But how much liquidity do we need? Jack Bogle invented the index fund, but was dismayed when it morphed into an ETF. Bogle: Now my own position is that stocks or less fairly valued probably a little on the high side but more like depending on whose numbers you are using, 15 to 17 times earnings, maybe 18 times earnings, that's a long way from 35 half and bonds are not yielding 7, they are yielding, depending on what you want to look at, 3%, 2.5%, 3.5% depending on corporate government mix, maturities and things of that nature. In investing, you get what you don't pay for.". And the fact is, whether it's more or less or even the same, you've got those two sets of transactions. But to do it with something that approaches perfection is just what you say. © 2020 CNBC LLC. But when you think about it, if ... let's say fundamental indexing, whatever that means, exactly. And that's tough on a whole lot of levels. Gardner: You're in the unique position of having started, run the company, and now, sit as an observer of your creation. I mean, I'd say that it's a big universe and we probably have our share of them. I've had some very profoundly serious problems and long hospitalizations. See you at the top! And, it's ... we could definitely continue this conversation for another hour, but let's let you get on with your day. Let's conquer your financial goals together...faster. Do better than my neighbors. But over your investment lifetime, getting the market return in an index fund or almost the full market return compared to paying 2% which is roughly the right number for a managed fund, means you get in a lighter case maybe 30 cents on the dollars, 30 cents, but you have to look at 40, 50 years. Bogle: Well capitalization has very funny manifestation when you get to the fiduciary duty of managing other people's money. Particularly when there are additions to the index, or subtractions. We know that. But, even in those cases, where the fund is very well run, or even the Warren Buffett, Charlie Munger are going to have a year, a period of a couple of years potentially where they lose to the market. Most jobs can be done by intelligent human beings with a little experience and a motivation to do them. This has become a great big marketing business. You know, about international kind of hanging on by its own. The better it is in the past, the more the regression to the mean it's gonna be, the greater that's gonna be in the future. You know, when people start actually doing these things, you know this from your own experience, that what comes out of the lab is seldom reflected in the real world. I have a little question mark about, you know, you must be batting there better than an index fund. And, I've got two academic articles. How you observe and what conclusions do you draw about capitalization given that? Ned Johnson said, "Our shareholders would never want a fund with average performance.". What kind of a nut would do that? I've gotten so, I find confessing my mistakes of which the number in my career, well, I don't even want to get in the hundreds, thousands, I don't know how many I've made, infinite maybe numbers in a career. Actively managed funds have managers actively picking investments in order to “beat the market”. What you don't want is something that is so departing, departs so far from the market, particularly on the upside, and you don't like it on the downside. The S&P, Standard & Poor's index is paying more dividend now than it was before the drop. And I don't think that it's worthwhile to add that risk. Don't Worry -- Losses Can Reduce Your Taxes! You put them over each other, it looks like the Himalayan mountains. That means that managers of these funds don’t have to make decisions in what to invest in and simply track the index. Like a metaphor. Gardner: Can you describe fundamentally how an index fund works? If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. And it's happened everywhere, it's happened in the Magellan fund, it's happened in T Rowe Price Growth Fund, it's happened in our [inaudible 00:37:14] Fund, it's happened in Fidelity Trend Fund that Johnson happened to have run, it happened in CGM, all the hot funds, they were all in there the last 23 years and they all look like this. ", Realize that we had money pouring out, more money going out than coming in for 83 months. Are you optimistic about that?