Jack Bogle Interview - The Motley Fool on Vanguard, Index Funds, and Wall Street vs Main Street

Bogle on value creation vs extraction: 'The stock market...reflects the returns earned by investors by Investment America the corporations...they have earnings they pay out dividends they reinvest the earnings...that's where the value is created you access that value through investing.' The allocation problem: 'How is it allocated between Wall Street the financial system and Main Street the people who invest and the allocation to Wall Street is the objective of this business because everybody is in Wall Street.' Vanguard difference: 'What we have been doing here at Vanguard is putting the investor first and innovating for the investor and not for ourselves...trying to keep costs as low as we can which is rock-bottom...a mutual company doesn't have a private owner out there...or a public owner and so we have no one to serve but the shareholder.'

On analogies: 'I don't think there really is' an analogy 'and the reason is that capitalism is about creating capital for the capitalists...and not creating...they have to provide value Adam Smith 1776 the sole role of the producer is to serve the consumer and in this business' they serve themselves. Costco comparison: 'They still are a public company that wants to make money and there's nothing the matter with that...the problem is in the financial business value and costs are reversed sides of the same coin.' Mercedes example: 'You can't directly associate the cost with the value but in the mutual fund business it's how the returns are divided up between the marketplace and the investor...this is a hard business to do it in without giving up your profits Costco is not gonna give up theirs.'

Dividend reliability: 'Dividends are an extremely important part of this...ever since the 30s which were a terrible time early 30s in the Great Depression when dividends probably got cut 75%...one period of time not that long ago...dividends were cut by I think about 25% and that was from 2008 to 2009 when in the financial crisis the banks had to eliminate their dividends but it's a line like this with this one bump in it.' Security: 'There is a lot of cash on the balance sheets of corporate America to suggest that the dividend is pretty secure...payouts are low...long-term payout is probably fifty five sixty five percent of earnings and now they're paying maybe 35 to 45 percent of earnings.'

Morningstar admission: 'They say that their sophisticated rating system works almost as well as simply rating the funds by cost.' Bogle: 'They have entered the confessional booth.' The structural problem: 'This industry is run for the managers they're the ones that put up the capital to start the management company...sell out to financial conglomerates.' Vanguard isolation: 'Among the 50 largest mutual fund groups we have one mutual fund company that would be Vanguard we started the company 42 years ago and Vanguard meant leader in a new trend and we have failed as a leader 42 years of success and we have yet to find our first follower.' Market dominance: 'Vanguard has eighty percent of' traditional index fund market, 'fidelity struggling along as ten and three or four other firms do the remaining 10%.' T. Rowe Price: charges '0.25% a year...compared to' 0.05% - effectively saying 'give us your active management business and don't buy our index funds because they make more money at that.'

What drives Bogle: 'I love helping the shareholders I really do I hear from them literally every day to the point where if I haven't gotten a nice shareholder letter...you could check the inbox and they keep you going.' Daily work: 'Spend a lot of time with' crew, 'spend an hour with each just one on one with each award for excellence winner...probably three anniversaries last week...celebrate with the 35th anniversary...they have all the staff there so I get to talk to a whole bunch of people.' The mission: 'Try and sure that this legacy of the kind of firm that we want to have based on those Quaker values service efficiency economy...carrying on the mission...you're still the founder...so you keep that spirit alive and try and use what is left of you...to help the people you've been helping all these years.' Personal finances: 'I'm not starving to death...fill up a nice little amount of capital...we have enough...and we don't need anymore things...agonizing about we have a fairly large charitable budget...where it all goes.'

On protecting structure: 'The shareholders know how well they've been served they increasingly understand what we mean by a mutual company they certainly know what we mean by low-cost and if you were gonna de-mutualize you'd have to pay them something and it would be complex it would be contrary to the system.' Success scale: 'Never been any more successful company in this business than we have been in terms of total money generated the only difference is that is generated for our mutual fund shareholders and not public shareholders.' Growth: 'Frightening to think a billion dollars a day...coming in here we used to have a party every billion dollars at the beginning...might as well be clear' it's '$240' billion per year. Protection: 'The perpetuation of this system it has been so successful that it would...be almost inconceivable almost inconceivable for anybody to recommend that it be changed and inconceivable for the shareholders to vote in favor of it...the shareholders are in fact our owners.'

Bogle on robos: 'Vanguard really...created the first robot robotic expression of investing.' Modern robo-advisors: 'Put a cloak of complexity over a system of great simplicity...the big robo advisors betterment and wealthfront aren't doing all this trading...they're giving you a decent asset allocation and one of their claims is...how to be very tax efficient...capital gain here you need capital loss there and that's probably something to that but I can't imagine it's that big.' The need: 'Some people really need that some people really need a hand-holding...everybody needs a little help and asset allocation but you can figure it out it's not very complicated.' The silliness: 'Do you need a robo to tell you whether it'll be 60% in the stocks or 61.3 or 67.8 or 70 it's just silly...you should probably be 60 or 70 or maybe 60 or 65 or 70 and adjust to that over time...if you think you...can do that as the market reaches a peak and then get back in when the market reaches the interim a lot of mistakes were made just crazy.'