The Legacy of John Bogle, the Man in the Arena

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.”