John Bogle, RIP

In 1974, Paul Samuelson wrote Challenge to judgement, a searing critique of money managers. Samuelson challenged the money managers to show that they could beat the market. He concluded that “a respect for evidence compels me to incline toward the hypothesis that most portfolio decision makers should go out of business.” Samuelson hoped for something new:

At the least, some large foundation should set up an in-house portfolio that tracks the S&P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.

Inspired by Samuelson, John Bogle created the first index fund in 1976 and it quickly…failed. In the initial underwriting the fund raised only $11.3 million, which wasn’t even enough to buy a minimum portfolio of all the stocks in the S&P 500! The street crowed about “Bogle’s folly” but Bogle persevered and in so doing he benefited millions of investors, saving them billions of dollars is fees. As Warren Buffet said today:

Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing to accomplish a huge amount.

The creation of the index fund is a great example of how economic theory and measurement can improve practice. Our course on Money Skills at MRU is very much influenced by Bogle. Tyler and I recommend index funds and Vanguard in particular. In the videos and in our textbook we present data from Bogle’s book Common Sense on Mutual Funds. Here’s the first video in the series.


RIP Mr. Bogle. You have always been a personal hero of mine.

He helped millions of ordinary people achieve financial freedom. Me included. RIP.

RIP. Reading the writings of Mr. Bogle and his Boglehead fans completely transformed my approach to personal finance. His legacy will live on through Vanguard.

Index funds not only minimize transaction costs they also minimize one's (concentrated) exposure to the downside of not being an inside trader. That is not nothing!

That said, I never say Rest in Peace, this life is restful and easy for most people compared to eternal life, which is full of energy, I say Eternal Blessings!

Mr. Bogle was a great person who benefitted me personally very substantially. But I question whether he helped "ordinary people" or the "middle class." He helped significant investors in securities, who tend to be at least upper middle class, right? Sorta 85th to 99th percentile? Again, I totally agree that he was a great person who helped many millions, and left billions on the table that he could have pocketed.

how is it self evident he left billions on the table? The whole raison d'etre of Vanguard is that they provide passive, low cost index funds. That's why people use them - if the fees went up, they would be less appealing and it's not clear that he'd make more money.

As I see it, he took billions off another table and helped investors - he hurt those mediocre managers charging high fees for no added value.

Anyone who saves benefits.

-Saving is very difficult for people with very low incomes. It becomes easier at higher incomes. But no matter how high your income, if you spend all of your money, you won't have anything to invest.
-Propensity to save will depend on circumstances (like family), personality, time preference, etc.
-Higher IQ, lower time preference people will generally make more money. This will skew investing even more toward the upper middle class.

There are thrifty types though that don't make all that much money but have high, steady savings rates and manage to accumulate a lot of money.

Skeptic, I'm happy to say you are fantastically wrong. Bogle and Vanguard helped me go from somewhere south of the 40th centile to now above the 90th. I know plenty of people who followed his urging and went from decidedly lower middle class to upper middle class, and often beyond that.

I've personally managed to convince more than a few millennials to start IRAs at Vanguard, and then to go beyond that and dive into taxable accounts.

The beauty of investing in Vanguard index funds is that it takes away one of the huge hinderances for most people hesitant about investing. When I was young, investing in stocks was for smart, crafty, wealthy people, and everyone knew small investors were asking to be fleeced if they stepped into that arena. Bogle showed the world that you could start investing with small sums, and do better than the rich folk who just listened to their self-dealing stock broker.

I wonder if index funds are good or bad for financial stability? Do index funds reinforce slumps in the stock market?

We'll soon know.

They probably increase both upside and downside volatility.

I'm not so sure. Most believers in index funds and the Bogle philosophy also accept the wisdom of a buy-and-hold approach, and understand that big downturns are buying opportunities. I have to think that will tend to stabilize the market.

Toward the end of his life, Bogle did express concern about the growth of index funds and how their popularity and dominance could de-stabilize the market - the herd run amok. As one ages, the experiences in life are both a blessing and a curse. I came of age when the stock market moved sideways for what seemed like an eternity. Sure, it was stable, but stable won't make money. Invest in an index fund then (there weren't any except for Bogle's nascent fun) and hope that the value went neither up nor down. The same could be said for residential real estate. Then along came smart people who realized that not only could the smart people make money in a rising market, they could also make money, more money actually, in a falling market. Not only that, the smart people realized that they hold the key for the markets ups and downs. An unstable market is an opportunity market. That doesn't mean index funds can't be profitable, it's just that they can be volatile, and pity the poor sap who needs his money when the value is falling. At one point in 2018, the top five tech companies lost $800 billion in market value. Where did it go? Did smart investors realize an equal amount of gains from the losses? As readers of this blog know, stability breeds complacency, and complacency breeds risk aversion, and risk aversion breeds few innovations, and few innovations breed economic stagnation. So who should we praise, Jack Bogle or the smart investors who appreciate market volatility?

tl;dr version: I am rayward and I don't understand dick about the market.

Bogle created the first index _mutual_ fund. The first index fund was created by Wells Fargo for the Samsonite pension fund in 1971.

Yep, Mac McQuown doesn't get as much recognition, but he had Bogle beat by a few years

The Norman Borlaug of finance.


Seems pretty highly rated here. Who underrates him?

I'm an analyst and portfolio manager who over the past 25 years has outperformed benchmarks by about 4% annually, and outperformed in over 80% of years. Using fundamental company research on stocks and techniques any CFA should have heard of. I have high intelligence but am not a genius. I am analytical, rational, and process-driven and willing to act and think independently against consensus views. I am glad that most competing investors are less so. Fortunately employers and some clients are able to identify and retain people like me. That in itself requires some skill. Investors without that skill (or without the guidance of consultants who do) are probably better off in index funds, I admit. I have noticed over the decades that investors seem more willing to invest money in dumb ideas and strategies than better ones, that are typically non-consensus.
I know a few people with similar track records.
People who expect all pro investors to on average outperform is akin to demanding humanity to surpass a 100 IQ on average. Markets are primarily professional.

Yep, index funds outperform the average advisor. But not all advisors are average.

You in the US? If so you are one of 4 people.

That is to say, there are only 4 portfolio managers who possibly meet the criteria you claim. You must be one of those four. If only I had found you 25 years ago. Oh well...

According to Wikipedia, Bogle had a heart defect and got a heart transplant at 66 years old that lasted to 89. Pretty good considering the average life extension is 9 years.

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