Scientific Investor Podcast: Charles Ellis

Our guest on this episode has been called the wisest man on Wall Street. Very few people have done more than he has to explain the rules of successful investing. Charles Ellis founded the financial consultancy Greenwich Associates in 1972. Three years later, he wrote a landmark paper in the Financial Analyst Journal about active fund management, titled The Loser's Game.

Transcript

THE SCIENTIFIC INVESTOR 4 - CHARLES ELLIS - Do you need to rethink investing?

ROBIN: Our guest on this episode has been called the wisest man on Wall Street. Very few people have done more than he has to explain the rules of successful investing. Charles Ellis founded the financial consultancy Greenwich Associates in 1972. Three years later, he wrote a landmark paper in the Financial Analyst Journal about active fund management, titled The Loser's Game.

He's served on the board of Vanguard and has chaired the investment committee for the Yale Endowment Fund. He has also taught at both Yale and Harvard. Charlie will be telling us why he's more confident than ever that buying and holding index funds is the best way to invest.

CHARLES: That's how I invest. That's how my children invest.

That's, to me, the most sensible way. of investing because it confronts reality and says, given reality, what's the best strategy to follow?

ROBIN: He'll explain why financial advisors who still recommend actively managed funds are not true professionals. They

CHARLES: Call themselves professionals, and for me, that's a very serious misuse of the word.

ROBIN: And he has some valuable advice on living a long and contented life.

CHARLES: Have a life strategy that, like in a good investment strategy, takes advantage of time and compounding, and It leads in the directions that you would choose if you had to do all over again.

ROBIN: Charles Ellis has written about 20 books in his lifetime.
I started by asking him why he's publishing another book, Rethinking Investing, at the age of 87.

CHARLES: I finally figured out what I would like to recommend to my grandchildren, to my children, To my church to my college other people who are serious about investing, there is a straightforward set of beliefs or values. Or disciplines. And if you follow them, it works out wonderfully well. If you don't follow them, I'm sorry to say, it won't work out well.

And I'm embarrassed that it took me this long to figure it out, but there was that moment where I could say to myself, Eureka! It all fits together. I should make that something available to everyone.

ROBIN: You've entitled your first chapter, Compounding and Time Equals Your Great Power Curve Opportunity. What do you mean by a power curve?

And why do those two things, compounding and time, make such a potent combination?

CHARLES: One, two, four, eight. 16, 32, 64, 128, and on and on and on. Watch as you go from one step to another to another. They get to be larger, stronger, and more powerful. And that is a power curve. And if you put it on graph paper, It would look like a slow starting, but rapidly accelerating and rising faster and faster and faster and really accomplishing quite a great deal in the last bit.

And it's that last doubling. That, of course, has so much of the magical power. Getting there, getting to that last doubling, requires starting sooner. And, unfortunately, in the early stages of a power curve, move from one to two, that doesn't seem like anything very important, to go from two to four. Eh, fine, but it's not a big deal.

Four to eight starts to get your attention. Eight to sixteen starts to get you even more attention. And then by the time you get to 128 and double that, my lord, you're really paying attention. That's the sweet stuff. But you have to start.
ROBIN: In that same chapter, you refer to the Rule of 72, and you say everyone should be familiar with it.

For those watching and listening who don't know what the Rule of 72 is, can you explain and why is it so important?

CHARLES: Well first of all, the Rule of 72 is not a precision instrument. It's an approximation and it's a very good, remarkably close approximation, but it says the following at what interest rate for what amount of time does it take to double.
So if you start with 1% over 72, well it'll take 72 years if you take 10%, a little over seven years to double, and it's a very quick, convenient, and a touch of reality. That's enormously helpful when somebody says to you, this is really going to be great. It's going to double in three years. Well, okay, but free into 72 suggests, oh my gosh, really got to go up pretty rapidly, doesn't it?

And it's, it's a very nice, convenient double check that I find that once you start using it, you use it not every day, but certainly once a month. and it's tremendously convenient and it's got a charm. There's something wonderful about doubling and then redoubling and then doubling that and then doubling that and it takes you right back to the power curve.

