Memo to Veterans and Principals
Mike - Dec 08, 2015

A Sense of History
The Battle of Waterloo – 200th Anniversary, June 18, 2015

The long and connected history of Vanguard and Wellington now goes back almost 87 years, to Wellington Fund’s founding on December 28, 1928.

When I worked at Wellington Management (until being dismissed as CEO on January 23, 1974), the history of the Duke of Wellington and the battles of his armies across Europe during the Napoleonic Wars were told and retold, and our offices were peppered with engravings of those encounters. “The Iron Duke” was a remarkable warrior, revered by Wellington Fund founder Walter L. Morgan and the inspiration for the Fund’s name.

I still remember the visit to our Locust Street office by the fourth (I think) Duke of Wellington, on a Saturday morning circa 1962. I was entrusted with the honor of opening the front door and welcoming the Duke, a gracious fellow whose meeting with Mr. Morgan seemed to me as natural and jolly as a reunion of two long-separated gentlemen friends.

The Wellington Name

Wellington’s history—and the Wellington name—was precious to Mr. Morgan, and became precious to me. But, in the battle to create a successor firm to Wellington Management Company that would operate Wellington Fund and its sister funds, the Fund’s directors made the decision to allow the management company to keep the “Wellington” name, rather than award it to the new firm (i.e., “The Wellington Group of Investment Companies”).

I was furious with this (to me) wrong-headed—even irrational and stupid—decision, and threatened to resign as chairman and president of the funds. But I calmed down, and was persuaded by lead independent director Charles D. Root, Jr. to stay on as the Funds’ chairman and president. Chuck Root’s challenge to me was clear: “Jack, call your new company by any name you want. And then go out and make it the finest name in the mutual fund industry.”

The Vanguard Name

I wasn’t sure what name to select for the new firm. But through a remarkable series of coincidences (most of you know the story—it’s told in several of my books and speeches—so I’ll not repeat it here), opportunity struck. Without consultation or professional assistance, I chose the name “Vanguard” for the new firm, a name not only meaning “leader in a new trend,” but closely linked to “Wellington” in British history during the Napoleonic War era.

• HMS Vanguard – Lord Nelson’s flagship at the great victory over Napoleon’s fleet at the Battle of the Nile in 1798, emblematic of the triumph of Great Britain on the seas.

• Wellington – The Iron Duke who fought Napoleon’s armies throughout Europe during the early part of the 19th century, culminating in his great triumph at the battle of Waterloo in 1815. Britain’s triumph on the land changed the course of European history.

Linking The Names

Admiral Nelson and the Duke of Wellington (Arthur Wellesley) meet only once, a meeting memorialized by a large etching, a copy of which reposes in my office. Also in my office are a matched pair of large antique prints, one showing the death of Nelson, shot by a sniper at the Battle of Trafalgar in 1872; the other showing the triumph of Wellington at Waterloo. Ironically, these two giants of the British Empire are also linked in death. Their catafalques rest adjacent to one another in the crypt at London’s magnificent St. Paul’s Cathedral.

The 200th Anniversary of Waterloo

I use this occasion to remind each member of our crew of the derivation of the two distinguished and heroic names that have defined our long existence—a fighting spirit, a commitment to our fellow crewmembers, the mission to honor our heritage.

Yes, let’s not forget our proud history; let’s keep it alive and live its values. Yes, much of our work is humble and technical, but our character and conduct must emulate the touchstones of our heritage. “Lord God of Hosts, be with us yet, lest we forget—lest we forget.” (Kipling)

Jack


Memo to Veterans and Principals
Mike - Dec 08, 2015

To: Veterans and Principals

From: John C. Bogle

Date: June 11, 2015

RE: Vanguard in the News

(1) I’m delighted to start this list of news stories with a splendid full-page essay in the Financial Times on May 27, 2015; Investment: Vanguard’s Commanding Position, by Stephen Foley. You’ll be familiar with many of the events he describes but perhaps less so with the history of the nautical theme that is not only featured, but described at length. NOTE: The online version of the Financial Times article was accompanied by a wonderful video focused on our nautical heritage. It’s short and worth watching. Click here to view the video.

(2) John Rekenthaler’s Morningstar essay, Jack Bogle’s Great Insight, June 11, 2015. In our interview, John quickly picked up on one of Vanguard’s founding pillars! Offering funds with relative predictability, designed to parallel the competitive peer groups, avoiding the performance saving that provide elation to investors and then disappointment (as cash pours out). The idea: to help investors avoid the behavioral problems so often engendered by moving from one fund to another.

