Jack Bogle, founder of Vanguard, has died aged 89. He was the wit who invented index-tracking funds and helped destroy the self-serving myths of rapacious experts did all investors a great service.
“If you have a pension, and have a flag, fly it at half-mast today,” tweeted The Economist’s Stanley Pignal to mark the death of Jack Bogle, who created the world’s first index fund. Bogle’s key insight – “don’t bother with stock-picking banker types, they’re mediocre, just buy all the stocks in the index” – was revolutionary back in the 1970s. So was the way he laid into rapacious “experts”, says The Wall Street Journal. “In the fund industry,” the Vanguard founder once observed, “you get what you don’t pay for.” His message that investment could be “simple as pie and cheap as dirt” struck home. Index-fund investments now comprise some 30% of the US stockmarket; $10trn globally is held in “passive” investments.
The greatest invention in finance
“The biggest beneficiaries of Bogle’s invention are regular investors who might have no idea who he was,” says Bloomberg. Yet Bogle was never shy about proclaiming the merits of his method, says the Financial Times. He called it “the greatest invention in the history of finance” and saw it as his mission to evangelise. It helped that he had a way with pithy one-liners (“Don’t look for the needle in the haystack. Just buy the haystack!”).
Bogle “didn’t seem like such a threat to Wall Street” when he started Vanguard back in 1974 and launched its first fund a year later, says Bloomberg. Not only was his concept alien –and apparently the antithesis of profit making – but he was hardly the most robust of individuals: a congenital heart defect had seen him suffer the first of six coronaries at the age of 31. In 1996, he underwent a full heart transplant.
Then again Bogle, “whose early life was shaped by the Depression”, was raised for toughness, says the FT. Born in Montclair, New Jersey, his father – a well-to-do businessman – watched his fortune evaporate, “leaving him broken and prone to drinking”. Bogle and his brothers moved to live with their grandparents in the country and, from there, he won a scholarship to Blair Academy before going on to Princeton to read economics. In 1951, Bogle’s thesis on investing caught the eye of Walter Morgan, then presiding over the huge $150m Wellington fund, who hired him and later made him “heir apparent”.
Bogle takes the vanguard
It was a strategic cock-up that led to the founding of Vanguard. During the 1960s “go-go” boom, Bogle overreached himself as Wellington’s “asset-management wonder boy” and propelled the firm into an aggressive merger, which nearly sunk it when the bull run collapsed in 1973-1974. Bogle himself was fired, but he staged a counter-coup by persuading the boards of Wellington’s mutual funds that they needed a new “independent company” to “take on the administrative tasks of running them”. Thus, Vanguard was born.
After a rocky start, Bogle never looked back. His prospects were helped by the 1970s introduction of individual retirement accounts and, later, the 401(k) – a retirement savings plan sponsored by an employer. The drying up of corporate pension funds ensured ordinary people “were all but forced to invest in the stockmarket”, says Bloomberg. The change hasn’t been “wholly positive”. Even Bogle sometimes wondered whether the force he’d unleashed might turn into a monster: in later life, he railed against the risk posed by the ubiquity of exchange-traded funds. But history will remember Bogle as the great democratiser of capitalism, says the FT. “He became one of the greatest men in the history of investing by ripping asunder the ‘great man’ image of supreme, cerebral stockpickers.” As he himself concluded: “nearly all those experts whom we identify as stars prove to be comets”.