There is a good chance that this week’s guests manage your money. This episode is a rare and fascinating look into the world’s largest asset manager. My first guest is Gerry O’Reilly, who is the portfolio manager for the largest mutual fund in the world, and oversees more than $800 billion for Vanguard. My second guest is Jim Rowley, a Senior Investments Analyst with deep knowledge of indexing and ETF’s. The two provide incredible insight into some of the particulars that make Vanguard and its funds tick.
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- Thinking, Fast and Slow – Daniel Kahneman
- Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions – Dan Ariely
- Malcolm Gladwell Books
- Freakonomics: A Rogue Economist Explores the Hidden Side of Everything – Steven Levitt and Stephen Dubner
CRSP – Center for Research in Security Prices
1:40 (first question) – Patrick starts by talking about his recent interest in running and questions Gerry about his running escapades starting back in high school and how that led him to a job at Vanguard.
5:43 – Jim discusses how he arrived at Vanguard
7:02 – A look at the key cultural components at Vanguard that has led to longevity among the employees.
10:44 – The conversation shifts to investing, with a look at what is the equilibrium between active and passive investing, and how Vanguard has handled the transition recently.
16:30 – Patrick asks them about using CRSP’s and why they use a third-party to benchmark themselves.
18:15 – What impact has proxy voting had on the active manager and how does Vanguard handle the active investors that will hold large portions of several companies.
20:18 – Patrick asks what skillsets would be important for new hires at Vanguard.
22:35 – A deep dive into risk and market structure, what dimensions of risk do they think about in their trades.
23:39 – What are some aspects of market structure that are subpar.
25:10 – The conversation shifts from passive investing to active and what strategies are being employed in making those trades.
27:29 – A look at the market efficiency debate and how Jim and Gerry view it.
30:12 – Patrick explores their feelings on high-frequency trading and whether these players are just taking advantage of market players.
31:56 – What does their quarterly rebalancing policy stand and what impact does that have on their daily trading activity.
34:14 – How do buybacks play into rebalancing.
36:52 – Gerry is questioned about the rise of factor investing.
39:45 – A look at how they invest, on a macro level.
40:32 – A look at the perfect portfolio balance and how it used to reflect what the total market asset classification looked at.
42:58 – Is the tax advantage of ETF’s significant enough for prospective investors?
44:28 – In a scenario when there’s net outflows of the market, Patrick wonders what strategy would be considered to produce the best tax efficiency.
46:03 – What are their favorite components of their jobs at Vanguard?
47:51 – A look at their most memorable days at Vanguard.
51:16 – What was the kindest thing that anyone has ever done for Gerry and Jim in their careers?
53:55 – What are the books that have shaped the way they thought, with extra points for books that might be less known.
54:15 Thinking, Fast and Slow – Daniel Kahneman
55:33 – Malcolm Gladwell Books
55:55 – Freakonomics: A Rogue Economist Explores the Hidden Side of Everything – Steven Levitt and Stephen Dubner
56:28 – What is the areas that each of the guests are most interested in improving upon.
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