Christine Benz: I want to talk about traditional index funds versus ETFs. I know that you've been a skeptic and have talked about some of the very focused ETFs that have hit the market and what the investor returns will be on those investments. How are you feeling about the proliferation of ETFs and how the ETF industry has morphed over the past few years?
Jack Bogle: Well, the ETF has got to be one of the great marketing ideas of the recent era. I think it remains to be seen whether it's one of the great investment ideas of the recent era. The trading volumes are astonishing. Standard & Poor's 500 SPDR, the biggest one, turns over 10,000% a year, and I think 30% turnover is too high. What does one say about 10,000? Many of the emerging markets are up 2,000% or 3,000% a year, and many of the ETFs are in the 2,000% a year turnover rate, which means investors are buying them to speculate and of course they are sold on that basis. Now you can buy and sell at any minute of the day. You can trade the S&P 500 all day long in real time, if you're crazy enough to do that, which I wouldn't recommend for anybody.
So those who want to buy ETFs, broad market ETFs, call it U.S. stock market or a U.S. 500 or emerging markets or international or global or total bond or maybe they have specialized needs in the bond area, more power to them. But buy and hold and not trade--because we get captivated by our emotions. Everybody knows this. We have a big behavioral problem in investing, particularly evident in mutual fund investing, because when you think about it, and most people do not, the mutual fund cash flows are the only cash flows that actually happen.
In other words, if people are redeeming all their shares of technology funds, we can measure that. But people are never getting out of technology stocks. They are selling them to other people who are coming into technology stocks, there is no cash flow in the stock market or in any market sector. But in mutual funds there is a cash flow. There's obviously somebody out there, non-mutual fund on the other side of it.
So it's a good reading on how bad the psychology is. And my Lord! The mutual fund investors, they were into technology in the late '90s and we create – this industry has a lot to answer for what. We create, I think, it's 140 or 150 new technology stocks. Once they have gone up, and they're all gone now. Internet stocks mostly gone, Internet funds. Then value comes into play in the early 2000s, and then everybody creates value funds. Then bonds, the stock market does badly, and everybody creates bond funds and the capital flows into there.
And we ought to try and have a better way of dealing with our trust, our stewardship of investor assets than pandering, if you will, to their baser instincts. We know investors are going to look back. Today gold is a good example, and I have no idea where gold will be a decade from now. But it's a complete speculation; it producers no income. It has no underlying intrinsic value; you buy it and then sell it to somebody for more than you paid for. And so we have more money flowing into gold and we advertise gold. And we were advertising performance in the go-go era.
This business really has an obligation to look to itself and say, "Let's step up the management and the stewardship and step down the marketing and the salesmanship."