Stay the Course

The Story of Vanguard and the Index Revolution

John C. Bogle

• Éditeur: Wiley
• Année: 2018
• ISBN:
  9781119404316
• Édition: 1
• Sujet: Business
• Sous-sujet: Investments & Securities

A journey through the Index Revolution from the man who started it all

Stay the Course is the story the Vanguard Group as told by its founder, legendary investor John C. Bogle. This engrossing book traces the history of Vanguard—the largest mutual fund organization on earth.

Offering the world's first index mutual fund in 1976, John Bogle led Vanguard from a $1.4 billion firm with a staff of 28 to a global company of 16, 000 employees and with more than $5 trillion in assets under management. An engaging blend of company history, investment perspective, and personal memoir, this book provides a fascinating look into the mind of an extraordinary man and the company he created.

John Bogle continues to be an inspiring and trusted figure to millions of individual investors the world over. His creative innovation, personal integrity, and stubborn determination infuse every aspect of the company he founded. This accessible and engaging book will help you:

• Explore the history of some of Vanguard's most important mutual funds, including First Index Investment Trust, Wellington Fund, and Windsor Fund

• Understand how the Vanguard Group gave rise to the Index Revolution and transformed the lives of millions of individual investors
• Gain insight on John Bogle's views on values such as perseverance, caring, commitment, integrity, and fairness
• Investigate a wide range of investing topics through the lens of one of the most prominent figures in the history of modern finance

The Vanguard Group and John Bogle are inextricably linked—it would be impossible to tell one story without the other. Stay the Course: The Story of Vanguard and the Index Revolution weaves these stories together taking you on a journey through the history of one revolutionary company and one remarkable man. Investors, wealth managers, financial advisors, business leaders, and those who enjoy a good story, will find this book as informative and unique as its author.

Part I
The Story of Vanguard

Chapter 1
1974
The Prophecy

In July 1974, I was in Los Angeles at the headquarters of the American Funds, meeting with friends that I had made as a governor and two-term chairman of the Investment Company Institute. Jon Lovelace, then the head of American Funds and son of the firm’s founder, Jonathan Bell Lovelace, came into the meeting and said that there was an urgent matter that he needed to discuss with me. Jon had a reputation for integrity, independence, and wisdom, so I was eager to speak with him.

Following my visit to his firm, however, I had a scheduled dinner meeting before flying back to Philadelphia on the 7:30 flight the next morning. “That’s fine,” Jon said, “I’ll meet you at the LAX breakfast room counter at 6 a.m.”

Jon was already seated at the counter when I arrived. After a few pleasantries, he got right to his point: “I understand that you’re planning to create a new mutual fund complex that will actually be mutual, owned by the fund shareholders.” Yes, I responded, I hoped to build such a firm. To put it mildly, Jon was not amused. I still remember his exact words, “If you create a mutual structure,” he said sternly, “you will destroy this industry.”

More than four decades later, it is clear that Jon Lovelace was on to something. If he had amended his dire prediction to say, “you will destroy this industry as we now know it,” today we could credit him with almost perfect foresight.

Structure and Strategy

Then again, nobody in 1974 really could have predicted that an upstart firm, founded at the bottom of a vicious bear market, would overcome all odds and not merely survive, but ultimately dominate the mutual fund industry. The firm’s mutual structure – owned by its fund shareholders and operated on an “at-cost” basis – had never been tried before.

We were compelled by our own directors to retain an external investment adviser with a previous record of failure. Our role was initially limited to fund administration, for we were barred from portfolio management or share distribution. And we would soon stake our future on an unprecedented strategy: a stock portfolio that would not rely on an investment adviser.

If those liabilities were not burdensome enough, the firm had a brand-new name: Vanguard.

The new organization would be the first – and to this day, the only – mutual mutual fund organization, run on an “at-cost” basis, not by an external management company seeking to earn high profits for its own shareholders, but by the funds themselves, and ultimately by the funds’ shareholders. We called it “The Vanguard Experiment” in mutual fund governance.

It may be useful to see how the Vanguard mutual structure differs from the conventional industry structure followed by (literally) all of our peers. (See Exhibit 1.1.)

Exhibit 1.1 Mutual Ownership Structure versus Traditional Corporate Structure

2018: The Prophecy Fulfilled

Yet during the decades that followed, the name Vanguard – along with its unique structure and an unprecedented strategy built around the creation of the world’s first index mutual fund – would unquestionably change the nature of the mutual fund industry as we then knew it.

Call it creative destruction. Call it disruptive innovation. Call it luck. Call it, as some have, my attempt to salvage my career. (There’s some truth in that.) But more than anything else, call it good karma, along with a healthy dollop of good timing. For surely the passage of time would have eventually awakened the investment world to this fundamental truth: before costs are deducted, the returns earned by investors as a group precisely equal the returns of the market itself.

After those costs, therefore, investors earn lower-than-market returns. The irrefutable fact: the only way for the 100 million families whom the mutual fund industry serves to maximize their share of the financial-market returns they earn as a group is by minimizing their costs. Paraphrasing the words of our nation’s Declaration of Independence in 1776, “We hold this truth to be self-evident.” Vanguard took the leadership role in bringing down the costs of investing, ultimately becoming the world’s lowest-cost provider of mutual funds.

Vanguard: Lowering Costs for Investors

Since our founding in 1974, Vanguard has been focused on lowering the costs of investing. As a result, the Vanguard that we know today is a colossus. Worldwide, we manage more than $5 trillion on behalf of some 20 million clients – more than our two largest competitors combined. Our near-25% share of long-term mutual fund assets is almost double the previous high of 15%, reached earlier by three different firms, and our 65% share of the industry’s entire net cash...