Judge a Journalist by the car he drives and the house in which he lives. So when you see journos with net worth of Rs. 200 crores (and there are a few of them) you wonder how did the wealth come.
In the financial services industry the compensation at the top is just awesome. One CEO (perhaps the best paid) is Mr. Puri who gets Rs. 67 crores as compensation. Surely Vanguard is much bigger, but the compensation much smaller. Mr. Bogle thinks differently, but the important thing is he takes a much smaller salary than his counterparts. El Erain of PIMCO earned US $ 100 Million and Bill Gross made more than double that amount. The promoters of Fidelity are just a little shy of the Forbes Billionaire list? We know how rich Hdfc, Icici, Sbi, Kotak….have got being in this business!
It takes guts to run a business very different from all the others in the field. Vanguard did just that. I mean Mr. Bogle did just that. He has a networth in low 2 digit million US $. Remember it might be counter to preaching about low cost. Mr. Bogle keeps giving to charity – and has no regrets. Put things in perspective?
Look at Vanguard Index 500, a $12 billion fund that replicates the S&P’s index of 500 large U.S. stocks. Vanguard charges just 0.2% in annual operating expenses to run this fund. In bond funds they are even more superior. Look at Vanguard GNMA Portfolio, a bond fund that owns securities backed by the Government National Mortgage Association. The annual cost of owning this portfolio is just 0.3% of assets. (note there are debt funds in India which charge 2.61% p.a.!!) The average mortgage fund in the US has fees in the region of 1% (and that is considered vulgar!). Charges eat so sharply into returns that GNMA Portfolio has beaten 92% of all mortgage funds over the past decade, simply, simply because it is cheaper. Why pay more, indeed?
Vanguard funds are owned by the investors themselves. Remember the old concept of ‘Co-operative Stores’ where a bunch of middleclass men would come together an buy things for the benefit of its members? Or the ‘Mutual insurance ‘ business? Well Vanguard uses that. Exactly why I want V to come to India and sell its shares as well as manage our money at those fine rates. Our funds are expensive and that is visible even in the conferences and 5 * culture of the BFSI industry. Vanguard saves money everywhere including what it pays Mr. Bogle.
In India mutual funds are run for the nice executives who run them. Go and look at their passports. Look at the fat in the telecom business. Mukesh Dhirubhai Ambani has melted most of the fat. Imagine MDA entering banking, insurance and mutual funds! Thousands of jobs will be lost. Imagine MDA coming into India with Vanguard as the collaborator. We will see 43 mutual funds becomeing 4.2 to start with!!
In 1976 Bogle introduced the Index 500 fund. This fund had the idea of settling for the market’s average return-—which, left to their own devices, few investors manage to do. Bogle hoped the fund would raise $50 million in its first year; it got just $11 million.
“It hurt a lot of people as it runs counter to almost everyone’s business interests – amc, brokers, agents, banks, distributors, financial media, – but favors the patient investor.” This year it has collected US $ 1 billion. In 3 years time I expect it to have 2 B US $.
If you do not have patience, Vanguard is not the place for you says V’s literature. One big fan of Bogle, of course is Warren Buffett.
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