ROBIN: You make a really valid point when you say that for some saving is a form of self denial and that if you really want to have The self discipline of starting investing early and carrying on investing month after month for year after year, decade after decade. What you really need to do is to see investing in a more positive light.

How do you suggest people do that?

CHARLES: First I'd say. Not save as much as you can, but save as much as you comfortably can because self denial is not really a very popular proposition, and so I don't want to go there, but saving, if you can understand what the saving will be in your future, and it's your future, you can all of a sudden realize, you know, giving up the things that I don't really give a damn about, in order to have things that I really do care about, This is a very positive exchange with myself.

In the short run, I don't have some of the things I really don't care about, and in the long run, with compounding, I'm going to have things that I really do care about. Best example I personally think is probably saving for education of your children, saving for being able to live in a home that you really enjoy, saving for a comfortable retirement.

Those are real purposes, and the value that you create day by day by day. By contributing to that future you is, I think, constructive saving. I would not ask anybody to do saving that they found painful hair shirt, difficult obnoxious. I really don't, really don't think that makes any sense at all.

But I do think that there are a lot of things that we do in spending that actually we really don't care all that much about. And if we had saved and then compound with investing, we could have things that we care greatly about.

ROBIN: What's wrong with that? For me, Charlie, the most interesting chapter in the book is on the major changes you've seen in the financial markets and the asset management industry during your career.

You say that every investor should know about them because they fundamentally change the, the rules, if you like, of Sensible investing. Briefly, what are those changes and why are they so important?

CHARLES: Well, let's just run through a few of them because they're all one after another after another, quite large.

If you go back 50, 60 years, the typical investor was an individual, nice person, but an amateur. Who did part time investing, largely because he had received a bonus, or had some extra money, and put it into securities, hoping to be able to take it out someday, to pay for college education for children, or to live in a nicer house, or whatever else.

Fine. But that individual had no access to research on individual companies. No access to research on economies and no access to factual information about how markets behave. That individual was in a very, very difficult spot. And if you were a professional investor, that was your opponent. That's who you were playing with.
Phrases like taking candy from babies come right to mind. And it was easy to say. If I do my homework, and I have access to information at companies, and I think about things and accumulate some learning, I ought to be able to out compete that individual. And that will pay off well for me. Fine, let's assume that that's the reality 70 years ago.

Today, not 10 percent are institutional, 90 plus percent are institutional. And the institutions are massively different. They are much more aggressive. They have extraordinary equipment. They all have computing power that they carry in their pockets. And cell phones has more computing power than the IBM 360.

Which gives you a sense of, good Lord, that's a big change, isn't it? Yes, it is. Big change to go from 10 percent were quote unquote professionals to 90 plus percent are professionals. And the professionals themselves are so much more aggressive, skilled talented determined to win the competition.

And then you look at things like the information. Today, when I was a young person, Investor, you could have an appointment with a company and they would turn out chief executive officer, the chief financial officer, and anybody else you wanted to talk to. If you've done your homework carefully, you could ask questions that would allow you to find out what are their strategies in financing, what are their strategies for capital investments, what new products are developing, how the products are, the new products are advancing, what their competition is like, what they're planning to do in terms of acquisitions and other kinds of things.

Today, that kind of a conversation is candidly illegal. The SEC says any publicly owned company, this is a regulation FD for fair disclosure, any public company that tells any investor something really useful from an investment point of view. You must make diligent efforts to get that same information to everybody.

So it doesn't take very much skill for a lawyer to say, that means what you should do is have conference calls, maybe once a year, maybe once a quarter, conference calls anybody can tune into. And you tell everybody at the same time. Anything that you want to share and then stop until the next time you have a conference call and tell everybody everything.

So the result is you go from only a few people knew what was going on because they had asked questions and gotten answers to everybody knows what's going on and they all know the same information at the same time. That's an extraordinary change. Then if you go back to again, 70 years ago, the exciting technology.

Was a slide rule and the ability to manipulate a slide rule. And I still have my love, love desert trick slide rule because I treasured it. And I used to use it all the time. Now nobody uses a slide rule. Then there's sort of a curiosity power of the analytical equipment that we have in computers, Bloomberg terminals, internet, really amazing communication and the resources of information all over the world.

