The news of the passing of legendary investor Jack Bogle nearly brought a tear to my eye. I’ve personally never even met St. Jack (as he’s endearingly referred to) yet the man still had an immense impact on my life and career and I know many advisers will feel the same.
Such is the impact of Bogle on my own family finances that as soon as our twin daughters were born a few months ago, I set them up with Vanguard accounts within weeks!!! But a lot of what we do at my shop FinalytiQ comes from Jack’s ideas and his life’s work.
Investors, big and small owe this man an immense amount. It is estimated that Vanguard has saved investors $175 billion in fees since it was founded in 1974. This is based on the historical difference between the asset-weighted average expense ratio of an active mutual fund versus that of a Vanguard fund.
That’s not counting the fact that in every sector where Vanguard has a fund, rivals are often forced to lower their fees, a phenomenon that we’ve come to know as The Vanguard Effect. This means that you don’t have to have owned a Vanguard fund to have benefited from Bogle’s work. He was a thorn in the flesh of asset managers and left investors everywhere better off.
Warren Buffet illustrated this perfectly when he said “Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing to accomplish a huge amount.”
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Bogle started Vanguard in a last ditch attempt to save his own career, after he had been fired for presiding over a failed merger at Wellington. Here’s how he told the story…
It all happened so quickly. On January 23, 1974, the board of directors of Wellington Management Company (WMC) met and fired me as the firm’s chairman and CEO, ending my 23-year career there with a bang. The very next day— January 24, 1974—the board of directors of the Wellington funds, largely unaffiliated with WMC, met in New York. At the meeting, as chairman of each of the mutual funds, I proposed that we declare our independence from WMC, mutualize our funds, elect our own officers and staff, and empower them to operate the funds on an at-cost basis. In an industry where the primacy of the management company had never been challenged, such a step would be without precedent. So the battle was joined. It was long and hard. But finally, on August 20, 1974, after seven months of heated debate, the fund directors unanimously agreed to form a new subsidiary, wholly owned by the mutual funds. The new firm would administer the funds’ affairs but would be precluded from providing either investment advisory services or marketing and distribution services. I recommended that the new firm be named Vanguard, and the board—reluctantly, as I recall—approved it.
So Vanguard was born and the rest (as you know) is history.
It is worth also pointing out that the genius of the man wasn’t just limited to creating the first index fund. It is the mutual structure of Vanguard, which ensures that the interests of the investor are fully aligned with that of the manager that has really allowed Vanguard to deliver exceptional value for clients. The model remains an exception nearly 50 years later.
When Bogle launched Vanguard, Fidelity’s CEO at the time Ned Johnson was asked what he thought of the idea of index funds. He replied “I can’t believe that the great mass of investors are going to be satisfied with just receiving average returns” He couldn’t have been any more wrong. Index funds took off and Bogle’s folly became an existential threat to the entire active management industry.
Bogle went against the grain of conventional wisdom. He broke all the rules (and then some). He taught us that finance can and should be a force for good, not merely a way to extract wealth to enhance personal fortunes. He was dogged in all facets of life. He remained resilient in the face of criticism from rivals and numerous health issues. Even after a heart attack at 31 and five more (for good measure) before undergoing a heart transplant at 65, he continued to fight the good fight for investors until his last breath, two and a half decades later.
We’ve lost a true legend. His like may never pass this way again for generations to come.
Godspeed John “Jack” Clifton Bogle!