(PUB) Vanguard Advisor

HUMANERRORCREEPS into all kinds of transactions, and when you’re Vanguard, with lots of humans and lots of transac- tions, well, you know what’s bound to happen. But there’s human error and then there’s what one FFSA member I’ll call John (he asked I not use his real name) refers to as a “monumental screw-up.” And, though he’s been waiting since February for Vanguard to make more than a cursory apology and explana- tion, John, a Vanguard shareholder for decades, says Vanguard has simply refused to take ownership other than to say the problem was “human error.” Here’s the story in a nutshell. I’m repeating it here because there’s a les- son for all Vanguard investors in partic- ular, and investors at large, as we deal with ever-larger financial fiduciaries. On the advice of his dad, John’s son, also named John, opened an account at STEWARDSHIP Vanguard Speak Odyssey Aggressive Growth was closed to new investors in January, with assets of about $5.5 billion. I’m guessing that the PRIMECAP Management team didn’t want to let it grow anywhere near the size of Capital Opportunity before its 2004 closure. At $5.5 billion, the fund is about half shorter line rises when the Odyssey fund outperforms Capital Opportunity.) I’ve also marked the points where Capital Opportunity was closed and reopened in 2000, 2001, 2004 and 2013. It turns out though, that while the PRIMECAP and Capital Opportunity portfolios are similar, with about 75% to 80% of each fund’s holdings also found in the other’s, the Odyssey fund’s port- folio isn’t as different as its performance might suggest. Many of the stocks found in Capital Opportunity can also be found in the Odyssey fund (about two-thirds according to data from the end of June). But how those stocks are weighted in the portfolio as well as the distinctly dif- ferent companies found in one-third of Odyssey Aggressive Growth account for the differences in performance.

A Jump in Growth Led to More Similar Performance

DISTRIBUTIONS TO COME Quarterly Payouts HOW QUICKLY the year flies by. September brings the third quarterly installment of distributions for a host of Vanguard funds and is the last payment before the year-end income and capital gains season. As always, my recommendation is that taxable investors not reinvest their distribu- tions automatically, but rather have them paid into a money market, and from there, use the cash to make slight rebalancing tweaks to their portfolios. In the list below, remember that all share classes of a fund will pay out during the month. I’ve listed ETFs where open-end Investor or Admiral share classes are not

CapitalOpportunityAssets CapitalOpportunityvs.PRIMECAP OdysseyAgg.Gro.vs.CapitalOpportunity

0.50 0.75 1.00 1.25 1.50 1.75 2.00 2.25

$0 $1,750 $3,500 $5,250 $7,000 $8,750 $10,500 $12,250 $14,000

Millions

Cap. Opp reopened Cap. Opp closed

7/98

7/00

7/02

7/04

7/06

7/08

7/10

7/12

7/14

Vanguard by printing out a deposit slip from vanguard.com and mailed it in with his check for $29,000. But when the slip was received, someone at Vanguard opened a new account in the fund in the father’s name but didn’t deposit the money into it (the money went into the son’s account). However, now that the father’s new account was established and was supposed to have $29,000 in it but hadn’t been funded, Vanguard decided the account was in debit. So, they liter- ally sucked $29,000 out of the local bank account tied to John senior’s Vanguard account, without his authorization. The issues here are myriad. First, as far as I can tell, Vanguard has no right to suck money out of a linked bank account unless you authorize them to do so. John says he doesn’t recall ever taking money from his local bank and send- ing it to Vanguard. He only moves > the size Capital Opportunity was in today’s dollars. I don’t have to tell you that you should hold onto any and all shares of any of the PRIMECAP funds you own. With Odyssey Aggressive Growth closed, you can still get exposure to the PRIMECAP team’s excellent stock-picking in its other two Odyssey funds, but of course, the smaller-cap and distinct exposures avail- able in the aggressive fund are now solely the province of existing shareholders, of which I’m happy to say I am one. n

available. 500 Index Balanced Index Convertible Securities Developed Markets Index

Dividend Appreciation Index Emerging Markets Stock Index Equity Income European Stock Index Extended Duration Treasury ETF Financials Index Global ex-U.S. Real Estate Index Growth Index High Dividend Yield Index Inflation-Protected Securities Large-Cap Index LifeStrategy Conservative Growth LifeStrategy Income MegaCap ETF

MegaCap Growth ETF MegaCap Value ETF Pacific Stock Index REIT Index Russell 1000 ETF Russell 1000 Growth ETF Russell 1000 Value ETF Russell 3000 ETF

S&P 500 Growth ETF S&P 500 Value ETF Short-Term Inflation-Protected Securities Target Retirement Income Tax-Managed Balanced Total International Stock Index

Total Stock Market Index Total World Stock Index Utilities Index Value Index Wellesley Income Wellington World ex-U.S. Index World ex-U.S. Small-Cap Index

The Independent Adviser for Vanguard Investors • September 2014 • 15

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