Analysts are creating as much insight and understanding as they can possibly get. Then they flood it out to all their clients. I'm hoping to gain some business as a consequence of that. So everybody knows everything, but always at the same time. So it looks like what looks in this, or in the surface, like a competitive advantage turns out to be an equalizer, making everybody more and more and more and more equal.

And when you're equal, that's not a good place to be competitive because there is some cost. In terms of operations, now there's some cost in terms of taxes and you know, the consequence of that, Robin, if you look at the results over 20 year time periods, which most of us think of, that's a good pricey for pretty long term, when you look at that kind of time period, 85 to 90 percent of actively managed mutual funds It's all short of the kind of investing they chose for themselves.

So if you want to be a small cap value manager and I want to be a large cap growth manager, that doesn't make very much difference. We both are in for being defeated by the competition because of the cost of operations. And that means. If you really want to be in the top quartile, which when I first came into the industry was the dream come true, to be in the top quartile, that's easy, all you do is index, or ETF, you're going to be in the top quartile because the others will.

ROBIN: You were one of the earliest proponents of index funds, and you say in this book that you've become increasingly convinced of the wisdom of relying on them.

You describe index funds and passive ETFs as great gifts to investors. Why is that?

CHARLES: Well, first I should confess, that's how I invest. That's how my children invest. That's to me the most sensible way of investing because it confronts reality and says given reality, what's the best strategy to follow?

And I, it's not a matter of pride that's just a matter of confidence that the numbers really do have a message. And the message comes through quite clearly over time, particularly if you look at it over time. Yeah. Yeah. Let me just identify a few of the benefits. We all know that index funds are less costly than actively managed funds.

That's what everybody thinks of as being the big advantage, and it's an important advantage, but it is not the big advantage. Well, what are the other advantages? Well, you have lower operating costs and you have lower taxes because the transactions activity of index funds is really quite small compared to actively managed funds.

That sounds pretty good, but you said there was something, Charlie, you said there was something that's really a big deal. There is. It's a sad reality, but we are all human beings, and as human beings, we do what human beings do. And one of the things that human beings do is make mistakes. Not deliberately, but we do make mistakes, and behavioral economists have learned that they can identify what are the mistakes we make and predict how we will continue to make them, and what fraction of our population will make those mistakes. So, for example, over and over and over and over again, behavioral economists will ask people in fairly large groups, do you think you are above average as a dancer, above average as a driver, above average at understanding other people, above average as a sense of humor?

Above average at being able to think through complicated problems. Above average in being able to have relationships with other people that they find satisfying, and so do you. And over and over and over again, you'll find something like 80 percent of us believe that we're above average. Well, we all know that mathematically that just can't be correct, but it's the way we are as human beings.
We also believe that we're above average as investors. We're above average at understanding investing, above average in any dimension of investing you would like to think in terms of. We're above average at saving. We're above average making really good decisions. We're above average at understanding markets.
We're above average is one way after another. And that's who we are. No, it makes for us to be a happier group of human beings. And in that same sense, I think it's a positive experience. But it's not good for us as investors because it leads us into making serious mistakes. My first, when somebody says to me, can you recommend a really good book on investing?

My temptation is to say, oh yes, Thinking Fast, Thinking Slow. Daniel Kahneman's wonderful book, fabulous book. It's a little bit on the long side, but that's because he had so very much to share and say. Dan Kahneman with a sense of humor. And an appreciation that we are human beings, after all, tells us wonderful, wonderful litany of stories about how we defeat ourselves by being human beings.

It's, it's not bad, but it's not good for us as investors. It's certainly not evil, and we get along quite well with each other, because we are above average in understanding each other, we're above average in getting along with each other we're above average in understanding other people, and all that sort of stuff goes to making for a reasonably happy social environment.

It keeps us together. Reasonably comfortable that we're living a pretty good life. When you get to investing with real money, it might be a good idea to be more rigorous, systematic, and fact based, more scientific, if you don't mind. And if you go in that direction, then we all have to admit, yeah, we're human beings and we're prone to making mistakes.