John cites our Vanguard Total Stock Market Index Fund as the classic example of relative predictability (now known as high R2, measured by fund returns relative to its comparable index(es) or peers). Of course that’s true. But he fails to mention the high R2s of most of our actively managed funds . . . Wellington 0.97, Wellesley 0.96, Morgan 0.98, Strategic Equity 0.98, Windsor II 0.97, Windsor 0.95, even PRIMECAP 0.93 and Health Care 0.92. Our major municipal bond funds came in at 0.98 and 0.97. This is no accident, merely the result of a multi-manager strategy and (to a lesser extent) the right portfolio standards we demand of many of our active managers.

(3) Why Bogle and Buffett tell investors to ignore market noise, Market Watch, June 4, 2015, by Mitch Tuchman. You all know this consistent message; the photos are sort of clever.

(4) Vanguard ties help Wellington buck weak trend in active funds, Reuters, May 29, 2015, by Ross Kerber. Wellington Fund has for many years been a successful performer for its fund shareholders—and even better for Wellington Management Company. See final paragraph, which raised some provocative questions.

(5) Low cost is just the first step in picking funds: Bogle. A lengthy interview with me by Elizabeth MacBride, posted on CNBC’s website on May 26, 2015. Lots of interesting insights, plus the (obligatory?) “five rules” for selecting an actively managed fund.

NOTE: Interesting Item of the Week. In my last mailing, I suggested that the photo of me in the casino must have been photo shopped. It was! As one veteran crew member informed me, the image was from a promotional piece for the film “Casino,” with my face replacing that of its star, Robert deNiro.

The beat goes on. Enjoy!

Jack


Bogleheads XIV!
Mike - Oct 20, 2015

Jack’s memo on Bogleheads.org:

To my wonderful Bogleheads,

Our fourteenth annual gathering was truly heartwarming and informative–a triumph that gave me much joy and inspiration. Thank you all for coming, for being so attentive, for taking such good care of each other, for enjoying those two days of intensive contemplation, and–of course–for that magnificent walking stick, an echo of Ben Franklin, the consummate entrepreneur and citizen of Philadelphia and the United States of America.

I’ve reviewed my 55-slide (ouch!) presentation, and am posting it on my e-blog–www.johncbogle.com–momentarily. While it’s essentially unchanged from what you saw at our meeting, I did change the order in a few spots, and revised several numbers to conform with other things that I’ve written (notably the expected returns presented on slides #47 and #50. In the interests of continuity and clarity, I’ve also added tag lines at the base of each slide to set what’s coming up next.

Enjoy seeing this presentation again! And enjoy with me another few moments of the memories of the bright sun in which we basked together–intellectually, jointly, and in yet another Philadelphia autumn.

Looking forward, eagerly and hopefully, to Bogleheads XV. Best, always,

Jack

John Bogle’s Presentation at Bogleheads XIV


Memo to Veterans and Principals
Mike - Jul 24, 2015

To: Veterans and Principals
From: John C. Bogle
Date: June 8, 2015
Re: CFA Speech

I’m pleased to attach the text of the keynote speech that I delivered at last Thursday’s forum held by the CFA Society of Philadelphia.

It’s entitled “Putting Investors First,” clearly reflecting my long-time mission of developing a federal standard of fiduciary duty. I also talk about the incredible changes in finance in the past, and those we’ll face in the future.

Yes, parts of the speech may be contentious to some, but I think you’ll enjoy some of my career history (pages 4, 5, and 6).

Thanks to each of you, and best wishes, always.

Jack

P.S.      Earlier in the week I gave the keynote to the Annual Meeting of the Government Financial Officer’s Association (GFOA), some 3,000 state and local officials from (I suppose) every state in the Union, convening at our vast Philadelphia Convention Center. My remarks were short, followed by a 45-minute Q&A session that seemed to be a big hit with the audience. (Maybe I should do that more often!)


Memo to Veterans and Principals
Mike - Jul 24, 2015

Memo to Veterans and Principals
From John C. Bogle
May 27, 2015
Recent “Vanguard in the Press” Articles
 

  • Fees on Mutual Funds Fall. Thank Yourself. The New York Times, May 9, 2015. Once again, journalist Jeff Sommer cites my 2014 Financial Analysts Journal paper on “all-in” fund expenses. One more nail in the coffin of high-cost funds.
  • 6 Ways Vanguard has Changed the Way People Invest. Also on May 9, Chuck Jaffe, writing on MarketWatch, extols our “simply being a good steward of people’s money.” (Chuck’s piece is a model of accuracy . . . except for the first sentence of the first paragraph on page 4.) I prefer to say that at Vanguard, we sell what we make, while too many of our competitors make what will sell.
  • The Five Members of the Advisor’s Pantheon. In its annual selection of the IA 35 (most influential investors), Investment Advisor magazine highlights these five leaders. (Always nice to be linked to the legendary Benjamin Graham!)
  • Hillary Clinton Has a Smart and Surprisingly Simple Investment Strategy. And, as VOX reporter Timothy Lee reports on May 18, 2015, her $25 million holding in Vanguard 500 Index Fund is by far her largest equity holding. (Not quite sure why my photo appeared . . . in tuxedo, yet!)
  • John Bogle Stands Pat on Wall Street Bet. On MarketWatch (May 21, 2015), correspondent Mitch Tuchman notes my theme in an earlier CNBC interview: “Buy the entire stock market . . . then get out of the casino, and never show yourself there again.” The story is illustrated with a picture of me  . . . in a casino! (Photoshop must be at work here.)
  • Lightning Strikes: The Creation of Vanguard . . . A lengthy late-April review of my essay in the 40th Anniversary Issue of the Journal of Portfolio Management, along with my (candid) interview with the “Practical Applications” booklet published by Institutional Investor Journals.

