Acquired
00:11:57 · Ben Gilbert, David Rosenthal
[00:11:57] S0: And it's funny listeners, David, you're referencing the things that Jack would say. It is incredibly easy to find Jack's words everywhere. There is no shortage of commentary that Jack would give on his own life, on his philosophies. The man gave thousands of speeches. He wrote memoirs. He wrote 12 books, investment advice, reflections back on Vanguard. He would go on TV and talk to journalists and speak in classes anytime anyone would have him. So there is no gaps in the historical record Yeah. Of Jack's life. [00:12:30] S1: Of Jack's memory. Yeah. Jack loved nothing more than to give a speech. So after graduation from Blair, Jack goes on to college at Princeton. Once again, on a work scholarship, he's working in, like, the dining halls. He ends up working in the ticketing office for athletic events and football games. And while he's at Princeton, he becomes fascinated with economics after he takes a intro econ course in the fall of his sophomore year, during which he gets a d plus on the midterm, an inauspicious beginning to his finance career. Yeah. But he loves it. He works hard. He finishes with a c minus in the class. Incredible for, like, you know, the guy who would go on to revolutionize all of finance. Yep. So the next year, during Jack's junior year at Princeton, he's decided that he's gonna major in economics or concentrate in Princeton's, you know, fancy terms. You know, majors. You have concentrations. Really? And yeah. Yeah. Really. [00:13:28] S0: Just every every day, I learn one more quirky little Princeton thing.
00:13:28 · Ben Gilbert, David Rosenthal
[00:13:28] S0: Just every every day, I learn one more quirky little Princeton thing. [00:13:31] S1: I know. I'm sorry. I'm sorry. I, of course, went to Princeton, so I went through all this. And, specifically, I also went through the rite of passage that Jack has to go through, which is he needs to write a senior thesis. So one of the hallmarks of Princeton is that every single undergraduate must write a senior thesis, which must be a unique piece of scholarly research in order to graduate. It's it's like a mini version, a very, very mini version of what you would do as a PhD. Mine, of course, was on the marketing history of champagne, being a French literature major. [00:14:08] S0: Which is so funny for Acquired. Like, it's actually very useful for us in the LVMH episode. [00:14:13] S1: Incredibly useful. There you go. David Rosenthal, Jack Bogle, you know, the connection's bound. [00:14:18] S0: Okay. Continue the story.
00:14:18 · Ben Gilbert, David Rosenthal
[00:14:18] S0: Okay. Continue the story. [00:14:19] S1: Okay. So one afternoon, Jack's casting about for what would become his thesis topic. He's in Firestone, the main library on campus, and he's reading the current issue of Fortune magazine, where he comes across an article deep in the back of the magazine on page one sixteen entitled big money in Boston. It's about the growth of a relatively new industry of open ended public funds. What today we would call mutual funds. That term wasn't even in use yet. And the article centers on this new firm that's leading this innovation, this new sector on Wall Street, even though they're based in Boston, the Massachusetts Investors Trust Company, known and marketed as MIT. No actual connection to, you know, the real MIT, Massachusetts Institute of Technology, but, this gives you a sense of the marketing to the public of these open ended public funds. [00:15:25] S0: We'll see it over and over again on this episode. Appropriating prestige is a signature of the mutual fund industry for really, the the finance industry. [00:15:34] S1: A hallmark of this industry. Absolutely.
00:15:34 · David Rosenthal, Ben Gilbert
[00:15:34] S1: A hallmark of this industry. Absolutely. [00:15:37] S0: The interesting thing about this, you might say, well, what do you mean mutual funds were new at this point in time? Well, that comment that I made before the Great Depression in the twenties, only one or 2% of Americans owned stocks. By 1949, that was still only up to 4.2% of Americans. And what they were doing is they were working with a stockbroker to buy individual stocks. There really hadn't been any academic research around finance of any kind yet, let alone sort of investment and diversification and funds. So this notion of you are going to mutually pool your money with a bunch of other investors into a fund and buy a basket of stocks in that fund and hold it for an open ended period of time, these public equities, that was brand new. Yes. And this is [00:16:28] S1: what Jack decides to write his thesis about, this new phenomenon. Now there are actually two important things to talk about here that you started to allude to, Ben. One is this concept of a open end fund versus closed end funds. So this is the real pioneering thing that the Massachusetts Fund, we're not gonna call it MIT here, pioneered, which is there's no set fund size. It's elastic. So it's not like they have to write a prospectus and go out and say, we are raising a $100,000,000 fund and get everybody in it, and then, you know, it gets to a 100,000,000, and then they close it and they manage it. Nope. Could be 1,000,000, could be a 100,000,000, could be 5,000,000,000,000 as we will see approaching towards the end of
00:16:28 · David Rosenthal, Ben Gilbert
[00:16:28] S1: what Jack decides to write his thesis about, this new phenomenon. Now there are actually two important things to talk about here that you started to allude to, Ben. One is this concept of a open end fund versus closed end funds. So this is the real pioneering thing that the Massachusetts Fund, we're not gonna call it MIT here, pioneered, which is there's no set fund size. It's elastic. So it's not like they have to write a prospectus and go out and say, we are raising a $100,000,000 fund and get everybody in it, and then, you know, it gets to a 100,000,000, and then they close it and they manage it. Nope. Could be 1,000,000, could be a 100,000,000, could be 5,000,000,000,000 as we will see approaching towards the end of [00:17:16] S0: the year. Dumping more dollars in, and we'll keep buying more stuff in the basket.
00:17:16 · Ben Gilbert, David Rosenthal
[00:17:16] S0: the year. Dumping more dollars in, and we'll keep buying more stuff in the basket. [00:17:21] S1: Yep. And that also means that investors in the fund can come and go as they please. There's no lockups. It doesn't have to be a set number. You you buy into the fund. You hold it for a while. Hopefully, it appreciates. You can sell out of the fund. It's everything we know today about mutual funds, but until this concept of an open ended fund was pioneered, you couldn't do this. Now, you mentioned if Americans held stocks at all at this point in time, they held individual stocks through brokers. These funds came to be distributed exactly the same way through stockbrokers. You would call up your Merrill Lynch broker, and instead of saying, hey. Give me five shares of General Electric. You'd say, hey. Give me a couple units of the Massachusetts fund, etcetera, etcetera. [00:18:07] S0: Yep. And so the marketing, the distribution, it relies on this broker dealer network to sort of sell the funds on behalf of the the fund management company itself. [00:18:18] S1: Yep. And the brokers were getting paid by this. [00:18:22] S0: Oh, yes. [00:18:23] S1: Oh, were they ever. So they would take what's called a sales load of usually, like, seven and a half to eight and a half percent of every dollar that a client was putting into the fund. The fund manager would then kick back to the broker as a spiff for putting their clients in the fund.