoa boy. That's a complicated question. First of all, In
the early sixties, when I was working for the Rockeviller family,
that was the old world. All kinds of changes have
taken place since then and virtually turned every single dimension
of what was the right description of the investment world
(17:00):
into a very different, opposite version. And it changed like
that makes it almost a waste of time to talk
about what was it like. But just for instance, I
did some analysis of a company called DuPont, which was
one of the blue blue trips of all time. And
(17:21):
I had also been studying IBM, which was a wonderful company,
and I've realized, you know, IBM has got an ability
to generate its own growth because it is creating one
after another advancement in computing power, and they've got a
terrific organization behind it, and they are able to create
(17:41):
their own growth. IBM is a true growth company. DuPont
needs to invent something that other people will really want,
and it has to be something that's really new, and
then they get patent protection for a certain period of time,
and then they lose the patent protection because it's completed.
(18:02):
They've got a different situation. Both companies were selling at
thirty thirty two times earnings. One company I thought was
sure to continue growing and the other I wasn't so sure.
So I got permission to go down to Wilmington, Delaware,
and for three days I had nothing but one interview
(18:24):
after another after another, where the senior executive of the
DuPont organization, and they were very candid, and they told
me about their problems. They told me about their opportunities.
They told me about their financial policies. Their first level
financial policies were that they would always pay out half
their earnings and dividends the long established and that was
the way they did things. The second thing is they
(18:46):
had a major commitment to nylon, but nylon was no
longer patent protected, and so the profit margins of nylon
were going to come down, for sure, and come down
rather rapidly because competition was building up pretty quickly. They
hoped to build one terrific business in a leather substitute
(19:07):
called Corefam. But as I talked to the executives, they
talk to me about we're having difficulty getting people to
use core fam. We're getting people who make shoes to
think about using core Fam. We can't get sales outside
the United States to really get going, and we're having
a difficult time getting sales inside the United States. And
(19:28):
candidly it doesn't look like this is going to turn
out to be the bonanza we had all thought it
was going to be just a year or so ago. Well,
it doesn't take a genius, then it doesn't take a
very experienced person. And I was not a genius, and
I was not an experienced person, but I could see
the handwriting. Wait a minute. If you only reinvest half
your earnings each year and your major business is going
(19:51):
to be more and more commoditized, and your major new
business is not taking off, you got a real problem here,
and you're gonna have a tough time keeping up the
kind of growth that would justify selling for thirty plus
times earnings, whereas IBM was guaranteed to be virtually guaranteed
to be able to do that because they didn't have
(20:12):
very much the way of competition, and they really knew
what they were doing, and they kept cranking it out.
So what do you do? I came back and said,
I know that the family, the Rockefeller family, has many
friends in the DuPont organization, but they also have many
friends in the Watson family of IBM. I think it
(20:35):
would be a great thing if we would sell off
the holdings in DuPont and use the money to buy
into IBM, go out of one family friends into another
family friends. They would all understand it, and that was
what was done, and of course it involved a substantial
amount of ownership being shifted. And I've always thought to myself, Wow,
(20:58):
in that one specific recommendation, I earned my cape for
several years.
Speaker 2 (21:03):
Huh. Really interesting, And it's fascinating because that's what was
being done in every institutional investor and every endowment. People
were making active choices.
Speaker 3 (21:15):
But they also were making lots of mistakes. Right if
you looked at what happened in the two years after
my recommendation, IBM doubled and DuPont almost got cut in half.
Speaker 2 (21:26):
Wow, So that worked out really well. So it's kind
of fascinating that you've evolved into really thinking about indexing
because when you were chairman of the Yale Endowment Investment Committee,
David Swinson was famously the creator of the Yale model,
and he had a lot of focus on private investment,
(21:47):
on alternatives, on venture capital, hedge funds, as well as commodities.
What made that era so different where those investments were
so attractive then and apparently less attractive to you today.
Speaker 3 (22:02):
First, you have to understand that David Swinson was a
remarkably talented guy. He was the best PhD student that
Jim Tobin Nobel Prize winner ever had. He was the
first person to do an interest rate swamp, which is
the first derivative transaction that took place in this country
between IBM and the World Bank, which just show you
(22:25):
everybody had told him you'll never be able to do that, David.
So we're talking about a very unusual guy, and he
was creative and disciplined in a remarkable combination. And he
was the first person of size to get involved in
(22:46):
a series of different types of investing, and then he
very carefully chose the very best people in each of
those different types. One day I was thinking, you know,
he's really done some very creative work. I wonder what's
his average length of relationship because the average length of
relationship with most institutions was somewhere between two and a
(23:07):
half and three and a half years. High turnover of
managers the calculation was fourteen years on average, and they
were still running, so it'd probably be something like twenty
years of typical relationship duration. Many of these managers when
they were just getting started. So it's the most dicey
(23:28):
period in any investment organization. Very very unusual and creative.
Guy said to me after he'd been doing this for
quite a long time. You know the nature of creativity
payoff is getting less and less and less because of
everybody else is doing what I've been doing. It's not
(23:49):
as rewarding as it used to be. And because I've
been choosing managers and other people are trying to get
into those same managers, they're not as differentiated as they
used to be. The rate of return magnitude that I
have been able to accomplish ten years ago, fifteen years ago,
I'm not going to be able to do in ten
or fifteen years into the future. And I think he
(24:10):
was right.
Speaker 2 (24:10):
Huh really interesting. So how do you end up from
going from the Yell Endowment to the Vanguard Board of Directors?
Tell us where that relationship.
Speaker 3 (24:19):
Came completely different. Each one was doing what they were
capable of doing really well. Vanguard was focused on minimizing
cost and they really systematic at it. Different orientation. The
orientation of the Yale Endowment was to find managers and
(24:40):
investment opportunities that were so different that you might get
a higher rate of return. So attacking to the reaching
for higher and higher rate of return, Vanguard was reaching
for lower and lower cost of executing a plain vanilla
proposition index funds Canes once had somebody say, you seem
to have changed your mind. He said, yes, when the
(25:03):
facts changed, I do change my judgment. What do you
do when the facts changed? And the reality is we've
been looking at a market that has changed and changed
and changed and changed, and the right way to deal
with that market has therefore changed and changed and changed
and changed. Then what you could have done in the
(25:24):
early nineteen sixties you can't do today. And what you
should have done in the early sixties was go find
an active manager who could knock the socks off at
the competition. But it just the competition is so damned
good today that there isn't a manager that can knock
the sox off.
Speaker 2 (25:41):
And a quote from your book is the grim reality
is clear active investing is not able to keep up with,
let alone outperform the market index. That's the biggest change
in the past fifty years is that it's become pretty
obvious that the deck is to be in favor of
active managers. Now it seems to be very much stacked against.
Speaker 3 (26:04):
Them because they're so very good. It's ironic, ironic, ironic.
Speaker 2 (26:10):
The paradox of skill. Yep, huh, really fascinating. You reference
some really interesting research in the book. One of the
things I found fascinating is that research from morning Star
and Dalbar show that not only do investors tend to
underperform the market, they underperform their own investments.
Speaker 3 (26:33):
Tell us about that, because we're human beings, as any
behavioral economists would point out to you, we have certain beliefs,
and those beliefs tend to be very very optimistic about
our skills, and we think we can help ourselves get
(26:54):
better results, or at least to minimize the negative experiences.
And the reality is that over time just doesn't work
out to be true. The average investor in an average
year loses two full percent by making mistakes. With the
(27:15):
best of intentions, trying to do something really good for themselves,
they make mistakes that are costly and that cost you.
Think about it, if you think the market's going to
return something like six or seven percent, you lose two percent,
maybe two and a half, maybe three for inflation, call
it two and a half. Whoop, that's something down. Then
(27:36):
you've got fees and costs. Jeez, who is add on
to that? If you did add on another two percent
that you've made mistakes, you're talking about a major transformation
to the negative of what could have been your rate
of return.
Speaker 2 (27:54):
Let's put some numbers, some meat on that bone. You
cite a UC Davis study that looked at sixty six
thousand investor accounts from nineteen ninety one to nineteen ninety six.
