John Bogle, the chairman of Wellington Management Company,[8] was fired for an "extremely unwise" merger that he approved, a poor decision that he considers his biggest mistake, stating, "The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot."[9] Though no longer the chairman, he remained with the company, and arranged to start a new fund division at Wellington. He decided to call it Vanguard, named after Horatio Nelson's flagship at the Battle of the Nile, the HMS Vanguard.[1] Bogle chose this name after a dealer in antique prints left him a book about Great Britain’s naval achievements. The book mentioned Nelson’s flagship, leading Bogle to think, with regard to Vanguard, “What a great name.” Bogle also recounts that Wellington executives resisted the name, but narrowly approved it after Bogle mentioned that Vanguard funds would be listed in the alphabetical listings in the Wall Street Journal next to Wellington funds.[2] The Wellington executives, still smarting over the bad merger, required that the fund not be allowed to engage in advisory or fund management services. Given that this effectively disallowed it to start a new actively managed fund, Bogle saw it as an opportunity to start a passive fund, tied to the S&P 500.[3][4] Bogle has since said that he was inspired by, not just the academic research showing the potential for a passively managed index fund to outperform an actively managed fund, but also by Paul Samuelson, an economist who later won the Nobel Prize for Economics. In a Newsweek column, Samuelson had cited this academic researching in imploring that someone start a passive index fund tied to the S&P 500.[10][5] The mutual fund industry, having grown used to high-fee funds marketed as being able to beat the market, resisted Vanguard's low cost index approach. Some labeled it Bogle's folly, and some claimed it was un-American to simply try to be the market, rather than to try to beat it. After the Wellington board had (reluctantly) agreed to accept Bogle's offer to start the first index fund offered to the general public, Bogle established the fund. Initially called the First Index Trust in 1976 (later changed to Vanguard 500 Index Fund), it raised $11 million in its initial public offering. The banks that managed the public offering had been hoping to raise $150 million, and after the disappointing results, suggested that Bogle cancel the fund.[6] Bogle refused, relishing the fact that he had just established the world's first index mutual fund. Vanguard at this time constituted of three employees: Bogle and two analysts. Growth in the first years was slow, a situation not helped by the fact that the fund did not pay commissions to brokers who sold it (which was unusual at the time). Within a year the fund had only grown to $17 million, but one of the Wellington Funds that Vanguard was administering had to be merged in with another fund, and Bogle convinced Wellington to merge it in with the Index fund.[7] This brought it up to almost $100 million. Growth in the fund accelerated after the beginning of the bull market in 1982, and other mutual fund companies began to copy the indexing model. These early attempts were not successful since they typically charged high fees, which defeated the purpose of low cost indexing. In 1986, Vanguard began its second mutual fund, a bond index fund. This was the first bond index fund ever offered to individual investors. One earlier criticism of the First Index fund was that it was only an index of the S&P 500.[8] In 1987, Vanguard considered starting a new fund, this one modeled on the entire stock market. Deciding this was not feasible, later that year Vanguard began its third fund, an "extended market fund" (an index fund of the entire stock market, minus the S&P 500). Over the next five years, other funds were begun, including a small cap index fund, an international stock index fund, and a total stock market index fund. As the 1990s stock market boom got underway, more funds were offered, and several (including the S&P 500 index fund and the total stock market fund) became among the largest funds in the world, and Vanguard the largest mutual fund company in the world. http://en.wikipedia.org/wiki/The_Vanguard_Group
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