Acquired
02:39:26 · David Rosenthal, Ben Gilbert
[02:39:26] S1: At the time of his death, Vanguard managed an aggregate of $5,000,000,000,000 over 20,000,000 clients. I mean, this from a firm that started as, like, a cockamamie revenge plot against his former partners. [02:39:41] S0: Using a a system that he believed in prior to to wanting revenge. Yes. I think he he had pitched this before. [02:39:47] S1: Absolutely. Vanguard in 2019 is the number one mutual fund company with 25% market share of the entire mutual fund industry. The previous high watermark being Fidelity when it was the leader had 15%. The compounding advantage of Vanguard is just humming. They managed in twenty nineteen thirteen of the 15 largest individual funds in the entire world. Wow. And it is widely reported in the press in Jack's obituaries at the time of his death that his estate is worth roughly $80,000,000.08 0. For reference, the Johnson family, as we said from Fidelity, is worth about 40 or $50,000,000,000 through the, you know, estimated 40% that they still own of Vanguard or Larry Fink over at BlackRock, founder and CEO of BlackRock, is worth about 1 and a half billion dollars, much smaller because he owns a much smaller percentage of the company. But, yeah, Ben, to your point, whether it's savory or unsavory, it's just truly incredible. Like, that call it, you know, $4,050,000,000,000 dollar I mean, Vanguard's bigger than Fidelity at this point, so maybe $100,000,000,000 delta that Jack leaves on the table just goes right back to the American investing public.
02:39:47 · David Rosenthal, Ben Gilbert
[02:39:47] S1: Absolutely. Vanguard in 2019 is the number one mutual fund company with 25% market share of the entire mutual fund industry. The previous high watermark being Fidelity when it was the leader had 15%. The compounding advantage of Vanguard is just humming. They managed in twenty nineteen thirteen of the 15 largest individual funds in the entire world. Wow. And it is widely reported in the press in Jack's obituaries at the time of his death that his estate is worth roughly $80,000,000.08 0. For reference, the Johnson family, as we said from Fidelity, is worth about 40 or $50,000,000,000 through the, you know, estimated 40% that they still own of Vanguard or Larry Fink over at BlackRock, founder and CEO of BlackRock, is worth about 1 and a half billion dollars, much smaller because he owns a much smaller percentage of the company. But, yeah, Ben, to your point, whether it's savory or unsavory, it's just truly incredible. Like, that call it, you know, $4,050,000,000,000 dollar I mean, Vanguard's bigger than Fidelity at this point, so maybe $100,000,000,000 delta that Jack leaves on the table just goes right back to the American investing public. [02:41:07] S0: Did he leave it on the table? I mean, the only way that Vanguard would exist is by not taking profits. [02:41:14] S1: Good point. Good point. That is a There's a real chicken and the egg problem here.
02:41:14 · David Rosenthal, Ben Gilbert
[02:41:14] S1: Good point. Good point. That is a There's a real chicken and the egg problem here. [02:41:17] S0: Path dependency thing. But, you know, over time, there there there totally could have been ways for it to start being profit generating or have enterprise value, and he just wasn't interested in any of it. [02:41:26] S1: Yep. Absolutely. So our story does not end there. I used a minute ago Fidelity and BlackRock and their founders and controlling families for reference. That was not an accident. In the years kinda leading up to Jack's death and and then especially really in the seven plus years since his death, Fidelity and BlackRock have just They've done exceptionally well. Really made a comeback. [02:41:52] S0: Yeah. BlackRock is the largest AUM asset manager in the world Yep. With, more international and institutional client base than Vanguard's US individual approach. [02:42:02] S1: Yep. And Fidelity has had an incredible comeback too. Each of them in different ways, and they both come back to ETFs and really validate how important that was and, frankly, how wrong a decision it was of Vanguard not to get into it in the early days. So I know more about Fidelity than I [02:42:19] S0: do about BlackRock. In my mind, Fidelity is sort of more of a brokerage. They're like a brokerage that has funds, and Vanguard is like a set of funds that happens to have a brokerage. [02:42:32] S1: I think that's a fair characterization.
02:42:32 · David Rosenthal, Ben Gilbert
[02:42:32] S1: I think that's a fair characterization. [02:42:34] S0: Yeah. They, like, are primarily in different places in the value chain. And I'm revealing myself here, listeners, I have a Fidelity brokerage where I own mostly Vanguard funds. [02:42:43] S1: Yep. You and a lot of people. [02:42:45] S0: I think that's the common. Yep. [02:42:46] S1: Yep. Yeah. Well, okay. So let's take each of them in term, and may maybe let's start with Fidelity, and then we'll do BlackRock. So as we said throughout the story, Fidelity has always been very happy to experiment and invest in lots and lots of different things. And they have hit on two, like, real home run platforms in recent years, both of which are weak spots for Vanguard. So one is corporate four zero one k plans, as you foreshadowed earlier, Ben. [02:43:17] S0: Which is why I am a Fidelity customer. They got me when I started my first job at Microsoft, and I got my four zero one k there. And my employee stock plan also came through there. So then I opened my first Fidelity brokerage account, and that is how they've retained me as a customer for fifteen years.
02:43:17 · Ben Gilbert, David Rosenthal
[02:43:17] S0: Which is why I am a Fidelity customer. They got me when I started my first job at Microsoft, and I got my four zero one k there. And my employee stock plan also came through there. So then I opened my first Fidelity brokerage account, and that is how they've retained me as a customer for fifteen years. [02:43:35] S1: Well, and that's the other platform that has been a big home run for them, which is retail brokerage accounts. And as you point out, there is a natural crossover between those two things. So it all, I think, stems from a strategy that they realized a number of years ago. They don't necessarily have to compete with Vanguard anymore in the funds business. So even though Fidelity and Wellington slash Vanguard all started in the same business as fund managers, Fidelity realized, hey. We can, and and they certainly do offer their own index funds. [02:44:11] S0: Some of which are actually even cheaper. [02:44:12] S1: Yep. Some of which are even cheaper. They're loss leaders for them. But, like, we don't have to beat them there. Fidelity is very happy to have their four zero one k and brokerage account holders do what you do of just hold the Vanguard funds through ETFs. And I think Jack kinda foresaw this as as why he didn't like the the the business, opened up the Vanguard funds to being on all the other platforms. Mhmm.
02:44:12 · David Rosenthal, Ben Gilbert
[02:44:12] S1: Yep. Some of which are even cheaper. They're loss leaders for them. But, like, we don't have to beat them there. Fidelity is very happy to have their four zero one k and brokerage account holders do what you do of just hold the Vanguard funds through ETFs. And I think Jack kinda foresaw this as as why he didn't like the the the business, opened up the Vanguard funds to being on all the other platforms. Mhmm. [02:44:40] S0: Yeah. I mean, this is a I I don't know if it's an existential risk. I wouldn't say that. But this is a vulnerability for Vanguard, which is so many of their customers, of their AUM, don't actually have a relationship with the company. They are invested in Vanguard ETFs via their direct relationship with a different brokerage, primarily Fidelity. [02:45:04] S1: And that different brokerage, at least in Fidelity's case and in many of their cases, is also a competitor in the funds business. So right now, this is all fine. But if you play this out [02:45:14] S0: Well, it's it's fine because no one makes any money on the funds. So Fidelity doesn't have a huge incentive to say, you should come buy my two basis point fund over here instead of your three basis point fund over at Vanguard.