> “Jack could have been a multibillionaire on a par with Gates and Buffett,” said William Bernstein, an Oregon investment manager and author of 12 books on finance and economic history. Instead, he turned his company into one owned by its mutual funds, and in turn their investors "that exists to provide its customers the lowest price. He basically chose to forgo an enormous fortune to do something right for millions of people. I don’t know any other story like it in American business history.”
Is this really true? Both Buffett and Gates' money didn't come from salaries or fees. For Gates, it was his ownership of Microsoft. For Buffett, it was his stewardship of Berkshire Hathaway. However, Buffett's Berkshire Hathaway never sought to gain an edge over shareholders. Buffett didn't compensate himself with lavish options or salary.
Bogle could certainly have been a multi-billionaire. He could have founded Vanguard as a for-profit company and charged high fees. However, that wouldn't be like Buffett. Berkshire Hathaway doesn't operate on a percentage of the company's value going to Buffett every year.
In fact, Bogle took a similar path to Buffett: an investor-friendly path that meant little salary or fees going to them, but a great value for investors. It seems like the difference between them would be attributed to difference in starting point and differences in returns. Since 1964 (when Buffett took over Berkshire Hathaway) through 2017, Berkshire had an overall gain of 2,404,748%. By contrast, the S&P 500 only hit 15,508%. If Buffett and Bogle both started out with $1,000,000, Buffett would have ended up with $24B while Bogle ended up with $155M.
I don't think Bogle could have been a multibillionaire like Buffett unless he either 1) charged a lot of fees for Vanguard; or 2) actively managed his money to do significantly better than the S&P 500.
Don't get me wrong: Bogle has done amazing things for society by pioneering low-cost index funds and offering investors the investor-owned Vanguard. I just think it's fair to point out that Buffett's billions don't come off the back of fees or salary. The thing that made Buffett richer was the fact that Berkshire Hathaway has hugely outperformed the S&P 500. If Berkshire had gotten the returns of Bogle's S&P 500 index fund, Buffett would be rich (as Bogle was), but not a multibillionaire.
>For more than 20 years, he donated half his annual income to philanthropic causes, particularly those institutions that helped develop his mind and form his character.
Index funds are slowly consuming more and more capital. To achieve democratic socialism smoothly, all we have to do is set up state-owned index funds, and let them keep growing until they've accumulated all of the capital.
Voila, full democratic ownership of the means of production!
Bogle is remembered primarily for his role in launching index funds, but I think a more telling part of his legacy is the structure of Vanguard, the firm he started, now the world's most trustworthy (and among the very largest) investment firms.
Unlike most firms, Vanguard's funds own the firm, rather than the other way around. The funds are owned by Vanguard's customers, who transitively own the company. Vanguard "pays cost" for all the work its management and staff performs.
To illustrate how powerful this structure is, see Matt Levine's writing about "the fake moon landing of financial news stories": a claim by a former Vanguard insider that the savings accrued to the funds (and thus customers) as its result constitute billions of dollars of taxable income (under the IRS whistleblower rules, some percentage of those taxes would go to the insider!):
Followed the link to read about the taxes, but the framing doesn't make sense to me:
The Vanguard Group is a mutual fund company whose adviser is owned by the funds, rather than being an independent profit-seeking corporation, so it can charge its funds lower advisory fees than its competitors do. (Disclosure: I am a Vanguard investor.) But the adviser is a taxable corporation, while the funds themselves are not taxable (they just pass through taxes to investors). There is a theory that the adviser should be charging Vanguard higher management fees, to reflect the "arm's length" prices that an independent adviser would charge, rather than the "at-cost" prices that it does in fact charge. Or rather, there is a theory that Vanguard owes taxes on the fees that the adviser should have charged, which would have been profit to the taxable corporation.
Why is there any fee that "should" be charged? The premise seems flawed that fees need to anything more than cover costs to pay the employees to do their work.
"If this structure were different, they'd charge more and make a profit and pay tax" ... But it's not different, so it doesn't make a profit, so it doesn't pay tax. Pretty simple.
John Bogle created the index fund, and along with it a savings philosophy that enabled the average investor to build wealth by taking an appropriate amount of risk (with exposure to stock/bond markets) and minimizing fees.
The Bogleheads Wiki has great resources on topics related to savings, retirement and investing. Here are a couple entry points into what Bogle's method looks like:
Not quite sure we can credit Bogle with creating the index fund. He certainly popularized it, though.
