The Road Less Traveled
Mike - Apr 28, 2017
Jack delivered a landmark speech at the Morningstar Investment Conference on April 27, 2017:
The Road Less Traveled
The speech chronicles the remarkable rise of Vanguard and indexing from a sort-of-joke in 1974-76 to unprecedented industry domination in 2017, largely because of its mutual structure and its index strategy. What does that remarkable growth portend for the mutual fund industry? The eight highlights below summarize the key issues:
1. Index fund growth will continue. It remains to be seen whether broadly diversified long-term traditional index funds (TIFs) will lead the way, or whether exchange-traded index funds (ETFs) with their marketing attraction, substantial trading, and largely short-term focus, will dominate index cash flows. Pages 1-3, 10.
2. To meet the challenge of indexing, today’s active fund managers will have to develop a variety of appropriate business strategies. Page 10.
3. Active management is not going away, and large privately-held fund managers should pretty much stay the course, with few changes in their present business strategy. Page 7-8.
4. Conglomerate-owned fund managers (30 of todays 50 largest fund management firms) should adopt a “cash cow” business strategy. Pages 9-10.
5. Public policy—and the very words of the Investment Company Act of 1940—will compel fund directors to consider, not merely the business strategy of the manager, but the fiduciary strategy that places the investment interests of fund shareholders ahead of the business interests of fund managers. Pages 11-12.
6. Outside forces—a strong bull market and tax favored retirement plans—have driven mutual funds’ growth during the past 35 years. These forces will not repeat, and may even recede. Pages 11-12.
7. Fund directors, in general, have failed to measure up to this challenge, in part because fund boards are dominated by directors affiliated with fund managers. Such directors have two distinct fiduciary duties—one to the shareholders of the management company, the other to the shareholders of the mutual fund. Page 15.
8. Director lassitude has been reflected in the fact that more than 100% of the economies of scale in operating mutual funds have been garnered by fund managers. None of these economies have been shared were fund owners. (Since 1951, fund assets are up 5,400 times, fund expenses up 5,600 times.) Pages 13-14.
Mike - Mar 01, 2017
To Veterans and Principals
VANGUARD IN THE NEWS
Hi, all, Here are some more press clippings that highlight Vanguard.
1. “Years after surgery, a heartfelt reunion,” Philadelphia Inquirer, February 22, 2017. Thomas Jefferson University hosted a wonderful panel discussion with the two surgeons who performed my heart transplant way back in 1996, Dr. Rohinton Morris and Dr. Louis Samuels. They joined me and Jefferson CEO Stephen Klasko for a discussion on the 21st anniversary of my heart transplant. A standing room only crowd attended the seminar, moderated by students and focused on my transplant experiences and the similar challenges facing investment management and health care.
2. “Jack Bogle doesn’t feel ‘super confident’ about the market rally—here’s why,” CNBC, February 21, 2017. Just before the panel at Jefferson, my interview on CNBC was broadcast live to the audience. In the interview, I talked about the potential strength of the recent market rally, my outlook for stocks over the long term, and my “heart birthday.”
3. “A lesson in investing simplicity: Why the Bogle Model beats the Yale Model,” MarketWatch, February 7, 2017. I am a great admirer of David Swensen, who runs Yale’s highly successful endowment and is the pioneer of “The Yale Model,” which calls for large allocations to illiquid and alternative assets for investors with very long-term time horizons like university endowments. Nonetheless, I read with great delight this article comparing a simple three-index-fund portfolio, dubbed “The Bogle Model,” to the average endowment. Not only did the index funds beat the average endowment and even the top quartile endowments over 3, 5, and 10 years, it even beat the very best—top decile endowments—over 10 years (losing by only a whisker over 3 and 5 years). What a great endorsement of the power of simplicity over complexity—even for some of the world’s most sophisticated investors.
4. “John Bogle: Demise of fiduciary rule would be ‘step backward’ for nation,” InvestmentNews, February 9, 2017. InvestmentNews ran this summary of my recent New York Times op-ed about the Department of Labor’s fiduciary rule. In the op-ed, I referenced a consulting firm’s estimate that Wall Street would lose $20 billion through 2020 as a result of DOL’s rule, which I pointed out the overlooked fact that the $20 billion would go to Main Street investors. I added, “By any definition, that’s a social good.”
5. “The Granddaddy of Indexing,” The Globe and Mail, January 25, 2017. This interview touches on the history of indexing, the current investment environment, and Warren Buffett’s endorsement of indexing, among other topics. But I’m not sure how I feel about the headline—if I’m the “granddaddy of indexing,” who is the father?
6. “The man who transformed investing for Main Street sees a bleak future for Wall Street’s money managers,” Business Insider, January 24, 2017. This extensive interview with journalist Rachel Levy covers a wide range of topics. My conclusion about the asset management business: “We’re paying people to beat the market when they aren’t doing it, and when you think about it, that doesn’t make sense.”
