🎧From Purpose to Trillions $$$

A conversation with Eric Balchunas, author of "The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions".

Hi! It’s George from Investorama - I had the chance to do a podcast about my investing hero, John C. Bogle, the founder of Vanguard, and it made me think about purpose in business. I will share a few thoughts below.

---

You can watch it on YouTube, it includes clips from Billions and The Last Dance (Chicago Bulls documentary)👇🏼 or listen on all the podcast platforms.

Purpose-driven businesses prioritize making a positive impact on society or the environment alongside generating profit.

Patagonia is a famous example, they commit 1% of their turnover to environmental causes. TOMS, another one, it used to be that for every pair of shoes sold, they would give one away for free, but now their impact page tells us they give 1/3 of profits to good causes.

In other words, they’re not returning as much as possible to their shareholders. The “purpose” gets a cut of the profits.

Now what if the whole balance sheet was dedicated to your purpose? 100% of the net profits. Nothing for shareholders!

Sounds admirable, right?

This is what Bogle did at Vanguard.

The problem is that the purpose is to return as much as possible to investors - the clients of Vanguard.

Presented this way, Ι feel It loses a bit of its spark. (So you’re making rich people richer?)

This is the way Vanguard presents it on the website:

“Because our investors are our owners, our interests are uniquely aligned, allowing us to focus on you and your goals.”

Because the customers are the owners/shareholders they benefit fully from the operation’s profits.

They don’t talk about purpose at all, while their competitors do, here is Blackrock:

“Our purpose is to help more and more people experience financial well-being.”

The execution is also not that exciting, it manifests itself in the gradual lowering of the fees across all funds - not just Vanguard’s - as the competitors had to align themselves. Eric estimates the benefit to investors at over $1 trillion (we discuss it in detail at 4:30).

While Vanguard assets under management rose to $7.7 trillion today. Bogle achieved something unique among founders of Trillion-Dollar financial companies regarding his wealth:

He did not become a billionaire! Don’t get me wrong he’s very wealthy - with an estimated net worth of $80m, but compare it to Blackrock’s Larry Fink worth $1.2bn, or Blackstone’s Steve Schwarzman, $36bn.

The question of purpose is complex when it comes to financial services. When you talk about “investing”, it doesn’t sound like something that helps to improve the world. When the effect is distributing a few basis points from asset management to investors every year, it’s not spectacular.

That’s why the Bogle story is not very popular but it deserves to be known for investors, financial services workers or entrepreneurs.

PS: my conversation with Monica Millares, who hosts the Purpose-Driven Fintech Podcast sparked these reflections, check out her podcast here.

---

Thanks a lot to Eric Balchunas for his time!

Get the book here.