Over the that period, the market gained just under eighteen
percent a year, seventeen point nine percent a year. Investors
(28:15):
had underperformed by six point five percent a year. They
gave up a third of gains through mistakes, taxes, and costs.
And then Dalbar does the same thing. That's where the
two to three percent in a low return environment is.
So how should investors think about this tendency to do
worse than what the market does well?
Speaker 3 (28:38):
In my view, and it's part of the rethinking investing
concept of the book is if you find a problem,
it's a repetitive problem. In this sure is attack the
problem and try to reduce it. So what could you
do to reduce the cost of behavioral economics, and the
(29:01):
answer is index or ETF. And the reason why you
would index where ETF would help is because it's boring.
You know, if you own an index fund, you don't
get excited about what happened in the market is anything
like you would get excited about it if you had
just had five stocks, or if you had two or
(29:24):
three mutual funds and you were tracking those mutual funds
because they change more. The market as a whole, it
kind of goes along in its own lumbering way, a slow,
wide river of flow over time, and you, yeah, there's
nothing to get excited about, so you leave it alone.
You leave it alone, and you leave it alone. And
(29:45):
it's a little bit like when your mother said, don't
pick it that scab, let it heal by itself. Well,
but mom, it itches. You'd just be a little bit
tolerant and don't itch it or don't scratch it. Then
it'll heal faster. And sure enough, mother was right. In
the same way, if you index, you won't be excited
(30:06):
by the same things that other people get excited by,
and you just sort of steadily flow through and have
all the good results come your way. That's it.
Speaker 2 (30:14):
Huh. Really interesting. So, first of all, I have to
tell you I love this book. It's totally digestible. It's
barely one hundred pages. I literally read it over a
cup of tea. And you've published twenty books before this. What,
first of all, what led to this very short format?
(30:35):
Why go so brief? I'm curious.
Speaker 3 (30:39):
It's really an interesting experience for me. I love helping
people with investing, and I keep trying to think of
how can I be helpful and what are the lessons
that my children, grandchildren ought to learn, What are the
lessons that my favorite institutions ought to learn, my local church,
whatever it is now, what could I offer that would
(31:01):
be helpful? And I thought to myself, you know, the
world has changed a lot, and some rethinking of what's
the right way to invest might turn out to be
a good idea. I should try penciling that out. And
the more I've tried to scratch it out for the
Church Investment Committee, I realized this is something that could
(31:24):
easily be used by virtually everybody else. There are some
major changes that have taken place, and the world of
investing is very different than it used to be, and
the right way to deal with the world is really
different than it used to be. And I owe it
to other people because I've been blessed with this wonderful
privilege of being able to learn from all kinds of
(31:47):
people what's going on in the investment world and how
to deal with it and add it all together. I
should put this together in one last short book. And
my wife laughed, you never get this down to only
one hundred pages. I think that's all it takes.
Speaker 2 (32:04):
Yeah, pretty close. I think it's like one hundred and something,
one hundred and two, one hundred and four.
Speaker 3 (32:10):
And one of those pages is blank, and that there
are several pages that are half blanks of.
Speaker 2 (32:14):
Well, it's barely one hundred pages. So I love this
quote from the book. Over the twenty years ending in
mid twenty twenty three, investing in a broad based US
total market equity fund produced net returns better than more
than ninety percent of professionally managed stock funds that promise
(32:35):
to beat the market. Really, that's the heart of the
book is that if you invest for twenty plus years,
passive indexing and we'll talk about passive the phrase in
a minute, but basic indexing ends up in the top decile.
Speaker 3 (32:52):
Yeah, And you're talking about twenty years, and many people say,
oh gee, that's a long time. Wait a minute, Wait
a minute, wait a minute. You start investing in your twenties,
you'll still be investing in your eighties. That's a sixty
year horizon. And if you're lucky enough to do well enough,
you might leave some to your children and grandchildren. So
(33:14):
it might not be sixty years, it might be eighty
one hundred hundred and twenty years. Try to think about
that long term, because that is a marvelous privilege to
have that long a time to be able to be
an investor.
Speaker 2 (33:27):
And you cite the S and P Research Group SPIVA,
the average annual return of broad indexes was one point
eight percentage points better than the average actively managed funds.
That's nearly two percent compounding over time. That really adds up,
doesn't it.
Speaker 3 (33:44):
It sure does, And compounding is really important for all
of us to recognize. Some people call it snowball, and
I think that's perfectly fine, because as you roll a snowball,
every time you roll it over, it gets much thicker,
not just a little bit, much thicker, and you do
compounding it one two four eight, sixteen thirty two sixty four,
(34:07):
one hundred and twenty eight. Those last rounds of compounding
are really important. So for goodness sake, think about how
can you get there so you'll have those compoundings work
for you.
Speaker 2 (34:20):
So we mentioned the phrase passive, which has.
Speaker 3 (34:24):
Come oh please don't do that, which comes.
Speaker 2 (34:26):
With some baggage. But you describe what a historical anomaly
the phrase passive? Is it? Really? Why don't I let
you explain? It really just comes from an odd legal usage.
To tell us a little bit about where the word
passive came to be when it came glad.
Speaker 3 (34:43):
To indexing is to me the right word to use.
Passive has such a negative connotation. I don't know about you, Berry,
but I wouldn't want anybody to describe me as passive.
Now I'm going to vote for so and so as
president of the United States, It's not going to be because
he's passive. Passive is a negative term. However, if you're
(35:05):
an electrical engineer, it's not a pejorative. There's two parts,
two prongs or three prongs on the end of a wire,
and there's a wall socket that's got either two holes
or three holes, depending on which electric system is. The
one that has the prongs is called the active part.
(35:28):
The one that has the holes is called the passive part.
And because indexing was created by a group of electrical
engineers and mechanical engineers, they just used what they thought
was the sensible terminology, and then other people who had
not realized where it came from, saw it as being
a negative. I don't want to be passive. I want
(35:48):
to have an active manager who go out there and
really do something for me. That is a complete misunderstanding,
and it really did a terrible harm for indexing vest
to be called passive.
Speaker 2 (36:01):
Let's talk about some of the other things that index
investing has been called. And I put together a short
list because there's been so much pushback to indexing. It's
been called Marxist, communist, socialist. It's devouring capitalism, it's a mania,
it's creating frightening risk for markets. It's lobottomized investing, a
(36:25):
danger to the economy, a systemic risk, a bubble waiting
to burst. It's terrible for our economy. Why so much
hate for indexing.
Speaker 3 (36:35):
Well, if you were an active manager and you were
life threatened by something that was a better product to
the lower cost, you might have some negative commentary too.
Speaker 2 (36:44):
It's just as simple as their livelihood is dependent on
flows into active and that's where all the animals.
Speaker 3 (36:50):
And it's partly livelihood, it's partly religious faith, it's partly
cultural conviction, it's partly what I've done for most of
these people would say, have been doing it for twenty
five years, and I want to keep doing it for
twenty five years. Oh, by the way, I get paid
really well to do.
Speaker 2 (37:06):
It, and I liked that job to continue. Sure you
mentioned we talked earlier about the temptation that we're surrounded
by temptations to be wrong. I want to talk about
some data in the book about what happens if you're
wrong and out of the market during some of the
(37:28):
best days. And the data point you use was ten
thousand trading days over twenty six years on average, that's
about eleven point two percent returns. So if you have
money in broad market indices over twenty six years, ten
thousand trading sections, you're averaging eleven point two percent annually.
(37:51):
If you miss only the ten best days, not a year,
but over those ten thousand trading days, that eleven point
two percent drops to nine point two percent twenty days
down seven point to seven point seven percent a year,
and if you miss the thirty best days out of
(38:12):
ten thousand, the return goes from eleven point two to
six point four, almost a five hundred bases point drop.
That's amazing. Tell us about that.
