Vanguard, every mention
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Disney: The Renaissance and the Empire · Acquired
- ▶ 4:31:47 Ben Gilbert Some other episodes you may like, the NFL, Coca-Cola, Vanguard, or if you're willing to dive very deep into the acquired back catalog, we've got Pixar, Marvel, Lucasfilm,
The Walt Disney Company: The most successful enterprise for monetizing human nostalgia (Audio) · Acquired
- ▶ 4:32 Ben Gilbert We did a pilot of the idea after our Vanguard episode, and we got such overwhelming positive response that we are doing it again.
- ▶ 11:20 David Rosenthal I was gonna say, just like Jack Bogle from Vanguard, delivering papers in his youth and having to get up at four in the morning and falling asleep at school because he has to work so hard, like, this is quite the reversal here for Walt…
- ▶ 1:23:05 Ben Gilbert I think it was maybe Walt's Folly, but either way, it's the exact same thing that people said about Trip Hawkins when he was working on Madden, about Jack Bogle with Bogle's Folly, with creating the Vanguard index funds.
- ▶ 4:09:49 Ben Gilbert Do you still like the thing that we did on Vanguard, which is have one big question that we try to answer?
- ▶ 4:23:53 Ben Gilbert Follow up to yours from the Vanguard episode.
- ▶ 4:30:00 Ben Gilbert If you like this episode, go check out our recent episodes on Vanguard, Ferrari, and Coca-Cola, and Back in the Archives, our two-part series on Nintendo.
Vanguard: The communist capitalist who saved investors a trillion dollars (Audio) · Acquired
- ▶ 0:24 David Rosenthal Vanguard.
- ▶ 1:07 Ben Gilbert The company is Vanguard, who effectively created the first index fund for individual investors in 1975, and today is the largest provider of index funds in the United States.
- ▶ 1:20 Ben Gilbert They manage over 10 trillion dollars in passive index funds.
- ▶ 1:25 Ben Gilbert That means they own an average of almost 10% of every company in the S&P 500.
- ▶ 1:35 Ben Gilbert Vanguard is the largest shareholder of most U.S. corporations, and together with the other big index funds like BlackRock, State Street, and Fidelity, they own 24% of the entire U.S. stock market.
- ▶ 1:49 David Rosenthal It's absolutely incredible, and none of those other firms would be in this market or doing it in the same way if it weren't for Vanguard.
- ▶ 2:01 David Rosenthal Millions and millions and millions of people have sent their kids to college, bought homes, retired comfortably because of Vanguard and Jack Bogle.
- ▶ 2:10 Ben Gilbert So Vanguard has an incredibly unique corporate structure.
- ▶ 2:13 Ben Gilbert If you are an investor in a Vanguard fund, you own a piece of the firm.
- ▶ 2:18 Ben Gilbert Vanguard is owned exclusively by its customers, and it's not publicly traded.
- ▶ 2:23 Ben Gilbert It doesn't have outside shareholders of any other kind.
- ▶ 3:06 Ben Gilbert And his story is wild since he didn't start Vanguard until he was 46 years old, and you might think it was started idealistically given this structure we're talking about.
- ▶ 3:26 Ben Gilbert Because of Vanguard's relentless cost-cutting and low fees, Vanguard has saved investors over five hundred billion dollars in fees and trading costs since its founding in 1975, and as a recent book The Bogle Effect argues, Vanguard's…
- ▶ 3:49 Ben Gilbert So Jack Bogle and Vanguard are responsible for a trillion dollars of wealth transfer out of the pockets of Wall Street and the finance industry and into the pockets of individual investors in the form of fees that they didn't have to pay.
- ▶ 8:01 David Rosenthal Nice foreshadowing there with founding a mutually owned company, as Vanguard would go on to be.
- ▶ 12:16 Ben Gilbert He wrote 12 books, investment advice, reflections back on Vanguard.
- ▶ 1:08:05 David Rosenthal And so on the spot, he decides Vanguard is the name, which is hilarious because Vanguard is a great name.
- ▶ 1:17:59 David Rosenthal Couple years after this, along come Jack and Vanguard in this unique moment where they, they need something to make their model work, and computing and software is, like, just now starting to be capable of handling this.
- ▶ 1:18:28 Ben Gilbert I am not actively taking Vanguard and having it offer investment advice in any way here, but what we do want to do is we want to create this new fund that will require no investment advisory services that will purely be this index of the…
- ▶ 1:19:00 David Rosenthal As Jack puts it in his memoir, you know, kind of like, uh, you know, uh, rendering a guilty verdict in a legal trial, he and early Vanguard there had both the opportunity to commit the crime, or in this case, you know, uh, create the first…
- ▶ 1:23:46 David Rosenthal So, back to 1975, 1976, and Jack and his merry crew, and they do indeed call all employees at Vanguard crew members for many, many years because of the ship and the nautical theme, et cetera.
