The Communist Capitalist Who Saved Investors a Trillion Dollars
Vanguard is the most effective vehicle ever created for participating in the fruits of American capitalism. Today it’s the single largest equity owner of the majority of corporations in the S&P 500, on behalf of 50 million clients (including, likely, many of you). And yet Vanguard itself is essentially a communist organization — it has no shareholders, makes no profits, and operates more like REI than Fidelity. If you own a Vanguard fund, you own a piece of the firm itself. Any excess margin instead gets returned to clients in the form of lower fees, which since 1975 have added up to roughly five hundred billion dollars transferred out of Wall Street managers’ pockets and into retail investors’ savings accounts. And oh yeah, it all started as a cockamamie revenge plot by a guy who’d just been fired by his partners. Today we tell the story of communist capitalism at its finest — Vanguard.
More on the episode
Links
- This episode's PDF companion
- Our Vanguard "episode preview" in WSJ
- Stay the Course: The Story of Vanguard and the Index Revolution by John C. Bogle
- The Bogle Effect by Eric Balchunas
- Worldly Partners' Multi-Decade Vanguard Study
- Worldly Partners' Article Generational Investing: The Discipline Behind 100+x Outcomes
Carve Outs
corrections
- On the Vanguard episode, we wondered if any other large customer/member-owned companies exist besides REI, and posited that co-ops stay small because expansion requires capital. We completely missed agricultural cooperatives! Land O'Lakes, CHS, Ocean Spray, Organic Valley, Tillamook, and others are large, farmer-owned co-ops that return profits to members, and have scaled into the billions without public shareholders. While these co-ops are owned by producers rather than owned by customers like Vanguard, they still merit recognition!
- We repeatedly called Jack Bogle's cardiac episodes "heart attacks." Several cardiologists wrote us clarifying that ARVD events are electrical events (the heart's rhythm destabilizes and can't pump blood), not the coronary-blockage events that "heart attack" usually implies.
- We said that the Ivest fund was closed down entirely after its go-go-era collapse. Ivest was actually reorganized rather than liquidated, and became Vanguard US Growth (VWUSX), which still carries Ivest's 1959 inception date. Separately, Wellington wasn't purely a balanced-fund shop before the go-go merger. Its Windsor Fund launched in 1958 as a contrarian equity fund, made famous later by manager John Neff (who took over in 1964).
- We said Walter Morgan handed leadership of Wellington Management directly to Jack Bogle in 1965. That is incorrect! As a listener pointed out by sharing some primary-source documentation, Joseph E. Welch served as President and CEO of Wellington Management Company after Morgan. Welch joined Wellington in 1937 and held the President and CEO role from July 1962 until his retirement in 1972. Bogle was named Executive Vice President in 1965 and became Chairman in 1970.