Speaker 3 (38:22):
Oh, First of all, you have to recognize when you
select out the most extreme days, it does have a
really big impact. The second thing is when do those
days come? And the best days usually come shortly after
the worst days, the bounce, the hey, wait a minute,
(38:43):
this market is not as bad as everybody's saying. It
really does have a terrific opportunity, and that's when the
best days typically come. So the time that we all
get frightened and all of us get unnervou is the
is the most wrong time to be taking action.
Speaker 2 (39:03):
And the statistical basis is those ten days are only
zero point one percent of total training sessions, but you're
giving up one fifth of the games. That's an amazing asymmetry.
Speaker 3 (39:18):
And it's a hell of a great lesson to learn.
Hang in there, steady aety does pay off.
Speaker 2 (39:25):
Another quote from the book, why should investors care about
the day to day or even month to month fluctuations
in prices if they have no plans to sell any
time sooned. That sounds so perfectly obvious when you hear it.
Why are people so drawn into the noise?
Speaker 3 (39:42):
Well, when I advise people on investing, I always start
with what do you most want to accomplish? And then
the second question is when do you plan to sell
your securities? And most people say, well, what do you
mean when do I plan to sell? Well, when are
you most likely to say? I need money out of
(40:03):
my securities? Investment for life spending, probably in retirement. Oh yeah,
And then they'll give you a date, and then you say,
and how far out into the future is that? And
then really want to be difficult for somebody to say, Okay,
it's forty three years out into the future. Let's go
(40:24):
back forty three years. Tell me what you think was
happening forty three years ago. Today's date, forty three years ago.
Speaker 2 (40:33):
I have no idea.
Speaker 3 (40:34):
Why do you ask? Well? Asking because you have no idea,
and you have no idea forty three years out into
the future. And the reason for that is because you
don't care. It's the long term trend that you care about,
and you care greatly about that, but you don't care
about the day to day to day fluctuations.
Speaker 2 (40:53):
So you sum up the book by pointing out every
investor today has three great gifts time compounding and ETF
and indexing.
Speaker 3 (41:05):
Discuss time to be able to have the experience of compounding,
where you each compounding round you double what you had. Boy,
does it really pay off to be in it for
the long term and have saved early enough so that
(41:26):
you compound a larger amount. But that leap from one
to two it's not very exciting. Two to four is
not much, Four to eight is not really all that much,
Eight to sixteen starts to attract your attention. Sixteen to
thirty two that's really something. Thirty two to sixty four
and to one hundred and twenty eight, Holy smokes, I
(41:47):
want that last doubling. That's really a payoff. Only way
you get there is start early and stay on course
compounding away as best you can.
Speaker 2 (41:58):
You know, people have points it out, and I think
you reference this in the book that as successful as
Warren Buffett has been over his whole career because of
the doubling. It depends on the rule of seventy two.
But let's say every seven or eight years. Half of
your gains have come in the most recent seven and
(42:19):
a half eight year era, and Warren's now in his nineties,
and the vast majority of his wealth have only happened
in the past ten fifteen years. It's kind of fascinating.
Speaker 3 (42:30):
Well, he's a brilliant and wonderful human being, and all
of us can learn great lessons from paying attention to
what Warren says or has said in his annual meetings
are a treasure chest of opportunities to learn. He did
start as a teenager, not in his mid twenties, but
(42:52):
in his early teens, and then he is not stopping
at sixty five. He's roaring right past that. And when
you bolt on those extra years, it gives him a
much larger playing field in which to double and double
and redouble and redouble. And all of us ought to
pay attention to that one most powerful lesson. If you've
(43:12):
got the time, the impact of compounding really is terrific.
And the only way you get to be have the
time is to do it yourself, save enough, early enough,
and stay with it long enough to let the compounding
take place. But it's inevitable power of compounding is just
wonderful to have on your side.
Speaker 2 (43:34):
So three of the things I want to talk about
from the book. First, as alpha became harder and harder
to achieve, as it became more difficult to be very
good competition, the aspect of reducing costs, reducing fees, reducing
taxes became another way of generating better returns. Tell us
(43:59):
a little bit about what led you to that conclusion
and what firms like black Rock and Vanguard have done
to further that belief system.
Speaker 3 (44:10):
Parents really candidly just been pay attention to what the
numbers say, and pay attention to the data, and the
data is so powerfully, consistently strong that active investing is
an exciting idea. And in the right time and circumstance
the nineteen sixties, it worked beautifully. But the circumstances now
(44:33):
are so different that it doesn't work beautifully. It works
candidly negatively.
Speaker 2 (44:40):
Two other things I want to go over, what is
the concept of total financial portfolio, Meaning, when you're looking
at your allocation, you should include the present value of
your future social security payments and the equity value of
your home has sort of unlike and that should help
(45:01):
you shift your allocation a little away from bonds, a
little more into equities. Tell us about that now.
Speaker 3 (45:09):
I think it's one of those ideas that once it
pops into your mind, you'll never walk away from it.
Most of us have no idea what the total value
of our future stream of payouts from Social Security are,
but you can do the calculation fairly simply. Most of
us would be really impressed if we've realized how much
(45:30):
is the real value of that future stream of payments
that are coming from the best credit in the world,
federal government, and that's inflation protected, so it's even better
than most people would imagine. That's the single most valuable
asset for most people. The second most valuable asset for
(45:51):
most people is the value of their home. And I
know people would say that first reactions, but I'm not
going to sell my home. I'm going to continue to
live there. Fine. True, But someday either your children or
your grandchildren will say, we don't really want to live
in that same house, so we're going to sell it.
So it does have an economic value, and it will
(46:11):
be realized at some point down the line. Take those
two and put them side by side with your securities
and most people would say, my god, I've got more
in the way of fixed income and fixed in bond
equivalents than I had ever imagined. I think I ought
to be careful in my securities part of the portfolio,
(46:33):
to rethink things and probably be substantially more committed to
equities in my securities portfolio because I've got these other
things that I was never counting on before, but now
that I've been told about it, I really want to
include that as my understanding to the total picture.
Speaker 2 (46:51):
And I like the concept of outside the market decisions
versus inside the market decisions. Explain the difference between the two, well.
Speaker 3 (47:00):
Outside market decisions have to do with what's changed in
your life, most obvious being when you retire, but sometimes
it's when you get a better job, higher pay, or
even you get a significant bonus because of the wonderful
achievement that you've had during the particular year, when your
(47:22):
circumstances get changed. Oh and getting married is another real change.
When the circumstances changed, you really ought to rethink your
investment program just to be sure that it's really right
for your present total picture.
Speaker 2 (47:38):
Makes a lot of sense. I know I only have
you for a few more minutes, let me jump to
three of my favorite questions that I ask all my guests,
starting with what are some of your favorite books? What
are you reading right now?
Speaker 3 (47:54):
My favorite books tend to be history, and the one
that I have most recently he read is a wonderful
biography of Jack Kennedy as president and the things that
he did that made America the most popular country in
the world.
Speaker 2 (48:13):
And our last two questions, what advice would you give
to a recent college grad interested in a career in investing.
Speaker 3 (48:22):
Think about what really motivates you to be interested in investing.
If it's because it's a high income field, that's okay,
But candidly, it's not an inspiration. And you only have
one life to lead. Is it your desire to lead
your life making money or doing something that you would
(48:44):
say was at the end of your life, I'm so
proud of what I did, or I'm so glad I
did what I did. If you're thinking about investing because
it's a profession where you help people be more successful
in achieving their objectives, then candidly you could have a
fabulous time. It won't come because you beat the market,
(49:06):
but that's not the problem. For most people. For most people,
beating the market is very clearly secondary to what's their
real need, which is to think through what are their objectives,
what are their financial resources, and how can they put
those together into the best for them investment program. And
the same thing is true for every college, every hospital,
(49:28):
every church, every organization has an endowment needs to think
carefully about what is the real purpose of the money
and how can we do the best for our long
term success by the structure of the portfolio that we have.
Speaker 2 (49:44):
And our final question, what do you know about the
world of investing today that would have been really useful
back in the nineteen sixties when you were working for
the Rockefellers.