- ▶ 1:24:50 David Rosenthal Uh, they eventually land on Vanguard paying S&P 25,000 dollars per year that they sort of pull out of thin air as the transaction value for this, which is absolutely hilarious because now
- ▶ 1:25:15 Ben Gilbert People estimate that Vanguard pays S&P Global something like three to four hundred million dollars per year, and is their single largest licensing client, and the licensing segment of their business as a whole does 1.85 billion dollars a…
- ▶ 1:25:50 David Rosenthal Vanguard, BlackRock, Fidelity, State Street, all paying them a lot of money.
- ▶ 1:26:12 Ben Gilbert And I started looking, too, like, why doesn't Vanguard push their total market one stronger, or why doesn't someone come up with a sort of synthetic thing that looks a lot like the S&P 500, but isn't the S&P 500?
- ▶ 1:26:43 David Rosenthal Well, regardless, in 1976, Vanguard launches the first index investment trust.
- ▶ 1:27:44 David Rosenthal And they both have, you know, their roots in this fund that Vanguard launches in 1976.
- ▶ 1:28:03 Ben Gilbert And by the way, we talked about sort of the far future where Vanguard's fees have come down so dramatically.
- ▶ 1:28:45 David Rosenthal Remember we talked about the three things that a management company does and what the Vanguard fund board, the Wellington fund board allowed Jack to do.
- ▶ 1:29:11 David Rosenthal Jack and Vanguard can get around the distribution prohibition for this new fund.
- ▶ 1:29:31 David Rosenthal So Vanguard was allowed to do it.
- ▶ 1:30:43 David Rosenthal So, Vanguard, A, didn't have a lot of resources, and B, didn't want to go do anything that looked like hiring a professional investment advisor, investment manager to manage this program.
- ▶ 1:31:51 David Rosenthal Deeply ironic, because a giant amount of Fidelity's asset base today is composed of index funds, many of which are Vanguard index funds held within Fidelity.
- ▶ 1:32:06 Ben Gilbert I think a lot of people own Vanguard funds using Fidelity's website.
- ▶ 1:33:03 David Rosenthal Every time Vanguard lowers fees, you should view it as like, hey, we have reported higher earnings, essentially.
- ▶ 1:33:25 Ben Gilbert Almost everything is fixed, except things like customer service, which we'll come back to later, and is kind of where Vanguard's vulnerabilities are.
- ▶ 1:34:01 Ben Gilbert Costco does this back with customers, and Vanguard does this too.
- ▶ 1:34:12 David Rosenthal Vanguard is Costco for finance.
- ▶ 1:34:43 Ben Gilbert Vanguard doesn't have that at all.
- ▶ 1:37:13 David Rosenthal Finally, in 1981 into 1982, Jack and Vanguard do win the right to take over distribution of the index funds.
- ▶ 1:37:46 David Rosenthal Again, conveniently ignoring the fact that now they got to employ a lot of people within Vanguard that are gonna market and sell and advertise the funds.
- ▶ 1:38:02 Ben Gilbert Now they just have a fixed cost base that they picked up of people that work inside of Vanguard that have to do the work of not only convincing people to buy these funds, but then on top of that, actually handling and facilitating the…
- ▶ 1:39:05 Ben Gilbert And they've got this headwind of they just switched away from paying people to do distribution, so there's now no incentive out there in the marketplace to try to sell Vanguard funds.
- ▶ 1:39:33 David Rosenthal Now, you might be wondering, that's not a lot of capital, and Vanguard's fees are super low.
- ▶ 1:39:41 David Rosenthal How is the firm staying afloat during this period?
- ▶ 1:39:48 David Rosenthal That Jack's first revolution of the low cost, low fee proposition of Vanguard, it works pretty well in equities.
- ▶ 1:40:58 David Rosenthal Vanguard builds a juggernaut in the fixed income business during this era, and that's what keeps the firm afloat while they are waiting and waiting and waiting for Jack's indexing revolution, his second revolution, to come online.
- ▶ 1:41:38 David Rosenthal Vanguard never got out of the active business.
- ▶ 1:41:52 Ben Gilbert There were many years where it basically provided all the profits to pay all the overhead and keep the lights on while Vanguard's low-cost indexing strategy was not scaled enough to pay for itself.
- ▶ 1:42:05 David Rosenthal And Vanguard today still has very large fixed income businesses, money market businesses, and active equities management businesses, but today they're all dwarfed by the index fund business.
- ▶ 1:45:36 David Rosenthal Also in 1992, Vanguard launches the sister fund, the total stock market index fund.
- ▶ 1:46:08 David Rosenthal You know, look, they're not not business people at Vanguard.
- ▶ 1:46:27 David Rosenthal Like the Vanguard Colossus is rolling.
- ▶ 1:51:20 David Rosenthal As Vanguard's really taking off and indexing is taking off, Jack's heart is just getting weaker and weaker and more and more worn down from all this.
- ▶ 1:52:06 David Rosenthal So this, of course, impacts Vanguard.
- ▶ 1:52:09 David Rosenthal So in May of 1995, the company holds a press conference
- ▶ 1:52:14 David Rosenthal Where Jack announces that he's stepping down as CEO to prepare for his heart transplant, and the company announces that John Brennan, Jack's former assistant, who had joined the company in 1982, will be taking over as the next CEO.
