#1100 Eric Balchunas On The Greatest Investor You Never Heard Of

Eric Balchunas is an ETF Analyst at Bloomberg and Author of "The Bogle Effect". In this conversation, we discuss why John Bogel is the OG of DeFi and the father of low cost investing, how big Vanguard is today, why Vanguard is a populist uprising. We also get the latest updates from Eric about the chances of a Bitcoin ETF coming soon. ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone. Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= Amberdata provides the critical data infrastructure enabling financial institutions to participate in the digital asset class. We deliver comprehensive data and insights into blockchain networks, crypto markets, and decentralized finance. Download our Digital Asset Data Guide at https://www.amberdata.io/pomp ======================= Valour (formerly DeFi Technologies) represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. Institutions and investors can gain diversified, secure, compliant, and easily tradable access to a diversified set of industry-leading equity products and protocols, through a single stock purchase on a regulated exchange. Currently listed on U. S. (OTC: DEFTF) and Canadian (NEO:DEFI) exchanges. For more information or to subscribe to receive company updates and financial information, visit our website at valour.com ======================= This episode is brought to you by Athletic Greens, the best option for easy, optimal nutrition out there. You take one scoop of AG1 and you’re absorbing 75 high-quality vitamins, minerals, whole-food sourced superfoods, probiotics, and adaptogens to help you start your day right. This blend of ingredients supports your gut health, your nervous system, your immune system, your energy, recovery, focus, and aging. Go to athleticgreens.com/POMP to give AG1 a try today. ======================= If you’re trying to grow and preserve your crypto-wealth, optimizing your taxes is just as lucrative as trying to find the next hidden gem. Alto IRA can help you invest in crypto in tax-advantaged ways to help you preserve your hard earned money. So, ready to take your investments to the next level? Diversify like the pros and trade without tax headaches. Open an Alto CryptoIRA to invest in crypto tax-free. Just go to https://altoira.com/pomp =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Eric Balchunas is ETF analyst at Bloomberg and he's also the author of a great book called The Bogle Effect, how John Bogle and Vanguard turned Wall Street inside out and saved investors trillions. In this conversation, we talk about Eric's view on why Bogle is the OG of DeFi, how he's the father of low-cost investing, how big Vanguard is today, why Vanguard is actually a populist uprising, what the mom test is, outsiders versus insiders, and what Eric's thoughts are on things like the Bitcoin ETF, direct indexing, and much more. I really enjoyed this conversation with Eric and I hope you guys enjoy it as well. Before we

• 0:47Anthony Pompliano?

  get to this episode though, I first want to talk about our sponsors. This episode is brought to you by Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful, user-friendly blockchain products that sync across all your devices, making it easy to send, receive, and exchange over 150 crypto assets in one place. And with world-class customer service available to you 24/7, Exodus always has your back. Run, don't walk. Over to exodus.com/pomp for your free download today. Again, that's exodus.com/pomp. Go check him out for your free download today. This episode is brought to you by LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of liquidity and they have 100% uptime track record through

• 1:29Anthony Pompliano?

  all the volatility spikes. LMAX Group's liquidity relationships and ultra-low latency technology means that LMAX Digital is the market-leading solution for institutions across crypto trading and custodial services. LMAX Digital, secure, liquid, and trusted. Go learn more at lmaxdigital.com/pomp. Again, that's lmaxdigital.com/pomp. This episode is brought to you by Amber Data. If you're a financial institution entering the digital asset class, you'll need access to granular on-chain and market data from multiple venues to power research, trading, risk management, and compliance. Amber Data delivers comprehensive data and insights into blockchain networks, crypto markets, and decentralized finance, empowering Financial institutions to apply traditional finance methods to digital assets.

• 2:14Anthony Pompliano?

  Amber Data eliminates the infrastructure setup, integrated challenges and maintenance headaches to access digital assets data, reducing cost and time to market to enter the digital asset class. Learn more and download their digital asset data guide at www.amberdata.io/pomp. Again, that's amberdata.io/pomp. Go check them out today.

• 2:35Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 2:59Anthony Pompliano?

  All right, guys. Bang, bang. I've got Eric here with me. Eric, I thought a great place to start would be Bogle has become this like legend, built this massive business, still has a very material impact in the financial markets today. But a lot of people don't remember before he had this idea. You wrote an entire book on it. Help us understand like what was the pre-Bogle financial markets like?

• 3:22Speaker 02

  Yeah, I mean, they were pretty archaic. And, you know, beyond the technology that has really, I think, helped investing, what Bogle really brought to investors is low cost. I think that's the ultimate contribution. People call him the father of the index fund, but I don't think that's right. I think the father of low cost is a bigger deal. And I guess what I would say is this, let me take you to the 60s. So the 60s were a decade, almost like the last one where growth stocks were like really great, you know, high flying stocks were like what everybody wanted. It was, they called the go-go 60s. You know, everybody was happy. Everything was going great. But Bogle was at this company called Wellington and he ran this balanced fund that was pretty boring, pretty conservative. And in an era like that, nobody wants that. They want the hot sauce, right?

• 4:07Speaker 02

  So he was losing customers. And so he was younger in his 30s and he thought, you know, he'd just been given reins of the company by his mentor. And he thought, well, look, everybody seems to want these donuts across the street and I'm sitting here selling nutritious bagels. I better start selling donuts. So he teamed up with this. Manager that was like a ARC type manager like Kathy Wood, like high flying growth manager. And it worked for a little while. They had the hot sauce and the boring stuff, but the problem is the market totally crashed in seventy two, seventy three. It was like a two thousand and eight over those two years, right? Pretty bad. And they had real bad falling out. And so at the time, all people had were active mutual funds that charged, I don't know.

• 4:49Speaker 02

  Sixty to a hundred basis points, even more, right? So that was how people invested. Indexing really wasn't a thing at this time. So what happened was Bogle had a fight with his partners. And it's, I won't go into all the details. I'd go into it in the book, but basically a nasty. Uh, issue with him and his partners. They call it the bifurcation period. The partners wanted Bogle out, so they fired him. They had actual voting control. But Bogle was the chairman of the funds themselves, so he had some leverage. So they had this like conflict and they had to come up with a resolution. So the resolution was Bogle was like, look. I'll create this back office company where I'll just do all the boring administrative work. You guys can do your investing. That's what you like to do. Um, and that, that way we can both survive. And.

• 5:32Speaker 02

  Part of what Bogle had to do was sell this to the board. And part of what he did was he said, I'll make this back office company mutually owned. So the funds own the company. Thus the investors own the funds. So the investor owned company, if you will. That's key, that's key, actually. Um, anyway, that company would be called Vanguard and that's how Vanguard was born. And Vanguard, uh, is a company that's, again, like I said, mutually owned. That's so crucial because. When they, when Vanguard gets assets. And makes more profits because the investors own the company, they vote to lower the fees. Because that's what's in their best interest, right? So Vanguard had this structure that was highly unique. Nobody had really ever done this in the asset management world.