7. “A Love Letter to Jack Bogle,” The Motley Fool, January 8, 2017. I always enjoy spending time with the gregarious Gardner brothers from The Motley Fool. This article is a transcript of a podcast I recorded in December with David. He generously said, “I don’t think anybody … can touch the influence that Jack Bogle has wielded over the investment world. It’s not just that he’s always been a reformer. [It’s] that he’s always tirelessly worked for the common man and for uncommonly good returns for the common man. . . . He’s really democratized investing through the index fund.” Thanks David!
John C. Bogle
March 1, 2017
Bloomberg Markets Cover Story
Mike - Nov 30, 2016
Jack was featured on the cover of the December 2016/January 2017 issue of Bloomberg Markets magazine. In a wide-ranging interview with Michael Regan, Jack discusses the history of index investing from its uncertain beginning to its current triumph, corporate governance, robo-advisers, ESG investing, and which Hollywood actor he would like to play him in a movie.
Q&A With Jack Bogle: We’re in the Middle of a Revolution
The Philadelphia Inquirer Industry Icon Awards
Mike - Nov 16, 2016
On November 16, 2016, Jack was honored at the inaugural Philadelphia Inquirer Industry Icon Awards.
Here are Jack’s expanded comments upon accepting the award.
Weinberg Center for Corporate Governance Conference at the University of Delaware
Mike - Oct 12, 2016
“How the Financial System Fails Investors and How to Fix It From a Structural and Governance Perspective”
Tuesday, November 1, 2016 at 9:30am to 12:00pm
Center for the Arts, Gore Recital Hall 110 Orchard Road, University of Delaware, Newark, DE 19711, USA
Financial/investing institutions form the bedrock of the U.S. economic system. Without them, the economy can’t grow and our capitalistic system would grind to a halt. However, few believe that our financial/investing institutions work as well as they could. Critics argue that misalignments promote the interests of the financial sector itself above those of society, the real economy and the individual citizen investors whose pensions and savings are entrusted to these institutions. They argue that errant expertise and incentives; gaps in accountability, transparency and governance; poor regulation and a misreading of economics combine to impose a huge stealth tax on individual savings and national economic promise. Further, they say that these structural and governance misalignments create systemic pressure for short-termism in the boardroom and within investing institutions.
Stephen Davis and Jon Lukomnik, two of the three authors of What They Do With Your Money: How the Financial System Fails Us and How to Fix It, will be joined by John Bogle, legendary founder of Vanguard, and Jennifer Taub, Professor of Law, Vermont Law School, for a robust, provocative discussion of how to fix our financial/investing institutions so that they serve individual citizen investors and the real economy.
Among the issues that will be discussed are: How have short-term oriented capital markets, the scores of financial intermediaries, and executive compensation structures both in financial/investing institutions and in our corporations combined to reduce long-term corporate investment in America? What are the consequences of governance gaps in investing institutions? What about the governance structures of pension plans and their plan sponsors? Should there be a shift in the governance paradigm to give individual citizen investors more transparency and more of a voice?
The discussion will also showcase potential solutions that range from the narrow and technical, such as potential revisions to the tax law, to the big and ambitious, such as fresh models of governance and transparency for financial/investing institutions and for pension/savings plans.
Please join us for a fascinating discussion peering behind the curtain of finance to understand why the capital market works the way it does. And how it can potentially change for the better.
A complimentary lunch will follow the program.
Click here for more information and to register for the event.
Vanguard in the News
Mike - Oct 12, 2016
Vanguard’s recognition in the press continues unabated. Here are some more recent press clippings.
“Vanguard’s John Bogle: Ready or Not, an Expanded Fiduciary Rule Is Coming,” Investment News, September 15, 2016. I wrote this op-ed for Investment News in support of the Department of Labor’s recent establishment of a fiduciary standard for all advisers and brokers who advise clients on retirement accounts. My conclusion: “It is in the enlightened self-interest of the distributors, advisers, and brokers for mutual funds to place the interests of investors first. But even if an expanded federal fiduciary standard fails to accomplish this goal, our mutual fund shareholder/clients will ultimately compel this outcome.”
“How Vanguard’s Decision to Forgo Profit has Paid Off for Investors,” Washington Post, September 15, 2016. Allan Sloan, former senior editor at Fortune, wrote this column about how Vanguard’s unique, client-owned structure has been incredibly successful both for Vanguard and our clients. Allan observed, “The idea that forgoing profit can be good business is an important lesson that we should all take from the recent celebration of the 40th anniversary of the Aug. 31, 1976, launch of what is now known as the Vanguard 500 Index Fund.” He went on to quote me speaking about the earnings generated by corporate America, “It’s a question of allocating those profits to Main Street rather than to Wall Street. [Our] profits go to the funds’ investors, not to the managers.” 