 
Thanks for all you have done to make Vanguard who we are today.

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

To: Vanguard Veterans and Principals
From: John C. Bogle
Date: May 12, 2015
Re: Recent Vanguard News Items
 

The media attention on our structure and strategies goes on unabated—or maybe has even increased in intensity. I attach some of the major items for the period ended May 8, 2015.
 

  • “Financial Pros Choose Indexing for Retirement Savings.” In April, Bloomberg Business cited studies showing that fully 70%(!) of financial professionals who recommend mutual funds—“people who are paid to make money for investors”—side with our index philosophy. (42% of all investment pros choose index funds, versus only 18% who recommend actively managed funds.) Of the remainder, 17% recommend individual stocks and bonds; 14% recommend real estate.
  • “Bogle vs. Grant in the Great Fund Debate.” Jason Zweig, The Wall Street Journal, May 3, 2015. (Despite the photo, I was not yelling! Photoshop?) Jason may have seen the result as a “split decision;” to me, the winner was obvious. In his newsletter, Grant’s Interest Rate Observer, Jim Grant conceded that the 500 Index Fund’s superiority over active managers “may be generally true … for the average lay public investor … [and] for the run-of-the-mill … professional investor.” But for “not a few people in this room, it certainly isn’t true.” (He names no names.) In the Philadelphia Inquirer, Joseph N. DiStefano presents a detailed summary of the debate. It’s a largely accurate and amusing, if hardly conclusive, story.
  • “The Warren Buffett Bookshelf.” The Wall Street Journal cites 11 of Mr. Buffett’s favorite books, by Benjamin Graham, Phillip A. Fisher, John Brooks, John Maynard Keynes, and yes, John C. Bogle, whose The Little Book of Common Sense Investing was the only book recommended in Mr. Buffett’s recently released annual report of Berkshire Hathaway.
  • Two interviews by Olivier Ludwig of ETF.com—“Broker Behavior Costs Investors” and “Investors Are Now Driving Ethics”—focus on the issue of fiduciary duty, and conclude with the now-familiar phrase, “If you simply own the (broad stock) market in a cheap index fund, it is guaranteed to give you your fair share of the market returns.”
  • “Why Hair-Trigger Stock Traders Lose the Race.” The Wall Street Journal, April 10, 2015, Jason Zweig. Jason illustrates the rapid trading in ETFs, (turnover 1244% last year), and warns that, “in the long run, he who trades the least will end up with the most.” (He fails to note the huge increase in ETF trading volume: for the hundred largest ETFs last year, $16 trillion, almost as large as the $18 trillion volume for the 100 largest common stocks.)
  • May 1, 2015, Jason Zweig wrote a story about the end of fixed commission on stock trades, on May 1, 1975 (“May Day”). “Remembering How May Day Remade Wall Street.” It includes a comment from me about the self-interest. (I was a vigorous and unpopular proponent of the change). Jason also notes our own May Day, one of the anniversaries we celebrate. Together, these articles should add to your understanding of present tradition and past history.
  • “. . . Just buy an index fund.” The caption of a cartoon published by Grant’s Interest Rate Observer on May 1, 2015, humorously (I guess!) citing the conclusion of Warren Buffett and Charlie Munger at the recent Berkshire Hathaway Annual Meeting . . . and a fine way to conclude this note.

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

To: Vanguard Veterans and Principals
From: John C. Bogle
Date: May 5, 2015
Re: Lecture at the Securities and Exchange Commission
 

At the invitation of the SEC’s Division of Enforcement (Asset Management Unit), I addressed a staff of some 300 government officials last Tuesday, April 28.
 

I decided against giving a formal presentation, and opted for an extensive “slide show”—54(!) slides in all. The presentation will likely need little explanation for those of you who are involved in our investment management and marketing groups. But for many of you, a quick riffle through the slide show will likely be enough. (Enough!)
 

This presentation has the makings, I think, of a good lecture (or a series of two lectures), or possibly yet another paper for the Financial Analysts Journal or the Journal of Portfolio Management. Who knows? I might even take a shot at it . . . when I get some free time.
 

