IF YOU want a short answer from Jack Bogle, ask him what he's satisfied with in the fund industry.
Ask the Vanguard founder what bugs him about his former business, and you're in for an earful.
When we sat down this month for what has become an annual breakfast in Lake Placid, N.Y., Bogle spent about six seconds on the stuff he likes, and then launched into the litany of problems and challenges facing the fund business.
"This industry is a real enigma to me," said Bogle, whose passion for low-cost index investing has inspired loyal followers who call him "Saint Jack" and call themselves "Bogleheads."
"I am satisfied that a wonderful integrity-laden group of people comprise the leadership of the mutual fund industry," he said, "but they are congenitally blind to the problems they are facing.
"How they can sit on their perch and think all is right with the world is beyond my comprehension."
Bogle was just warming up. Here are some of his best moments from our wide-ranging talk.
On fees collected by the industry:
"The participants in this industry have made billions of dollars; there's one firm in Philadelphia where I think the owners have taken $2 billion out of the firm but have lost $3 billion for investors.
"There's something wrong with that.
"It's not how the system is supposed to work, and yet we go blithely on our way, forgetting it's today's shareholders we have to serve."
On problems he has seen during the recent market rally:
"People are starting new speculative funds with less frequency but no less zeal. And they're bringing back performance advertising.
"I read in Investment News about a guy who was being criticized for advertising his performance and he said, 'Look, we're only stating the facts.'
"Of all the remarkably deceptive comments. Why weren't they stating the facts six months ago? They were just as much the facts then, it's just that the numbers were changed. ... There's no doubt in my mind that advertising performance produces more money coming in and costs investors more money in performance, so while I'd like to think the bear market changed people in the industry, it obviously hasn't changed many people."
On the Investment Company Institute, the industry's trade association:
"The ICI seems to have clout with the Securities and Exchange Commission that is totally disproportionate to the intellectual level of their position. How anybody can argue, as the ICI has, that it's all right for the chairman of a fund's board of directors to be the chairman of the management company makes no sense. It just doesn't comport with even the most pedestrian notion of common sense."
On recent mutual fund legislation put forth in Congress:
"This is a step, but we've got miles and miles to go. The worst thing about any of these provisions passing - and there's a good question about whether THAT will actually happen - is that once these minor changes are made, the idea of a second bill that really can make the substantive changes goes away for the foreseeable future, absent some major fraud."
On his own asset allocation:
"Last year at this time, I was around 30 percent in equities, and I have done nothing to it. It got down to around 25 percent, but it has since come back to 30 percent or maybe 31 percent.
"I look only once a year, but I am so heavily indexed on both the bond and stock side that I have a good idea every day.
"Actually, I don't expect that I will ever change my equity ratio. While I am very nervous about the condition of the global economy, about the debt in the United States, about the administration's failure to fashion even an approximation of an intelligent economic and tax policy, I just don't know enough to get any more out of the stock market. ... So I'll keep my allocation where it is, because I'm confident it will work for me."
On Vanguard's warning to investors to be wary of bond funds:
"It never made a lot of sense to me to say 'Watch out for bond funds,' because the underlying message becomes 'Put your money in the stock market, or put it in the money market.'
"I can't imagine anybody with a bond fund would have put the money in the stock market so, by implication, they are saying put it in the money market where yields were about to go to less than 1 percent.
"I think a little more nuanced warning would have been a very good thing, something that made it clear that the gains were unsustainable, while pointing out the benefits of asset allocation and diversification."
On Vanguard's recent opening of new funds and Vipers - exchange-traded funds that are the kind of trading vehicle Bogle abhors:
"Everybody has to run a business their own way, but I have absolutely no doubt that 10 years or 25 years hence, the overpowering core of Vanguard will be total market indexing and index-like strategies. ... So I am not troubled by management decisions because I don't think investors' decisions will be changed by them.
"Management for any company can go this way or that way, but the right way to invest - through all-market index funds - is not going to change."
Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at email@example.com or Box 70, Cohasset, MA 02025-0070.