• 6:13Speaker 02

  Asset management world typically, they want to make a lot of money or there's a publicly traded stock. So the goal is to make more money from the investors, which mean higher fees. So Vanguard was the opposite tip. They're going for a, a structure that is incentivized to lower the fees over time. Anyway, in early in Vanguard's days, Vogel read an article, basically, about somebody talking about indexing, and he said, you know, that's a pretty good idea. So he launched the first index fund, and it charged 0.46%. So while it was a revolutionary idea at the time, it still was pretty expensive at 0.46. But over the next 45 years, because of that structure, the fee went down to 45, 44, 42, 40, 38. And as it got lower, more assets

• 6:57Speaker 02

  came in. As more assets came in, the fee would get voted lower, until about the 2000s, where the fee passed 15 basis points. That's when indexing and index funds really kicked in. They were really not a big deal for 30 years. They were just, they're counterintuitive. It seems like average. Americans are all about the best, number one, top gun, you know, that whole culture. Also, the internet kicked in, which I think helped get information out that was showing you that, you know, high-cost managers weren't exactly, they weren't able to beat the benchmark, but now you could actually just buy the benchmark. And so, over time, through Vogel's work, the internet, and the fee is getting lower

• 7:39Speaker 02

  to the point where they got under 20, under 10 basis points, that's when indexing really started to take off. And now, it's gone from that gradually to suddenly point. The adoption rate is obscene, almost. Vanguard has taken in a billion dollars a day for a decade. Let me just say that again, a billion dollars a day for a decade, which is, again, not even close. Nobody's ever done anything quite like that. That's why I really wanted to study this, as a data analyst, and somebody studying the fund flows. I'm like, if anybody had this big of effect on their industry, this deserves to be dissected and studied. What's going on here? You know, I think that it's one of those things where Vanguard's

• 8:20Speaker 02

  private, so like, even people who work with me in research, like the woman who covers our asset management companies, she only covers BlackRock and Goldman, and the ones that are publicly traded. Vanguard's private, so not a lot is known about them, and their structure is totally unique. And in the 45 years since they came out, nobody has copied that structure. Because there's really no economic incentive to turn over all the future profits to the customers. But that move was the single most impactful move in the financial services industry in the last fifty years and probably will continue to ripple out over the next fifty. We see the money keep flowing to lower cost funds, to indexing, to simple, and this is spreading across the world.

• 9:02Speaker 02

  So in my opinion, what Bogle's decision to create that back office company as a mutually owned company, plus Bogle's unique structure himself, the guy was weird. Who would do that? Those two things are, in my opinion, the catalyst that set off everything we see today in quote passive. I think the index fund and indexing gets way too much credit for this. It's only popular because it's dirt cheap. Index fund doesn't really make sense at sixty, seventy, eighty basis points. And without that Vanguard structure, indexing, index funds probably would exist, but they would not be two, three, four basis points like they are now. You basically can get free exposure to the whole stock market at one click of a button. And that is, that is his biggest contribution.

• 9:47Speaker 02

  I frequently call that total return market, which covers ninety-nine percent of the US stocks for three basis points. It's actually even cheaper because they do some securities lending and they actually give you back a basis point or two. So it's really one basis point for the entire US stock market. That's sort of Bogle's Mona Lisa in a way. That's his, but of course, there's the S and P five hundred, which they have for three basis points. There's the total bond market. There's now you can even get a Vanguard small cap value fund for under ten basis points. So they have basically taken all these different areas of the financial world and just commoditized them to almost free exposure. And so this is a massive change. And so what we're seeing now is investors, you know, you're waking up today and you're

• 10:32Speaker 02

  an investor, you're like, boy, do I have it good. I can basically invest in anything I want. I can even go pretty specific and pretty custom for almost no cost. So it's really a heaven for investors now. But I don't think we're anywhere near this had it not been for that decision to set up a company that's essentially owned by the customers, which again is highly weird to any industry. I actually, I looked around, I couldn't find any real metaphors for this, what he did. But I did, you know, I, I did at the beginning talk a little bit about how I think there's a populism here that that he was all about, but the structure backed it up.

• 11:17Speaker 02

  And I think, you know, in any business or any in crypto in particular, if you are a revolutionary, if you are a populist, I think it's important that the structure that's behind you and how money is moving around is also backing that up to a degree. And I think Bogle set a very good example. And it doesn't mean he didn't have to live in the woods and eat bugs. He was pretty wealthy. He ended his life with eighty million dollars. But eighty million dollars for what he did is ridiculously small, right? He wouldn't even make the top one thousand of Forbes richest people, right? So I think he is an inspirational guy, a different guy, a weird guy. I don't know if I could have done it. And I know many of us probably couldn't have done it. The industry couldn't do it. I mean, they saw him having success and nobody copied that structure.

• 12:02Speaker 02

  But what's interesting is, and the reason I call it the Bogle effect, is that everybody has to copy it now. Yes, you're not copying Vanguard's structure, but everybody now has to have near free index funds to sell. So Fidelity has them, Goldman has them, BlackRock has them, Schwab has them. So that's why I use the Bogle effect, because it's not just Vanguard and Bogle. It's the effect across the whole spectrum. So today, it's not just the billion dollars to Vanguard. Another billion or two goes into cheap index funds that were people just copying him. So that's the real power. It's almost, what he did is sort of commandeering almost every dollar invested today.

• 12:41Anthony Pompliano?

  So what's fascinating about this is he not only structured it this way, but he also just had the idea of like, hey, rather than gouge the customer, I'm going to fight for the customer, right? I'm just going to go low cost. And I thought it was interesting that you said, he's considered the father of indexing, but you really think of him as the father of low cost. Why is the low cost component? Like, why do you say that's actually what he did rather than the father of indexing? Because I think that'll surprise people.

• 13:09Speaker 02

  Yeah, for one, if an index fund charges, say, 0.80% or 80 basis points, it's way easier to beat that if you're an active manager.

• 13:21Speaker 02

  Right? What's hard for active to beat is the index itself. So it's not the index minus 80, it's the index pure. And so by being able to buy the benchmark, most active cannot beat the benchmark because some can do it gross of fees, but net of fees they can't. Once you factor in the fees, it's just too much. And Bogle had a really good chart showing, and this is one of the charts he used in the 70s and 80s when he was out in oblivion trying to sell indexing to the public. The other thing he didn't do is, real quick, he would not pay brokers. Back in the day, the way you sold a mutual fund is you would have a loader, a distribution fee, which was essentially a kickback to a broker, who would then put someone like my mom in this sort of mutual fund because he got a kickback. And Bogle wouldn't do that.

• 14:05Speaker 02

  So he essentially set this company up and these index funds outside of the whole distribution system, which again prolonged the time it took for success, which, as I mentioned in our pre-talk, is why I sort of call him the OG of DeFi. He just stuck a flag outside of the whole industry and said, "I'm not paying anybody. You're gonna have to come to me, and believe me, you'll like it when you do because you're gonna make more money at the end of your investment period." And so one chart he used was the growth of $10,000 over 50 years. So if you get 5% annually on that, you end up with about $180,000. If you get 7% annually, you end up with like $340,000, almost double, right?

• 14:46Speaker 02

  That 2% essentially is what he was saying you miss out on if you go with an active mutual fund. Because they got a 1% fee plus 1% trading cost, right? So that's 2%. So if you wipe out all that, right? And you kill all that friction, you now get the 7% minus a basis point or two or a couple of basis points. And that seems like no big deal year to year or in your mind, but over 50 years, 40 years, 30 years, it's a major deal. It's literally, I think the number he used was over that 50 years, the asset management industry takes 60% of your gains. You get 40%. With the index fund, you get like ninety-five, ninety-eight, you know what I mean?

• 15:28Speaker 02

  So this is powerful stuff because we're talking a lot of dollars and cents. And this is why a lot of advisors who were in that system of distribution, they left the whole system and became RIAs in order to use Vanguard and go with cheap index funds because the system they were in would not use Vanguard, they wouldn't pay them. So this is also an interesting part of the story. And again, something that I think is within the spirit of crypto and DeFi is this guy was like real punk rock. I mean, he was like, I'm not paying you, I'm gonna go cheap, I'm gonna, you know, again, turn over the profits to the customer. I mean, the problem is he looked like your grandfather. So a lot of people just didn't really, maybe it just didn't click.

• 16:08Speaker 02

  Like, a lot of the crypto world is young and they sort of have a more edgy vibe. Vogel had like, wore sweater vests, but he was total punk, you know, behind all that. And this, these actions he took were enormously risky. And he had like, you know, he's raising a family, he had a lot of responsibilities. It'd be much easier to take the money or take more money or go to work for somebody else instead of go through all of this. And so that, that's why I think low cost is, is the thing. A pricey index fund really wouldn't do much. So in my book, I premise that without Vogel and the mutual ownership structure of Vanguard, index funds would have five percent of the assets they have today.

