http://www.sanfran.com/home/view_story/1507/As Google’s historic August 2004 IPO approached, the company’s senior vice president, Jonathan Rosenberg, realized he was about to spawn hundreds of impetuous young multimillionaires. They would, he feared, become the prey of Wall Street brokers, financial advisers, and wealth managers, all offering their own get-even-richer investment schemes. Scores of them from firms like J.P. Morgan Chase, UBS, Morgan Stanley, and Presidio Financial Partners were already circling company headquarters in Mountain View with hopes of presenting their wares to some soon-to-be-very-wealthy new clients.
Rosenberg didn’t turn the suitors away; he simply placed them in a holding pattern. Then, to protect Google’s staff, he proposed a series of in-house investment teach-ins, to be held before the investment counselors were given a green light to land. Company founders Sergey Brin and Larry Page and CEO Eric Schmidt were excited by the idea and gave it the go-ahead.
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Bogle’s closing advice was as simple and direct as that of his predecessors: those brokers and financial advisers hovering at the door are there for one reason and one reason only—to take your money through exorbitant fees and transaction costs, many of which will be hidden from your view. They are, as New York attorney general Eliot Spitzer described them, nothing more than “a giant fleecing machine.” Ignore them all and invest in an index fund. And it doesn’t have to be the Vanguard 500 Index, the indexed mutual fund that Bogle himself built into the largest in the world. Any passively managed index fund will do, because they’re all basically the same.
When the industry sharks were finally allowed to enter the inner sanctum of Google, they were barraged with questions about their commissions, fees, and hidden costs, and about indexing, the almost cost-free investment strategy the Google employees had been told delivers higher net returns than all other mutual fund strategies. The assembled Wall Streeters were surprised by their reception—and a bit discouraged. Brokers and financial planners don’t like indexed mutual funds for two basic reasons. For one thing, the funds are an affront to their ego because they discount their ability to assemble a winning portfolio, the very talent they’re trained and paid to offer. Also, index funds don’t make brokers and planners much money. If you have your money in an account that’s following the natural movements of the market—also called passive investing—you don’t need fancy managers to watch it for you and charge big bucks to do so.
Brin and Page were proud of the decision to prepare their staff for the Wall Street predation. And they were glad to have launched their company where and when they did. What took place in Mountain View that spring might have never happened had Google been born in Boston, Chicago, or New York, where much of the financial community remains at war with insurgency forces that first started gathering in San Francisco 35 years ago.
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