Bill Fouse at Wells Fargo got a rather clunky version of an index fund started in 1971, based on equal weighting of all NYSE shares. It took a couple more years for various people, including Dean LeBaron (later of Batterymarch) and John Bogle to get everything working the right way with timely capitalization weighting and rebalancing. That's when the S&P 500 became the index of choice.
Getting index funds to track consistently over time takes a fair amount of market monitoring plus basic computing power. (Reinvesting dividends brings one set of headaches; so does adjusting specific stocks' weightings as individual companies either shrink their float by buying back stock or expand it by issuing new shares.)
All these calculations seem trivial today, but back in the 1970s, we didn't have up-to-the-minute electronic Edgar filings at the SEC. Or abundant computer power on everyone's desks.
> Warren Buffett, the most famous investor in the world, had this to say recently: “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.”
If you don't know who Bogle is, and don't know much about individual investing for retirement, I would recommend you read William Bernstein's If You Can, a (free!) little 16-page booklet that just lays out the "Bogle method" for simple investing for retirement.
If you like that, I would also read Chapter 1 of Bernstein's Four Pillars of Investing. Bernstein's books are all more or less re-writes of the same book multiple times in an attempt to make the Bogle/indexing idea approachable for different audiences. In addition to If You Can, Chapter 1 of Four Pillars is a history of securities returns and is the best thing I've ever read in terms of getting into the right head-space for long-term investing and thinking about risk.
I worked at Vanguard for about 5 years and Mr. Bogle was omnipresent on campus, working in his research area and dining (almost) every day in the on-campus cafeteria. In my few interactions with him, he was always nice and gentle. I only ever heard great things from my colleagues who had the chance to get to work with him closely or knew him better.
Also, I appreciated that he was willing to grow, even into his old age, regarding his thinking on asset allocation. For example, his stance on holding an international stock index changed over time (from "unnecessary because most S&P 500 companies are multinational" to "there is some value to allocate a percentage of one's account to a broader international index").
Additionally, he wasn't afraid to completely go or say something against Vanguard after retiring. He stuck to his beliefs and was willing to challenge the company he started (and, albeit, was forced to retire from). For example, he was not supportive of Vanguard's deep foray into ETFs as he viewed them as encouraging short-term trading.
All-in-all, he seemed like a wonderful person and the investment industry (and many other realms) are better because of him.
I just finished reading "The Bogleheads' Guide to Investing", which opened my eyes up to how investing _really_ works -- turns out it's much simpler than I thought, which was an exciting realization to have. I'm sad to see him go.
It's simple, but requires a great deal of time to take advantage of compound interest. It's simple, but it requires dedication: you must say the course. Invest early, invest often, and invest for the long term.
It is a happy realization, though, to recognize how simple it really is.
RIP. One of the biggest reasons the investment class was able to expand to the common person. Exorbitant fees, lack of knowledge of investments were huge barriers of entry to making passive income. Only the really wealthy really had access to both. The index fund and the low fees associated with it are huge reasons why savings aren’t lower than they already are. Upper middle class especially benefited greatly.
> "One of the biggest reasons the investment class was able to expand to the common person."
not to nitpick too much, but the top 10% own 84% of stock [1] so the investment class hasn't reached very far down to the common person, who own most of their wealth in their homes (why the housing crisis disproportionately hit the bottom 80%).
with that said, if there's one social program that could reduce wealth inequality, it would be manadatory retirement savings accounts for all and invested in (vanguard) index funds (and probably diversified into bonds at least). it could be employer funded, or even funded by lotteries or sin taxes for the bottom 80%.
Hard to fully apprehend the impact this guy had on investing for regular people. In a very real sense, imagine the aggregate savings in fees he created for millions of people over the course of decades -- savings that were likely plowed back into people's retirement and total returns. Who else has done something for investors like this? I can't think of anyone even close.
RIP, Mr. Bogle. Does anyone know how Bogle concretely thought of the existence of samples like Warren Buffett who have outperformed the market over decades, granted the outperformance may not continue in the future [1]. I presume Bogle's view on this would be nuanced.
As people are sharing resources related to John, the Freakonomics podcast, where John makes an appearance, on investing I found was informative as well.
Very sad. Millions of people will live comfortable, dignified retirements thanks to him. Mr. Bogle will be remembered as the Patron Saint of retirement investing.