And those mistakes turn out to be costly. Robin, I think this is really important, so I'm going to I urge everybody to pay a little extra attention. The mistakes that we make cost the average investor over a reasonable time period to lose 200 basis points a year in their investment activities. We don't make mistakes every year, but we do make mistakes enough on average over time to cost us two full percentage points or 200 basis points.

And that's a very substantial penalty. Benefit that I like best about index funds and ETS is that they are boring, dull, uninteresting. So people who are invested in index funds candidly don't pay very much attention to what's going on. They certainly don't get excited about any individual stock, and they don't get depressed or worried by any individual stock because it's boring, and there's not all that much to do.

The benefit of boring is that we don't do anything, and because we don't do anything, we don't make mistakes. And those mistakes are costing other people, and who's among us to say we're not average ourselves in behavior when large, large, large populations of people are average, or close to it? If you're willing to accept that there's a chance that you're average, Think in terms of saving 200 basis points on average in a typical average year and compound that and what an enormous, wonderful difference it makes if you can avoid that and indexing ATFs because they're boring.

Protect you from getting involved in the sorts of mistakes that people make.

MARK: Hi, I'm Mark Hebner, and thank you for watching or listening to Scientific Investor, which is brought to you by Index Fund Advisors. When I founded IFA. com 25 years ago, one of my goals was to educate people about how financial markets work. I wanted them to stop speculating and start investing, and that remains an important part of my mission today.

You'll find a wealth of high quality content on our website, on our app in my book and on our YouTube channel. Please take a look and share our videos and articles with others. You think would benefit and together we can help change the way the world invests.

ROBIN: A key point you make in rethinking investing is that when considering funds to invest in.

People tend to look at the headline charge and they overlook what economists might call the linked costs. You liken buying an active fund to buying an adorable looking puppy. Why is that?

CHARLES: I like the idea of having animals around. We have a wonderful yapping dog at home. It really means a lot to have that kind of friendly relationship.
Here you are, down at the store where you can find wonderful animals. As pets, and one particular kind or breed appeals to you a great deal, and you decide that's the dog for me, so you buy it. That's the beginning of a string of costs. Costs of food, and the food is usually quite wonderfully matched to the appetite.

Not of dogs necessarily, but of people imagining what an appetite of a dog might very well be. So that they're Much, much finer and more expensive food than dogs really want to have, but that's one part of it. Another part of it is trips to the vet when something goes wrong and your puppy just ate a chocolate candy bar and.
He's going to have to be stomach upset, and he's really having a difficult time, and it's only one in the morning, so off you go. Well, the cost of going to the vet, personally, in terms of inconvenience to your sleeping time, but then there's the cost that the vet has to charge you in order to be able to render the service at that time of day.

And by the time you get to the end of the puppy's life, the cost of that puppy At the store was virtually nothing compared to the total cost of the experience of owning a wonderful pet over a long period of time. Now, if you're really comfortable paying those costs, that's terrific, but it'd be really helpful to know it before you get started, rather than find out later on when you're already stuck with or dependent upon, the dog's dependent upon you.

You may find that there's more inconvenient and more expensive. by quite a great deal than you had anticipated. Be good to figure out what that's going to be before you make your decision to buy the dog it's through.

ROBIN: Charlie, a point you make in your book is that, in your view, most people tend to own more bonds than they probably should.

Explain why that is.

CHARLES: It is a radical point of view that I hold, but I'm sticking with it because I believe that data is encouraging and it's on my side. There are two different dimensions, Roland. One part is all of us who are thinking about investing should be thinking about investing in terms of when will we be spending what we're now saving and investing.

If it's a year from now, you probably ought to be buying treasury bills. If it's five years from now, I have no trouble with buying a bond index fund. If it's 20, 30, 40, 50, 60 years from now, that's a long, long time way out in the future. And I think it's very hard to make a case that you really ought to be owning bonds between now and 50 years from now to protect against your emotional discomfort when stock prices go up and down in the next year, the next five years, the next 10 years, the next 20 years, if you're not going to do anything anyway.

