John Bogle Initial Years

--- tags: Reddit title: John Bogle Initial Years --- - In 1976 Vanguard finally launched the first index fund. The underwriters of the First Index Investment Trust (Vanguard S&P500 Index Fund) were confident of raising $150 million. But after three months, they could only raise $11.3 million, 93% less than what was projected. Adversity was waiting for Jack with open arms. The launch was an utter failure. - Vanguard led by Jack hadn't even raised enough money to buy all the shares part of the S&P 500 index. Instead of returning the money, as luck would have it, Jack chose not to give up and go ahead with the launch of the fund. Since they couldn't buy all the stocks part of the index, Jack and others employed a sampling methodology. They basically picked a few stocks from each sector that broadly resembled the index and so the world's first index funds was now a reality. - One of the other crazier things was that the fund was being managed by a young woman who was working part time for Jack, while her full time job was in her husband’s furniture store. The problems quite didn't end there for Jack. Vanguard by then had decided to go “no-load” meaning no commissions. Frontend loads, of 7.5% to 8.5% were common. Jack proposed to internalize the distribution costs to the fund expenses, but a Wellington Fund shareholder opposed this proposal causing further problems. Meaning Vanguard couldn't spend to distribute from the fund assets, even though other managers were reaping insane amounts of profits. This overhang wasn't solved until 1981 when the SEC finally ruled in favour of Vanguard. The mutual fund industry started attacking the index fund right from the get-go. Leuthold Group, a research firm circulated this poster on Wall Street calling the index fund “un-American”. Jack, to his credit, had hung this poster defiantly in his office. The fund was also labelled as Bogle's folly. Edward Johnson, the Chairman of the Fidelity Group, one of the biggest asset managers even at that time, said: “I can’t believe that the great mass of investors are [sic] going to be satisfied with just receiving average returns. The name of the game is to be the best.” Competitors: “Who wants to be operated on by an average surgeon?” We are going on record now because of the wave of publicity about index funds that, by their charter need to do no better than the average. As professionals, we reject the thought of settling or the averages. Whatever road other fund managers take we are going to strive for excellence. Jack would later meet the counsel and the underwriters of the first index fund in 2011 to celebrate the 35th anniversary of the index fund. This is what the counsel to the underwriters shared at the meeting: I wanted to help out the underwriting, and bought 1,000 shares of the First Trust Index at the offering price of $25 per share, which included a 6% sales charge. I've reinvested all my dividends in full, paying the taxes separately. Before coming to this dinner, I looked at my most recent fund statement. Here's what it shows. I now own 4,493 shares and at today's net asset value of $250.99 per share, their current asset value is $1,127,704."