[+] [-] kuhhk|7 years ago|reply
> “Jack could have been a multibillionaire on a par with Gates and Buffett,” said William Bernstein, an Oregon investment manager and author of 12 books on finance and economic history. Instead, he turned his company into one owned by its mutual funds, and in turn their investors "that exists to provide its customers the lowest price. He basically chose to forgo an enormous fortune to do something right for millions of people. I don’t know any other story like it in American business history.”
[+] [-] mdasen|7 years ago|reply
Bogle could certainly have been a multi-billionaire. He could have founded Vanguard as a for-profit company and charged high fees. However, that wouldn't be like Buffett. Berkshire Hathaway doesn't operate on a percentage of the company's value going to Buffett every year.
In fact, Bogle took a similar path to Buffett: an investor-friendly path that meant little salary or fees going to them, but a great value for investors. It seems like the difference between them would be attributed to difference in starting point and differences in returns. Since 1964 (when Buffett took over Berkshire Hathaway) through 2017, Berkshire had an overall gain of 2,404,748%. By contrast, the S&P 500 only hit 15,508%. If Buffett and Bogle both started out with $1,000,000, Buffett would have ended up with $24B while Bogle ended up with $155M.
I don't think Bogle could have been a multibillionaire like Buffett unless he either 1) charged a lot of fees for Vanguard; or 2) actively managed his money to do significantly better than the S&P 500.
Don't get me wrong: Bogle has done amazing things for society by pioneering low-cost index funds and offering investors the investor-owned Vanguard. I just think it's fair to point out that Buffett's billions don't come off the back of fees or salary. The thing that made Buffett richer was the fact that Berkshire Hathaway has hugely outperformed the S&P 500. If Berkshire had gotten the returns of Bogle's S&P 500 index fund, Buffett would be rich (as Bogle was), but not a multibillionaire.
[+] [-] BeetleB|7 years ago|reply
>For more than 20 years, he donated half his annual income to philanthropic causes, particularly those institutions that helped develop his mind and form his character.
[+] [-] gxs|7 years ago|reply
Everything I've read about the guy says he was a stand up guy that put a real dent in the world.
I hope his legacy lives on and his mission continues to be carried out.
[+] [-] djrobstep|7 years ago|reply
Index funds are slowly consuming more and more capital. To achieve democratic socialism smoothly, all we have to do is set up state-owned index funds, and let them keep growing until they've accumulated all of the capital.
Voila, full democratic ownership of the means of production!
[+] [-] tptacek|7 years ago|reply
Unlike most firms, Vanguard's funds own the firm, rather than the other way around. The funds are owned by Vanguard's customers, who transitively own the company. Vanguard "pays cost" for all the work its management and staff performs.
To illustrate how powerful this structure is, see Matt Levine's writing about "the fake moon landing of financial news stories": a claim by a former Vanguard insider that the savings accrued to the funds (and thus customers) as its result constitute billions of dollars of taxable income (under the IRS whistleblower rules, some percentage of those taxes would go to the insider!):
https://www.bloomberg.com/opinion/articles/2015-11-25/calper...
Bogle is a giant and a good guy in a field not packed full of good guys. RIP.
[+] [-] bfdm|7 years ago|reply
The Vanguard Group is a mutual fund company whose adviser is owned by the funds, rather than being an independent profit-seeking corporation, so it can charge its funds lower advisory fees than its competitors do. (Disclosure: I am a Vanguard investor.) But the adviser is a taxable corporation, while the funds themselves are not taxable (they just pass through taxes to investors). There is a theory that the adviser should be charging Vanguard higher management fees, to reflect the "arm's length" prices that an independent adviser would charge, rather than the "at-cost" prices that it does in fact charge. Or rather, there is a theory that Vanguard owes taxes on the fees that the adviser should have charged, which would have been profit to the taxable corporation.
Why is there any fee that "should" be charged? The premise seems flawed that fees need to anything more than cover costs to pay the employees to do their work.
"If this structure were different, they'd charge more and make a profit and pay tax" ... But it's not different, so it doesn't make a profit, so it doesn't pay tax. Pretty simple.
[+] [-] oscilloscope|7 years ago|reply
The Bogleheads Wiki has great resources on topics related to savings, retirement and investing. Here are a couple entry points into what Bogle's method looks like:
https://www.bogleheads.org/wiki/Bogleheads®_investment_philo...
https://www.bogleheads.org/wiki/Three-fund_portfolio
[+] [-] GCA10|7 years ago|reply
Bill Fouse at Wells Fargo got a rather clunky version of an index fund started in 1971, based on equal weighting of all NYSE shares. It took a couple more years for various people, including Dean LeBaron (later of Batterymarch) and John Bogle to get everything working the right way with timely capitalization weighting and rebalancing. That's when the S&P 500 became the index of choice.
