Jack Bogle, founder of Vanguard
|David Senra||Jan 22, 2019|
You were in college when you researched why so many actively managed funds underperformed. How did you come up with this? I did it by accident. I was looking for a subject for my senior thesis. I wanted to write about something that no one had written about before. I found an article about the mutual fund industry. I realized the cost of all that management was more expensive than the benefit.
Why did you found The Vanguard Group? I was 35 years old. I was working at the Wellington Fund. It was in crisis. They fired me. I was out of a job and I had a young family. I was very angry. I decided to start my own fund. I was restricted from active management. This lead to the creation of the Vanguard Group.
The product we created was an index of the 500 largest companies in America:There is no manager. Nobody is in charge. It’s an unmanned broad index. [One of the most important products created, ever.]
Vanguard is an enormous success. How come no one tried to compete with you? The answer is simple. Index funds have a real problem. All the damn money goes to the investors. Managers can’t take anything. [There is no economic incentive.]
Financial services has become a marketing business: If you realize how important low costs and a long term focus is, you will never do anything but own a broad market index and hold it forever.
Why it’s hard to compete with Vanguard: No one has the bully pulpit we have. You have a company like Fidelity that had to be pulled into the index business kicking and screaming. Compare that to our missionary zeal saying this is the way.
Be like Warren: Warren Buffett is leaving 90% of his wife’s estate in the Vanguard S&P 500 index fund.
Why he doesn’t buy other countries index funds: I can’t imagine that there will be a significant advantage of international companies compared to US companies.
Great quote: The stock market is a giant distraction to the business of investing.
One of my basic rules: Don’t do something. Just stand there.
On why not to monitor your portfolio daily: The movements of the stock market are a tale told by an idiot, full of sound and fury, that signifies nothing.
My first mentor was a graduate student running the athletic ticket office at Princeton: He taught me how to do a job. How to do it with integrity. I learned how to do it on time. I learned how to keep my emotions out of it. He had a great sense of business values.
Book recommendations: The Intelligent Investor: The Definitive Book on Value Investing by Benjamin Graham, A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton Markiel, Unconventional Success: A Fundamental Approach to Personal Investment by David Swensen, Against the Gods: The Remarkable Story of Risk by Peter Bernstein, and The Four Pillars of Investing: Lessons for Building a Winning Portfolio by William Bernstein
Timeless advice: Is this in the customer’s best interest? If the answer is no you can’t do it.
What do you know today that you wish you knew when you started your career in 1951: The power of compounding. The beauty of keeping costs low. The need to ignore the market.