Yesterday, the financial world lost a titan, when John Bogle, the founder of Vanguard Group, passed away at the age of 89. If you’ve invested in the markets, and in particular in mutual funds, over the years, he’s somebody that wasn’t very easy to ignore. He was the founder of the index fund that has become the largest mutual fund in the world, a best-selling author, and somebody that many call “the original disruptor.”
Bogle founded Vanguard in 1974, launching his first index fund in 1976, and that is where his reputation as a disruptor started; at the time, it was the only mutual fund in the industry that simply tried to match the performance of a major market index. Bogle’s competitors laughed at the notion, dismissing the idea that any investor would want to buy into a fund that wasn’t designed to beat the market every year. When first launched, the First Index Investment Trust (now Vanguard 500 Index Fund), Bogle managed to raise only about $11.3 million versus his stated goal of $150 million, leading many of those skeptics to start calling the venture “Bogle’s folly” – but by the mid-80’s many of those same critics and skeptics were launching their own index funds to copy what Bogle had already been doing. By the time Bogle retired as chairman of Vanguard in 1999, Vanguard had grown to become the largest mutual fund company in the world.
Bogle seemed to cherish his reputation as a disruptor, and in retirement became a regular, sharp-spoken critic of the industry he helped build. Bogle became a voice for individual investors, criticizing the mutual fund industry – and hedge funds in particular – for charging high fees, trying to time the market, and emphasizing short-term trading strategies over a long-term, consistent a disciplined focus. He didn’t even hesitate to take aim at his own company; when Vanguard began following the rest of the fund industry into Exchange Traded Funds (ETFs), Bogle said ETFs were for gamblers.
How large is the shadow cast by Bogle on the investing world, and on American financial markets? None other than the Oracle of Omaha, Warren Buffett wrote of Bogle in his 2017 annual report that Mr. Bogle is the “hands-down choice” for “…the person who has done the most for American investors.” When Illinois Senator Peter Fitzgerald introduced a mutual fund reform bill in 2004, his friend, Jack Bogle was the star witness at hearings that turned a critical eye on hedge funds, fund fees, revenue-share agreements, to name just a few common practices that Bogle strongly believed were designed only to feed the coffers of the fund industry over serving the best interests of individual investors.
Even late in life, Bogle didn’t shy away from controversy or difficult subjects. In 2018, Bogle published his last book, where he talked about the massive growth of index investing. He reasoned that if that growth was allowed to continue without some type of intervention, corporate ownership in the United States would be concentrated in just the three largest index funds, putting control of market movements in the hands of just a few and defeating the one of the original purposes of his invention, which was to level the investing playing field for individual investors.
As an active investor, I have chosen to take a different tack than the approach to long-term investing espoused by Mr. Bogle; but even as I do, I find myself inclined to tip my hat to a man that has done so much to make the financial markets accessible and useful to average investors everywhere. Where most mutual fund companies have always been inclined to let investors believe the markets are a mystery that is best left to professionals, and then collect lucrative fees for the privilege of letting you buy their funds, Bogle and Vanguard simplified the concept by simply recognizing that in the long-term, the broad market has consistently outperformed every other asset class in existence. By simply tracking the market’s movement and performance, they took much of the guesswork out of investing for the lay person, and that got more of them to start participating as investors.
I don’t think it’s much of a reach to suggest that the invention of index funds is one of the reasons that the cost of investing – whether you’re looking at management costs and fees to invest in a mutual fund, or to deal with brokerage commissions on individual trades – has been cut by more than 90%, or that the result is a demystification and democratization of investing that has made the markets more accessible for everybody. If Bogle hadn’t done it first, somebody else probably would have eventually; there were other, less-successful and poorly conceived attempts to implement similar concepts before Bogle, and even Benjamin Graham, the “father of value investing,” had publicly advocated what index funds became as early as 1963. But Bogle was the first to find a way to really make it work.
When I got my start in the industry, working at a mutual fund company that competed directly against Vanguard, I was taught that the active investing concepts that company’s fund emphasized were superior to index investing; but after the dot-com bust that launched the 21st century, I turned my own critical eye to the ideas I had cut my teeth on, and that meant looking more closely at index investing as well as other investing methods. That started me on a journey of learning and discovery has led me to the investing methods I use today, and so I owe my own debt of gratitude to John Bogle, for being a disruptor that changed the way millions of investors look at the stock market, including myself. There aren’t many people left in the stock market that we can still call true innovators; and yesterday we lost perhaps the biggest market innovator of an entire era.