Understanding What Makes Vanguard So Successful

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davidkw
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Understanding What Makes Vanguard So Successful

Post by davidkw » Thu Oct 12, 2017 3:18 pm

So Successful

Nor have competitors come to grips with what makes Vanguard unique. The reasons for its success are many and varied. Those who shrug it off as the result of low fees and passive funds have missed the bigger picture. If price were the sole reason for success, then Econ 101 tells us that competitors would have simply cut their fees in order to recapture lost market share. But this hasn't happened; if anything, Vanguard’s share has increased, and as the New York Times reported, Vanguard is growing faster than all its competitor combined.

Awesome read!!!
David | | From Jack Brennan's "Straight Talk on Investing", page 23 "Living below your means is the ultimate financial strategy"

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PuddlesTheDuck
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Re: Understanding What Makes Vanguard So Successful

Post by PuddlesTheDuck » Thu Oct 12, 2017 3:54 pm

I'm grumpy today, so maybe this will come off as overly harsh.

This reads as an incredibly lazy article to me. Vanguard has a HUGE price advantage because it has no outside shareholders and the author glosses over that as some kind of "company culture" phenomenon. There are no incentives for it to charge high fees. It runs everything at cost, so the company's prices are completely sustainable as well as always dropping. You can always be sure you're getting pretty darn close to the best deal on every fund Vanguard runs.
If price were the sole reason for success, then Econ 101 tells us that competitors would have simply cut their fees in order to recapture lost market share.
They can't, because they have to make money somehow for their outside investors.

There are no citations of prices for either Vanguard or it's competitors, so we have no idea how the author could come to the conclusion that
...we must conclude [Vanguard's popularity] is much more than merely price-driven.
Only the first reason listed actually matters (and as I mentioned above, the author emphasizes this far less than he should). My understanding of history is Bogle chose to use an index fund because it would be the cheapest, not the other way around (someone please correct me if I'm wrong). His saying has always been "costs matter", not "indexing is the best". This means the next two follow directly from the first one, and the last "feature" of the company is a nonsense reason.

Another quote that stands out to me:
[Vanguard] missed the move into factor investing, sometime known as smart beta...
Did it? Vanguard has a ton of funds aimed at different factors and has a minimum volatility fund. Maybe they were late to this world, but saying they "missed" seems wrong.

tl;dr: Vanguard is a great company to put your investments into, maybe even the best, but this author doesn't understand why.

EvelynTroy
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What Makes Vanguard So Successful - Article

Post by EvelynTroy » Thu Oct 12, 2017 8:27 pm

Barry Ritholz - Bloomberg View offers nice explanation of how Vanguard does business -

https://www.bloomberg.com/view/articles ... successful

Evelyn

truenorth418
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Re: What Makes Vanguard So Successful - Article

Post by truenorth418 » Thu Oct 12, 2017 8:43 pm

Good article. Thanks for posting, OP.

He posits Vanguard is poised for growth and is bound to achieve industry leadership in terms of AUM.

But I wonder if that is the primary objective of Vanguard? As he points out, its ownership status is different than other firms. Without traditional shareholders, it can pursue a different set of objectives no? And industry leadership would be more of a coincidence or byproduct?

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Re: Understanding What Makes Vanguard So Successful

Post by LadyGeek » Thu Oct 12, 2017 9:08 pm

^^^ I merged EvelynTroy's post into here.
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venkman
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Re: Understanding What Makes Vanguard So Successful

Post by venkman » Thu Oct 12, 2017 11:39 pm

I think Jack Bogle's vision for Vanguard was similar to Elon Musk's vision for Tesla: not necessarily to become the dominant player in the market, but to be so disruptive as to force the rest of the market to start doing things his way.

Probably the biggest driver of Vanguard's success is 40+ years of real world results that show indexing easily beats high-cost active management.

Longtermgrowth
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Re: Understanding What Makes Vanguard So Successful

Post by Longtermgrowth » Fri Oct 13, 2017 12:28 am

I always think about how Vanguard funds are the only funds that have my interests aligned with theirs, when putting money in any other funds.
It makes me cringe a little, thinking how things could change in the future, with that smaller percentage of my portfolio in non Vanguard funds.

bogglizer
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Re: Understanding What Makes Vanguard So Successful

Post by bogglizer » Fri Oct 13, 2017 1:26 am

Northwestern Mutual is a investor-owned company like Vanguard, and so its whole life policies must be the lowest in the industry, and therefore a good deal. Am I missing something here by paralleling the argument for Vanguard? (Yes, this post is somewhat tongue in cheek.)

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BolderBoy
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Re: Understanding What Makes Vanguard So Successful

Post by BolderBoy » Fri Oct 13, 2017 9:14 am

bogglizer wrote:
Fri Oct 13, 2017 1:26 am
Northwestern Mutual is a investor-owned company like Vanguard, and so its whole life policies must be the lowest in the industry, and therefore a good deal. Am I missing something here by paralleling the argument for Vanguard? (Yes, this post is somewhat tongue in cheek.)
I don't think that is an accurate description of VG's ownership structure.

I own mutual fund shares. The mutual fund owns part of VG.

My ownership of the fund does not cause me to own part of VG. VG, the fund and I are three different, legal entities.

NWM is a stock company. Investors who own NWM stock actually own part of the company. No individuals own part of VG. At least that is my understanding of the structure.
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rkhusky
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Re: Understanding What Makes Vanguard So Successful

Post by rkhusky » Fri Oct 13, 2017 12:07 pm

Didn't seem to mention the cons of growing too fast, such as declining quality of customer support and technology. I haven't had any issues, but have seen complaints from others.

Longtermgrowth
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Re: Understanding What Makes Vanguard So Successful

Post by Longtermgrowth » Sat Oct 14, 2017 2:53 am

rkhusky wrote:
Fri Oct 13, 2017 12:07 pm
Didn't seem to mention the cons of growing too fast, such as declining quality of customer support and technology. I haven't had any issues, but have seen complaints from others.
This is why I hold Vanguard funds at another brokerage :annoyed

bogglizer
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Re: Understanding What Makes Vanguard So Successful

Post by bogglizer » Sun Oct 15, 2017 12:33 pm

BolderBoy wrote:
Fri Oct 13, 2017 9:14 am
bogglizer wrote:
Fri Oct 13, 2017 1:26 am
Northwestern Mutual is a investor-owned company like Vanguard, and so its whole life policies must be the lowest in the industry, and therefore a good deal. Am I missing something here by paralleling the argument for Vanguard? (Yes, this post is somewhat tongue in cheek.)
I don't think that is an accurate description of VG's ownership structure.

I own mutual fund shares. The mutual fund owns part of VG.

My ownership of the fund does not cause me to own part of VG. VG, the fund and I are three different, legal entities.

NWM is a stock company. Investors who own NWM stock actually own part of the company. No individuals own part of VG. At least that is my understanding of the structure.
I believe NWL has essentially the same structure as VG. Voting at the shareholders meeting is proportional to size of policy.

Dandy
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Re: Understanding What Makes Vanguard So Successful

Post by Dandy » Mon Oct 16, 2017 5:07 pm

How Vanguard manages to handle the amazing increase in assets and customers is the current challenge not lowering cost another basis point of two. Lots of comments about poor or so/so service recently. Their focus should be on making sure service is very good. They don't want to hear media horror stories that competitors will use to stop of slow down their asset drain. Low cost but poor service is not a winning tag line.

I was very disappointed in hearing very poor service from the PAS area on a multi million dollar customer mentioned in another post. That service should be a clear winner for Vanguard and yet they didn't seem to be up to the task.

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