More Good “Ink” for Vanguard
Mike - Jan 30, 2014

To: Veterans and Principals
Date: January 28, 2014
RE: More Good “Ink” for Vanguard

1. “Having Enough, but Hungry for More,” The New York Times, January 17, 2014. Here, journalist Paul Sullivan contrasts three recent examples of Wall Street’s legendary greed with my own philosophy, describing me as “not one for the endless pursuit of prestige and wealth,” as he quotes me, “I don’t need any more” things in life. (He nicely refers to Enough . . .)

2. “Long-Term Thinking: 1800-2013.” The headline for this witty but profound essay from The Motley Fool on January 3, 2014, could well have added R.I.P. For the author announces the sad death of “Long-Term Thinking” on January 1, with “his last true friend, Vanguard founder Jack Bogle . . . at his side. He was 213 years old.” (That’s Long-Term Thinking, not yours truly!)

3. “Philadelphia: a Bedrock of Assets,” Investment News, December 9, 2013. In a twist I have not seen before, journalist Bruce Kelly salutes Vanguard’s role in supporting the large universe of registered investment advisers (RIAs) in the greater Philadelphia region, who have benefitted greatly by attracting talented men and women who have earned their spurs through our renowned training programs.

4. “The Legacy of John Bogle, the Man in the Arena,” Investment Advisor, January 27, 2014. This extensive story by editor-at-large Bob Clark gives high praise to the new book (The Man in the Arena), and makes more than a few generous comments on my life, my career, and my legacy. I found his retelling of the Vanguard story a thrill to read, and perhaps you will have the same reaction.

Best to all,

Ring In the New
Mike - Jan 02, 2014

January 2, 2014





“Ring In the New” follows the “Ring Out the Old” note that I sent you on December 31, 2013.  As 2014 begins, I’m pleased to send my first mailing of the new year, an essay entitled, The Arithmetic of “All-In” Fund Expenses. (Financial Analysts Journal, January/February 2014, ahead of print.) This Perspectives piece is my eighth article for this top professional journal, aimed importantly at CFA charterholders. (Congratulations to our 200 Vanguard crewmembers who have met these demanding standards!)


            My FAJ essay breaks new ground in its attempt to fill a huge gap in the analysis of the impact of mutual fund costs on shareholder returns. Up until now, consideration of fund costs has been almost universally limited to expense ratios, which currently average 1.12 percent for actively-managed equity funds. My piece notes that there are other, even higher costs that must be taken into consideration: fund portfolio turnover costs, cash drag, and sales loads and fees paid to brokers and financial advisers. By my calculation, those costs come to about 1.15 percent (a conservative estimate), bringing total costs of actively-managed equity funds to 2.27 percent annually.


            I go even further in my article, and consider the impact of taxes for investors in active funds—I estimate 0.75 percentage points—and the costs of investor behavior (buying funds after they hit the jackpot). Based on Morningstar data, I use an estimate of 1.20 percentage points. Now we’re up to a total of 4.22 percent in costs of actively-managed funds.


Now, let’s assume a stock market annual return over the coming decade at a reasonable 7 percent in nominal terms. With, say, 2 ½ percent inflation, that’s a 4 ½ percent real return. “All-in” fund costs would confiscate 94 percent of the stock market’s annual real return. In essence, that’s why “costs matter,” and why low-cost index funds are thriving.


            My article represents an extension of the data produced by Nobel Laureate William F. Sharpe in the FAJ of a year ago on the subject of expense ratios of active funds vs. index funds. He likes my broader approach, and has already endorsed my new article: “What a wonderful combination! . . . Your final sentence says it once again, concisely and powerfully.”


            Morningstar’s veteran analyst (and noted skeptic) John Rekenthaler has also endorsed my essay: “The best treatment yet of the subject.” As John approvingly comments on my cost estimates, “Better roughly right than precisely wrong.”


            I hope those of you concerned with these issues will give “The Arithmetic of ‘All-In’ Investment Expenses” the attention I believe it merits in making an even stronger case for index funds, well beyond the data that we conventionally rely upon. The final three paragraphs of my long paper provide the essential message, and I encourage all crew members to consider this vital addition to the full understanding of the “all-in” costs of active investing.




P.S. As is my practice, I’m also posting this paper on my eblog,, where it is available to all crew members and to the public.


[1] The final sentence of my essay: Do not allow the tyranny of compounding costs to overwhelm the magic of compounding returns. (Italics in original.)

Ring Out the Old
Mike - Jan 02, 2014

December 31, 2013




“Ring Out the Old, ring in the new,” Tennyson wrote, and continued, “ring out false pride in place and blood; . . .  ring in the love of truth and right; ring in the common place of good.”

In that spirit, as the old year 2013 ends I attach the following items from the financial press.


1.      Vanguard raked in almost every dollar that went into U.S. equity funds this year.  (InvestmentNews, December 18, 2013).

Here, the article is speaking of both actively managed and traditional index funds (TIFs) investing in U.S. equities, excluding exchange traded funds (ETFs). The total cash flows: Vanguard, $41.4 billion of the $42.4 billion total. (Our total includes $36 billion in our index funds and $5.4 billion in our “active” funds.) “Thanks to Mr. Bogle’s creation, the index fund,” journalist Jason Kephart says, “the U.S. Mint may have to replace George Washington with Mr. Bogle on all its quarters.” (Please don’t hang by your thumbs waiting!)


2.      Warren Buffett (again!) to the Motley Fool, (December 30, 2013). “If you invested in a very low-cost index fund . . . you’ll do better than 90% of [investors]. . . . Just pick a broad index like the S&P 500 . . . I recommend John Bogle’s books. Any investor in funds should read them. They have all that you need to know.”


3.      Bogle urges regulators to move on fiduciary. (InvestmentNews, December 16, 2013). I’m accurately quoted as saying, “if you’re touching other peoples’ money, you are a fiduciary . . . Put the principle first.” (Just what Tennyson said: “Ring in the love of truth and right.”)


Enjoy these three articles. Happy New Year, and best to all.