“Jack Bogle: Admitting a Mistake Makes You Look Better,” CNBC, September 14, 2016. In the wake of the recent scandal at Wells Fargo, Elizabeth MacBride wrote this article about my belief that trying to cover up a mistake to avoid accountability almost always backfires, while being honest and open about it usually improves your credibility and helps you ultimately move beyond the problem. To be clear, I have refrained from commenting on the ghastly mess that Wells Fargo is now facing up to. My interview with Ms. MacBride took place over two years ago, and she found it relevant to the current situation at Wells Fargo.
“They All have One Thing in Common,” The Irrelevant Investor, October 4, 2016. Michael Batnick from Ritholtz Wealth Management wrote this blog post that points out one thing I have in common with the acclaimed investors Seth Klarman, Howard Marks, Warren Buffett, and Phil Fisher: “their ability to clearly communicate their philosophy.” Michael generously appraised one of my books: “His most recent book, Clash of the Cultures, which details how companies went from an investment business to a marketing business, is an excellent read.”
“Fund Legend Still Fighting for Investors,” Kiplinger’s, October 2016. In this interview published in Kiplinger’s, I talk about my 65th anniversary in the mutual fund industry, reasonable expectations for stock and bond returns in the coming years, and the DOL fiduciary rule, among other topics.
“Crain 100: 100 Innovators, Disruptors and Change-Makers in Business,” October 2016. Crain Communications celebrated their 100th anniversary in the publishing industry with the “Crain 100” supplement, which recognizes 100 leaders in the industries covered by Crain’s various publications. I am honored to appear right next to Warren Buffett, as you’ll see in the attachment.
 The photograph in this story was actually taken, not in 1997, but in 1983. The person on the far right is Jerald L. (“Jerry”) Stevens, who served as president of Vanguard during 1982-1984. It’s a long story, ending with Jerry’s death two years ago at age 73.
Mike - Oct 07, 2016
The Bogleheads held their fifteenth annual celebration of Vanguard’s investment principles on September 28-30. Some 250 of Vanguard’s most loyal and enthusiastic clients heard impressive presentations from the likes of Gus Sauter, Bill Bernstein, Chris McIsaac, Greg Davis, Joe Brennan, John Ameriks, Maria Bruno, and Joel Dickson. My own three parts of the program consumed a total of about 6 hours over the course of two days! My remarks included some 56 slides. If you’re interested, you can find the slides on my website. Here is some of the media coverage of the 2016 Bogleheads conference.
“Meet the Ordinary People Vanguard’s Jack Bogle Made Rich”; “Jack Bogle on the Retirement Crisis, Wells Fargo’s Crackup, and ‘Hamilton’”; “The Case Against ETFs”; and “What Will the Market Bring in 2017? Vanguard’s Best Guesses,” The Street. Nora Morrison from Jim Cramer’s The Street website wrote four articles summarizing my comments as well as those from some of the other speakers at the conference.
“Jack Bogle Sounds Off: 10 Provocative New Pronouncements from the Legendary Founder of Vanguard,” and “A Retirement Crisis? There Are Actually Three, Says Vanguard Founder Jack Bogle,” Money. Karen Damato, formerly of the Wall Street Journal, was in attendance and wrote these summaries of my comments at the conference. (NOTE: The term “financial buccaneers” applied not to ETFs as a group, but to those “fringe ETFs” that are designed for speculators.)
“What Bogle’s 10-Year Stock Forecast Means for Muni Bond Holders,” Financial Planning. Financial advisor and author Allan Roth, who was also one of the speakers at the conference, wrote this piece about the potential impact lower future returns could have on the municipal bond market.
WSJ Weekend Interview
Mike - Sep 06, 2016
Jack was featured in the Wall Street Journal Weekend Interview on September 4, 2016.
The 40th Anniversary of the Index Mutual Fund
Mike - Aug 31, 2016
To: Vanguard Veterans and Principals
From: John C. Bogle
Date: August 31, 2016
Re: 40th Anniversary of the Index Mutual Fund
Today, as you may well know, is the 40th anniversary of the first index mutual fund—now Vanguard 500 Index Fund. There has been reasonably good press coverage of the event (none of which was solicited by me). I attach four of the major stories about the anniversary that have been published today.
1. “Birth of the Index Mutual Fund: ‘Bogle’s Folly’ Turns 40,” The Wall Street Journal.
2. “Guess Who Just Turned 40 and Is Worth $3.6 Trillion?” Bloomberg.
3. “The First S&P 500 Index Fund Turns 40 Years Old Today,” Benzinga.
4. “A Salute to John Bogle, A Real F—— People’s Hero,” The Concourse.*
I’m enjoying this moment, and I hope you are too.
*Since Vanguard is a family company, I’ve bowdlerized this article.