Because this is money that you're saving to spend in 40 years, or 50 years, or 60 years. So, that's one part of why I would be very careful about owning bonds now, in order to protect me from the emotional difficulty of stock prices going up and down. If I take a long term view, I'll have a different attitude than if I look at the day to day experience.

Excuse me, that's one part of the reason. The second part of the reason is, did you have any idea how much you have in bonds? Most of us would look at our securities portfolio and say, ah, I've got 40 percent in bonds. Well why do you have 40 percent in bonds? Well, I'm 40 years old and I was told to invest your age in bonds.

And when I'm 50, I'll be at 50%. And when I'm 80, I'll be 80 percent in bonds. Well, it's a nice, simple, summary statement of what you could do if you're focused on the day to day to day to day to day. But if you're focused on, I'm not going to spend this money for 20, 30, 40, 50 years, I think you would have a different Different answer.

There's another dimension. And I don't mean to pile it on, but there are quite a few different reasons why you might think, hey, wait a minute, maybe I'm owning too much in the way of bonds. You look at your securities portfolio and forget other fixed assets or stable assets that you also own. For an example, most people who are investors.

Are in a happy position of owning a home. They don't plan to sell the home. That's a dream come true home and this family importance has got symbolism of all kinds. Yes, that's all true. But someday somebody is going to say, you know, we don't want to live in that particular community because our job is takes us elsewhere.

Whatever the reason is, they will sell the house. And it has then a will be realized in terms of a stable value, then the value of that house won't be changed by The stock market going up and down, but will over time rise with inflation, but that's a stable value. The second kind of thing that everybody might want to think about, and I think should, is social security.

The way you think about social security, most people think in terms of how much you could get as your benefit when you do claim, and there are different questions there we might come back to. That's not what I'm talking about. I'm talking about the present value. Of the right to make those claims in the future.

And that's a pretty significant asset for most people. It's even larger than the value of their home. And if you put the home value and the social security value into your looking at your total financial portfolio. All of a sudden you go from 40 percent in bonds to 75, 80 percent in bonds and you might say, wow, I never realized how heavily I was invested in bonds because I wasn't looking at it as a total picture.

I was only looking at the securities portion.

ROBIN: Now most people your age are heavily invested in bonds. I think I'm right in saying. that you, Charlie, are 100 percent exposed to equities at the age of 87. If so, why is that?

CHARLES: Guilty as charged, Robin. It is true, and I'm really quite happy about it. It's, of course, worked out wonderfully well for me over the years because of the power of the power curve and compounding, which is delightful to have going for you.

But the reality is I'm not investing for me. I'm going to be investing for my children and my grandchildren because they will be the ones who spend happily. I still earn a living. Some of it from books, some of it from consulting more of it from consulting by quite a great deal than for books.

But the reality is I'm in a happy position of, I don't need to spend currently. Out of savings, and that allows me to have that extra freedom of thinking, well, who is going to do the spending and when, and that's my children and grandchildren, and you know, the grandchildren average age is 16, so they've got a wonderful, wonderful long run ahead of them.

They would be quite upset if I didn't give them the opportunity to ride the power curve. to a higher and higher evaluation when they need the money, if they do, in their future years.

ROBIN: Now, you recommend in your book that as part of their retirement planning, Americans should defer Social Security. Why do you think they should do that?

CHARLES: Social Security, you can claim at one age. You must claim at a somewhat more advanced age. And the question is obvious, which you're, at what age should you claim? The reality is a very large fraction of Americans as a, as a group choose to claim social security as soon as they possibly can. And I can understand that people do feel the need to have some extra spending power.
They're really taking it away from themselves. And if you could defer spending from Social Security, let it accumulate. The difference between when you have to claim Social Security in 62, can claim at 62, have to claim at 70 and a half. The difference between that is the increase in the Social Security portion of your retirement funding.

By 76%. That's a terrific change to increase your spending from social security on comfort, happiness, and the things that you need. But in addition to that, if you're lucky enough to be working and you continue working and you continue contributing to your 401k plan, will obviously accumulate very handsomely also.
And your 60s tend to be the best years for saving anyway. Because kids have grown up, college is finished, house has been paid for that's a very nice time to be saving extra money, and you're saving it for yourself. Which is not a bad idea at all. You can accumulate very nicely in more social security benefits, 76 percent more, just to be specific, plus and probably more than 76 percent increase in what you would have as spendable coming out of your 401k plan.