Speaker 3 (49:55):
Oh boy, First that the whole world is going to
be changed. So don't stay with what you think is
really great about the early nineteen sixties, because all of
that is going to be upended, and all the lessons
that you would think were just great about how to
do things in the early nineteen sixties will work against you.
(50:15):
And by the time you get to the this time
of the year, you will be making mistakes one after
another after another after another by doing things that are
just completely out of date. And the world of investing
will change more than most fields will change. Computer technology
will change more, airplane travel will change more. But candidly,
(50:42):
investing is going to change so much that if you
take the lessons that you're learning for how to do
it in the sixties and try to transport those into
the twenty twenties, you're going to pay a terrible price.
Don't do it. Don't do it.
Speaker 2 (50:55):
Thank you Charlie for sharing all of your wisdom and insights.
I really appreciate it. We have been speaking with Charlie
Ellis talking about his new book, Rethinking Investing, a very
short guide to very long term investing. If you enjoyed
this conversation, check out any of the five hundred or
(51:15):
so we've done over the past ten years. You can
find those at Bloomberg, iTunes, Spotify, YouTube, wherever you find
your favorite podcast, and be sure and check out my
new book, How Not to Invest The bad ideas, numbers,
and behavior that destroys wealth. I would be remiss if
I did not thank the Crack team that helps put
(51:37):
these conversations together each week. Andrew Davin is my audio engineer.
Anna Luke is my producer. Sean Russo is my researcher.
Sage Bauman is the head of Podcasts at Bloomberg. I'm
Barry Ritults. You've been listening to Masters in Business on
Bloomberg Radio.
Bloomberg Audio Studios, podcasts, radio news. This is Masters in
Business with Barry Ritholts on Bloomberg Radio.
Speaker 2 (00:16):
This week on the podcast, I have an extra extra
special guest. Charlie Ellis is just a legend in the
world of investing. He started for the Rockefeller Family Office
before going to DLJ and eventually ended up launching Greenwich Associates.
He's published twenty one books. He's won every award you
(00:37):
can win in the world of finance. He was a
member of Vanguard's Board of Director, he was chairman of
the Yales Endowment Investment Committee. And his not only did
he write twenty one books, his new book, Rethinking Investing
is just a delightful snack. It's only one hundred pages
(00:58):
and it distills sixty years of investing women wisdom into
a very very short read. I found the book excellent
and Charlie as delightful as always. I really enjoyed our
conversation and I think you will also with no further ado,
my discussion with Charlie. Alie, thank you Berry, Well, thank
(01:23):
you for being here. First of all, we're going to
talk a lot about the book in a bit which
I really just devoured over a cup of tea. It
was that short and very delightful. But before we do that,
I want people to fully understand what a fascinating background
you've had and how really interesting your career is. Where
you began and where you ended up. You get a
(01:45):
master's in business from Harvard Business School, a PhD from
New York University, and then you sort of happen onto
Rockefeller Foundation. How did you get that first job? How
did you discover your calling?
Speaker 3 (01:59):
Friend of mine and schools said if you got a
job yet? I said, no, not yet, got a couple
of things, and I'm working towards He said, well, I've
got a friend, and I thought he meant the Rockefeller Foundation.
Actually he meant the Rockefeller family in their investment office.
And very very bright guy came up from New York
(02:19):
to Cambridge, Massachusetts, climbed to the third floor of my
apartment building, and we did an interview in what I
would have to describe as shabby graduate student facility. And
at the end of half an hour, I realized it
isn't the Foundation that he's talking about. He's doing about
(02:39):
something else, and I got to figure out what that is.
The end of the second half an hour, I knew
he was trying about investing where there were no courses
at that time at the Harvard Business School on investment management.
Speaker 2 (02:51):
And he's really describing the Rockefeller family office. Yes, not
necessarily the foundation. So what were they doing at that time?
What were their investments like, Well.
Speaker 3 (03:01):
They invested the family's fortune, and at that time, relative
to other family fortunes, it was the large major, so
on and so on. They were also because they'd been
generous philanthropically for years, managing several charitable organizations endowments. So
the combination made us a consequential investment client for Wall
(03:25):
Street as Wall Street was just coming into doing serious
research on individual companies and industries. So it was takeoff
time for what became institutional investing.
Speaker 2 (03:36):
So give us some context as to that era. This
is the nineteen seventies and eighties essentially.
Speaker 3 (03:42):
Went when I was in the nineteen sixties.
Speaker 2 (03:44):
So late sixties, not a lot of data available on
a regular basis, and modern portfolio theory was kind of
just coming around.
Speaker 3 (03:53):
Oh, it was just an academic curiosity. Nobody's right mind
thought it had a chance to be proven. But you know,
if you go back to those days. If we came
back to it, we would all of us agree with
the people who said, no, it's nothing, it's not going
to happen. The transformation of the whole investment management world,
(04:18):
information availability, legislation, who's participating in, what's the trading volume,
what kind of information is available? How fast can you
get it? Wow, every one of those dimensions has changed
and changed and changed. The world is completely different today.
Speaker 2 (04:35):
You detail that in the book. We'll talk about that
a little bit. That if you just go back fifty years,
completely different world, as you mentioned the volume, but who
the players are, how technology allows us to do things
that we couldn't do before, and that we've also learned
a lot since then.
Speaker 3 (04:51):
We sure have. It's hard to remember, but I do
because I was new and fresh and submitting impression. Trading
volume three million shares in New York Stock Exchange listed
Now it's six seven eight billion. That's a huge change
order of magnitude. The amount of research that was available
(05:12):
was virtually zero.
Speaker 2 (05:15):
That's amazing.
Speaker 3 (05:15):
Now.
Speaker 2 (05:15):
I recall, well, the CCH binders used to get updates
on a regular basis, the clearing house binders, and then
it was essentially Zax and a whole bunch of different companies.
But that's really late eighties, right, Like when did the
research explosion will really happen?
Speaker 3 (05:34):
Research explosion happened in the seventies and then into the eighties.
But the documents that you were looking at are thinking
about we're all looking.
Speaker 2 (05:45):
Backwards, right, that's right.
Speaker 3 (05:47):
Give you the plane vanilla facts of what's happened in
the last five years in a standardized format with no
analytical or insight available. Now everything research is a future
and it's full of factual information and careful interpretation. It's
(06:07):
really different.
Speaker 2 (06:09):
That's really interesting. So how long are you at Rockefeller
before you launched Greenwich Associates in nineteen seventy two.
Speaker 3 (06:16):
Well, I was there for two and a half years.
Then I went to Wall Street with Donaldson, Lufkin and
General at for six and then I started Greenwich Associates.
Speaker 2 (06:24):
So what led you after less than a decade to
say I'm going to hang my own shingle. It seems
kind of bold at that point you're barely thirty years old.
Speaker 3 (06:35):
It was a little nervy, I have to graduate. There
are a couple of different parts. One is that I
knew from my own personal experience, I had no ability
to get my clients to tell me what I was
doing right or wrong. They'd always say, oh, you're doing fine,
just keep it up, You're doing fine. Then no idea
what my competition was doing. You know, if we could
(06:57):
give factual information on exactly how well each firm is
doing and how every one of their competitors are doing,
we could interpret that in ways that clients would find
really useful, and then we could advise them on specific
recommendations based on the facts, really undeniable facts, based on
(07:18):
three hundred, five hundred, six hundred interviews with people who
made the decisions, and it worked well.
Speaker 2 (07:25):
I can't imagine they're happy with the outcome, because what
you eventually end up learning is that a lot of
people who charge high fees for supposedly expert stockpicking, expert
market timing, expert allocation, they're not doing so well, And
it turns out, at least on the academic side, it
(07:46):
appears that the overall market is beating them.
