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Bogle's conviction that low-cost index funds can deliver more for investors than active management was vindicated during his lifetime and sustains his reputation as an investment guru today.
Warren Buffett thinks Jack Bogle deserves a statue.
"Jack did more for American investors as a whole than any individual I've known," the Oracle of Omaha told shareholders as he introduced a visibly moved Bogle to the Berkshire Hathaway annual meeting in 2017. "A lot of Wall Street is devoted to charging a lot for nothing," declared Buffett. "He charged nothing to accomplish a huge amount…He is a hero."
Praise indeed. But it was not always like this.
Bogle was frequently criticised for promoting an approach to investing that threatened the investment management industrys traditional fee structures. When he launched a low-cost index fund for individual investors almost half a century ago, most of Wall Street dubbed it "Bogle's folly".
As Bogle once observed, however, "The courage to press on regardless…is the quintessential attribute of the successful investor." And he did press on. By the time he died in 2019, Bogle had transformed money management, enhancing the financial well-being of many millions of ordinary investors in the process.
Today, roughly a third of the money invested in US mutual funds and exchange-traded funds tracks an index. Furthermore, many of the world’s biggest money managers are best known for their low-cost index funds.
John Clifton "Jack" Bogle was born in Montclair, New Jersey, in 1929, on the cusp of the Great Depression. Thanks to scholarships and an aptitude for mathematics, he overcame a challenging childhood to win a place at Princeton University, where he studied economics and investment, including mutual funds.
In 1951, soon after graduating magna cum laude, Bogle was hired by Walter L. Morgan, founder of the Wellington Fund (the first balanced mutual fund in the US), who was reportedly impressed by the insights contained in Bogle's 130-page college thesis on "The Economic Role of the Investment Company".
The young man rose swiftly at Wellington. By 1955 he was an assistant manager and highly regarded enough to persuade the company that its traditional single-fund focus should be abandoned in favour of a more diversified approach.
By 1970 Bogle had replaced Morgan as chairman - only to be fired soon after for approving an "extremely unwise" merger that he later put down to "immaturity and confidence beyond what the facts justified".
Bogle always considered that merger "unforgivable" and his biggest career mistake, but he certainly learned from it.
Prohibited from managing money directly on behalf of clients, he created an index fund that he did not personally oversee, but which followed an index built by S&P. It was to prove a turning point for both Bogle and the investment industry.
The notion of passive investing in a fund that mirrors the entire stock market was not new. University of Chicago academics had long argued that it's all but impossible to consistently pick winning stocks that perform better than the average - and that transaction and management costs are a significant drain on long-term returns.
Bogle, however, is widely credited with popularizing these ideas. In 1974 he established The Vanguard Group, a mutual fund owned by its investors that is now the world's largest provider of mutual funds. Then, in 1976, came Bogle's famous "folly": First Index Investment Trust, a precursor to the Vanguard 500 Index Fund, and one of the first index mutual funds accessible to the general investor.
Bogle's core investment philosophy was based on simple common sense.
Despite the industry's initial skepticism, the success of Bogle's innovations proved hard to ignore. In 1999, Fortune magazine named him "one of the four investment giants of the 20th century". And Nobel economics laureate Paul Samuelson (whose own ideas had inspired Bogle) went significantly further. In 2005 he ranked Bogle's low-cost index fund notion on a par with "the invention of the wheel, the alphabet, Gutenberg printing".
For all the accolades, Bogle's core investment philosophy was founded on simple common sense. The real market folly, he reasoned, is to attempt to pick actively managed mutual funds and expect their performance to beat a low-cost index fund over a long period of time, especially after accounting for active-management fees.
Instead, Bogle advocated buying low-cost, broad-based index funds and holding them for a lifetime. His 1999 book, "Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor", which became a best seller and is now considered an investment classic, lays out eight simple investing principles:
Bogle was always keenly aware of the importance of overall market valuation, and he developed a method of forecasting what he called "reasonable returns" that underscored his categoric rejection of short-term, speculative investments.
The Bogle method assesses a company's worth by adding the existing dividend yield to expected earnings growth, then adjusting for overall market valuation as measured by the P/E (price-earnings) ratio, before correcting for inflation. Coupled with his belief that most investors should maintain a minimum 20% bond allocation and increase this when stocks become overvalued, the method served him and his followers well. During the dot-com bubble of the late 1990s, Bogle sold most of his stocks and correctly anticipated that bonds would deliver superior results over the next decade.
Bogle's rejection of exchange traded funds (ETFs), which he dismissed as "absolutely speculation", proved to be less perceptive. ETFs are among the most successful financial products of recent decades. Ironically, given its founder's aversion to these instruments, Vanguard is now the world’s second-largest provider of ETFs.
Yet Bogle's legacy remains essentially sound, especially for the many millions of ordinary people who have benefited financially by following his advice.
His conviction that diversified market exposure and not giving your profits away in fees are the building blocks of success for the average investor has proven its worth. The Bogleheads Forum, which has dozens of chapters in the US and abroad, as well as several online resources, promote the approach to investment that he always recommended. And the John C. Bogle Center for Financial Literacy remains committed to "building a world of well-informed, capable and empowered investors".
Ill health led to Bogle's retirement in 1999. When he died 20 years later his estimated net personal worth was about 80 million USD, a mere fraction of what most of his industry peers have amassed, and a tribute to the patient, self-disciplined investment philosophy for which he is still remembered.