Put the two together and you have a substantial advantage in terms of economics and ability to have free choice as to what you'll do in your life.

ROBIN: Charlie, you've been writing about the challenges of active fund management for a very long time. Your seminal paper, The Loser's Game, was published in the Financial Analyst Journal in 1975.

Does it surprise you that 50 years later, so many investors are still using and so many professionals are still recommending actively managed funds.

CHARLES: When you use the word professional, be careful, please. There are two kinds of professionals. The individual who is paid to do something, that's a professional professional athletes for an example.

But there's another kind of professional and that's someone who takes the responsibility as a lawyer, as a doctor, as a financial advisor to give really good and appropriate advice and really good professionals. Are not recommending actively managed mutual funds, but people who get paid for recommending actively managed mutual funds, then there are a fair number of people who do get paid and they do get paid reasonably well, they call themselves professionals.

And for me, that's a very serious misuse of the word, and I don't think of that as being professional at all. I think of that as being commercial, that as being self centered, that as being unfair to your customer, that as being greedy, whatever negative words you'd like me to use. But it's not professional.

Professionals are doing for their clients what they would do for themselves. with the experience and knowledge that they've accumulated. And there, I think you'll find real professionals are all quite comfortable with ETFs and indexing as being the more rational, sensible and effective way of investing.

ROBIN: We're currently seeing a huge growth in actively managed ETFs. How do you explain that?

CHARLES: Well, it sells. Because customers are human beings, and the chance to have something work out really quite nicely is appealing, and if you articulate something just the right way, explain it just the right way, and give it just the right tone of voice encouragement.

People will tend to go for it, and that can be really quite helpful. Part of it is that reality, you sell what people are buying, and if people are willing to buy something, sell more of that. That's the commercial or the financially, quote unquote, professional reason. The second reason, which is really quite clever, is that if you own an index fund or an actively managed fund, It gets marked to market every day.

If you own an ETF, it gets marked to market, but from a tax point of view, until you sell the ETF. You don't pay any taxes on the gains that are made within the ETF. So there's a really interesting conceptual case for minimizing taxes by using ETFs for actively managed investing. Yeah, I think there are very few ETFs that are actively managed that make sense after the tax advantage is added back in.

There are some that would be. And for very, very clever people, this is a really attractive opportunity. For people who think they're clever, but really aren't quite so clever, it might be a chance to make a mistake. And then because we're human beings, come back to the chances are about 80 percent of us would make that sort of mistake.

Myself included.

ROBIN: Charlie, what about private equity? Wall Street wants consumer regulations to be slackened to enable ordinary investors to invest in private companies. What's your view on that? And on whether private equity deserves a place in people's portfolios?

CHARLES: Private equity is not an easy shot.

That's making a very nice success. It's really a difficult undertaking and the actual returns of private equity investing are not all that impressive. Looking backwards, looking from the present forwards, they're even less so because as Observers can tell you the rate of return increment coming to private equity investing has gone down and down and down and down for the last 25 years.

And it's still there if you've got the very best private equity firms doing the investing. But the chances of an individual being able to get access to those best managers is nil. They don't want to have individual investors. People who really want individual investors would be, may be the right word to say is commercial not professional.

They're really in it for themselves and their own profitability. They wouldn't have their family make investments in those private equity funds. Because the odds are that you would lose money and you'll be locked into whatever investing you choose. And that being locked in is a terrific cost if you look at it in terms of the way people feel about it when they would really like to have the ability to take their money out and they can't.

So it's just being realistic to say individual investors. Have no business getting involved in private equity investing. Nor venture capital investing, nor hedge fund investing. It's, if you're going to be doing those sorts of things, you have to have an expertise that's just not something that individuals can access.

And you need to have a reputation for being a long, long, long term investor. And you need to have a reputation for being able to put up more money in substantial amounts whenever there's a real opportunity in the marketplace. I think it's a shame that we can't all of us be really gifted at everything.

