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The bigger picture

John Bogle - Visionary or agent provocateur

The passing of the legendary investor John (Jack) Bogle recently at the age of 89 has stirred many writers in financial and nonfinancial papers to comment on his extraordinary achievements. His vision as a young man, following a thesis for his degree at Princeton University way back in 1951, led him to produce the first index fund in 1976 and with it the concept of passive investing.

Accepting the market rate of return with the market risk and not trying through active management to do better than the market, he challenged the conventional wisdom of his generation. By not using an active manager, management fees and trading costs were stripped away, reducing costs dramatically.

However he did not stop there. As with many of the reformers of the 18th century inspired by their Christian values, he took on the established commercial practice of the day and formed a not-for-profit company to produce and market his index fund, reducing costs still further.

In his book Enough, a compendium of his writings, he calls "time out" on the investment industry and chronicles how the conflict of interest between investment fund producers and managers allow fund management companies to generate spectacular profits at the expense of the investor's return on capital. Where a duty of fiduciary care meets profitability, profitability always wins.

His first index fund in 1976 (now the Vanguard group) was a disaster. The fund was called "Bogle's Folly" by the industry as he was mocked and ridiculed, some even labelling his concept "un-American".

They are not laughing now! In 2018 index funds ran 10 trillion USD worldwide and now account for 15% of all investment funds, a sixfold increase in a decade and they will continue to grow. Why? Low costs can be relied on. Beating the market cannot.

He often quoted "the relentless rules of humble arithmetic" to argue the case for passive investing. The overwhelming evidence today is that between 86% -90% of fund managers will fail to provide a return better than an index. Finding the 10% that can is like looking for a needle in a haystack. And as he liked to say, "Why look for the needle; buy the haystack."

During his lifetime Bogle delivered a true duty of fiduciary care to investors, putting the interests of others above those or himself. Had he chosen to make Vanguard a for-profit company he would have amassed a fortune. But he didn't, preferring to create a company that would ensure investors got what they paid for.

He was both a visionary and "agent provocateur" who shook up a self-serving rapacious investment industry, tirelessly championing the cause of the average investor. His vision and courage to shake the established order for what he passionately believed in has benefited millions of investors and will do so in the decades to come. Thank you Jack!

The comments and observations by the author are a reflection of his opinion and do not constitute an offer to buy and hold securities, nor does he receive any remuneration of any kind from names referred to.