Welcome to a brand new series of videos for 2019, Investing Superheroes.
Each video will feature one of the genuine greats — people who have truly advanced our understanding of how financial markets work and improved investor outcomes.
Which superhero would we choose to kick the series off? Well, there was really only one serious candidate.
I sometimes wonder what the investing industry would be like today if it hadn’t been for “Saint Jack” Bogle. No, he wasn’t the only passive investing pioneer. There were others like John McQuown and David Booth who were also instrumental in the development of index funds.
Patron saint of indexing
But there are several reasons why Bogle really is the patron saint of indexing. He was, as CEO and chairman of Vanguard, the first to launch an index fund for retail investors in the mid-1970s. Despite ridicule from others in the fund industry, and a very slow start, he stuck by his belief that indexing would change the face of investing. And it did.
Another big achievement of his was the ownership structure at Vanguard. Bogle was determined that this would be a company whose interests were aligned with those of their clients. Without shareholders to pay or answer to, Vanguard was able to drive down fees and allow millions of investors around the world to share in its success.
Plain and simple honesty
But, for me, Jack Bogle’s biggest contribution has been his plain and simple honesty.
Bogle realised, as a student at Princeton, that more than anything, successful investing is about controlling costs. His assertion that “net return is the gross return minus the cost of playing the game” is a blindingly obvious fact, and yet most investors were oblivious to it at the time. Indeed many still are.
Over time, Bogle explained, compounding costs eat away at the value of your portfolio. Net of those costs, only a tiny fraction of active fund managers outperform the market over the long term. Consumers’ interests are therefore best served by simply investing in low-cost index funds and more or less forgetting all about it.
To quote Bogle’s long-standing friend and admirer Warren Buffett, “honesty is a very expensive gift” and we “shouldn’t expect it from cheap people”. It’s certainly in short supply in the financial industry.
Several journalists, advisers and other financial professionals over the years have privately admitted to me that Bogle is right, and that the vast majority of people are better off indexing. But, for whatever reason they’ve carried on doing and saying the same things they’ve always done. Sometimes it’s a matter of pride, but more usually it’s about job security or commercial self-interest.
Jack Bogle did the very opposite. He knew what was right and, to this day, he has never been afraid to say it.
A road less travelled
Such honesty has been very expensive for Bogle personally. As he says himself, he’s financially very well off. But if he’d run Vanguard like any other fund management company, he would probably be one of the wealthiest people on the planet today.
Thankfully John Clifton Bogle chose a road less travelled — honesty and integrity over vast worldly wealth. It’s that, in my book, which makes him the ultimate investing superhero.