Getting index funds to track consistently over time takes a fair amount of market monitoring plus basic computing power. (Reinvesting dividends brings one set of headaches; so does adjusting specific stocks' weightings as individual companies either shrink their float by buying back stock or expand it by issuing new shares.)
All these calculations seem trivial today, but back in the 1970s, we didn't have up-to-the-minute electronic Edgar filings at the SEC. Or abundant computer power on everyone's desks.
[+] [-] unknown|7 years ago|reply
[deleted]
[+] [-] isseu|7 years ago|reply
> Warren Buffett, the most famous investor in the world, had this to say recently: “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.”
[+] [-] baron816|7 years ago|reply
[+] [-] countryqt30|7 years ago|reply
[deleted]
[+] [-] loteck|7 years ago|reply
[0] https://www.etf.com/docs/IfYouCan.pdf
[+] [-] asr|7 years ago|reply
http://www.efficientfrontier.com/t4poi/Ch1.htm
The rest of the book is good, too, but you can just read If You Can instead.
[+] [-] dguo|7 years ago|reply
https://www.inc.com/magazine/201210/eric-schurenberg/how-i-d...
I don't generally like the idea of having personal heroes, but John Bogle would be on the short list.
[+] [-] ThirdFoundation|7 years ago|reply
Also, I appreciated that he was willing to grow, even into his old age, regarding his thinking on asset allocation. For example, his stance on holding an international stock index changed over time (from "unnecessary because most S&P 500 companies are multinational" to "there is some value to allocate a percentage of one's account to a broader international index").
Additionally, he wasn't afraid to completely go or say something against Vanguard after retiring. He stuck to his beliefs and was willing to challenge the company he started (and, albeit, was forced to retire from). For example, he was not supportive of Vanguard's deep foray into ETFs as he viewed them as encouraging short-term trading.
All-in-all, he seemed like a wonderful person and the investment industry (and many other realms) are better because of him.
[+] [-] altairiumblue|7 years ago|reply
- Became wealthy without exploiting his clients, foregoing millions, possibly billions
- Got a heart transplant at 65 and lived to 89
- Even in his recent interviews his voice always struck me as the voice of someone much younger, and he sounded very sharp mentally despite his age
RIP
[+] [-] cjcenizal|7 years ago|reply
[+] [-] Y7ZCQtNo39|7 years ago|reply
It is a happy realization, though, to recognize how simple it really is.
[+] [-] azhenley|7 years ago|reply
Can you summarize the biggest thing you learned from it?
[+] [-] JKCalhoun|7 years ago|reply
[+] [-] rhegart|7 years ago|reply
[+] [-] clairity|7 years ago|reply
not to nitpick too much, but the top 10% own 84% of stock [1] so the investment class hasn't reached very far down to the common person, who own most of their wealth in their homes (why the housing crisis disproportionately hit the bottom 80%).
with that said, if there's one social program that could reduce wealth inequality, it would be manadatory retirement savings accounts for all and invested in (vanguard) index funds (and probably diversified into bonds at least). it could be employer funded, or even funded by lotteries or sin taxes for the bottom 80%.
[1] https://www.nytimes.com/2018/02/08/business/economy/stocks-e...
[+] [-] MarlonPro|7 years ago|reply
[+] [-] spinchange|7 years ago|reply
[+] [-] watertom|7 years ago|reply
[+] [-] eru|7 years ago|reply
[+] [-] ctchocula|7 years ago|reply
[+] [-] newfocogi|7 years ago|reply
[+] [-] dhfromkorea|7 years ago|reply
[1]: https://qz.com/1216260/warren-buffett-doesnt-beat-the-market...
[+] [-] bwb|7 years ago|reply
[+] [-] ydnaclementine|7 years ago|reply
https://s134.podbean.com/pb/2e4222a012edece84e321989ac0c4095...
[+] [-] myth_buster|7 years ago|reply
http://freakonomics.com/podcast/stupidest-money/
[+] [-] rukittenme|7 years ago|reply
[+] [-] MarlonPro|7 years ago|reply
[+] [-] jasin|7 years ago|reply