• 16:52Speaker 02

  So of the fifteen trillion they have, they would only have, you know, five percent of that if he and that structure didn't exist. Some people disagree with me. Some people said, oh, no, somebody would come out with a free index fund. But my thing on that is this, yes, you might have had somebody in a gimmick, in a gimmick kind of way, say, oh, yeah, our index funds, we'll do it for free. And like a lost leader at the food store, just to draw you in. Well, you know they're gonna upsell you on stuff or use your money to do something else. So one way in the asset management industry is they upsell you on other things or they take the cash you have lying around and make more money on it than they give you in interest, right? They pocket that difference. In Robin Hood's case, they sell your order flow. They have to make money some other way. With Vanguard, that low cost was totally organic.

• 17:37Speaker 02

  There is no catch. And that's why it's so powerful and permanent.

• 17:42Anthony Pompliano?

  You just said that Bogle was the OG of DeFi. And we kind of glossed over that for a second. Let's go back. Bogle being the OG of DeFi will absolutely set off half of the crypto industry and say, what the hell are these guys talking about? The other half will say, tell me more. Why do you think that he's the OG of decentralized finance?

• 18:04Speaker 02

  Yeah, so James Saifert on my team does not agree. He's, I know you know him very well. He's more into crypto than I am. He's much more well versed, but then I've been ordering a lot from him. He doesn't totally agree. He does agree, though, that Bogle's spirit was DeFi. Here's what I mean by OG of DeFi, which is that, you know, at the time, again, investors got very little of their money because all the middlemen took so much. As I just said, 60% of your gains went to the industry. So again, by going outside of the whole system, right? Remember, no, he's not paying anybody. And by lowering fees to almost nothing, if somebody goes into an index fund now, nobody gets paid, right?

• 18:45Speaker 02

  So there is a DeFi quality to that because there's no turnover. Index funds don't trade a lot, so the market makers aren't making money. This is something that the Reddit, Robinhood crowd, or I guess the meme stock crowd misses entirely. They trade these meme stocks, but the volume and the spreads on these stocks are pretty high. So Citadel, which is their enemy apparently, makes a ton of money off of them. So I told them, if your goal is to stick it to the man and the Wall Street people, you should go into an index fund, even though that hurts my bottom line. I'm just being honest. That would be the best way to do it. So I always say, money that goes into a cheap index fund leaves the system. Nobody gets paid. Now, it's at Vanguard, that is a financial company. So in one regard, I guess it's not truly DeFi.

• 19:29Speaker 02

  But spiritually, I would argue it's DeFi.

• 19:34Anthony Pompliano?

  When you see what DeFi is doing now, would John Bogle be building DeFi? Is that like your general thought process is because the spirit was there? Because it was outside the system? Because it was basically fucking with kind of the legacy folks? And he wasn't paying them and all this stuff? That you think he would have been interested in this?

• 19:56Speaker 02

  Yeah, I, I, I think so. I think, you know, the he, you know, he had, he had really interesting quotes, like, one of the quotes he told, uh, he, in one of his books, he's like, I've, I've done nothing but fight for the nine decades of my life. I've, you know, I've done nothing but battle. He has that in his last book, which he wrote six months before dying, he has that quote from, um, the poet Dylan Thomas, you know, rage until the dying of the light. Like, this guy would have probably been somewhere doing something like that, I, I, I presume. I think the difference, and this is something that I'd love to get your opinion on, which is that there, there's DeFi and there's crypto, which is, again, it's out, it is outside of the system, right? But then, the companies themselves, some of them, make a ton of money, where they're

• 20:41Speaker 02

  print, they're minting these billionaires who have so much money, they're hiring movie stars for commercials. Vogel would never done any of that. He hated advertising. He would, he thought some of the pay of CEOs was obscene. One of his big thing was he wanted Vanguard to vote to lower all these CEO salaries of these big companies. He thought they were just way overpaid, and the average worker to employee, uh, the worker to CEO, um, gap was growing, and it keeps, keeps growing, and it was just so bad. So Vogel hated all that greed. So I think there's two elements to, to this situation, which is, the companies themselves might be structured more like normal Wall Street companies, yet they're engaged in DeFi or crypto. Whereas Vogel, you could say, well, he, he was in the financial world, but his structure

• 21:27Speaker 02

  was more DeFi in a way. Um, it, it's a, so you see how there's a couple of elements to your question. I don't, I don't know if if, if you want to unpack that a little bit, or I would like to get your take on that.

• 21:37Anthony Pompliano?

  Yeah, there's different, uh, definitely different buckets. So you have like Bitcoin, which I think is, uh, trying to be decentralized electronic cash, right? And, and that is very different and distinct than Coinbase, which is a centralized exchange where you can come in and buy and sell these different assets, uh, which is different and distinct from, uh, centralized asset managers, decentralized asset managers that are popping up and, and kind of trying to figure out how to do that. And then you have the, uh, attempts at other types of decentralized financial services, whether this is, uh, decentralized stablecoins, or insurance, or lending, or trading, and, and, you know, all these different kind of, uh, aspects. And then you also just get the difference of like public company versus private company,

• 22:18Anthony Pompliano?

  right? And kind of how that works. And so I think it is naive to just label crypto and it's all kind of the same thing. And I think actually, one of the big questions, which I don't have the answer to, is where is the line going to get drawn by the market and by regulators in terms of what's allowed and what's not? And it ultimately gets at this question of like decentralization. And what is fascinating about Vanguard is the creation of it kept in mind the incentives and understood it appears very well. If we create the right incentive structure, that will dictate what people do. And if we're able to correctly dictate what people do, that will continue to reinforce lower and

• 23:02Anthony Pompliano?

  lower fees, which is what's played out over the last 40, 50 years. And therefore, that will be incredibly valuable to the market and to investors. I think that that is a very big part of kind of what crypto has kind of made more popular. So if you look at Bitcoin specifically, the incentive system there is very unique. And it has allowed for without a CEO, without a marketing department, a corporation, all these different things, 150 plus million people come in and adopt it, all these miners, the nodes, like the system is beautifully designed from an incentive standpoint. And I think the rest of the industry is trying to figure out, hey, what are other ways to do this? Whether they're successful or not, I think is where a lot of debate, controversy, and frankly, regulators, scrutiny

• 23:45Anthony Pompliano?

  currently exist. And so we know on the Bitcoin and crypto stuff, like we know how big these things can get, right? Bitcoin was over a trillion dollar market cap. It's come down significantly. I think most people think it'll get back there at some point. Maybe it'll take 50 years, maybe it'll take five months, who knows? How big is Vanguard today? Like when we think about, okay, they've had 40, 50 years to do this, the incentives worked, like how big has it gotten?

• 24:08Speaker 02

  Yeah, so Vanguard has $7.2 trillion in assets. They were up to 8.3, but they came down because the market obviously is down a little bit. So, but it's amazing if they've taken money this year and every year that it's bad. They've still taken money, even though the value of all of their investments went down a little bit. So 7.3 trillion, I'll put that into context. If you take the whole US fund industry, that's about a 27% market share of assets. That's double any other high watermark. Like Fidelity, I think was the last to hold it at 14%. So that's one thing. And what's astonishing is they only account for five percent of the industry revenue. So they count for twenty seven percent of the assets, five percent of revenue. That chart looks like an alligator.

• 24:51Speaker 02

  And I frequently refer to it as the scariest chart on Wall Street. Because the five percent is where everybody's going. Right? So and this chart is why people like Vanguard. Vanguard isn't a thing that's like looking to like take over the world. It's thirty million people. It is a populist uprising in a way. And so that is why they're so popular. And what's crazy about Bogle, and I didn't know this before I read it, and this quote blew me away because I knew some of his quotes, obviously, but not all of them. In one of his books, he has a speech he gave in nineteen ninety one where he says, although Vanguard's mission is beginning to become complete or beginning to make a difference, when our market share begins to erode. And again, I was like, what? Like, what CEO has ever rooted their market share to a road?

