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Jan. 17, 2019, 8:43 a.m. EST

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

Vanguard’s Bogle bet that most active fund managers would lag behind the stock market, and he won big

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By Mark Hulbert, MarketWatch


Associated Press
Jack Bogle

CHAPEL HILL, N.C. (MarketWatch) — Jack Bogle, the founder of the Vanguard Group and father of indexing who died Wednesday, didn’t just get the last laugh.

He got virtually every laugh.

That’s because he bet his entire career and his mutual-fund firm on the notion that the vast majority of active fund managers would be unable to beat a simple index fund. And there was hardly a single calendar year since 1976, when he created the Vanguard 500 Index Fund /zigman2/quotes/209016161/realtime VFINX -0.36% in which he was wrong.

In a backhanded tribute to Bogle, fund companies have stopped trying to justify higher fees and instead begun competing with Vanguard to offer the cheapest index funds.

It’s a testament to his vision that the fundamental principal on which he based the index fund is now so widely accepted as to be considered uninteresting — even boring. When he started the fund, that fundamental principle was ridiculed as “un-American” and a “sure path of mediocrity,” according to Vanguard’s announcement of Bogle’s passing.

It was four years after Bogle created the Vanguard 500 Index Fund that I began tracking the performance of investment newsletters, and I can attest to the incredulity that investors and advisers alike expressed toward the notion that the market couldn’t be beaten. I felt I was going way out on a limb when I predicted to clients that, over the subsequent 40 years, only one of five actively managed portfolios would beat the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.38% .

As fate would have it, of course, I was actually being too generous to active managers. Since 1980, only one of 20 of them, on average, has beaten the market. One indication of how much this result has become received wisdom: The newsletter I created in 1980 to report which few newsletters had succeeded in beating the market — the Hulbert Financial Digest — was discontinued by its publisher in 2016 for lack of investor interest.

Of course, Bogle enjoyed lots of last laughs, not just over the triumph of indexing. Another was on the overriding virtue of low fees and expense ratios. Unlike what was the case in 1976, now it is widely accepted as self-evidently true that lower is better. And in a backhanded tribute to Bogle, major mutual-fund companies have recently stopped trying to justify higher fees and instead begun actively competing with Vanguard to offer the cheapest index funds, including zero-expense index funds.

It’s been over two decades since Bogle retired from the day-to-day running of Vanguard, and since then a whole generation of investors has entered the marketplace who probably know little, if anything, about Bogle in particular and the history of index funds and low expense ratios. That’s a shame, even though it’s been forever like that through history — with each generation standing on the shoulders of previous generations’ giants.

But in coming days as you trade into and out of the entire market with one transaction, at virtually no cost, stop for a moment and give Bogle thanks.

Read next: Seven timeless investing lessons from Vanguard’s Bogle

For more information, including descriptions of the Hulbert Sentiment Indices, go to The Hulbert Financial Digest or email mark@hulbertratings.com.

/zigman2/quotes/209016161/realtime
US : U.S.: Nasdaq
$ 287.62
-1.03 -0.36%
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/zigman2/quotes/210599714/realtime
US : S&P US
3,108.46
-11.72 -0.38%
Volume: 2.37B
Nov. 20, 2019 5:03p
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Mark Hulbert has been tracking the advice of more than 160 financial newsletters since 1980.

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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD...

Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron’s.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC’s World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What’s Working Now.

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