What I Learned From Jack Bogle

Jack Bogle, the legendary founder of Vanguard, passed away yesterday at age 89.

He may not be the most well-known investor but he’s had by far the biggest impact on the investing public.

Warren Buffett said it best in his 2016 annual report:

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. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade… Jack was frequently mocked by the investment management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.

Here are some things I learned from this brilliant man:

Common sense is highly underrated. The Little Book of Common Sense Investing was the first book that completely changed the way I think about the world of finance (and beyond). Reading about his ideas on buy and hold, long-term thinking, simplicity, low costs, and how to view the stock market correctly was a light-bulb moment for me. Being included in the updated version is one of the highlights of my career. The name of this blog was inspired by this book and Bogle’s clear and concise thoughts about investing.

There’s no price you can put on principles. Nathan Most, the brilliant guy behind the idea to create the first ETF, approached Bogle about making it happen in the early-1990s. Bogle listened to his presentation and then told Most his idea had three or four design flaws, but even if he could fix them Vanguard wasn’t interested. Bogle didn’t want to attract short-term speculators to the firm. I love the fact that Bogle turned him down on principle alone, even though it could have bolstered Vanguard’s business at the time (they’ve since become quite successful in the space).

If you want to be heard to learn how to communicate effectively. Bogle’s books are chock-full of great ideas but the way in which he communicates those ideas is a big reason they’ve spread so far and wide. Each one of his books I’ve read contains a similar message but the way he communicates that message always resonates with me. It was the same thing any time I heard him give an interview. You basically knew what he was going to say but you still paid attention anyways because of how he said it.

Simple beats complex. For 12 years I worked in the endowments and foundations world of institutional investors. It took me a few years to figure it out, but this group was so focused on complex strategies, high-fee investments, peer performance, and short-term results that I was completely flummoxed by how that world operates.

Bogle helped me realize none of this made any sense. Not only did he explain the benefits of simplicity, but he also proved it using data to back up his arguments. He wrote, “Avoid complexity and rely on simplicity and parsimony, and your investments should flourish.”

Cost matters. This one is now obvious but there’s still an entire industry of people who are incentivized to avoid this principle. Bogle said, “Where returns are concerned, time is your friend. But where costs are concerned, time is your enemy.” He also said the following:

The way to wealth, I repeat one final time, is not only to capitalize on the magic of long-term compounding of returns, but to avoid the tyranny of long-term compounding of costs. Avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today’s financial services system. While the interests of Wall Street’s businesses are well served by the aphorism “Don’t just stand there—do something!,” the interests of Main Street’s investors are well served by an approach that is its diametrical opposite: “Don’t do something—just stand there!”

This is becoming harder and harder to do in the information age but keeping your trading activity in check is one of the most important aspects of a sound investment plan.

Perfect is the enemy of good. Bogle once wrote, “To repeat, while such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite.” There will always be better strategies out there than simple indexing but your odds of choosing them in advance are slim and the odds of doing worse rises as you extend your time horizon.

Investing shouldn’t give you a rush. Bogle once said in an interview:

I look at indexing as being simple and, sad to say, boring. Be bored by the process but elated by the outcome. In Vegas, it’s the opposite. You’re elated by the process, by the moment, but you’re bored by the outcome because you know exactly what it’ll be. The more you bet, the more you lose. Investing shouldn’t give you a rush.

It’s hard to wrap your mind around the idea that boring is better but it’s true.

If you want a successful business you need to understand your customers. For many business owners and corporate management teams, the end user of their product or service is almost an after-thought. There are so many other details to cover — sales, marketing, HR, finance, compensation, quarterly results, etc. — that it becomes easy to forget why you created your product or service in the first place.

I always got the feeling Bogle truly cared about the investors who put their money with Vanguard and think that was a huge reason for their success. In his most recent book, he said he took 104 phone calls from terrified investors calling in during the Black Monday crash in 1987 and “periodically wandered through the ranks offering appreciation and optimism.”

How to think about the stock market. The idea of speculation versus investing is an important one and Bogle was constantly hammering this one home:

The expectations market is about speculation. The real market is about investing. The stock market, then, is a giant distraction to the business of investing.

That last quote on the business of investing is an all-timer and worth circling back to regularly.

Thinking long-term can lead to extraordinary results. Bogle rolled out the first index fund at one of the worst times in the past 50 years. It was a complete flop, bringing in just $11 million of a $150 million target. After its launch in 1976, index funds went on to trail 75% of actively managed funds from 1977-1982. He had to be extremely patient to get this idea off the ground. It took decades for Vanguard to become the behemoth it is today.

That patience has paid off to the tune of $5 trillion and counting in Vanguard’s coffers. Surprisingly, over 80% of Vanguard assets are in funds launched before 1997.

Long-term thinking is not only at the forefront of Vanguard’s business strategy, but Bogle’s investment strategy as well:

This is one of the most important rules of investing. If you never peek from the age of 20 to the age of 70, you’ll rip that first 401(k) statement open at age 70, and I recommend you have a doctor on hand because you’ll go into a dead faint. Your heart might even stop. You’re going to have an amount of money you can’t even imagine.

Saving is one of the most important investments you can make. Saving money and personal finance tend to get overlooked in the financial services industry because the markets are so much sexier and exciting. I love how Bogle always talked about the importance of saving money:

Everyone is looking for the Answer, and there really isn’t an answer except save. Save more. Invest for the long term, get cost out of the equation, and get diversified to the nth degree.

He also made the point that you have to invest in something, even in the face of irreducible uncertainty:

Well, you can only control what you can control. I think whatever your view of the world is, you have to invest. The alternative is – I mean, the only way to guarantee you will have nothing at retirement is to invest nothing along the way. So, you have to take your chances.

Money isn’t everything. Bogle died a wealthy man by any measure but he certainly left a lot of money on the table. It didn’t seem to bother him at all. The Bogleheads forum once wrote, “While some mutual fund founders chose to make billions, [Jack created Vanguard] to make a difference.”

Bogle wrote in his most recent book on the history of Vanguard, “Yes, mutualization was totally my idea, and I realized that a mutual company would never provide me with the personal fortune that so many denizens of Wall Street would earn. But it offered, I believed, my last, best chance to resume my career.”

Further Reading about Bogle’s ideas and principles:
The Little Book of Common Sense Investing
Stay The Course
This Man Will Make You Rich

 

 
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