Speaker 3 (07:51):
I wouldn't quite say it that way, So I wouldn't
deny what you're saying, but I would say it differently. Now,
when the purpose of any market a grocery store, a
drug store, filling station. The purpose of any market is
really to find what's the right price that people will
buy and trade at, and the securities industry is a
(08:15):
very strong illustration of that. Lots of buyers, lots of sellers,
what do they think is the right price to do
a transaction, and they put real money behind it. So
that purpose of a market gets better and better and
better when the participants are more skillful, when the participants
have more information, when the information is really accessible, and
(08:39):
that's what's happened to the securities markets. The ability to
get information from a Bloomberg terminal. You don't mind using mitame,
but seriously, Bloomberg terminal will spew out so much in
the way of factual information. And there are hundreds of
thousands of these terminals all over the world, so everybody
(08:59):
in his right mind has them and uses them. Everybody's
right mind has computing power that would knock the socks
off Anybody who came from nineteen seventy got dropped into
the current period that would just be amazed at the
computing power. And they don't use slide rules anymore. You know,
back in the early seventies, everybody used a slide rule. Wow,
(09:21):
and we were proud of it, and we're pretty skilled
at it. But it's nothing like having computing power behind you.
In those days, there were very few in the way
of federal regulations. Now it's against the law for a
company to have a private luncheon with someone who's in
the investment world.
Speaker 2 (09:40):
Right reg FD said it has to be disclosed to
everybody at once, so it is just whisper it to.
Speaker 3 (09:45):
And everybody gets the same information at the same time.
So basically what you've got is everybody in the game
is competing with everybody knowing everything that everybody else knows
at exactly this right same time. You can be terribly
creative and wonderfully bright and very original, but if everybody
knows exactly what you know, then they've got computing power,
(10:09):
so they can do all kinds of analytics. Then they've
got Bloomberg terminals, so they can do any backgrounding that
they want to find. It's really hard to see how
you're going to be able to beat them by much,
if anything. And the truth is that people who are
actively investing are usually making They don't mean to, but
(10:29):
they are making mistakes. Then those mistakes put them a
little bit behind, a little bit behind, a little bit
behind the market. And then of course they charge fees
that are high enough, so trying to recover those fees
while trading. And you can only trade successfully by beating
the other guy when he's just as good as you are.
He's got just as big a computer as you have,
(10:50):
got just the same factual information you have. Then all
those other different dimensions, there's no way that you could think, oh, yeah,
this is a good opportunity to do well. That's why
people increasingly, in my view, sensibly turned index funds to
cut down on the cost.
Speaker 2 (11:07):
So it's interesting how well you express that, because sometime
in the nineteen seventies you start writing your thoughts down
and publishing them. Not long after, in nineteen seventy seven,
you win a Gram and DoD Award. Tell us what
you were writing about back in the nineteen seventies and
what were you using for a data series when there
(11:29):
really wasn't a lot of data.
Speaker 3 (11:30):
Well, the data did come, but it came later, and
fortunately it proved out to be very strong confirmation for
what I've been thinking. But I was in institutional sales
and I would go around from one investor to another,
to another, to another to another, and I knew pretty
quickly they're all really bright guys. They're all very competitive,
(11:53):
they're all very well informed. They're all very serious students
trying to get better and better and better. Their job
is to beat the other guys. But the other guys
are getting better and better and better all the time,
striving to be best informed. They get up early, they
study on through the night, they take work home on weekends.
(12:14):
Competition competition, competition, competition. How are you going to do
better than those other guys when there's so much in
the way of raw input is the same and the
answer is no, you can't.
Speaker 2 (12:26):
Michael Mobison calls that the paradox of skill. As all
the players in a specific area get more and more skillful,
outcomes tend to be determined more by random luck because
everybody playing is so good at the game.
Speaker 3 (12:41):
Absolutely true.
Speaker 2 (12:42):
So I'm fascinated by this quote. We've been talking about
errors and making mistakes. One of the things from your
book that really resonated is quote, we are surrounded by
temptations to be wrong in both investing and in life.
Speaker 3 (12:59):
Explain well, we all know about life that were tempted
by beautiful men beautiful women who are tempted by whiskey,
gin other drinks, where some of us get tempted by
drugs and other things like that. So there are lots
of temptations out and around. You think about all of
(13:22):
us in the investment world are striving to be rational,
which is a terribly difficult thing to do. Warren Buffett
is rational and is brilliantly rational. He also does an
enormous amount of homework. He also has terrific ability to
remember things that he studied, and he spends most of
(13:43):
his time reading, studying, memorizing, and reusing. Very few people
have that kind of ability natural ability that he has.
But most of us now have equipment that will damn
near do the same thing, and you could call up
things from the historical record anytime you want to. It
(14:04):
puts everybody in a position of being able to compete
more and more skillfully all the time. And therefore, candidly
I think the fees are a big problem. And then
the second problem is, yes, we've got opportunities to be
born more skillful and more and more effective, but actually
what we also have, which really drives anybody who seares
(14:28):
about examining the data drives some nuts. And anybody who
is an investor wants to deny it. And that is
that we make mistakes. We get scared by the market
after it's gone down, we get excited about the market
positively after it's gone up, and we interpret and make
mistakes in our judgment. Now, it's a wonderful section in
(14:49):
this little bitty book that I've just finished, wonderful section
on behavioral economics. Terrific book by Daniel Konnaman Thinking Fast,
Thinking Slow, several hundred pages, and anybody in the investment
world or to read it because it tells you all
about what we need to know about ourselves. And I've
got one chapter that just ticks off a whole bunch
(15:10):
of things, Like eighty percent of people think they're above
average dancers, eighty percent of people think they're above average drivers.
If you ask men a question, are you really above
average various kinds of skills, they get up to pretty
ninety ninety five percent saying they're very, very very good. Now,
(15:32):
if you look at a college group, are you going
to have happier life than your classmates? Yes, by far
are you going to get divorced as much as your classmates?
Oh no, that won't happen to me. Then all kinds
of other things that anybody looking at it objectively would say,
you know, Barry, that just isn't the way it's going
to happen. These guys aren't that much better drivers than
(15:54):
the normal crowd. In fact, they are part of the
normal crowd.
Speaker 2 (15:58):
You know, we all that we're separate from the crowd.
I love the expression I'm stuck in traffic, when the
reality is, if you're near a major urban center during
rush hour on workday, you're not stuck in traffic. You
are traffic. And we all tend to think of ourselves
as separate. Really really fascinating stuff. I'm fascinated by the
(16:20):
evolution of your investing philosophy. You start with Rockefeller Family Office.
I assume back in the nineteen sixties that was a
fairly active form of investing. Tell us a little bit
about how you began, what sort of strategies you were using,
and then how you evolved.
Speaker 3 (16:40):
Whoa boy. That's a complicated question. First of all, In
the early sixties, when I was working for the Rockeviller family,
that was the old world. All kinds of changes have
taken place since then and virtually turned every single dimension
of what was the right description of the investment world
(17:00):
into a very different, opposite version. And it changed like
that makes it almost a waste of time to talk
about what was it like. But just for instance, I
did some analysis of a company called DuPont, which was
one of the blue blue trips of all time. And
(17:21):
I had also been studying IBM, which was a wonderful company,
and I've realized, you know, IBM has got an ability
to generate its own growth because it is creating one
after another advancement in computing power, and they've got a
terrific organization behind it, and they are able to create
(17:41):
their own growth. IBM is a true growth company. DuPont
needs to invent something that other people will really want,
and it has to be something that's really new, and
then they get patent protection for a certain period of time,
and then they lose the patent protection because it's completed.
(18:02):
They've got a different situation. Both companies were selling at
thirty thirty two times earnings. One company I thought was
sure to continue growing and the other I wasn't so sure.
So I got permission to go down to Wilmington, Delaware,
and for three days I had nothing but one interview
(18:24):
after another after another, where the senior executive of the
DuPont organization, and they were very candid, and they told
me about their problems. They told me about their opportunities.
