Bogle: Vanguard's size a worry

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ruralavalon
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Bogle: Vanguard's size a worry

Post by ruralavalon » Wed Oct 25, 2017 7:00 am

There is a short Morningstar interview with Mr. Bogle this morning. The gist is that there is a limit to Vanguard's growth, and little additional economy of scale possible.
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Re: Bogle: Vanguard's size a worry

Post by RadAudit » Wed Oct 25, 2017 9:24 am

Link?
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Re: Bogle: Vanguard's size a worry

Post by Peculiar_Investor » Wed Oct 25, 2017 9:36 am

RadAudit wrote:
Wed Oct 25, 2017 9:24 am
Link?
Bogle: Vanguard's Size a Worry
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Re: Bogle: Vanguard's size a worry

Post by triceratop » Wed Oct 25, 2017 9:53 am

Jack Bogle wrote:I'm tempted to say 4.7 trillion. I worry about it. I guess anybody that wrote a book called Enough would worry about it. The economies of scale just can't keep going on much longer. We've only got 12 basis points to go, and let me say it: There's an irreducible minimum, no matter how big you are, just for the fun of it, 8 basis points, cost a lot of money to run this business. We're now talking about a 4 basis point improvement in cost. I just don't think it's worthwhile, hyping and trying to bring in more and more money.
Fair point, there are certainly diminishing returns. However, a minor quibble is that there's no reason an index fund has to offer a fund with a positive expense ratio. It's been speculated recently (I forget where) that asset managers may sell funds with a negative expense ratio because having clients in their funds has other fringe benefits: securities available to lend, synergies with other divisions of a larger financial business, likelihood to buy more expensive auxiliary investment products, etc. Moreover even with Vanguard we shouldn't expect a positive tracking error (i.e. lagging the index); already the large funds like the Total (International) Stock lag the index by 1-2bp, which is less than their expense ratio. This is likely due in part to securities lending.
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Re: Bogle: Vanguard's size a worry

Post by Levett » Wed Oct 25, 2017 9:59 am

Mr. Bogle said:

"I just don't think it's worthwhile, hyping and trying to bring in more and more money."

I couldn't agree more.

Spend some money on higher quality service.

Lev

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Re: Bogle: Vanguard's size a worry

Post by ruralavalon » Wed Oct 25, 2017 10:02 am

Thank you RadAudit for furnishing the link.

The hypothetical 0.04% possible expense ratio improvement is small, likely not important for many fund investors. That's $400 per year on a one million dollar portfolio, not completely trivial but still not very important. There is a point where the question arises "why bother?"

I think that for most fund investors the service issue is likely more important.
Last edited by ruralavalon on Wed Oct 25, 2017 10:05 am, edited 1 time in total.
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Re: Bogle: Vanguard's size a worry

Post by aristotelian » Wed Oct 25, 2017 10:05 am

The question he is asked is: "What point would be too large for Vanguard". His answer is that there is no advantage to them getting bigger and they don't want to become an oligopoly or violate any regulations. He does use the word "worried" but I don't really see anything that he is really worried about in the content of his answer.

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Re: Bogle: Vanguard's size a worry

Post by Peculiar_Investor » Wed Oct 25, 2017 10:09 am

ruralavalon wrote:
Wed Oct 25, 2017 10:02 am
Thank you RadAudit for furnishing the link.
Ahem ... :?
Peculiar_Investor wrote:
Wed Oct 25, 2017 9:36 am
RadAudit wrote:
Wed Oct 25, 2017 9:24 am
Link?
Bogle: Vanguard's Size a Worry
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Re: Bogle: Vanguard's size a worry

Post by triceratop » Wed Oct 25, 2017 10:10 am

Levett wrote:
Wed Oct 25, 2017 9:59 am
Mr. Bogle said:

"I just don't think it's worthwhile, hyping and trying to bring in more and more money."

I couldn't agree more.

Spend some money on higher quality service.

Lev
It's also worth remembering that many of Vanguard's shareholders hold no assets at Vanguard brokerages and do not care about service.

disclaimer: I care very little about expense ratios on broad market funds at this point.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Bogle: Vanguard's size a worry

Post by ruralavalon » Wed Oct 25, 2017 10:11 am

Peculiar_Investor wrote:
Wed Oct 25, 2017 10:09 am
ruralavalon wrote:
Wed Oct 25, 2017 10:02 am
Thank you RadAudit for furnishing the link.
Ahem ... :?
Peculiar_Investor wrote:
Wed Oct 25, 2017 9:36 am
RadAudit wrote:
Wed Oct 25, 2017 9:24 am
Link?
Bogle: Vanguard's Size a Worry
OOPS :oops:

I apologize.
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Re: Bogle: Vanguard's size a worry

Post by EHEngineer » Wed Oct 25, 2017 10:13 am

Has Vanguard been advertising lately?
They used to have that At-Cost coffee truck and other commercials I would see around the web. I never liked the advertising, although I did buy a cheap coffee.
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Re: Bogle: Vanguard's size a worry

Post by ruralavalon » Wed Oct 25, 2017 10:15 am

triceratop wrote:
Wed Oct 25, 2017 10:10 am
Levett wrote:
Wed Oct 25, 2017 9:59 am
Mr. Bogle said:

"I just don't think it's worthwhile, hyping and trying to bring in more and more money."

