They were bearish when they should have been bullish and bullish when they should have been bearish. So the index at least steers a steady course. We’re joined this evening by a mutual fund executive whose words are so clear they never need dissection or analysis. He’s John C. Bogle, founder- founder and senior chairman of the Vanguard Group the nation’s second largest fund company. And he joins us tonight tonight from Philadelphia. Welcome Jack. Thank you, Tyler. Nice to have you here. Always good to be with you. Great. You know your index 500 portfolio now the second largest fund in America has 55 billion dollars or thereabouts in it as of the end of last month. Do you worry that so many investors who have put so much money into that fund over the past few years are going to be disappointed, not when that fund does you know doesn’t perform as well but, when some other index fund that you own starts to be the one that everybody wants to be in? I worry about it a good bit. People should take an index fund for what it is, Tyler. This is a large cap oriented fund. There will be a time when small cap and mid-cap funds will do better than large cap stocks but it’s not here now. And to my delight, it wasn’t here and the decline the index fund gave a wonderful account of itself when the market went down mid July to the end of August. Hey Mr. B. Bill Griffith here as well. Hi Bill. What about the big picture though? I mean you more than anybody probably in the mutual fund industry have been a proponent early on of index mutual funds and people lately have been buying into them but what about the concept that if we see a market continue to decline that people will be disappointed in all index funds because they find that the managers are not allowed to sell to get out of the market? Well the fact of the matter is that the index fund has traditionally carried about 20 percent less risk than the average fund. In other words for all the vaunted ability of mutual fund managers to raise cash they’ve really been doing just the opposite. They had 14 percent in cash at the beginning of of this bull market and 4 percent only 4 percent at the peak. They were bearish when they should have been bullish and bullish when they should have been bearish. So the index at least steers a steady course. Do you still expect Mr. Bogle that if this becomes what people call a stock pickers market that the index funds will continue to outperform the stock pickers? I don’t think there’s such a thing as a stock pickers market. All investors are picking all stocks and to the extent an index fund owns all stocks. It’s a sort of contradiction in terms. Because if the good stock pickers take all the good stocks the other half of the market will be owned by the bad stock pickers who pick the bad stocks. It all comes out to a sum of one. You know we were talking last week on the program about a mutual fund fees how most people are happy to pay them when the market is going up because they’re still making money. But as the market comes down and especially as the net asset value of a mutual fund comes down people maybe start to pay more attention to those fees something that I know is very near and dear to your heart. Yeah the fees in the mutual fund industry, I’m sorry to say, are generally pretty outrageous and you add to an average fee of one and a half percent, at least, another half percent for the fund transaction costs inside the portfolio, which isn’t disclosed separately and then mutual funds are tremendously except for index funds really tremendously tax inefficient and the index fund is going to pick up another point and a half On tax efficiency. You think they’re going to have to come down though because of competitive practices and because maybe fund investors will demand it. I think sooner or later fund investors will see the light. You see more attention paid to cost in the press. You see more dissatisfaction with the mutual fund as an investment medium in the magazines and on television. And I think the industry has got to adjust to a different era. The fees are too high and that’s that’s all there is to that. In addition to fees being, your word outrageous, a lot of people think that there are just plain too many mutual funds out there. Some 9000. What’s your view on that? And I note that you guys have something like twenty two or more separate index portfolios just in the equity area. Why do you need that many? Well you need a first. I think there are far too many funds in the industry. I mean I don’t know what one does with 9000 funds. Now of course I can immediately jump to our own defense which maybe a little bit unfair but you need a number of index funds because investors are getting more specialized. And some investors want the 500. My preferred index fund happens to be a total stock market which includes large, medium and small stocks. But some investors with it with a blue chip portfolio want an aggressive entry into say a small cap growth funds or a small cap growth index fund. Isn’t it a very intelligent way to do that. So to a point we ought to meet public demand. We shouldn’t be creating. We as a company or we as an industry. Mutual funds whose only reason for being is to appeal to a marketing need that is unsound. We ought to be spending more time in this business on investing and less time on marketing.