They told me about their financial policies. Their first level
financial policies were that they would always pay out half
their earnings and dividends the long established and that was
the way they did things. The second thing is they
(18:46):
had a major commitment to nylon, but nylon was no
longer patent protected, and so the profit margins of nylon
were going to come down, for sure, and come down
rather rapidly because competition was building up pretty quickly. They
hoped to build one terrific business in a leather substitute
(19:07):
called Corefam. But as I talked to the executives, they
talk to me about we're having difficulty getting people to
use core fam. We're getting people who make shoes to
think about using core Fam. We can't get sales outside
the United States to really get going, and we're having
a difficult time getting sales inside the United States. And
(19:28):
candidly it doesn't look like this is going to turn
out to be the bonanza we had all thought it
was going to be just a year or so ago. Well,
it doesn't take a genius, then it doesn't take a
very experienced person. And I was not a genius, and
I was not an experienced person, but I could see
the handwriting. Wait a minute. If you only reinvest half
your earnings each year and your major business is going
(19:51):
to be more and more commoditized, and your major new
business is not taking off, you got a real problem here,
and you're gonna have a tough time keeping up the
kind of growth that would justify selling for thirty plus
times earnings, whereas IBM was guaranteed to be virtually guaranteed
to be able to do that because they didn't have
(20:12):
very much the way of competition, and they really knew
what they were doing, and they kept cranking it out.
So what do you do? I came back and said,
I know that the family, the Rockefeller family, has many
friends in the DuPont organization, but they also have many
friends in the Watson family of IBM. I think it
(20:35):
would be a great thing if we would sell off
the holdings in DuPont and use the money to buy
into IBM, go out of one family friends into another
family friends. They would all understand it, and that was
what was done, and of course it involved a substantial
amount of ownership being shifted. And I've always thought to myself, Wow,
(20:58):
in that one specific recommendation, I earned my cape for
several years.
Speaker 2 (21:03):
Huh. Really interesting, And it's fascinating because that's what was
being done in every institutional investor and every endowment. People
were making active choices.
Speaker 3 (21:15):
But they also were making lots of mistakes. Right if
you looked at what happened in the two years after
my recommendation, IBM doubled and DuPont almost got cut in half.
Speaker 2 (21:26):
Wow, So that worked out really well. So it's kind
of fascinating that you've evolved into really thinking about indexing
because when you were chairman of the Yale Endowment Investment Committee,
David Swinson was famously the creator of the Yale model,
and he had a lot of focus on private investment,
(21:47):
on alternatives, on venture capital, hedge funds, as well as commodities.
What made that era so different where those investments were
so attractive then and apparently less attractive to you today.
Speaker 3 (22:02):
First, you have to understand that David Swinson was a
remarkably talented guy. He was the best PhD student that
Jim Tobin Nobel Prize winner ever had. He was the
first person to do an interest rate swamp, which is
the first derivative transaction that took place in this country
between IBM and the World Bank, which just show you
(22:25):
everybody had told him you'll never be able to do that, David.
So we're talking about a very unusual guy, and he
was creative and disciplined in a remarkable combination. And he
was the first person of size to get involved in
(22:46):
a series of different types of investing, and then he
very carefully chose the very best people in each of
those different types. One day I was thinking, you know,
he's really done some very creative work. I wonder what's
his average length of relationship because the average length of
relationship with most institutions was somewhere between two and a
(23:07):
half and three and a half years. High turnover of
managers the calculation was fourteen years on average, and they
were still running, so it'd probably be something like twenty
years of typical relationship duration. Many of these managers when
they were just getting started. So it's the most dicey
(23:28):
period in any investment organization. Very very unusual and creative.
Guy said to me after he'd been doing this for
quite a long time. You know the nature of creativity
payoff is getting less and less and less because of
everybody else is doing what I've been doing. It's not
(23:49):
as rewarding as it used to be. And because I've
been choosing managers and other people are trying to get
into those same managers, they're not as differentiated as they
used to be. The rate of return magnitude that I
have been able to accomplish ten years ago, fifteen years ago,
I'm not going to be able to do in ten
or fifteen years into the future. And I think he
(24:10):
was right.
Speaker 2 (24:10):
Huh really interesting. So how do you end up from
going from the Yell Endowment to the Vanguard Board of Directors?
Tell us where that relationship.
Speaker 3 (24:19):
Came completely different. Each one was doing what they were
capable of doing really well. Vanguard was focused on minimizing
cost and they really systematic at it. Different orientation. The
orientation of the Yale Endowment was to find managers and
(24:40):
investment opportunities that were so different that you might get
a higher rate of return. So attacking to the reaching
for higher and higher rate of return, Vanguard was reaching
for lower and lower cost of executing a plain vanilla
proposition index funds Canes once had somebody say, you seem
to have changed your mind. He said, yes, when the
(25:03):
facts changed, I do change my judgment. What do you
do when the facts changed? And the reality is we've
been looking at a market that has changed and changed
and changed and changed, and the right way to deal
with that market has therefore changed and changed and changed
and changed. Then what you could have done in the
(25:24):
early nineteen sixties you can't do today. And what you
should have done in the early sixties was go find
an active manager who could knock the socks off at
the competition. But it just the competition is so damned
good today that there isn't a manager that can knock
the sox off.
Speaker 2 (25:41):
And a quote from your book is the grim reality
is clear active investing is not able to keep up with,
let alone outperform the market index. That's the biggest change
in the past fifty years is that it's become pretty
obvious that the deck is to be in favor of
active managers. Now it seems to be very much stacked against.
Speaker 3 (26:04):
Them because they're so very good. It's ironic, ironic, ironic.
Speaker 2 (26:10):
The paradox of skill. Yep, huh, really fascinating. You reference
some really interesting research in the book. One of the
things I found fascinating is that research from morning Star
and Dalbar show that not only do investors tend to
underperform the market, they underperform their own investments.
Speaker 3 (26:33):
Tell us about that, because we're human beings, as any
behavioral economists would point out to you, we have certain beliefs,
and those beliefs tend to be very very optimistic about
our skills, and we think we can help ourselves get
(26:54):
better results, or at least to minimize the negative experiences.
And the reality is that over time just doesn't work
out to be true. The average investor in an average
year loses two full percent by making mistakes. With the
(27:15):
best of intentions, trying to do something really good for themselves,
they make mistakes that are costly and that cost you.
Think about it, if you think the market's going to
return something like six or seven percent, you lose two percent,
maybe two and a half, maybe three for inflation, call
it two and a half. Whoop, that's something down. Then
(27:36):
you've got fees and costs. Jeez, who is add on
to that? If you did add on another two percent
that you've made mistakes, you're talking about a major transformation
to the negative of what could have been your rate
of return.
Speaker 2 (27:54):
Let's put some numbers, some meat on that bone. You
cite a UC Davis study that looked at sixty six
thousand investor accounts from nineteen ninety one to nineteen ninety six.
Over the that period, the market gained just under eighteen
percent a year, seventeen point nine percent a year. Investors
(28:15):
had underperformed by six point five percent a year. They
gave up a third of gains through mistakes, taxes, and costs.
And then Dalbar does the same thing. That's where the
two to three percent in a low return environment is.
So how should investors think about this tendency to do
worse than what the market does well?
Speaker 3 (28:38):
In my view, and it's part of the rethinking investing
concept of the book is if you find a problem,
it's a repetitive problem. In this sure is attack the
problem and try to reduce it. So what could you
do to reduce the cost of behavioral economics, and the
(29:01):
answer is index or ETF. And the reason why you
would index where ETF would help is because it's boring.
You know, if you own an index fund, you don't
get excited about what happened in the market is anything
like you would get excited about it if you had
just had five stocks, or if you had two or
(29:24):
three mutual funds and you were tracking those mutual funds
because they change more. The market as a whole, it
kind of goes along in its own lumbering way, a slow,
wide river of flow over time, and you, yeah, there's
nothing to get excited about, so you leave it alone.
You leave it alone, and you leave it alone. And
(29:45):
it's a little bit like when your mother said, don't
pick it that scab, let it heal by itself. Well,
but mom, it itches. You'd just be a little bit
tolerant and don't itch it or don't scratch it. Then
it'll heal faster. And sure enough, mother was right. In
the same way, if you index, you won't be excited
(30:06):
by the same things that other people get excited by,
and you just sort of steadily flow through and have
all the good results come your way. That's it.
