‘St. Jack of the mutual fund industry’
Vanguard founder advocated patient, long-term investing in a diversified group of well-run companies.
John Bogle, who popularized the low-cost index-based mutual fund as founder of Vanguard Group Inc. and insisted that most stockpicking money managers weren’t worth the fees they charged, has died. He was 89.
He died of cancer Wednesday, according to the Philadelphia Inquirer, citing his family. He suffered the first of at least six heart attacks at age 31. In 1967 he had a pacemaker installed, and in 1996 he received a heart transplant.
By word and example, Bogle proselytized on behalf of patient, long-term investing in a diversified group of well-run companies. He focused his advocacy on index funds, those that buy and hold the broadest mixes of stocks. He cautioned that the pursuit of quick trades and short-term profits typically helped investment advisors more than investors.
“The way to wealth for those in the business is to persuade their clients, ‘Don’t just stand there. Do something,’ ” he wrote in “The Little Book of Common Sense Investing” (2007). “But the way to wealth for their clients in the aggregate is to follow the opposite maxim: ‘Don’t do something. Just stand there.’ ”
Bogle’s formula turned Vanguard into the largest U.S. manager of stock and bond funds.
“He was a towering figure,” said Burton Malkiel, a Princeton University economics professor and Vanguard board member since 1977. “The mutual funds industry is infinitely better because of Jack Bogle.”
Bogle founded Valley Forge, Pa.-based Vanguard in 1974. Investors attracted to its low fees helped the firm overtake American Funds, managed by Los Angelesbased Capital Group Inc., in 2008 as the biggest U.S. stock and bond fund manager. Vanguard had about $5.3 trillion in assets under management as of Sept. 30.
Under Bogle, the company introduced the first retail index mutual fund in 1976.
Initially greeted with skepticism, the Vanguard 500 Index Fund, an unmanaged portfolio of the stocks represented in the Standard & Poor’s 500 Index, had $266 billion in assets as of mid-2017, according to data compiled by Bloomberg.
“It was lambasted as foolishness in the 1970s,” Dan Culloton, editor of the Vanguard Fund Family Report for Chicago research company Morningstar Inc., said of the inception of index funds. “It’s a cornerstone of investing now.”
Another Vanguard index fund, Total Stock Market Index, had $514 billion in assets as of mid-2017.
Bogle promoted the idea that index funds such as the Vanguard 500 can outperform most actively managed funds because they have lower management fees and trading costs.
“Everybody really thought he was crazy, but he was tough enough not to care what everybody thought,” said Malkiel, author of “A Random Walk Down Wall Street,” which shares Bogle’s view that trying to outsmart the market is a lost cause.
By making Vanguard a cooperative, owned by the funds it ran, Bogle gave up the opportunity to amass a much larger personal fortune. He said the cooperative ownership, unique in the industry, eliminated what he saw as a fundamental conflict faced by publicly listed money managers, which try to serve both corporate shareholders and fund investors.
He told Bloomberg Television in December 2008 that the U.S. government’s bailouts of companies including American International Group Inc. and Citigroup Inc. had “deeply discredited” capitalism. At a February 2009 congressional hearing, he warned that the U.S. retirement system “is imperiled, headed for a serious train wreck.” Months later he filed a brief with the U.S. Supreme Court siding with investors who were challenging fees charged by fund managers.
At industry events and other public appearances, Bogle often drew admirers while making fund company executives uncomfortable. Some fans called him “St. Jack of the mutual fund industry.”
“He stood up and said what he believed was right, and it cost him friendships in the fund industry,” said Don Phillips, managing director at Morningstar.
At a conference hosted by Morningstar in May 2009, Bogle criticized asset managers for paying themselves too much. “Compensation is totally, ridiculously out of control,” he said. “Money managers should return to stewardship and trusteeship.”
John Clifton Bogle was born May 8, 1929, in Montclair, N.J., to William Bogle Jr. and the former Josephine Hipkins.
A graduate of Princeton, Bogle joined Philadelphiabased Wellington Management Co., which operated the Wellington Fund, the first so-called balanced mutual fund, containing both stocks and bonds. He quickly rose as a marketer and administrator and became the assistant to firm founder Walter Morgan. In 1967, he was promoted to president and chief executive officer.
He disagreed with Wellington partners over investment strategy and personnel matters during the next several years, and, in January 1974, the Bostonbased directors fired him.
Bogle remained chairman of a separate oversight board of the Wellington funds, whose members were loyal to him. He persuaded the board to relieve Wellington Management of responsibility for administering the funds — tasks that included shareholder record-keeping, fund accounting and preparing public filings — while continuing to oversee management and distribution. Mutual funds, Bogle said, should be independent from the companies that manage their investments.
A student of British naval history, Bogle continued Wellington’s Napoleonic Wars theme by naming the newly independent group of funds “Vanguard,” after the flagship of Admiral Horatio Nelson’s fleet in the Battle of the Nile in 1798. In 1977, the fund’s board took control of sales of the funds from Wellington, which had distributed them through brokers. Vanguard funds were then sold directly to customers as no-load shares, meaning investors bought them without paying broker commissions.
Bogle remained Vanguard’s chief executive until 1996, when he handed the post to his designated successor, John Brennan. Bogle remained chairman of the board and began squabbling with Brennan over the company’s growth plans, with Bogle questioning Brennan’s plans to offer discount brokerage services and develop a so-called supermarket for online mutual fund shopping.
After reaching the mandatory retirement age of 70 in 2000, Bogle asked the Vanguard board to waive the rule for him. It refused, a decision seen as cementing Brennan’s authority at the firm.
Billionaire investor Warren Buffett praised Bogle in his annual letter to Berkshire Hathaway Inc. shareholders in early 2017.
“If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle,” Buffett wrote. “He has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”