• 25:35Speaker 02

  But the reason he said that is because he knew if everybody else was going cheap, it would eventually lure investors over to them. And more people would win out.

• 25:46Anthony Pompliano?

  So it's like the market share would shrink, but the overall market would increase. And so even if he had a smaller market share, he would still have more assets.

• 25:52Speaker 02

  Well, I would say, no, I would say the overall, his, his market, he knew in nineteen ninety one, this is when they only had like, I don't know, a couple percent market share, that Vanguard's deal was so good that they were going to draw all these people. And that it wouldn't until be the rest of the industry copied them, got cheap and better stewards, that they could actually hold their own. And so he was saying that when our market share begins to erode, the only way that's going to happen is if everybody else elevates their game and gets lower costs. And that has started to happen, but it hasn't happened fast enough or strong enough to get their market share to go down. So that's why I have one of my research themes is Bogle's dream is not yet realized, which is insane considering everything he did. But he, until that number goes off and, you know, plateaus and goes down,

• 26:36Speaker 02

  he's still, his vision isn't complete, but. I asked around, I couldn't find a CEO in any business that has rooted for their market share to go down. But I do think that that's how, that's why he's so interesting and why I wanted to write about this guy. He was on a completely different trip. And I know, you know, two things. One, I think we all can identify with wanting to change the world. But I tried to unpack, it took a long time. He was in oblivion for about 25 years trying to get this going. Vanguard's market share was under 10% for 25 years. So, and I was, I did an interview, I interviewed 50 people for the book. One of the people I interviewed was Brad Kusayama, who was from the Flash Boys book, who basically

• 27:20Speaker 02

  saw something shady in the exchanges and set up a cleaner one. And when I told him it took 25 years to get 10% market share for Vanguard, he said that made his day. Because if you do something that's outside of the system, it can take a long time. And I think crypto probably can understand this. And Bogle also went through two or three bear markets before that 10%. So, when the bear market came, he had to sit through that too for a while. So, there was a lot of patience and just grinding away for him and for this idea and this concept. But, once it hit, it really, it took off pretty quickly. And what's also interesting, this stat is mind blowing, 97% of Vanguard's assets today came after he stepped down as CEO.

• 28:03Speaker 02

  So, he laid the foundation only. And so, again, I just, fascinating guy and study, considering how potent and powerful his idea and, and I also think, one thing that's, what's interesting is, it's rare that there's multiple things in one person, meaning you have a vision, you're an idea guy, you're a little bit, you're a thinker, but you're also somebody who can manage people and build a company. That's a different skillset for many people. He also was a very good communicator and he was frequently go up and make some really controversial, shocking presentations. He would, he would give presentations that were antagonistic to the audience he was in front of.

• 28:48Speaker 02

  And so he had a lot of different elements in one human and usually like a Steve Jobs or somebody like that, that's, those are usually the people who can change the world. But it was that ability to organize an entire company that was also interesting because he was, I think, a natural writer, academic thinker type, but he was a man of action as well. So the idea that he could introduce this tool into the marketplace, you know, he could say all this and say this is how it should be, but to introduce the tool that made it possible, which was the structure and the funds, that was ultimately the practical part of the, of the vision that, that, that he contributed, which I think is maybe underrated because it's easy to have these, it's easy to lay something out, it's, it's harder to

• 29:30Speaker 02

  execute it and it's harder to execute it when nobody cares for a while, you know, when you are, you know, or you have a, a dark couple of years and to hang in there, you know, and I think he, he did many things to keep the faith, but I try to lay some of those things out in the book, but it was a, a long haul. It wasn't, it's not overnight at all.

• 29:51Anthony Pompliano?

  Talk to me about the beginning of the company itself, right? So the idea is super powerful. We know where it eventually gets to. Do we have any insight into what some of those first couple of months or maybe in the first couple of years, what, what was the obstacles he had to go through? Who were the people that he was able to recruit to help him? Kind of what, what were the, the beginning of Vanguard actually like? This episode is brought to you by Valor, which represents what's next in the digital economy. They provide simplified trusted access in crypto, decentralized finance and web three investment opportunities. Institutions and investors can gain diversified, secure, compliant and easily tradable access to a diversified set of industry-leading equity products and protocols, all through a single stock purchase on a regulated exchange. They

• 30:33Anthony Pompliano?

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• 31:18Anthony Pompliano?

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• 32:02Anthony Pompliano?

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• 32:15Speaker 02

  Yeah, so what's funny, when the company got set up, it's set up in a bear market. As he likes to quote Les Mis, no, what's the Saigon show? The Broadway show, Miss Saigon. I think it was like Born in Strife, and I forget. I'm butchering this quote. If we edit this out, that's fine. If you leave it, it's fine. I'm a human being. I just can't remember the quote, but it was something about being born in hell. Right? So Vanguard was born in the middle of the bear market. And for the next four years, the companies Vanguard did back-office work for saw outflows. So Vanguard saw 80 months of straight outflows right after birth. Which, again, 80 months, first of all, they haven't seen a month of outflow in like forever. Like, it's highly rare. So 80 months for them is just hard to, it's almost unfathomable, but...

• 33:00Speaker 02

  Uh, you know, he stuck with this idea. Um, the first couple of years, they, he had a staff of twenty seven to start out. Um, he had two really smart people working with him who were his right hand, right hand men. Um, and they, you know, when they started developing the index, they had to, they didn't have really great computer power. So that was an obstacle. They had to work on, uh, with, you know, data that was fed and faxes and all this stuff. And so it was a little archaic, uh, took a while. And when they first launched the S and P five hundred index fund, it was not good. Uh, not only did it charge forty six basis points, which I said is, is harder to sell than three, but it didn't track well. Uh, there was a huge gap between the index and the, and the, uh, the index performance and the, and the, uh,

• 33:42Speaker 02

  the fund itself. And that gap is because the portfolio managers weren't as sophisticated yet. So that had to be tightened. So they hired this one guy, Gus Soder, who came in, in eighty eight, I believe, or the eighties. Um, he was a good interview for the book and he was able to get that tracking down to, to almost nothing. He had to get, um, do a couple of things there, increase, increase the technology, get in touch with better brokers for better execution. Um, so there were a lot of these hurdles. Um, one of the stories at the beginning was the, uh, the, when the index fund started, the S and P five hundred, S and P five hundred index fund, which is, you know, close to a trillion today. Um, the, the first portfolio manager was this woman who had a part-time job at a furniture store.

• 34:24Speaker 02

  Just like, which is so weird to think about considering how big of a deal that fund is today, right? Like, you know, there are major institutions and people who invest in that thing now, but at, or in the early days, you know, this was all, uh, something that took a while to play out. But the thing is, nobody cared. When they first launched it, um, I think it had eleven million dollars and most of that was friends and family. So nobody, uh, noticed or cared for a long time. Um, because again, this is a, an idea that's counterintuitive to most. It, it seems like it would not make sense to just take the stocks by size and rank them and then invest that way. And it seems like you're just settling for average. Um, but that, that is something that I think, uh, was, they had to overcome and they had to staff people, grow the business.

• 35:09Speaker 02

  Um, but I will say, uh, Vogel, I think was good at hiring people. You know, I've I've met a bunch of people from there and they're they're really smart, they're nice. I think he had to get people to buy into the mission as well because you can get talented people who could probably make more elsewhere, right? Let's let's face it, you have a mutually owned company, you're just not going to be able to pay as much as say Goldman Sachs or or a big company in New York. And this is a and you got to have them relocate out to that Malvern, Pennsylvania. So he did, but once they got there, I think if they bought in and you know, I heard about like the Kool-Aid and stuff and they bought in, they got into it, they settled down, they have a life, it was harder for them to get poached over time by the bigger companies. So some of the people I interviewed were there for like twenty, thirty years and they really enjoyed it.