Speaker 2 (30:14):
Huh. Really interesting. So, first of all, I have to
tell you I love this book. It's totally digestible. It's
barely one hundred pages. I literally read it over a
cup of tea. And you've published twenty books before this. What,
first of all, what led to this very short format?
(30:35):
Why go so brief? I'm curious.
Speaker 3 (30:39):
It's really an interesting experience for me. I love helping
people with investing, and I keep trying to think of
how can I be helpful and what are the lessons
that my children, grandchildren ought to learn, What are the
lessons that my favorite institutions ought to learn, my local church,
whatever it is now, what could I offer that would
(31:01):
be helpful? And I thought to myself, you know, the
world has changed a lot, and some rethinking of what's
the right way to invest might turn out to be
a good idea. I should try penciling that out. And
the more I've tried to scratch it out for the
Church Investment Committee, I realized this is something that could
(31:24):
easily be used by virtually everybody else. There are some
major changes that have taken place, and the world of
investing is very different than it used to be, and
the right way to deal with the world is really
different than it used to be. And I owe it
to other people because I've been blessed with this wonderful
privilege of being able to learn from all kinds of
(31:47):
people what's going on in the investment world and how
to deal with it and add it all together. I
should put this together in one last short book. And
my wife laughed, you never get this down to only
one hundred pages. I think that's all it takes.
Speaker 2 (32:04):
Yeah, pretty close. I think it's like one hundred and something,
one hundred and two, one hundred and four.
Speaker 3 (32:10):
And one of those pages is blank, and that there
are several pages that are half blanks of.
Speaker 2 (32:14):
Well, it's barely one hundred pages. So I love this
quote from the book. Over the twenty years ending in
mid twenty twenty three, investing in a broad based US
total market equity fund produced net returns better than more
than ninety percent of professionally managed stock funds that promise
(32:35):
to beat the market. Really, that's the heart of the
book is that if you invest for twenty plus years,
passive indexing and we'll talk about passive the phrase in
a minute, but basic indexing ends up in the top decile.
Speaker 3 (32:52):
Yeah, And you're talking about twenty years, and many people say,
oh gee, that's a long time. Wait a minute, Wait
a minute, wait a minute. You start investing in your twenties,
you'll still be investing in your eighties. That's a sixty
year horizon. And if you're lucky enough to do well enough,
you might leave some to your children and grandchildren. So
(33:14):
it might not be sixty years, it might be eighty
one hundred hundred and twenty years. Try to think about
that long term, because that is a marvelous privilege to
have that long a time to be able to be
an investor.
Speaker 2 (33:27):
And you cite the S and P Research Group SPIVA,
the average annual return of broad indexes was one point
eight percentage points better than the average actively managed funds.
That's nearly two percent compounding over time. That really adds up,
doesn't it.
Speaker 3 (33:44):
It sure does, And compounding is really important for all
of us to recognize. Some people call it snowball, and
I think that's perfectly fine, because as you roll a snowball,
every time you roll it over, it gets much thicker,
not just a little bit, much thicker, and you do
compounding it one two four eight, sixteen thirty two sixty four,
(34:07):
one hundred and twenty eight. Those last rounds of compounding
are really important. So for goodness sake, think about how
can you get there so you'll have those compoundings work
for you.
Speaker 2 (34:20):
So we mentioned the phrase passive, which has.
Speaker 3 (34:24):
Come oh please don't do that, which comes.
Speaker 2 (34:26):
With some baggage. But you describe what a historical anomaly
the phrase passive? Is it? Really? Why don't I let
you explain? It really just comes from an odd legal usage.
To tell us a little bit about where the word
passive came to be when it came glad.
Speaker 3 (34:43):
To indexing is to me the right word to use.
Passive has such a negative connotation. I don't know about you, Berry,
but I wouldn't want anybody to describe me as passive.
Now I'm going to vote for so and so as
president of the United States, It's not going to be because
he's passive. Passive is a negative term. However, if you're
(35:05):
an electrical engineer, it's not a pejorative. There's two parts,
two prongs or three prongs on the end of a wire,
and there's a wall socket that's got either two holes
or three holes, depending on which electric system is. The
one that has the prongs is called the active part.
(35:28):
The one that has the holes is called the passive part.
And because indexing was created by a group of electrical
engineers and mechanical engineers, they just used what they thought
was the sensible terminology, and then other people who had
not realized where it came from, saw it as being
a negative. I don't want to be passive. I want
(35:48):
to have an active manager who go out there and
really do something for me. That is a complete misunderstanding,
and it really did a terrible harm for indexing vest
to be called passive.
Speaker 2 (36:01):
Let's talk about some of the other things that index
investing has been called. And I put together a short
list because there's been so much pushback to indexing. It's
been called Marxist, communist, socialist. It's devouring capitalism, it's a mania,
it's creating frightening risk for markets. It's lobottomized investing, a
(36:25):
danger to the economy, a systemic risk, a bubble waiting
to burst. It's terrible for our economy. Why so much
hate for indexing.
Speaker 3 (36:35):
Well, if you were an active manager and you were
life threatened by something that was a better product to
the lower cost, you might have some negative commentary too.
Speaker 2 (36:44):
It's just as simple as their livelihood is dependent on
flows into active and that's where all the animals.
Speaker 3 (36:50):
And it's partly livelihood, it's partly religious faith, it's partly
cultural conviction, it's partly what I've done for most of
these people would say, have been doing it for twenty
five years, and I want to keep doing it for
twenty five years. Oh, by the way, I get paid
really well to do.
Speaker 2 (37:06):
It, and I liked that job to continue. Sure you
mentioned we talked earlier about the temptation that we're surrounded
by temptations to be wrong. I want to talk about
some data in the book about what happens if you're
wrong and out of the market during some of the
(37:28):
best days. And the data point you use was ten
thousand trading days over twenty six years on average, that's
about eleven point two percent returns. So if you have
money in broad market indices over twenty six years, ten
thousand trading sections, you're averaging eleven point two percent annually.
(37:51):
If you miss only the ten best days, not a year,
but over those ten thousand trading days, that eleven point
two percent drops to nine point two percent twenty days
down seven point to seven point seven percent a year,
and if you miss the thirty best days out of
(38:12):
ten thousand, the return goes from eleven point two to
six point four, almost a five hundred bases point drop.
That's amazing. Tell us about that.
Speaker 3 (38:22):
Oh, First of all, you have to recognize when you
select out the most extreme days, it does have a
really big impact. The second thing is when do those
days come? And the best days usually come shortly after
the worst days, the bounce, the hey, wait a minute,
(38:43):
this market is not as bad as everybody's saying. It
really does have a terrific opportunity, and that's when the
best days typically come. So the time that we all
get frightened and all of us get unnervou is the
is the most wrong time to be taking action.
Speaker 2 (39:03):
And the statistical basis is those ten days are only
zero point one percent of total training sessions, but you're
giving up one fifth of the games. That's an amazing asymmetry.
Speaker 3 (39:18):
And it's a hell of a great lesson to learn.
Hang in there, steady aety does pay off.
Speaker 2 (39:25):
Another quote from the book, why should investors care about
the day to day or even month to month fluctuations
in prices if they have no plans to sell any
time sooned. That sounds so perfectly obvious when you hear it.
Why are people so drawn into the noise?
Speaker 3 (39:42):
Well, when I advise people on investing, I always start
with what do you most want to accomplish? And then
the second question is when do you plan to sell
your securities? And most people say, well, what do you
mean when do I plan to sell? Well, when are
you most likely to say? I need money out of
(40:03):
my securities? Investment for life spending, probably in retirement. Oh yeah,
And then they'll give you a date, and then you say,
and how far out into the future is that? And
then really want to be difficult for somebody to say, Okay,
it's forty three years out into the future. Let's go
(40:24):
back forty three years. Tell me what you think was
happening forty three years ago. Today's date, forty three years ago.
Speaker 2 (40:33):
I have no idea.
