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Quote of the Day

“The grim irony of investing is that we investors as a group not only don’t get what we pay for, we get precisely what we don’t pay for.”

-Jack Bogle, who on this day in 1951 would submit his thesis laying the groundwork for low cost index funds and Vanguard, the company he would found 24 years later.

April 10th – This Day in Stock Market History

April 10th, 1816 – The Second Bank of the United States receives its charter.

The United States was without a central bank from 1811 until the Second U.S Bank was chartered on this day 5 years later. Over that time, the nation was becoming more in debt, and a weakening economy was resulting in many banks failing. Because of these factors, President Madison changed his opinion on the country’s need for a central bank and pushed for a law chartering a new central bank.

The Second Bank of the United States operated differently than the Federal Reserve does today. The bank did not directly control monetary policy like the Federal Reserve does today. However, the bank provided a stable currency that could be trusted which was pivotal in a time of economic hardship.

second_us_bank_note

The bank was given a 20 year charter, which would expire in 1836 when President Jackson vetoed a bill on May 1st 1836 that would have extended the bank’s charter.

You can read much more about the Second Bank of the United States on the Federal Reserve’s website

April 10th, 1951 – A student at Princeton submits his master’s thesis titled: “The Economic Role of the Investment Company” in which he states: “[For mutual funds], future growth can be maximized by concentration on a reduction of sales loads and management fees.”

That student’s name was John C. Bogle, eventual founder of Vanguard, and pioneer of the index fund.

This thesis would lay the groundwork for Vanguard, which launched its first index fund on August 31st, 1976 with $11 million in assets.

Today Vanguard has the largest mutual fund in the world, Vanguard 500 Index Fund (Ticker: VFIAX) and is also one of the largest investment fund providers, with more than $5.1 trillion assets under management.

bogle on index funds with red boarder

April 10th, 2012 – Apple Computers shares reach $644 ($92 split adjusted), giving Apple a $600 billion market cap, making it the largest publicly traded company at the time, and only the second company in history to be worth $600 billion. (The first was Microsoft, which crossed the $600 billion milestone on December 31st, 1999)

apple_stock_chart_since_IPO


 

Best April 10th in Dow Jones Industrial Average History

1933 – Up 4.74%, 2.81 points.

Worst April 10th in Dow Jones Industrial Average History

2012 – Down 1.65%, 213.66 points.

Read of the Day

Bogle talked about this history of Vanguard in a speech to Princeton Entrepreneurs’ Network  in 2004.

Of course Vanguard is a story of entrepreneurship, too. But an odd kind of entrepreneurship, involving, (1) the conversion of an existing enterprise to a higher use. (2) A business that demands virtually no capital assets. (3) An innovative corporate structure that was unlikely to be and even 50 years later has yet to be copied. (4) An original idea, the index mutual fund, which, simply put is the killer app an investment strategy that cannot be empirically improved upon. And if that’s not enough to make Vanguard atypical, I would add: (5) A firm specifically designed to provide neither equity nor entrepreneurial reward for its creators. (More about that later!) If those five peculiarities undermine my credentials to speak authoritatively on entrepreneurship, so be it. But I’ll try, anyway.

You can read the entire speech here: http://www.vanguard.com/bogle_site/sp20040528.htm

Also, read our post here: 12 Investing Rules from Jack Bogle

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