• 35:52Speaker 02

  They got psychic income, which people I think is an underrated thing, which is and maybe not something most people who go to Wall Street care about, but psychic income, meaning just the idea that you did something good today, can actually, you know, complement maybe a lower salary. People in public service point to psychic income and I think the psychic income was pretty high there. But he had to constantly address the employees who would start to get anxious and frustrated by Vogel's messages about how we're lowering fees and we're doing good for the investors. And they'd be like, well, what about my my paycheck, you know, which is a natural reaction if you're not the founder with this mission, a normal person working there. So he came up with a partnership plan.

• 36:34Speaker 02

  There were several things he had to put in place, which again, this is the roll your sleeves up managerial work that I think is underrated or under credited in his story, but it's not easy. You got to retain people, have them do a good job because he could not do all this himself. So this, I I think those are some points I would give you from the early days. One other thing he did that I thought was really fascinating was when Vanguard first set up the index fund, started to get a little little bit popular in the eighties, they'd sometimes have a big institution who wanted to come in and just sort of put their money there for like a month or six months and then take it out to do something else. Because this is a good deal even for an institution, but Vogel said no, he would not let, he turned down money early on because if you were going to come in short term, you were going to

• 37:19Speaker 02

  create costs for the people who were there, the little guy. And so he denied them and so that prolonged their success. But it was a fiduciary move or a steward move for the people in the fund. And this is stuff that people do and no one's looking, no one cares that I give them credit for doing and sort of walking the walk the whole time. But in the end, by really protecting his clients, like to the death, and really sculpting who the clients were, they are the best behaved investors in finance. If you look at any bear market, Vanguard takes in money no matter how bad it gets because they came to him, they trust them, they get, they know they got a good deal. So like in 2008 Vanguard took in money every month. It's crazy, right?

• 38:04Speaker 02

  Even in October, when the market was down 17%, they took in money in 2018, they're taking in money this year. So this is part of the, again, all these things that were hard choices early paid big dividends later.

• 38:18Anthony Pompliano?

  Yeah, it's fascinating that up or down markets, assets still come in and as those assets come in, it makes it cheaper. As it gets cheaper, it incentivizes for more and more assets to come in, right? Like, like it is just a perfect kind of structure. Why has no one else done it? Is it just greed and capitalism and they're like, hey, look, we're not gonna make any money doing that. So like, let's all hold on to the current system? Or is there some other reason why no one's followed?

• 38:47Speaker 02

  You pretty much summed it up. I mean, I asked people, I interviewed 50 people, right? Again, like I said, I had asked them all, how come nobody's copied this? And everybody's answer was virtually the same. Well, there's no economic incentive to hand over the future profits. Nobody goes to Wall Street to drive a Volvo. It just doesn't happen. And in particular, somebody who would work as hard as Vogel, I mean, he worked very hard. So if you're gonna work that hard and lay yourself out that much, and you're the kind of person attracted to Wall Street, you probably have the fire in the belly type deal, you're probably gonna wanna keep a little, a lot, or at least more of that money. So there's just no incentive to do it. So then I said, well, why did he do it? And everybody, everybody's answer was the same. That's a good question.

• 39:30Speaker 02

  So that led me to a whole chapter called explaining Bogle, where I tried to deconstruct what went into the character, both environmental and genetic, that would produce somebody who would do this on purpose. Um, because nobody has copied it. And I did my best to try to break down the things that went into like the Bogle stew. Um, and I, I think, you know, one of those things was the, the way he broke up with his partners was a freak accident. It was just such an unusual situation. So that circumstance was huge. But still, he and the human had to decide to set it up as a mutual. So it came out of his brain. And, you know, he was, um, in his Princeton thesis, he had some, some seeds of this idea of being a good steward and doing right for clients. And he came from the Great Depression.

• 40:13Speaker 02

  And so he had a, a family that was rich and lost it all. So he had seen that. And I know, um, one of the thing, one of the reasons I enjoyed spending time with him in his office. I had several interviews with him before he passed away was he was from the World War II generation. And I don't know if you know anybody like your grandparents, mine are both passed away, but they, they were just different. You know, they would save everything. They wouldn't use electricity in the room they weren't in. They had a different mindset. They, you know, his son told me at the same CACD for forty five years. So he didn't really need things. And so the, the lack of need and greed was really an unusual, was, was World War II-ish, but also unusual for this industry. So I almost think sometimes he was miscast in this industry.

• 40:56Speaker 02

  The way he even got into this industry was he was looking for a thesis and went into the library at Princeton and just happened to pick up Fortune magazine and read an article on mutual funds. He said, oh, I'll do my thesis on that. And the thesis got us, him hired at Wellington, which is his first company. So, um, it was a little bit of dumb luck that he got into this industry. But I will say, uh, he wrote a book called Enough, which is all about, uh, greed and how you don't need that much. And if you can just like, learn to be happy with what you have, you'll be much happier and you could do more things that are good for people. And so I think he had, uh, this enough, he had an immunity to greed. But I will say, his son and some other people, as I was interviewing people around him,

• 41:36Speaker 02

  he could never get enough adulation. He loved being called Saint Jack. He loved this idea of being like sort of a savior of investors. And so that that really filled him up. And so, but people who want to be filled up by praise tend to go into other industries, not finance, right? So people who want money go into this industry. So in a way, there there might have been a a different type of uh need that was filled that normally would have gone into a different profession. I don't I don't know totally how to explain this. I did my best to try to understand this, but to your point, nobody copying it, this whole thing and him sort of become like an anomaly in physics, right? It just he and it broke all the laws of of Wall Street physics. And he's trying to just unpack why, perhaps we'll never know.

• 42:21Speaker 02

  But it just, um, that's why I was so fascinated by this, you know. I took a risk, you know, it was a lot of time I do this, right? It was a lot of time spent. I was like, people know who he is generally. They know Vanguard. What, am I going to be adding anything? And I thought, you know, I have all these interviews. And he and I would debate and had really interesting discussions and I see the data and I'm like, I I just, this really has to get out there. This is just a very unusual anomaly type story. I feel like I'm maybe a Gen Xer. I can put a little more edge into the story and try to show younger people because sometimes um I'll be at like a a family gathering or a party and, you know, I, you know, I, some of my more liberal or populist friends, you know, I think they think Wall Street like sucks.

• 43:06Speaker 02

  So I try to explain, not not all of it sucks. Like, like this guy, for example, you would love this guy. They don't know who he is. And so I um, I tried to write a book a little bit for them too, like people to just be like, hey, this is this is a really fascinating story. And actually, it's a kind of a happy ending. It's not, most of the stories on Wall Street are about people who rip people off or a rise and a fall. Um, those tend to be uh Very better selling books probably because they're more interesting. So this book doesn't really have that kind of an arc. But I will say what I lack in dramatic arc, I make up for in impact. You know, I really trace out the impact here and I, I hope I did a good job. It's, it's pretty astonishing.

• 43:45Anthony Pompliano?

  Yeah. When you think of Bogle, did people like him at the time? Or was he seen as like enemy number one from other folks on Wall Street?

• 43:55Speaker 02

  Half and half. Um, you know, on one hand, he would, um, this is why I have a little section of the book where I compare him to a punk rocker. Uh, he would go right on stage at Morningstar and tell all these active managers, you gotta lower your fees. You suck. He'd go to the ETF conference and say ETFs trade, they suck. And he would crap on audiences left and right, then he'd crap on his own company. And he was just, and he'd go on CNBC and say, trading is for losers. I'm like, the whole thing's set up to keep them trading. And I was like, man, this guy is punk rock. Um, I also think his addition by subtraction was, was a sort of, that's what sort of I think punk was birthed. You're removing things from music they didn't like and just giving you bam, the straight song. Um, but yes, this is what made him a little controversial in the industry.