The title of the talk is “Conflicts, Conflicts, Everywhere,” borrowed from a speech with the same title by Juliet Riewe (pronounced “REE-vee”), co-chief of the Asset Management Unit. Always good to be on the side of the regulators.

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

 

TO: Veterans and Principals
FROM: John C. Bogle
DATE: April 1, 2015
RE: Bloomberg Markets Article
 

This story from the April 2015 issue of Bloomberg Markets magazine features some speculation about who might be able to fill the empty chair you see on the first page of the attachment when I’m gone. The article’s title asks the question, “Is There a Next Jack Bogle?” Based on the authors’ extensive interview with me, they conclude, “Not if You Ask Jack Bogle.” (In fact, all I said was, “I think it’s crystal clear that nobody, nobody, plunges into this battle to build a better industry with any more enthusiasm than I do.”)
 

My potential successors apparently include our CEO Bill McNabb; BlackRock’s head of iShares Mark Weidman; “Smart Beta” pioneer Rob Arnott of Research Affiliates; my son John C. Bogle, Jr. of Bogle Investment Management, hedge fund manager Cliff Asness of AQR; University of Pennsylvania professor Jeremy Siegel of “smart beta” firm WisdomTree Investments; and Andrew Lo of MIT, developer of the “Adaptive Markets Hypothesis.”
 

The article seems to focus on whether or not these potential successors—often with new indexing methodologies—can continue to drive indexing forward. But, along with Bill Sharpe and other respected academics,[1] I believe that traditional market-cap-weighted broad-market indexes (S&P 500 and the Total U.S. Stock Market) will endure long after most—if not all—of these other strategies have been abandoned.
 

I wish that the authors of the article had focused more on who might continue my passionate investor advocacy—including my efforts to establish a standard of fiduciary duty for all money managers. But we rarely get what we wish for…
 
 
 
Best,

Jack

[1] To say nothing of Warren Buffett, who put his reputation and his so-far-winning wager on outpacing a particular hedge fund (and his wife’s estate!) on the line with his confidence in our Vanguard 500 Index Fund. His recent endorsement of my Little Book of Common Sense Investing, by the way, has served to increase sales in recent weeks from about 240 per week (pretty good for a book published more than eight years ago) to 750 per week, an increase of more than 200%.


Memo to Veterans and Principals
Mike - Jul 24, 2015

TO: Veterans and Principals

FROM: John C. Bogle

DATE: March 16, 2015

RE: Financial Times Op-Ed
 

I penned a commentary for today’s Financial Times “Fund Management” section about the role of exchange-traded funds in the growth of indexing. I describe my concerns with the rapid trading so common with ETFs. The first and largest ETF—the $190 billion SPDR S&P 500 ETF—is the most widely traded equity in the world, averaging over $20 billion in turnover every day. As I wrote in the article, “broad-market exchange traded funds are fine, as long as investors don’t trade them.”
 

The front page of the FTfm section picked up that commentary in an article by journalist Chris Newlands. The headline of the article is rather over-the-top—“John Bogle renews attack on exchange traded funds”—but the facts presented by Mr. Newlands are accurate.
 

I like to think that Vanguard is a firm in which constructive debate is tolerated, perhaps even encouraged. My piece in today’s FTfm is a prime example of a case where, as Bill McNabb recently said, “reasonable people can disagree.”
 
 
 

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

 

TO: Veterans and Principals

FROM: John C. Bogle

DATE: March 11, 2015

RE: “The Beat Goes On”

I’m not sure that I understand why the media has given so much recent attention to the principles that I’ve tried to develop as Vanguard’s hallmark. But the beat goes on.

  • Jack Bogle’s Success Principles to Live By: CNBC article by Elizabeth MacBride, February 17, 2015. Her story focuses pretty heavily on my eight rules of leadership (I wasn’t counting!). But it also notes the human side of my career, and her story is rather sentimental. So be it.

 

 

  • John Bogle Enters White House Fray Over Broker Conflicts: Market Watch, by Mitch Tuchman, February 26, 2015. My work with the Council of Economic Advisors, The National Economic Council, and the Department of Labor was really thrilling . . . especially since we all agreed on the need to move forward with fiduciary duty for retirement plans.

 

  • Saving for Retirement: Obama Proposal Sets Up Wall Street Fight: Associated Press, February 23, 2015. The conclusion of the efforts noted above was expressed by the President on a televised speech. The Department of Labor is expected to propose an expanded standard of fiduciary duty applicable to retirement plan advisors, probably several months from now. Wall Street will fight fiercely to prevent the expansion of the fiduciary standard, though I wonder if any of the detractors wants to say, “Let’s put the clients second.”

 

With all the headlines and fine stories, it’s little wonder that Vanguard’s lead over our competitors continues to burgeon.

 

Best,

Jack