When most advisors hear Jack Bogle’s name, they likely think of mutual fund giant Vanguard Group, which he founded in 1974, serving as CEO and chairman of the board until he retired in 2000; or perhaps of his 1999 best-selling book “Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor.” In either case, they probably associate Bogle with index funds—particularly the Vanguard S&P 500 Index Fund, upon which Vanguard built its success. What many younger advisors today may not know is that in 1975, Bogle’s S&P 500 fund was the first index mutual fund.
Few advisors realize that Bogle was a lot more than just the “index” guy. He created Vanguard to be owned by investors in its mutual funds. Consequently, the company has always been managed for the benefit of investors, largely by keeping company expenses low, as well as the loads, costs and turnover in Vanguard’s funds, which were the first no-load funds. Bogle was also the first “Occupy Wall Street” reformer, some 40 years ahead of today’s younger activists, pioneering “corporate governance” by using Vanguard’s investment muscle as well as his own bully pulpit to influence management of large corporations to act more in the interests of their shareholders—and society as a whole.
You’ll find all this and a whole lot more in a new book titled “The Man in the Arena: Vanguard Founder John C. Bogle and His Lifelong Battle to Serve Investors First,” edited by Knut Rostad and published in December by Wiley. To his great credit, rather than simply describing Bogle’s legacy in his words, Rostad does something infinitely more powerful and fitting to Bogle’s accomplishments: He captures Bogle’s greatness in his own words, and in what many others have said and written about Bogle over the years.
Rostad contributed a fair amount of writing himself, masterfully setting up each of the seven chapters, which include contributions on Bogle’s leadership in index investing, corporate governance and fiduciary service, as well as letters to Bogle, forewords written for his many books and a collection of Bogle’s own essays. Taken together, “The Man in the Arena” provides a unique insight into the life and work of a genuine American hero.
Here’s how Rostad summed up Bogle’s far-reaching contributions in his introduction: “Vanguard and indexing are, no doubt, business successes. But they are much more. They are innovations that transformed individual investing to benefit millions of investors. How transformative? Nobel laureate Paul Samuelson put it simply when he compared the index fund to the invention of the wheel and the Gutenberg printing press ... Much commentary on Jack Bogle is noteworthy for its sheer intensity. From Vanguard shareholders and crew members [how Vanguard refers to its employees] to colleagues and leaders in academia and financial regulation, the messengers are ardent, their messages clear: Jack Bogle—entrepreneur, visionary, fighter, industry reformer—evokes intense passion.”
You don’t have to take Rostad’s, or my, word on the true greatness of Bogle’s contributions. In 2004, TIME magazine named Jack Bogle as one of the world’s 100 most powerful and influential people. In 1999, Fortune honored him as one of the investment industry’s four “Giants of the 20th Century,” in addition to Warren Buffett, Peter Lynch and George Soros—pretty good company for one’s life’s work.
For those who are too young to remember, and those of us who had largely forgotten the details, here’s a brief recap of Bogle’s phenomenal success at Vanguard.
When he assumed control of Wellington Asset Management and transitioned it into Vanguard Group in 1974, the company had $1 billion under management. The following year, influenced by the work of investment gurus Gene Fama, Burton Malkiel, Bill Sharpe and Paul Samuelson (which suggested that professional investors who managed mutual funds rarely beat the market over time), he launched the Vanguard S&P 500 Index Fund as a long-term investment vehicle with low costs and low turnover. One of his primary strategies for reducing costs was to eliminate active management altogether.
Today, it’s hard to imagine just how radical this concept was. The financial industry as well as the press vilified Bogle for it, calling him “crazy,” “reckless,” “irresponsible” and even “un-American.”
Of course, investors rendered another verdict. Today, Vanguard Group is the largest mutual fund company in the world, with $2 trillion in invested assets. Its Vanguard Total Stock Market Index Fund is the largest mutual fund in existence, with assets totaling some $296 billion as of the end of 2013. Not surprisingly, along the way the financial services industry also jumped on his investor-centered bandwagon. Virtually all funds now have a no-load share class and, as of the end of 2013, equity index funds and ETFs held $1.64 trillion: 27% of all equity fund assets. Their average expense ratio was 0.10% versus the fund industry average of 1.15%.
Following Rostad’s example, here’s how Bogle himself described what Vanguard is about in “Man in the Arena,” as well as a sampling of what people from Nobel laureates to Vanguard investors are quoted as saying about him:
Joe Mansueto, Founder and CEO, Morningstar: “Of all Jack Bogle’s accomplishments—among them establishing the company that would become the world’s largest mutual fund provider, leading by example in stewardship by asset managers, and making available by far the lowest-cost funds that ordinary investors could own—perhaps his greatest was bringing the index fund to market. The index fund is the revolution that Jack brought.”
William Sharpe, Nobel laureate in economic sciences; April 2001: “It seems like only yesterday—yet here you are, celebrating 50 years in the mutual fund industry! As you know, I have followed your career almost from the start. What a career it has been—and still is. As I have said before on many occasions, you are one of my investment heroes (and the list is not long). When the accounts are settled to see who has truly helped individual investors, your name will be there in lights. I consider myself a student of yours as well as one of your greatest admirers.”
Nell Minow, author of more than 200 articles on corporate governance: “When John Bogle turned the financial services industry upside down, most people admired—and envied—him for his business vision. But his creation of an entirely new industry was almost incidental to his realization that individual investors were entitled to better treatment from the financial services industry.”
Vanguard Shareholder, April 1997: “Dear Mr. Bogle, as a satisfied Vanguard investor (since 1989), I really appreciate the hard work, leadership and vision that you have provided since the founding of the company. As a law professor, I use Vanguard as a prime example of how a company’s fiduciary responsibilities not only should be met, but actually are met. I cannot tell you how important it is to show students that you can make money and do so honorably. Thanks, too, for making me a lot of money. Please keep giving ‘em hell, St. Jack!”
And finally, Jack Bogle himself, in a speech to the Vanguard “crew” on Vanguard’s 25th anniversary, Sept. 24, 1999: “Stewardship: the one great idea that explains what Vanguard is, who we are and what we do. Serving the shareholder first; acting as trustee, in a fiduciary capacity. Mutual funds of the investor, by the investor, for the investor: If you reflect on this concept, you quickly come to realize that it is from this one great idea that everything else flows. Our mutual structure: Funds owned and controlled by their shareholder-owners. Low costs: Eliminating the huge profits extracted by fund managers and then holding operating expenses to the lowest level possible, together ensuring that the maximum portion of each fund’s investment returns flows through to its owners. Market index funds: Relying on minimal cost to effectively guarantee that investors receive some 98% of the annual returns earned by a given financial asset category. Long-term investment policies: Holding portfolio turnover, and hence the attendant costs and taxes, to rock-bottom levels and allowing a seemingly modest annual cost advantage to compound the aggregate growth of an investment account at a rate that can easily double the wealth accumulations of a fund’s long-term shareholders.”
Man in the Arena” is an impressive work about a man whose accomplishments and impact overshadows any superlatives about him.
Knut Rostad probably puts it best: “Bogle, ‘the man in the arena,’ has been judged favorably in his time. And history, finally, will judge the legacy Jack Bogle will leave behind.”