• 44:40Speaker 02

  Uh, he was shunned at ICI meetings, you know? I'm not sure how people did it to his face, but behind in the back, in the back areas and the hallways, people I think tried to avoid him. It was uncomfortable what he was saying for everybody. People want to feel like they're doing good for people. And here's a guy saying, no, you're actually like basically, uh, you're extracting value from society. You're not giving it. And these are hurtful words if you're in the industry. Um, so he did have some enemies. That said, on the flip side, he had a lot of friends in active, like Cliff Astin is a good example. Um, the head of iShares who I interviewed, who I thought would hate Bogle because you're running iShares in 2000, year 2000. And here comes Vanguard with cheap ETFs. You'd be like, oh shit.

• 45:24Speaker 02

  Um, but he, he ended up becoming friends with Bogle. Bogle did, I think in World War II style, get, he had a good knack for separating your job from the person you were. And so he would, he would get along, he got along with the guy who started ETFs, he hated ETFs. He got along with some active managers. And it's because I think he could, he understood there's a difference. You could be a great person and yet he could criticize your job or your product you're selling or whatever. Uh, but I opened the book by saying, look, if you, if you're in the industry, there will be times you feel judged and even attacked in this book. But I, I mean, I'm like, my whole life was around ETFs and he, he crapped on ETFs maybe the most. So I said, you know, he was equal opportunity. Um, at the end of the day, what, what?

• 46:09Speaker 02

  He, he, he really started to get into this idea that you just need a total market index fund. So one fund, basically, maybe you have a little bit of bonds and that's it. So he actually started to trash funds he launched, like the growth funds, the growth index fund, the value index fund, the international funds that he, so he launched a lot of funds that he would ultimately later go to trash his own work. So, I mean, this guy was pretty much trashed everything. Um, and he got, yeah, it made for some uncomfortable situations and, um, but beyond the industry, he had fights with his own company constantly. And so I have a chapter called Vogel versus Vanguard. Cause when he stepped down as CEO, he kept an office on campus for 20 years. And he would take shots at management constantly for their expansion into this or that.

• 46:52Speaker 02

  And so this, this is why I was so interested. I was like, who does that? It's just so, it's just, the guy was just a pretty pure, he was like a puritan. This is what you need. Anything else is distraction and I'm going to trash it. Um, and I don't think anybody will ever be as pure as him or should be even. But I think just, I, I don't take sides with him or Vanguard. I just tried to show you the big picture. Because I think, you know, it, it's tough to live up to what he was saying to do. I think people are just human. They're more human than he was, he was sort of advocating for. It's just very difficult. Some Vogel heads, I think are really good at only two funds and that's it. But I think other people, they want to invest in some different things, try some different things.

• 47:33Speaker 02

  It's fine. I mean, I'm, I'm really, you know, I wasn't like, I tried to be too judgmental in the book. I sort of just was more fascinated by somebody who lived life in constant friction with the industry, with his own company and with his own funds that he launched. It's just, it's just, it's just a really interesting, uh, for me, it's fascinating. Um, so yes, I would say that, but overall, when I interview people, For the book, and I said something about what he said about their world that was negative. They'd kind of laugh and be like, you know, that's just Jack being Jack. He's wild. And then they pivot to their point. They never said, oh, he's an asshole. You know, it wasn't like that. I also think in general,

• 48:17Speaker 02

  what Bogle did for the whole industry is he made it better for everybody. I think he increased the amount of, I'm doing good for my client. Whether that's brokers moving to the RIA side of the coin where they get paid as a percent of assets instead of getting kickbacks. Or fund companies like a BlackRock or Fidelity lowering their fees. I think ultimately, he helped push people towards a better Wall Street. Do you know what I mean? And I think generally, it may hurt in the short term, but I think people overall, they feel better about what they're doing. So I give him credit for that. And I think some people have awakened to that to a degree.

• 48:53Anthony Pompliano?

  In the subtitle of your book, uh, it's how Bogle and Vanguard turned Wall Street inside out and saved investors trillions. Talk about the saved investors trillions. Because when people see that, they're like, wait a minute, they have trillions of dollars in assets. How did they save investors trillions? Talk a little bit more about the actual math, uh, and kind of like what the impact on the individual investor has been by Bogle's kind of big idea.

• 49:18Speaker 02

  Yeah, sure. No, the, the, the assets they have is separate than the savings. So it's pretty simple math. It's back of the envelope. If you take Vanguard's, if you took a chart like this, you take Vanguard's asset weighted average fee, it goes down over time, as I said. Went from forty six basis points to like ten. This is all their funds combined. Over fifty years, forty five years. Active went up actually for a while. Into year two thousand, then when passive got popular, it's like, oh shit, we got to lower our fees. Then they started going down like this. So all I did was take the asset weighted average fee and then the assets in each area and say, well, if the money here was there, what would the difference be? So that was part one of the equation. That gets you a couple hundred billion.

• 50:02Speaker 02

  Then you get another, another couple hundred billion from the fact that the active side, they trade a lot. So whenever they trade and they, and they buy this stock, sell this stock, they're, they're giving money to the market makers. That could be another, and I think I calculated fifty, sixty basis points that you wouldn't get if you were down here, right? So you add that in, then you get the money that is saved from the people who copied Vanguard, which how we call the Vanguard effect or the Bogle effect. So if you look at all the money in passive, Vanguard has half of it only. The other half is from Fidelity, BlackRock, you know, Goldman, et cetera, et cetera. That money I counted as well in a similar vein. What if it was in an active fund instead? And then you get to the idea that all that money is reinvested.

• 50:46Speaker 02

  So you add the reinvestment to that as well. There are actually some other things you could do, like the behavior. He got people to behave way better because a cheap index for makes it easy to behave. You could just resign. Oh, I'm not going to sell because what am I going to go into? This is the best deal I have. That you could say is more. I didn't count that, but you could, you could actually fold that into the number as well. But the things I just gave you get to roughly a trillion. But that number grows by, I believe, 150 billion a year. And the 150 billion a year grows because now you've got to add in some international, right? This is, this is not a trend just in the U.S. It's spreading overseas. And the numbers get bigger and the, and the costs get lower. So this trend, that, that trillion will probably be three or four by the end of this decade.

• 51:31Anthony Pompliano?

  So as we see this play out, what do you expect the impact to continue to be? Obviously, there will continue to be assets flowing in. We assume there continues to be very low fees, we assume. Are there other aspects of impact that you're paying attention to or you think are worth noting?

• 51:47Speaker 02

  Yeah, and this is a big one that I talked a lot in my book tour when I would go to like different,

• 51:53Speaker 02

  we did some Bloomberg, I did some on the road. And I, I feel like just talking about like the savings and Bogle is not necessarily useful information for the industry. So one chapter I have is called the fall and rise of active. And in this chapter, I look at how

• 52:09Speaker 02

  doing stock picking with a portfolio that looks like the index, like, oh, should I do 3% of Amazon today or 2%? You know, it's, we call that closet indexing. Charging 80 basis points for closet indexing is probably going to die. It just doesn't make sense. You can get the same stocks roughly for, you know, eight times cheaper, even more. So that's probably the fall of active right there. That's probably going to go extinct. But what's birthing in its place is all these new evolutions of active. And so this is what I used on the tour. This is the panel discussion we had because this is a big tent concept. So the Bogle effect isn't just, oh, I lower fees. He's actually changed how active and the whole financial industry is now going to deliver active. So let me give you a few examples. The more people go to cheap beta in the core of the portfolio, we'll call that the sixty forty.

