Bulletin
Investor Alert

New York Markets Open in:

×
Jonathan Burton

Jonathan Burton's Life Savings Archives | Email alerts

Jan. 17, 2019, 4:36 p.m. EST

Jack Bogle gave individual investors the power to triumph over Wall Street

A chance discovery in 1949 led the Vanguard Group founder to champion shareholders as his life’s purpose

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Vanguard 500 Index Fund;Investor (VFINX)
  • X
    S&P 500 Index (SPX)

or Cancel Already have a watchlist? Log In

By Jonathan Burton, MarketWatch


Getty Images
Vanguard founder John C. Bogle: “[My] thesis said mutual funds should be run in the most honest, efficient and economical way possible. You could argue that that’s the callow idealism of a 21-year-old senior in college. You could also argue that it’s the grand design for Vanguard.”

Mutual-fund shareholders may never again see a folk hero like John C. Bogle, father of the index fund and the founder and former chairman of fund-industry titan Vanguard Group.

Bogle was an outspoken, iconoclastic, in-your-face champion for low-cost, buy-and-hold investing — a populist in a business suit who spent six decades criticizing, cajoling and challenging his fund-industry colleagues to give small investors what he called “a fair shake.”

Advocate and provocateur

Bogle passed away on Wednesday at age 89. He was one of nine investing luminaries profiled in my 2001 book, “Investment Titans: Investment Insights from the Minds That Move Wall Street,” and a consistent source of wisdom and insight about investors and the investment business. This article is adapted from the chapter of that book featuring Bogle, titled “The Average Outperforms.”

Bogle relished his role as an advocate and provocateur. He certainly looked the part — tall and lanky with a sonorous voice, a Princeton-educated everyman hammering out liberty and justice for small investors. It’s a part Jack Bogle was literally born to play. His father came from a well-to-do family that had prospered in business, but he had no great aptitude for it. The younger Bogle took after his maternal great-grandfather, Philander B. Armstrong, a maverick who conceived of mutual insurance in the property field and in 1875 formed a company called the Phoenix Mutual Fire Insurance Co. Armstrong would spend his career railing against excessive industry fees and expenses, and Bogle later carried that torch for individual investors.

Read: Jack Bogle, mutual-fund industry agitator, got the last laugh

‘Strip all the baloney out of it’

He rarely missed an opportunity to pound home the direct and clear relationship between low management fees and superior investment returns. In 1975, a century after his great-grandfather started his insurance company, Bogle opened the doors of Vanguard as a mutual fund company in the truest sense of the ideal. Shareholders of Vanguard funds “own” the management company that administers the funds. Unlike other fund companies, Vanguard operates at cost, with each fund paying its share of the corporation’s expenses for management, portfolio trading, salaries, marketing, advertising and other charges.

In his interview for the book, Bogle said, with characteristic bluntness: “This business is all about simplicity and low cost. I’m not into all these market strategies and theories and cost-benefit analyses — all the bureaucracy that goes with business. In investing, strip all the baloney out of it, and give people what you promise.”

To understand Bogle more fully, it helps to see him almost 70 years ago as a Princeton University undergraduate on an academic scholarship. Bogle needed a topic for his senior thesis in economics. True to character, he was determined to tackle a subject on which no Princeton thesis had ever been written. But he wasn’t sure where to turn.

A ‘remarkable accident’

In December 1949, he happened to read an article in Fortune magazine titled “Big Money in Boston.” The report described the mutual-fund business as a “rapidly expanding and somewhat contentious industry that could be of great potential significance to U.S. business.” Bogle recalled that he had never heard of mutual funds before, let alone invested in them. Perhaps he identified with the “contentious” label. Whatever the motivation, he decided to make this nascent industry the subject of his thesis. This “remarkable accident,” as Bogle referred to it, sparked the remarkable career that profoundly influenced how people approach investing and markets. “If I hadn’t opened that magazine, I wouldn’t be in this business today,” he observed.

His senior thesis, published in April 1951, was titled “The Economic Role of the Investment Company.” Certain passages foreshadow how its nonconformist author would one day shake the status quo of active money management with an innovative upstart called an index fund.

In his thesis, Bogle introduces two themes that would become synonymous with his professional life: performance and costs. He exhorts the fund industry not to boast that it outdoes the market: “Funds can make no claim to superiority over the market averages,” he writes. Then he suggests that fund companies might be overvaluing their services: “There is some indication that the cost of management is too high,” Bogle ventures. He concludes with the admonition that the fund industry’s continued success hinges on giving shareholders a financial break: “Future growth can be maximized by concentration on a reduction of sales loads and management fees,” he asserts.

In an interview 50 years later, Bogle expressed pride in his thesis, noting: “The thesis said that mutual funds should be run in the most honest, efficient and economical way possible. You could argue that that’s the callow idealism of a 21-year-old senior in college. You could also argue that it’s the grand design for Vanguard.”

1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »

Partner Center

About Jonathan Burton

RSS News feed

Jonathan Burton is the investing editor for MarketWatch and covers investing strategies and mutual fund-related news from San Francisco. He also writes the...

Jonathan Burton is the investing editor for MarketWatch and covers investing strategies and mutual fund-related news from San Francisco. He also writes the "Life Savings" column. Previously he held contributing editor positions at Bloomberg Personal Finance, Mutual Funds and Individual Investor magazines, and was a reporter with the Far Eastern Economic Review and Investor's Business Daily. He is also the author of two books on investing.

More from Jonathan Burton

  1. You’re probably not ready to retire — psychologically
  2. Hedge-fund billionaire Ray Dalio says capitalism needs urgent reform
  3. The case for paying every American a dividend on the nation’s wealth
  4. Ray Dalio: Rising debt, income inequality and political polarization are a recipe for a nasty downturn
  5. Ray Dalio’s new tips to survive the next market meltdown are grounded in these career secrets

Featured Commentary »

Link to MarketWatch's Slice.