Adapt and stay alive long enough to get lucky

By | Adaptability, Founder, Luck

(Excerpt from A Short History of Money Market Funds by Ben Carlson)

Vanguard’s first index fund hit the market in the summer of 1976.

It was a complete bust, raising just over $11 million in capital from investors. John Bogle had dreams of raising $150 million.

That fund was so small, in fact, that Vanguard’s initial S&P 500 Index Fund could only buy 280 of the biggest, most representative stocks to create the index. Any more than that and the costs would have been too large.

And right out of the gate, the index showed disappointing performance, underperforming around three-quarters of all actively managed mutual funds from 1977-1982.

By 1981, Vanguard held just 5.8% of mutual fund industry assets. That number dropped to 5.2% by 1985 and 4.1% by 1987. Their most popular fund series, the Wellington Funds, saw 83 consecutive months of outflows, equal to $500 million or one-third of the initial assets in the firm when it was founded.

Vanguard was hemorrhaging money.

Their one saving grace was the most boring fund on the planet — the money market fund.

… Vanguard started its first money market fund in 1975. Index funds would have become popular either way but the money market fund definitely kept the firm, and frankly, most of the mutual fund industry afloat in the late-1970s and 1980s.

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