• 52:54Speaker 02

  You're paying five basis points for both of it. It makes up seventy five, eighty percent of your portfolio. Some people go a hundred. You'll call those the Bogle heads. Those are the Puritans. Not everybody's like that. Most people have a slice for what I call hot sauce. They want things that are very different because they've got all the serious, fundamentally sound stocks covered in their core. So they want stuff that's a little wild, a little crazy. So that's where ARC lives. I would argue crypto, for a lot of people crypto lives there. It's like a call option in the future. What if these crypto people are right? What if Kathy Woods right? I don't want to miss out. So that's a FOMO wedge. And so ironically, the bigger passive gets, the crazier active is going to get and the more active it will have to be.

• 53:36Speaker 02

  That's one way. The other way I think he impacted it was by an index fund that's market cap weighted. That was the first one. It's very simple, right? McDonald's simple. Over the years, people said, what if we, what if we actually make an index fund, but we weighted by dividends? Or we account for price to sales? And so you start using fundamentals to change the way the index works, but it still rules based in indexing and cheap. And we call that smart beta. And I think that's one of his way active is evolving. I think ESG is an evolution on active. I think it's an overrated, overhyped one that will eventually be very much smaller than people think. But essentially what you're doing there is trying to reorganize stocks, kick some out, add some in the hopes of outperforming. That I would argue is an evolution of active. I don't know if he's totally, you can't attribute that to him totally.

• 54:20Speaker 02

  And direct indexing is another one where they say, hey, stop using ETFs and funds altogether. Let us set an SMA up for you separately managed account. And we'll let you pick a couple of stocks you just hate. Maybe we'll add an ESG overlay. I also think that is overhyped and will only be a small part of the market. I don't know how many people need that level of customization beyond what ETFs or mutual funds can give you. But that's probably, those are some of the ways I think active is evolving. And one of the ways. The more, what people sometimes miss is it used to be active was, hey, let me give this money manager my money, or this broker, and they're going to pick good stocks and some bonds for me. What's happening now is the, the end investor or the advisor is the new active manager.

• 55:03Speaker 02

  So what I mean by that is, an RIA is now the active manager because they have your portfolio. And the way they decide what the 40 should be, it should be 42, 38, how much bonds, how much stocks? Do you want a little ESG? Do you want an options overlay? What about your hot sauce bucket? That's all active decisions. But what they're doing is they're using low-cost passive products predominantly to do that. And then there's even people who trade ETFs all day long and sell that, like, hey, I'm an, I'm an ETF picker. And that's called ETF model portfolios. And that's a little cottage industry that's growing that I would argue is a byproduct of this. So, active is not dead at all. It's just evolving. And a large part is because cheap beta has completely kicked out traditional active from the core.

• 55:49Anthony Pompliano?

  Yeah, it, it's fascinating. Some of these things that have gotten so much hype, so much attention, constantly talked about as innovative, new, can outperform, you know, whatever the, the kind of spin on it is. At the end of the day, it all drives back to just, the benchmark is the benchmark. And, uh, most investors probably just want exposure to the benchmark when it's all said and done.

• 56:12Speaker 02

  Yeah, uh, because, look, I always have this, you know, would I recommend my mom doing it? That's a question I have for myself. And if I wouldn't, I'll tend to write a little more critical of this thing that's coming out. Um, and when it comes to, uh, you know, cheap beta, like a Vanguard index fund or iShares ETF, I'd be fine if my mom was in that. I mean, I really, I'd be, I mean, I'd, I'd sleep fine. So, um, it passes the mom test. It's, it's, it's just a good deal. And people want to get the most for their money. I mean, they want to put their money to work, right? That's the whole concept here. So I think this will be popular for a long time. And you have to think of, one thing people miss is what is the benchmark? What is an index? Essentially, it's all the trading of active, right? Active, like if...

• 56:57Speaker 02

  Five active managers, one think Amazon's good and four think it's bad. It's probably going to go up a few points, right? Because there's more people buying it than selling it. That's going to make its market cap, you know, at this point, maybe a little higher. Index funds are just tracking all that active activity. So index funds essentially do right in the backseat of active. So you kind of get active's best ideas or their, you know, their push and pull, but without their fees. So they are, you have to admit, and people, sometimes people shy away from this, but they are freeloaders. Index funds are freeloaded. Active and we, we do need active to set these prices. How much active is a big debate? You know, do you need as much, you know, in nineteen ninety-three, it was ninety-nine percent active, probably too much. But at what point do we need active there to set the prices so that we're not having like?

• 57:41Speaker 02

  I don't know, a Reddit crowd making some stock the biggest stock in the world just because they want to. Uh, so this will, this is where the rise of Vanguard and passive is ultimately probably going to end up in a regulatory issue at some point. But it doesn't matter. Low cost is here to stay. That genie is out of the bottle and that ship has sailed. But what's interesting, and I'll bring it back to crypto, is that that hot sauce bucket, I'd like to get your take on this. I've always thought that crypto, if I was in, inside the crypto industry and I had a fund or something. And I was interested in promoting it. I would say this is a great compliment to Vanguard or cheap index fund. But I've seen some people in crypto like go, go so outside the system. They're like, you gotta get rid of all that.

• 58:25Speaker 02

  Um, and you know, people are, uh, these old boomers are leading these young people into the S and P. Which is like a Ponzi scheme in itself. Some people get kind of weird about that. Um, I, I can, I can see what they're saying in a way. But for practical purposes, or if you're speaking to a certain crowd, namely advisors who have twenty-six trillion assets. I think the complimentary tone is that I would go there and I would say, just consider us a call option in the future. We may not be right, but we might be right. And you've seen some of the runs we've had in the past and it's not going away. It's resilient. Um, that to me is a very powerful point, in my opinion, rather than sell everything.

• 59:07Speaker 02

  You know, come into crypto and we're gonna like basically up, upend the system. I don't know. Thoughts?

• 59:13Anthony Pompliano?

  Yeah, um.

• 59:15Anthony Pompliano?

  I think there are two very different approaches. I always just go to like an extreme example, are all companies going to zero? There are some people who believe that. I'm not one of them. My guess is that the companies may change. There's different types of businesses. But if these technologies are adopted on a global scale, it will lead to more companies, not less companies. Right? And we've seen this over and over and over again in history. And so the more that you get into like, this is a zero sum game. I think the less confidence I have in like that talk track. The more that it is, hey, this is going to be really, really powerful and valuable to a certain subset of the population.

• 59:59Anthony Pompliano?

  And it'll be a one plus one equals three scenario. That seems to me, one, it aligns with kind of how we know history usually works when it comes to technology. But two is it is a theory that probably is more likely to occur on a faster timeline. Because you forget if like, if you're going to blow up the whole legacy system, like that takes time, right? I get to do the demolition and you have to do the building. In the scenario where it's like, look, like the building kind of just like slowly recruits people. Right? And they swap out assets, they create new companies, like all that stuff. Like, that just seems like a more efficient way to do it as well.

• 1:00:42Anthony Pompliano?

  But with that said, I mean, there are certain parts, you know, I'm sure you, myself, and many others would agree. There's bureaucratic parts, there's, you know, rent seeking, there's like things that naturally will die. Whether it's these set of technologies or different technologies that haven't even been invented yet. Right? Or just, you know, artificial intelligence, machine learning. Like, there's all these things that will eat away at some part of the industry. I think the question just comes down to, you know, which ones? When do they happen? And who are the winners on the other side? And the beauty of finance is that like, it's very different than academia. Where like, there's less talking and more betting, right? Of just like, hey, here, here's where the money is. Let's see who's right and who's wrong and they'll, and they'll be rewarded financially. Which I think is part of the beauty of, of kind of all this.

• 1:01:26Anthony Pompliano?

  And why so many people are interested in it is because there's people with real skin in the game who stand to make or lose a lot of money, depending on how it plays out.

