We have tried to avoid, with some degree of success, the curse of the mutual fund industry: huge cash flows from investors after spectacular performance gains have been achieved and huge outflows after commensurate losses have occurred … This has always been a cyclical, market-sensitive business; it remains so today.
But sooner or later, the investment pendulum, having swung to the speculative extreme, swings back to the defensive extreme, finally coming to repose in the conservative center, before repeating the cycle again.#1567•
Bogle didn't want "hot" money that was going to use the fund short term and potentially incur costs for the long-term investors.#1569•
I remember him saying, "Do we really want that money? There's a difference between good money and bad money."
It was a great lesson. Bad money comes in and stays for six months. You incur transaction costs coming in and transaction costs getting it out, and it does nothing but hurt the existing long-term investors. And that was what we were all about. [Rejecting that money] was absolutely the right thing to do, which is what drove Vanguard—being sure we were doing the right thing for our existing investors.
—Gus Sauter#1565•
While Bogle relished the early years when he had to claw and scratch for the flows—"Honestly, I love the years of struggle," he said; "the years of momentum do very little for me"—he was nevertheless surprised at how long Vanguard struggled, given how good a deal it offered investors. "I'm disappointed by how long it took. Forty years is a long time."#1570•
It is a textbook example of the Ernest Hemingway "gradually, then suddenly" line.#1566•
And if our competitors will finally compete on lower price and higher value, rather than on higher spending on dubious marketing, they will make the mutual fund world even more competitive. Indeed, as I told the Harvard Business School class, the first sign that Vanguard's mission has created a better world for the investor will be when our market share begins to erode.#1573•
Not spending on advertising is right in line with Bogle's Field of Dreamsesque "Build it and they will come" approach. As he told the crew in a 1980 speech: "We are beholden to no army of outside sales staff. Rather, we depend on the investor to come directly to us." And they did. By waiting for people to come to it, Vanguard ended up attracting the best kind of "sticky" investors.
In Character Counts, Bogle comments:
We have always known that our typical Vanguard client is better educated and wealthier than the typical fund investor. We know that, in addition, he or she is more ready, willing, and able to move his or her assets among our funds. In short, our prototypical client is a financially astute investor who knows what he or she wants, when he or she wants it and how to get it.#1572•
Chapter 4
In The Little Book of Common Sense Investing, Bogle compares himself with the ultimate eighteenth-century man, Benjamin Franklin. In one section, he put Franklin's quotes before his own to show how they shared similar philosophies on topics such as saving for the future, the importance of self-control, taking risks, understanding what's important, the markets, safety, forecasting, and steadfastness.
"Yes, I freely concede that eighteenth-century Franklin had a far better way with words than twenty-first-century Bogle," he writes.
"But our near-parallel maxims suggest that the principles of sensible saving and investing are time-tested, perhaps even eternal."#1644•
He was fascinated by the eighteenth century and its values and commitment to "old-fashion liberal humanitarianism that was the hallmark of the Age of Reason and a balance between man and machine."#1647•
Chapter 5
The story of getting too rich and comfortable at the top only to be disrupted is not exclusive to the asset management industry. It happens all the time. Capitalism can be brutal. It was famously summed up by the late, great Steve Jobs when he said, "If you don't cannibalize yourself, someone else will."#1646•