When I look back over the past 100 years in investing, five giants stand out: Warren Buffett, whose genius at individual stock picking made him the Mozart of investing; George Soros, who showed how individual money managers with nerves of steel could move global markets; John Templeton, who taught Americans there was a whole world to invest in beyond the U.S.; and Charles Schwab, who seized upon Wall Street’s deregulation in 1974 to launch what became the biggest discount broker and opened up investing to millions of average Americans.
And then there was the most influential of all: John “Jack” Bogle, who died at 89 on Wednesday.
To say Bogle revolutionized investing is an understatement; he ripped up the napkins and place mats, overturned tables and chairs, shattered chandeliers, and broke all the china and crystal. Anticipating the insights of modern finance, Bogle wrote in his famous 1951 senior thesis at Princeton, “The Economic Role of the Investing Company”: “Future industry growth can be maximized by a reduction of sales loads and management fees.”
Read: A statue for Jack Bogle? I’ll do you one better
A year later, Harry Markowitz’s seminal paper, “Portfolio Selection,” demonstrated how investing in assets with differing expected returns and risk could reduce the risk of a portfolio as a whole.
Two principles
Those two elements — low cost and diversification — became Bogle’s credo, which he expounded over more than half a century. He put his philosophy into action in an investment business that was hostile to his new ideas because, well, they took the bread right out of Wall Street’s mouth, which delighted Bogle his whole life.
In 1974 he founded the Vanguard Group. Its first index mutual fund appeared two years later. He got support from two leading academics — Burton Malkiel of Princeton and Charles D. Ellis of Yale — who both served on Vanguard’s board and whose bestselling books, “A Random Walk Down Wall Street” and “Winning the Loser’s Game,” respectively, fleshed out Bogle’s ideas and disseminated them widely.
But Bogle was his own best spokesman. His flat, crackling delivery, which sounded far more like New England than his native New Jersey, perhaps reflected his hard-scrabble early days, when his father lost his fortune in the Great Depression and succumbed to alcoholism. Bogle held many jobs in his youth — newspaper delivery boy, mail clerk, pin setter in a bowling alley, the Philadelphia Inquirer reported — and he attended Princeton on scholarship, waiting tables in the dining hall.
All that hustling and penny pinching taught him the value of a dollar and made him a crusader for individual investors, who were, until he and Schwab stepped in, nothing more than Wall Street’s pigeons.
Pithy sayings
He also had a gift, like Buffett, for getting right to the point. Among a long list of his pithy sayings, my favorites are:
• “Don’t look for the needle in the haystack. Buy the whole haystack!”
• “The two greatest enemies of the equity fund investor are expenses and emotions.”
• “Owning the stock market over the long term is a winner’s game, but trying to beat the market is a loser’s game.”
• “Buying funds based purely on their past performance is one of the stupidest things an investor can do.”
Nobody ever had to tell Jack Bogle not to hold back.
In the 45 years since Vanguard’s founding, and especially over the past decade, indexing has surged as costs have plummeted — the Vanguard 500 Index Fund VFIAX, +0.23% has expense ratios as low as 0.04% — and low-cost exchange traded funds (ETFs) have emerged as a vehicle of choice for many investors.
In recent years, investors have pulled hundreds of billions of dollars from actively managed equity funds and poured them into index funds and ETFs. In 2017 Moody’s projected index funds would account for more than half the assets in the investment-management business by 2024 “at the latest.” Vanguard itself now has over $5 trillion in assets, trailing only BlackRock among investment managers; together the two firms accounted for nearly three of every four dollars going into ETFs in 2018. By the end, Bogle was more than vindicated, and he lived to see how decisively he had won this long war.
But the biggest winners of all were the investors he championed, who now have a way to build wealth for the long run and, better yet, reap almost all the returns on their hard-earned dollars. And the brilliance of it is, all they have to do is make regular contributions, reinvest dividends, rebalance occasionally and sit still the rest of the time. “When there are multiple solutions to a problem, choose the simplest one,” Bogle once said.
He not only practiced what he preached; he led the way for tens of millions to profit from it. That’s why of all the investing giants, none stands taller.
Howard R. Gold is a MarketWatch columnist. Follow him on Twitter @howardrgold.