The reality is most of us are never going to be astronauts none of, most of us are never going to sing in the Metropolitan Opera, most of us are never going to the Olympics as competitors, and in a similar manner, I think most of us should stay away from those exotic kinds of quote unquote alternative investing.

Do attract attention in newspapers and magazines? And they are exciting. That doesn't mean that there's something that we should be undertaking ourselves.
ROBIN: We've also seen the value of Bitcoin and other crypto assets rise in recent months. Are cryptocurrencies something you would caution investors against as well?

CHARLES: If you really understand and know a great deal about Bitcoin and you are an expert on the realities. I have no problem with your deciding that you want to invest that way. I, speaking for myself, I'm nowhere near an expert. I really don't think I understand what it's all about. And I know that I therefore have no business in the world getting into that sort of a thing, no matter how exciting it looks to have been over the last year, the last decade, the last Month, and I'm not going to go, I'm not going to allow myself to do something as an investor that I think is more of a gamble because I don't know enough.

If, on the other hand, you really understand what's going on, you know you know what's going on, and others advise you that you are really knowledgeable, then you might want to try it. Don't do more than you can afford to lose. Would be pretty good advice. Diversification is really worthwhile and don't ever do something because the price behavior looks exciting.

And you would love to have had the last two or three years or the last six months of rate of return, because that's. Does not have anything to do with the future. That's the past.

ROBIN: Finally, Charlie, you've imparted so much wisdom about finance and investing over the last five decades. Are there any general life tips you can leave our viewers and listeners with as well?

CHARLES: A question like that, Robert, there's a chance that the answer will be I don't want to sound awfully pompous or in some way stuffed shirt I hope not, but I do have a view, and it's a view that I've shared with my children and will be sharing with grandchildren every chance I get, and that is, you only live once, and the statistical probability that you would ever have lived at all is infinitely small.

Because one specific sperm connects with one specific egg at just the right time. What are the odds of that happening out of the thousands of eggs and the jillions of sperms that we're, our parents had available? The odds of being able to be alive, that's wildly small. And the second thing is, If you are alive and you do have a life to live, how might you think about it for the greatest degree of satisfaction?

And maybe it's because I'm in my late 80s, but maybe it's also because I've kind of gradually had it knocked into my noggin to understand that take life as a whole to the extent you can. For example, don't get a job, start a career. If you're not interested in a field as a career, don't take a job in that field.

Go find a field that you find fascinating, really interesting, and hopefully deeply meaningful to you. And then make a career of being the best you could possibly be at that particular field. Read a lot. Read a lot of serious books. Travel a lot for learning and understanding, spend time with other people, looking to get as much time as you can with those people you admire greatly, spend time with your own family.

Because your own family is the source of most of your satisfaction and happiness if you have a very happy life. And most of your unhappiness if you do not have a really happy life. It's all about relationships, but the ones that make the greatest difference, obviously, being those with whom you're the closest and will be for the longest time.

And I would urge, outside of family, don't be democratic. Be a little bit aristocratic. And require of yourself that you spend most of your time with the people you most enjoy because you most admire them and you believe they're doing really good work for good purpose. And then the last is find one or two organizations that you care deeply about as organizations and their mission and purpose.

It could be church, could be school, could be university could be a community organization. Find someplace outside yourself in which you think the values are really of consequence and see what you can do to help that set of values become greater in their realization. And more fulfilling from your own point of view, you put all that together, probably blend it with some good health, paying attention to good health, because that does really make a difference.

And then some good luck, but it'll all come together. Don't leave out the things that you could do deliberately. Think about them and have a life strategy that like in a good investment strategy, takes advantage of time and compounding and leads in the directions that you would choose if you had to do all over again.
By the time you get to be my age.

ROBIN: As always, Charlie, it's been a real honor talking to you. Thank you for your time.

CHARLES: Thank you, Robin. I've enjoyed it greatly.

That was my interview with Charles Ellis. We're very grateful to Charlie and to our sponsor, Index Fund Advisors. If you'd like to talk to an evidence based financial advisor, just get in contact via the IFA homepage at ifa. com. That's ifa. com. If you enjoyed this episode, then why not subscribe to the podcast?

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