While there have been several brilliant minds that invented innumerable things for the betterment of the human race, there would only be a handful that created an impact so distinctly in the Big Bad world of investments. John C. Bogle stands tall in this respect for creating wealth across the spectrum of investors and more importantly for the “little-guy” out there.
John grew up during the Great Depression and what he witnessed in his formative years inspired him to constantly strive for the benefit of the middle-class investors. He started his career post WWII at a time when the US stock markets were in a continuous roll. Active fund managers were God-like figures extracting exorbitant fees from investors promising unsustainable returns. Not surprisingly, during this time Bogle’s company Vanguard was a damp squib in the muddle and only managed to accumulate a tiny share of the funds. He was generally mocked by the investment fraternity for his lame methods. However, at the time of his passing at the age of 89, his triumph was total. His concept of low-cost index funds has emerged a favorite of the biggest asset managers and his brainchild, the Vanguard Group is now a $5 tn mammoth.
Bogle stood for two important things: Firstly, his premise that no active fund manager can consistently outperform the benchmark over a long period and secondly his persistent belief in putting customer interest first.
Almost no one consistently beats the benchmark over longer time periods
Bogle’s greatest success was his bet that average market/benchmark return would beat most active managers net of expenses and trading costs. The common investor finds it extremely difficult to actively pursue the task of outperforming the benchmark. It is even more daunting to identify an active fund manager who could do the same. Bogle thought, instead of spending time and effort on choosing the right Fund and Manager one should just buy the benchmark itself. This led to the creation of Vanguard index funds.
Bogle’s idea was so simplistic that it became repulsive to the intelligentsia of those times. Along with simplicity he also advocated discipline in investing and cutting through the wall street chaos and to be unperturbed by rumors. His ultimate focus was to provide consistent risk adjusted returns sans volatility.
The business must be a fiduciary to its clients. The customer’s interest always comes first.
Bogle institutionalized charging minimal fees and taking lower shares of profits to ensure investors kept more of their money. Further, he set up Vanguard as a cooperative and as it grew in size the company would simultaneously cut fees, thereby transferring the efficiencies from economies of scale towards investors. This was in direct conflict with those institutions charging heavy fees and promising outlier returns. Although he was written off by the industry claiming it is destined to be a very low profit business; for Bogle that was the entire point!
It is estimated that the Vanguard effect compelled an entire industry to cut down its commissions and fees saving investors close to $1 tn over the 43 years of its existence. To put things in perspective, the Vanguard Total Stock Market Index Fund now manages a $672 Bn assets under management that purchases every single U.S. stock paying fees as low as 0.04% a year. More than the monetary savings, he initiated a paradigm shift in the way funds could be efficiently managed for the lay investor. Post the crisis of 2000 and 2008, funds from Pensions, Endowments and Retail have increased their exposure to these types of index funds.
In one of his famous annual letters to shareholders, champion investor Warren Buffet singles out John Bogle as the greatest contributor to investors in history. He lauded Jack’s persistence towards convincing investors to invest in Ultra-Low-Cost index funds. Buffet notes that Bogle can be rest assured that his dedication has directly led millions to realize far better returns on their savings than what they could have otherwise earned.
He might not have been a fancy text book material like the other “Gurus” but the impact he has created on the investment community will last forever. In his last publication, “Stay the Course” Bogle left his final warning to the investment industry: Don’t forget who you serve.