• 1:01:35Speaker 02

  Yeah, no, I agree. I just, one thing in Bogle's books, and this is something that, you know, is, I think when you think about the S and P 500 and the companies in it, you know, these are people who wake up every day, go to work at Google or Amazon, you know, armies of people, and they create value, right? And that creates cash flow. And even if the price is lofty because the Fed or whatever, we'll call that speculative return, there's generally an investment return you get. I mean, the S and P typically will give you about 7, 8% a year, maybe 9% on average, because of the dividends that pays out in the cash flow. So, I find that's, that's a pretty, like, you know, eat your vegetables kind of argument. Like, it's

• 1:02:17Speaker 02

  hard to think that's going to go away, but I guess it could. And I think that's where, sometimes, especially in the advisory world, you know, it's interesting to see how crypto will fit in there. I think that advisors and the sort of mainstream investors, I do think they bucket crypto with an ARC or a thematic ETF in that, look, I don't understand it totally. I don't even know if I want the system to be upended, but there's some smart people in the space. I like some of the upside volatility, and I want to just not have FOMO if it starts to take off. Yeah, let me give it 4%, 5% or something like that. So I think that's a, that's a really good lane, because think about it, 4%, 26 trillion is a lot of money. And that's ultimately why I think you and I, last time,

• 1:03:02Speaker 02

  we were kind enough to invite me on, we talked about the spot Bitcoin ETF, and how major of a impact that could have because of that 26 trillion in advisors who are probably a little, much more conservative when it comes to investing in the space of crypto.

• 1:03:19Anthony Pompliano?

  What's the latest on it? You think it's going to happen? We got three, four months left of the year. Unlikely?

• 1:03:26Speaker 02

  Oh yeah, unlikely. I mean, 1% chance. It's really, it's all about Gary Gensler's brain. I mean, it's just, it comes down to one man's brain. You know, GBTC has just, you know, they're suing the SEC. They've written so much on how ridiculous it is to not approve a spot Bitcoin ETF, how it's contradictory to approve the futures. I mean, our team agrees with them. I think we're all on the same page here. But over the years, we made written notes saying this. I've just become so numb and beaten down. That I, I, I just can't, it's just so hard to even say this when it really comes down to one man's point of view. And so, so long as Gensler sees the crypto world as the Wild West and not regulated enough, there will be no spot Bitcoin ETF.

• 1:04:09Speaker 02

  Now, what, what he would introduce that would satisfy him, we haven't seen it yet. But it's possible that happens. You know, midterm election coming up, so I wouldn't look for anything before that. So I don't know, um, two years maybe. If I had, if you had, we had the ballpark, if it was Vegas and over under when a spot Bitcoin would be approved, I'd probably go two years. Over under. Um, which is depressing.

• 1:04:34Anthony Pompliano?

  Yeah.

• 1:04:35Speaker 02

  Just stupid.

• 1:04:36Anthony Pompliano?

  If he, if he woke up, could he just say like, all right, fine, approve it and pretty much it would be done?

• 1:04:41Speaker 02

  Yeah. Yeah. I mean, because you, you, you, you know, you could make the same arguments. GBTC has done a great job of this, basically bullet for bullet and Wisdom Tree too, a bunch of them have. Explaining why the SEC's issues are not really warranted. The other thing is the SEC, in my opinion, is what Hester Peres has been arguing. She's a commissioner. If she was commissioner, it'd be approved. See, that's, that's how we know.

• 1:05:07Speaker 02

  What, what I think they miss is that the industry, the ETF industry is so, is such a massive, amazing ecosystem full of the richest market makers and the smartest market makers. They're not messing around. You introduce a spot Bitcoin ETF into that. They're gonna not, they're not gonna use shady exchanges. They're going to work for the SEC in a way by making due diligence higher and making exchanges really be very legit. Because nobody wants to, you know, at that level wants to mess with anybody shady. So just by having an ETF, and the exchanges want the business from the market maker. So they're gonna make sure that they're above board.

• 1:05:46Speaker 02

  So I don't know why they don't see the ETF as a force that will help them to make the crypto industry less Wild West. Uh, this is a point has to first makes our teammates constantly. I, I don't know. I, I guess there's a probably a PR risk in the back of Genza's brain that some, somewhere there's a hack. And then somebody says, why would you let middle America buy this through an ETF? You know, and he gets in big trouble. I, I think there's a CYA kind of risk, I think, in the back of his head, although I just don't think it's big enough. Or I, something like that happened, I think, uh, you know, the, the SEC could get together with the issuers and probably find a solution for the investors who were in that particular

• 1:06:29Speaker 02

  fund at that time or with that exchange or something like that. But that's probably ultimately what's dictating all this is that CYA feeling and, and a, and a potential PR problem.

• 1:06:39Anthony Pompliano?

  Yeah. It's a, it's fascinating to kind of watch, and I think you and I've talked about it a couple of times. Uh, you know, we will see. I don't know. Two years is a pretty good guess in terms of over under, cause I'm sitting here like, uh, the bull in me says under and, uh, the bear in me says over, right? Like, I don't know.

• 1:06:58Speaker 02

  It's like, it's been filed for 10 years now. The Winklevoss ETF is, I think, believe 2013. So we're over 10 years old. Um, it's crazy. I had my, my son was like, my son's 11 now. He was basically born right around the time the first crypto ETF was filed. It's cra- it's just crazy how much time has passed. So another two years. Um, anyway, and the rest of the world has evolved. I think crypto spot, uh, Bitcoin ETFs are now almost all, I want to say seven or eight countries. Um, it's just not, I don't know. It's just us, we have, we have this, again, it's a.

• 1:07:32Speaker 02

  It's I will say, you know, Gensler is a Democrat. They tend to be more into regulation as well. I think it's probably also part of it. But then again, the last guy under Trump had similar issues. So who knows? Again, I hope it's sooner. We all do. I think it'd be a good for both the crypto world and for investors. I think ETFs help usher in a lot of transparency and a little price competition. And so it would benefit everybody. I'm just it's just stunning. They don't see that. But I'm not it's not not my opinion doesn't matter.

• 1:08:03Anthony Pompliano?

  Mine doesn't either, my friend. Mine does not either. Where can we send people to to find the book, The Bogle Effect?

• 1:08:10Speaker 02

  Oh, just Amazon, I would say. You know, it's probably easiest. So and if you do check it out, I thank you. And, you know, hopefully get draw some inspiration from it. This guy was a different dude, special guy.

• 1:08:23Anthony Pompliano?

  I I'm fascinated by him. I think the the parallels that you draw also is the O G A DeFi is is quite interesting. Where can people find you?

• 1:08:33Speaker 02

  If you read the book and you and you don't agree with me, feel free to hit me up on Twitter and call me out. But I read it first and then you decide if you agree or not.

• 1:08:41Anthony Pompliano?

  All right. What what's your Twitter account for people who want to do that?

• 1:08:44Speaker 02

  At Eric Valtounis. So it's just my name. Shockingly, that was available.

• 1:08:51Speaker 02

  So that's the good thing about having a name like mine. I don't have any numbers on my Gmail account on my Twitter. It's clean.

• 1:08:57Anthony Pompliano?

  Yeah, that is that is one advantage for sure. I appreciate your time. The book is fantastic. Anyone who has not got it yet, I highly suggest you do. And we'll do this again at some point in the future, Eric.

• 1:09:10Speaker 02

  Thank you very much. I appreciate it.

• 1:09:12Anthony Pompliano?

  Thanks so much for listening to today's episode. I really hope you enjoyed this one. Make sure you're subscribed on Apple, Spotify, or your favorite podcast player. And if you're looking to transition into a brand new job in the Bitcoin or crypto industry, we've got you covered. Head over to thecryptoacademy.io. My team and I have been working with the top HR teams in the industry to develop an intensive three-week training program with over 50 live events. We teach you exactly what you need to know to break into the industry, including live interview prep and resume Our students have been hired at over 75 of the world's best Bitcoin and crypto companies. Go to thecryptoacademy.io to learn more. Again, that's thecryptoacademy.io. If you enjoyed today's episode, make sure you share it with your friends and I'll see you all for the next episode.