Speaker 3 (40:34):
Why do you ask? Well? Asking because you have no idea,
and you have no idea forty three years out into
the future. And the reason for that is because you
don't care. It's the long term trend that you care about,
and you care greatly about that, but you don't care
about the day to day to day fluctuations.
Speaker 2 (40:53):
So you sum up the book by pointing out every
investor today has three great gifts time compounding and ETF
and indexing.
Speaker 3 (41:05):
Discuss time to be able to have the experience of compounding,
where you each compounding round you double what you had. Boy,
does it really pay off to be in it for
the long term and have saved early enough so that
(41:26):
you compound a larger amount. But that leap from one
to two it's not very exciting. Two to four is
not much, Four to eight is not really all that much,
Eight to sixteen starts to attract your attention. Sixteen to
thirty two that's really something. Thirty two to sixty four
and to one hundred and twenty eight, Holy smokes, I
(41:47):
want that last doubling. That's really a payoff. Only way
you get there is start early and stay on course
compounding away as best you can.
Speaker 2 (41:58):
You know, people have points it out, and I think
you reference this in the book that as successful as
Warren Buffett has been over his whole career because of
the doubling. It depends on the rule of seventy two.
But let's say every seven or eight years. Half of
your gains have come in the most recent seven and
(42:19):
a half eight year era, and Warren's now in his nineties,
and the vast majority of his wealth have only happened
in the past ten fifteen years. It's kind of fascinating.
Speaker 3 (42:30):
Well, he's a brilliant and wonderful human being, and all
of us can learn great lessons from paying attention to
what Warren says or has said in his annual meetings
are a treasure chest of opportunities to learn. He did
start as a teenager, not in his mid twenties, but
(42:52):
in his early teens, and then he is not stopping
at sixty five. He's roaring right past that. And when
you bolt on those extra years, it gives him a
much larger playing field in which to double and double
and redouble and redouble. And all of us ought to
pay attention to that one most powerful lesson. If you've
(43:12):
got the time, the impact of compounding really is terrific.
And the only way you get to be have the
time is to do it yourself, save enough, early enough,
and stay with it long enough to let the compounding
take place. But it's inevitable power of compounding is just
wonderful to have on your side.
Speaker 2 (43:34):
So three of the things I want to talk about
from the book. First, as alpha became harder and harder
to achieve, as it became more difficult to be very
good competition, the aspect of reducing costs, reducing fees, reducing
taxes became another way of generating better returns. Tell us
(43:59):
a little bit about what led you to that conclusion
and what firms like black Rock and Vanguard have done
to further that belief system.
Speaker 3 (44:10):
Parents really candidly just been pay attention to what the
numbers say, and pay attention to the data, and the
data is so powerfully, consistently strong that active investing is
an exciting idea. And in the right time and circumstance
the nineteen sixties, it worked beautifully. But the circumstances now
(44:33):
are so different that it doesn't work beautifully. It works
candidly negatively.
Speaker 2 (44:40):
Two other things I want to go over, what is
the concept of total financial portfolio, Meaning, when you're looking
at your allocation, you should include the present value of
your future social security payments and the equity value of
your home has sort of unlike and that should help
(45:01):
you shift your allocation a little away from bonds, a
little more into equities. Tell us about that now.
Speaker 3 (45:09):
I think it's one of those ideas that once it
pops into your mind, you'll never walk away from it.
Most of us have no idea what the total value
of our future stream of payouts from Social Security are,
but you can do the calculation fairly simply. Most of
us would be really impressed if we've realized how much
(45:30):
is the real value of that future stream of payments
that are coming from the best credit in the world,
federal government, and that's inflation protected, so it's even better
than most people would imagine. That's the single most valuable
asset for most people. The second most valuable asset for
(45:51):
most people is the value of their home. And I
know people would say that first reactions, but I'm not
going to sell my home. I'm going to continue to
live there. Fine. True, But someday either your children or
your grandchildren will say, we don't really want to live
in that same house, so we're going to sell it.
So it does have an economic value, and it will
(46:11):
be realized at some point down the line. Take those
two and put them side by side with your securities
and most people would say, my god, I've got more
in the way of fixed income and fixed in bond
equivalents than I had ever imagined. I think I ought
to be careful in my securities part of the portfolio,
(46:33):
to rethink things and probably be substantially more committed to
equities in my securities portfolio because I've got these other
things that I was never counting on before, but now
that I've been told about it, I really want to
include that as my understanding to the total picture.
Speaker 2 (46:51):
And I like the concept of outside the market decisions
versus inside the market decisions. Explain the difference between the two, well.
Speaker 3 (47:00):
Outside market decisions have to do with what's changed in
your life, most obvious being when you retire, but sometimes
it's when you get a better job, higher pay, or
even you get a significant bonus because of the wonderful
achievement that you've had during the particular year, when your
(47:22):
circumstances get changed. Oh and getting married is another real change.
When the circumstances changed, you really ought to rethink your
investment program just to be sure that it's really right
for your present total picture.
Speaker 2 (47:38):
Makes a lot of sense. I know I only have
you for a few more minutes, let me jump to
three of my favorite questions that I ask all my guests,
starting with what are some of your favorite books? What
are you reading right now?
Speaker 3 (47:54):
My favorite books tend to be history, and the one
that I have most recently he read is a wonderful
biography of Jack Kennedy as president and the things that
he did that made America the most popular country in
the world.
Speaker 2 (48:13):
And our last two questions, what advice would you give
to a recent college grad interested in a career in investing.
Speaker 3 (48:22):
Think about what really motivates you to be interested in investing.
If it's because it's a high income field, that's okay,
But candidly, it's not an inspiration. And you only have
one life to lead. Is it your desire to lead
your life making money or doing something that you would
(48:44):
say was at the end of your life, I'm so
proud of what I did, or I'm so glad I
did what I did. If you're thinking about investing because
it's a profession where you help people be more successful
in achieving their objectives, then candidly you could have a
fabulous time. It won't come because you beat the market,
(49:06):
but that's not the problem. For most people. For most people,
beating the market is very clearly secondary to what's their
real need, which is to think through what are their objectives,
what are their financial resources, and how can they put
those together into the best for them investment program. And
the same thing is true for every college, every hospital,
(49:28):
every church, every organization has an endowment needs to think
carefully about what is the real purpose of the money
and how can we do the best for our long
term success by the structure of the portfolio that we have.
Speaker 2 (49:44):
And our final question, what do you know about the
world of investing today that would have been really useful
back in the nineteen sixties when you were working for
the Rockefellers.
Speaker 3 (49:55):
Oh boy, First that the whole world is going to
be changed. So don't stay with what you think is
really great about the early nineteen sixties, because all of
that is going to be upended, and all the lessons
that you would think were just great about how to
do things in the early nineteen sixties will work against you.
(50:15):
And by the time you get to the this time
of the year, you will be making mistakes one after
another after another after another by doing things that are
just completely out of date. And the world of investing
will change more than most fields will change. Computer technology
will change more, airplane travel will change more. But candidly,
(50:42):
investing is going to change so much that if you
take the lessons that you're learning for how to do
it in the sixties and try to transport those into
the twenty twenties, you're going to pay a terrible price.
Don't do it. Don't do it.
Speaker 2 (50:55):
Thank you Charlie for sharing all of your wisdom and insights.
I really appreciate it. We have been speaking with Charlie
Ellis talking about his new book, Rethinking Investing, a very
short guide to very long term investing. If you enjoyed
this conversation, check out any of the five hundred or
(51:15):
so we've done over the past ten years. You can
find those at Bloomberg, iTunes, Spotify, YouTube, wherever you find
your favorite podcast, and be sure and check out my
new book, How Not to Invest The bad ideas, numbers,
and behavior that destroys wealth. I would be remiss if
I did not thank the Crack team that helps put
(51:37):
these conversations together each week. Andrew Davin is my audio engineer.
Anna Luke is my producer. Sean Russo is my researcher.
Sage Bauman is the head of Podcasts at Bloomberg. I'm
Barry Ritults. You've been listening to Masters in Business on
Bloomberg Radio.
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