- ▶ 1:52:31 David Rosenthal Brennan had been Vanguard's CFO for many years leading up to this, and in late 1995, Jack Bogle
- ▶ 1:53:38 Ben Gilbert And at this point, Vanguard is essentially planning for this to be the end of his career.
- ▶ 1:53:57 David Rosenthal And so the company moves on.
- ▶ 1:54:43 David Rosenthal The company didn't think he was coming back from the heart transplant.
- ▶ 1:54:46 Ben Gilbert And the company's in this sort of funny place where even not thinking about leadership succession right now, but the core business, they made all these really long-term trade-offs starting back in 75, 76, where, you know, when the fund is…
- ▶ 1:55:23 Ben Gilbert In the nineties, this is that like harvesting phase for the company where 20 years of doing things the right way that caused really slow growth are now causing this giant inflection.
- ▶ 1:55:36 Ben Gilbert The crossing a billion line in the eighties by 1996, the AUM across all of Vanguard is up to a hundred and eighty billion dollars.
- ▶ 1:55:51 Ben Gilbert So it's just gotta be fun for all the company long timers at this point where they're sitting there thinking we were right.
- ▶ 1:56:11 David Rosenthal Vanguard has competition.
- ▶ 1:56:41 Ben Gilbert So even though they don't have this investor-shareholder alignment the way that Vanguard does, they make money plenty of other ways in their business, and so they're happy to offer this as a near-loss leader or break-even in order to…
- ▶ 1:57:06 David Rosenthal The transition has happened, and the company is transitioning to this new phase.
- ▶ 1:57:36 David Rosenthal So these are things like launching sector specific index funds or international funds and investing more there or investing more in marketing, you know, basically growing the firm and offering the clients what they want.
- ▶ 1:58:35 Ben Gilbert 99% of Vanguard's AUM came after Jack stepped down.
- ▶ 1:58:48 David Rosenthal It's not like Brennan and the new management want to all of a sudden start generating tons of excess profits or take Vanguard public or, you know, do anything crazy like that.
- ▶ 1:59:59 Ben Gilbert So that's the sort of things that fall in Brennan's lap that he has to do to take the company forward.
- ▶ 2:00:21 Ben Gilbert I am a Vanguard customer, and I think a hundred percent of the way that I am a customer is through their ETFs, not through their mutual fund products, and the mutual funds are everything we've talked about up until this point.
- ▶ 2:00:47 David Rosenthal A man named Nathan most had come to see Jack at Vanguard.
- ▶ 2:01:38 Ben Gilbert It's an even easier way to buy into something that looks basically like an index fund, and if you're trying to go direct to your customers the way that Vanguard does without the sales loads and everything, then great.
- ▶ 2:04:09 David Rosenthal So if you're a prospective competitor to Vanguard and you wanna offer competitive, you know, index funds at similarly low costs, well, all of a sudden, if you can now make a bunch of profits on trading in and out of ETFs in those funds on…
- ▶ 2:05:46 David Rosenthal Like a year or two ago was the largest ETF in the world until it was surpassed by Vanguard and BlackRock after Jack's time.
- ▶ 2:06:50 Ben Gilbert This should not have been even a decision for the company.
- ▶ 2:07:05 David Rosenthal Vanguard had to get into ETFs.
- ▶ 2:07:31 David Rosenthal And this is how it showed up in Vegard.
- ▶ 2:08:01 David Rosenthal And so in August of 1999, Vanguard announces that it is
- ▶ 2:08:59 Ben Gilbert He's a giant asset to Vanguard.
- ▶ 2:09:06 David Rosenthal People had actually started calling him Saint Jack, and when he stepped down as CEO in 1996, you know, ahead of the heart transplant, the company had commissioned a statue of him to be erected.
- ▶ 2:10:41 David Rosenthal So, as I said, the compromise that they reach is Jack will still be the founder of Vanguard.
- ▶ 2:10:49 David Rosenthal The face and the spirit of Vanguard to all of the millions of fans and diehards around America and around the world, but he will no longer be on the board.
- ▶ 2:10:59 David Rosenthal He will no longer be involved in active management of the company.
- ▶ 2:11:34 David Rosenthal For all of the conflict and strife around this second firing, it really works out about as good as it possibly could for the company and for Jack.
- ▶ 2:11:47 David Rosenthal His value to the company is preserved.
- ▶ 2:11:49 David Rosenthal And Vanguard gets to move on and launch ETFs, which they do in 2001, finally.
- ▶ 2:11:59 David Rosenthal And he does eventually repair his relationships with management of the company, especially after Brennan steps down in 2008 and the next CEO, Bill McNabb, succeeds him.
- ▶ 2:18:37 David Rosenthal Warren Buffett implicitly endorsed Jack and Vanguard in the 1996 Berkshire annual shareholder letter where he wrote, the best way to own common stocks is through an index fund that charges minimal fees.
- ▶ 2:20:24 Ben Gilbert And so to hear Warren saying, actually, what most people should do is buy low-cost index funds like Vanguard.
- ▶ 2:21:03 David Rosenthal Malvern, Pennsylvania, where Vanguard is located, you know, are strong.
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