I couldn't agree more.

Spend some money on higher quality service.

Lev
It's also worth remembering that many of Vanguard's shareholders hold no assets at Vanguard brokerages and do not care about service.

disclaimer: I care very little about expense ratios on broad market funds at this point.
I agree that a difference of a few hundredths of a percent in expense ratio is meaningless.

My personal experience with Vanguard service has been excellent, but I still hate to see others experience sub-par service at a firm which I much admire.
Last edited by ruralavalon on Wed Oct 25, 2017 10:18 am, edited 2 times in total.
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Re: Bogle: Vanguard's size a worry

Post by lack_ey » Wed Oct 25, 2017 10:16 am

EHEngineer wrote:
Wed Oct 25, 2017 10:13 am
Has Vanguard been advertising lately?
They used to have that At-Cost coffee truck and other commercials I would see around the web. I never liked the advertising, although I did buy a cheap coffee.
I do see some Vanguard web ads, but I visit the Vanguard site to look up information, and you know how ad targeting works.

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Re: Bogle: Vanguard's size a worry

Post by nedsaid » Wed Oct 25, 2017 12:18 pm

Well, Vanguard could break itself up. You would have Vanguard I, Vanguard II, and Vanguard III. What a nightmare for competitors. Vanguard could be the number 1, number 2, and the number 3 mutual fund company. This isn't going to happen, but it is fun to think about.
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Re: Bogle: Vanguard's size a worry

Post by digarei » Wed Oct 25, 2017 6:28 pm

nedsaid wrote:
Wed Oct 25, 2017 12:18 pm
Well, Vanguard could break itself up. You would have Vanguard I, Vanguard II, and Vanguard III. What a nightmare for competitors. Vanguard could be the number 1, number 2, and the number 3 mutual fund company. This isn't going to happen, but it is fun to think about.
Arguably, this already happened, when the company structure was initiated in 1974. The funds own the management company.

I think I understand why Christine posed the question she did: Jack Bogle has been wringing his hands about this issue (‘Too Big?’) for decades. I don’t have a citation handy—perhaps it was during his keynote at last year’s BHs conference—but he has stated that the first time he spoke to Vanguard employees about his concerns (that the company was growing too large) Vanguard was still an also-ran in the industry, with a fraction of the fund assets it went on to hold by the time he stepped down as Chairman of the board.

Yes, Jack is worried. That’s what (successful) ceo/founders do.

Despite lapses in the level of Vanguard service, as reported by a finite number of posters on this board and by others, does anyone believe that a company whose survival could be jeopardized from a certain reading of the Investment Company Act of 1940 hasn’t lent serious consideration to this matter? I believe Vanguard can afford to pay for lawyers.

Jack urges Vanguard management to be cautious (“Take the foot off the accelerator […]”) in further efforts to grow its assets but characterizes a drop-dead Target date a quarter century from now.
John Bogle asserts, in this Morningstar piece that Christine Benz wrote:
There's an irreducible minimum, no matter how big you are, just for the fun of it, 8 basis points, cost a lot of money to run this business. We're now talking about a 4 basis point improvement in cost. I just don't think it's worthwhile, hyping and trying to bring in more and more money.
Then he drops the O-word (oligopoly) in listing companies, including Vanguard, that control the most mutual fund assets in the world today. His verbal meanderings on other related topics provide more food for thought.

ruralavalon wrote:
Wed Oct 25, 2017 7:00 am

The gist is that there is a limit to Vanguard's growth, and little additional economy of scale possible.
I think these are speculative assertions that befit his temperament and past concerns. Using Jack’s example: Why would a weighted average of 8 basis points not permit “additional econom[ies] of scale” over those incurred when costs were 12 basis points? True, 4 ‰ doesn’t sound like much on portfolio assets of a few million... but it’s still a cost reduction of one third!

