Millions of American investors – including yours truly – owe a debt of gratitude to John “Jack” Bogle, who died on January 16 at the age of 89. Adulations have been pouring in for the inventor of the index fund (dubbed “Bogle’s Folly by critics at the time) and founder of Vanguard. Even from the surgeon who performed the heart transplant in 1996, which allowed Bogle to spread his love for the ordinary investor for 22 additional years.
Bogle was born in 1929 to a life of privilege — subsequently lost in the Great Crash. Like many of that era, Bogle pulled himself up by his bootstraps, working his way to an excellent education. In 1950, Bogle wrote his senior thesis at Princeton on the nascent mutual fund industry. As a result, he received a job upon graduation with Wellington Management Company, which to this day still manages some of Vanguard’s funds.
We Can Be Heroes
Bogle went by the nickname Jack. Some called him St. Jack. And he was clearly the kind of human being one could imagine being beatified. But most people just called him Mr. Bogle.
Unfortunately, unlike many of my colleagues who are boasting of such things on social media, I have no pictures of me with Mr. Bogle. Nor do I have any notes from him. I never went to a Bogleheads conference. I never even met him, nor did I have the temerity to write him with my admiration.
But boy did he have an influence on my life. Both personally and professionally
I bought my first Vanguard fund for my own IRA in 1983, vaguely aware of efficient markets from reading Paul Samuelson’s Economics textbook in college. I’m not sure if I was even aware of John Bogle at the time.
When you’re a kid, it’s pretty easy to identify your heroes. Yaz, Bobby Orr and Larry Bird come to mind. As you get older it’s a bit harder.
Other thought leaders (Bill Bernstein and Larry Swedroe, to name just a couple) have guided my and RightPath’s approach in more nuanced ways. But no one has influenced my approach to this business more than Mr. Bogle.
The power of indexing is two-fold. The first – and the one that Jack was most focused on at the beginning – is mechanical. By investing in all the stocks in the index at their market weights, an index fund allows an investor to actually capture the return of the market, at very little cost. Something that was impossible back in the day. The few investors who had enough money to invest in stocks up through the decade of the seventies, either invested in undiversified portfolios of individual stocks (with “larcenous” commissions fixed by the SEC) or in heavily loaded mutual funds. Investors were basically victims of unavoidable and unseen drags on their returns. Some estimates are that Bogle has saved investors $1 trillion in fees.
And while Jack was aware of some of the research on the concept of efficient markets at the founding of Vanguard, it wasn’t until later that William Sharpe and Eugene Fama’s research on the futility of trying to “beat the market” became popularized. The work of those giants, the burgeoning computing power of the ensuing decades and research firms like Morningstar have cemented this other great virtue of passive investing. That achieving the average return of the market was not only a good outcome. But also a sufficient outcome for patient investors to achieve their financial goals.
Brush Your Teeth
Unlike the integrated circuit or a breakthrough drug, the index fund was no great technological advance. It is really quite simple to construct and runs virtually on autopilot. The real magic was getting people to use it. Like a toothbrush. After founding Vanguard, Mr. Bogle began a relentless campaign of public education.
Not Just Indexing
While index investing was at the core of Bogle’s beliefs, other extremely important notions informed his advice to investors. These are just a few:
- Reasonable expectations. Keep your return expectations in check. The market cannot grow to the sky. And there will be bear markets. Jack was a master explicator of the Gordon Equation – almost like one of Newton’s laws applied to investing- which estimates future stock returns at equal to: the Dividend Yield + Earnings Growth +/- Change in P/E Ratio.
- Discipline. Take advantage of the power of compounding. Even (especially) through the ups and downs. Stay the course. Investors who put $10,000 in the Vanguard 500 fund on Aug. 31, 1976, for example, had about $790,000 by Jan. 15, 2019.
- Investor Protection. Jack was a true advocate of the idea that all advisors should be required to act in their clients’ best interest. Even as Wall Steet, for selfish reasons, continues to resist such rules, and in the absence of such a legal requirement, investors should seek out advisors who will or are required to act as fiduciaries.
During his extraordinary life, Bogle wrote a number of books and traveled the world speaking and evangelizing for the ordinary investor and consumer of financial services and against the predation of Wall Street and the business model there that mostly serves the masters of the financial universe – and not us, its servants.
Bogle was productive and sharp as a tack, seemingly until the day he died. He published his last book, Stay the Course: The Story of Vanguard and the Index Revolution in October, 2018. Here in one of his last interviews he discusses the book with Morningstar’s Christine Benz.
In one of his greatest achievements, Bogle established Vanguard as a mutual company – owned by the shareholders – to insure that the absence of the profit motive would continue to keep costs down. The mutual structure undoubtedly kept Jack from becoming a billionaire like others in the industry. But he had enough. His “share the wealth” philosophy is deeply reflected in my favorite one of his books: Enough: True Measures of Money, Business, and Life. Part autobiography, part polemic, Enough is a dissertation on the excesses inflicted upon us not by capitalism, but by the profound greed of too many of its players.
In it he extolls the virtue of giving and expresses deep skepticism about ceaseless accumulation of wealth.