Isn’t the “irreducible minimum” some number approaching zero?
Last edited by digarei on Wed Oct 25, 2017 6:33 pm, edited 1 time in total.
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Re: Bogle: Vanguard's size a worry

Post by sambb » Wed Oct 25, 2017 6:30 pm

triceratop wrote:
Wed Oct 25, 2017 10:10 am
Levett wrote:
Wed Oct 25, 2017 9:59 am
Mr. Bogle said:

"I just don't think it's worthwhile, hyping and trying to bring in more and more money."

I couldn't agree more.

Spend some money on higher quality service.

Lev
It's also worth remembering that many of Vanguard's shareholders hold no assets at Vanguard brokerages and do not care about service.

disclaimer: I care very little about expense ratios on broad market funds at this point.
The service issues point to a major problem with LEADERSHIP. If leadership believed in better service, it can happen. It is a BIG problem.

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Re: Bogle: Vanguard's size a worry

Post by triceratop » Wed Oct 25, 2017 6:35 pm

sambb wrote:
Wed Oct 25, 2017 6:30 pm
triceratop wrote:
Wed Oct 25, 2017 10:10 am
Levett wrote:
Wed Oct 25, 2017 9:59 am
Mr. Bogle said:

"I just don't think it's worthwhile, hyping and trying to bring in more and more money."

I couldn't agree more.

Spend some money on higher quality service.

Lev
It's also worth remembering that many of Vanguard's shareholders hold no assets at Vanguard brokerages and do not care about service.

disclaimer: I care very little about expense ratios on broad market funds at this point.
The service issues point to a major problem with LEADERSHIP. If leadership believed in better service, it can happen. It is a BIG problem.
Perhaps. But did you possibly misunderstand my post? I only meant that, personally, as a Vanguard shareholder through their ETFs it doesn't matter to me what level of service Vanguard provides to their brokerage customers.
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Re: Bogle: Vanguard's size a worry

Post by Vanguard Fan 1367 » Thu Oct 26, 2017 8:00 am

I hope that the Vanguard magic can continue as it gets huge. I appreciate Bogle and his wisdom and I hope the current leadership of Vanguard can continue to help investors and do that helping well.

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Re: Bogle: Vanguard's size a worry

Post by DaftInvestor » Thu Oct 26, 2017 10:49 am

Vanguard Fan 1367 wrote:
Thu Oct 26, 2017 8:00 am
I hope that the Vanguard magic can continue as it gets huge. I appreciate Bogle and his wisdom and I hope the current leadership of Vanguard can continue to help investors and do that helping well.
When you say the "Vanguard magic" what are you referring to exactly?
Fidelity, Schwab, etc. all now have low cost index MFs and ETFs - and some argue with better customer service. I'm not sure what "Magic" Vanguard has - I realize it spearheaded the industry in this direction but is there some "magic" about them I am missing?

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Re: Bogle: Vanguard's size a worry

Post by Vanguard Fan 1367 » Fri Oct 27, 2017 12:43 pm

DaftInvestor wrote:
Thu Oct 26, 2017 10:49 am
Vanguard Fan 1367 wrote:
Thu Oct 26, 2017 8:00 am
I hope that the Vanguard magic can continue as it gets huge. I appreciate Bogle and his wisdom and I hope the current leadership of Vanguard can continue to help investors and do that helping well.
When you say the "Vanguard magic" what are you referring to exactly?
Fidelity, Schwab, etc. all now have low cost index MFs and ETFs - and some argue with better customer service. I'm not sure what "Magic" Vanguard has - I realize it spearheaded the industry in this direction but is there some "magic" about them I am missing?

My first investment was Fidelity Magellan with a 3 percent load and who knows what sort of expense ratio, probably around 1 percent. I appreciate Vanguard and their low ER mutual funds and no load funds. That is what I am calling magic. You are right, because of Vanguard you can get no load low expense ratio funds from Fidelity, Schwab and some others. If you read Bogle's books you can see the magic of low expense ratios and no load fees over the long term for an investment.

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Re: Bogle: Vanguard's size a worry

Post by jdb » Fri Oct 27, 2017 3:51 pm

I hope Vanguard at least doubles in size next 5 years. It would mean that millions more investors participating in their very low cost index based funds which will benefit the investors. Hopefully many more pension funds which now rip off their retirees by investing in the horrific hedge funds which charge an arm and leg for less than mediocre results also will be converting more to Vanguard index funds which will help more millions of retirees. I think Jack Bogle is wonderful but place more emphasis on helping Americans invest their savings in lowest cost best result products to help their retirement.

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Re: Bogle: Vanguard's size a worry

Post by Toons » Fri Oct 27, 2017 4:06 pm

Thanks for the link
Very insightful.
Always enjoy listening to Mr.Bogle speak :happy
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