Jack delivered a keynote speech before the Public-Private Partnership Symposium at Georgetown University School of Law on October 31, 2014. Titled “Values, Ethics, and Structure in Finance,” the speech discusses the importance of getting the right structure of business model and incentives in order to have a financial system that serves the needs of clients first.
To: Veterans and Principals
From: John C. Bogle
Date: September 9, 2014
Re: Will it ever stop?
The more that I expect it to slow down, the more the attention given to Vanguard in the media seems to speed up. Enclosed are some more recent articles highlighting our success and commitment to clients.
- Investors Pour Into Vanguard, Eschewing Stock Pickers, by Kirsten Grind, The Wall Street Journal, August 20, 2014. This article points out an upcoming milestone for Vanguard: $3 trillion in global assets under management. Also highlighted is Warren Buffett’s recommendation of Vanguard 500 Index Fund for his wife’s investment portfolio, and the $5 billion of cash flow it helped to generate for the fund. It also includes my quip in an email to Warren that I am now described as, “the second best salesman at Vanguard.”
- Vanguard’s Rise To No. 2 ETF Firm Matters, by Olivier Ludwig, ETF.com, August 19, 2014. In this generous article, Olly Ludwig anticipates that Vanguard will soon take over the second ranking in U.S. ETF market share. He comments that, “the reason we should all celebrate the rise of Vanguard and Vanguard ETFs is because it shows that investors are truly getting a fair shake.” He concludes, “we really should be thankful that 40 years ago John Bogle thought the time was right to truly put investors’ interests first.”
- Review of The Man in the Arena, by Murad J. Antia, CFA, Financial Analysts Journal, July/August 2014. This highly complimentary review of The Man in the Arena, the recent book about my legacy in the mutual fund industry, edited by Knut A. Rostad, concludes: John C. Bogle … has been at the forefront of the revolution that has democratized the investment landscape by first creating a mutual organization, a company owned by its investor clients. He has tirelessly imparted the message that investors would be far wealthier if they invested in low-cost index funds. Yes, that’s the Vanguard message.
- Fund Scandal Ripples, Even a Decade Later, by Tom Lauricella, The Wall Street Journal, September 8, 2014. This article recalls the mutual fund market-timing scandals of a decade ago. I am quoted in the article as saying that the fund industry’s focus on investors “has improved, but we still have a long way to go.”
- Think of Social Security As an Investment, Says Vanguard Founder, by Dan McSwain, U-T San Diego, September 6, 2014. In this extensive interview, the journalist describes my views about indexing and the importance of low costs for long-term investors. Also discussed is my view that Social Security must be taken into account by investors when constructing their asset allocations.
- 3 Smart Moves for Retirement Investors from the Bogleheads, by Penelope Wang, Money, August 18, 2014. This feature article points out that the second edition of The Bogleheads’ Guide to Investing is being released, and shares some tips for developing an effective investment strategy. Says one of the unofficial leaders of the Bogleheads, Mel Lindauer, “one of the main advantages of being a Boglehead—we remind people to stay the course.”
When you have a spare moment (?), please enjoy these stories, and feel free to send copies of this note and the attachments to your colleagues and friends. As usual, by week’s end, they’ll also be published on my eBlog, www.johncbogle.com.
Welcome back from what I hope has been a refreshing summer vacation for you and your families.
To: Veterans and Principals
From: John C. Bogle
Re: Even More Great “PR”
I’m sending along some “summer reading,” ranging from articles I’ve penned for academic journals to wonderful acknowledgements in the popular press of Vanguard’s values and success.
- No Speed Limits: High-Frequency Trading and Flash Boys,Journal of Portfolio Management, Summer 2014. The editors of the JPM asked me to provide an editorial comment on all of the attention given to high-frequency trading (HFT) in the press since the publication of Michael Lewis’s book Flash Boys. In this editorial, I try to bring some clarity and perspective to the debate.
- Who Are Your Investment Role Models? The Wall Street Journal, August 12, 2014. A complimentary entry in “The Experts” series. Four of these six commentators salute Vanguard, and graciously mention me as being among their role models and investment heroes—even an “investment superhero.”
- Rules of the Fund Road: Watch the Fees, and Don’t Look Back,by Jeff Sommer, The New York Times, June 1, 2014. One more example of a journalist who “gets it,” this article discusses a Morningstar study which, once again, suggests that low-cost investing works. It closes with a nice JCB quote.
- The High Price of Investing in a Hedge Fund, by Gus Sauter, The Wall Street Journal, August 5, 2014. In another installment of “The Experts,” Vanguard’s Gus Sauter talks about how high costs damage the returns of hedge funds. Gus kindly works in a quote that will surely be familiar to those who regularly read my writings.
- Heads or Tails? Either Way, You Might Beat a Stock Picker,by Jeff Sommer, The New York Times, July 27, 2007. This story cites data showing that only 2 out of 2,862 diversified U.S. stock funds were able to outperform their peers consistently over five years.
- Bogle’s Legacy: Returns that Trounce Active Investing,by Mitch Tuchman, MarketWatch, August 7, 2014. An entry in the “Retirementors” series, this article emphasizes the importance of broad diversification and low costs, while challenging readers to identify portfolios that can beat Vanguard’s LifeStrategy Funds on a risk-adjusted basis.
- Vanguard Funds Prosper by Low-Cost Evangelism,by Pauline Skypala, Financial Times, July 14, 2014. This powerful article from the UK’s leading business and investing daily generously appraises our truly mutual structure and our dedication to low costs, while pointing out that non-US investors often pay excessive fees.
- Swedroe: Bogle May Be Right about ETFs,by Larry Swedroe, ETF.com, July 16, 2014. Author and financial advisor Larry Swedroe discusses a study by five German economists that found an astonishing gap between the returns enjoyed by investors in ETFs versus the non-ETF portions of their portfolios. According to the study, their ETF returns were some 5% per year lower (!) than their non-ETF returns, an astonishing underperformance.
- Practice Makes Imperfect,Buttonwood, The Economist, August 9, 2014. This article discusses a study that shows, perhaps unsurprisingly, that very few active managers outperform persistently over the long term. The paper concludes that, “even long-term managers show no ability to beat the market on a risk-adjusted basis.” What’s remarkable about this article is that it discusses topics that I’ve covered for decades, going back at least to my 1993 book, Bogle on Mutual Funds. As you know, those original ideas have gained remarkable acceptance in the recent era.
- The Arithmetic of ‘All-In’ Investment Expenses: A Comment and Author Response,Financial Analysts Journal, May/June 2014. An advisor from Morgan Stanley wrote a letter to the editor of the FAJ regarding my January/February 2014 article about the huge negative impact of the costs of active investing vs. index investing over the long term. The advisor argues that many individual investors have limitations on their time, access to information, and cognitive abilities that justify the costs of working with a financial advisor to select active funds. In my response, I present data showing that investors in passive index fund generally fare much better than those who invest in actively managed funds. I also point out evidence that suggests that investors working with brokers may actually underperform investors who manage their portfolios themselves.
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I know that you share my gratification to see that the values that have been fundamental to Vanguard for so many years are increasingly accepted in the press as today’s conventional wisdom. The benefits to investors of investing the Vanguard way are enormous.
Enjoy these articles, and enjoy the precious few remaining weeks of summer.
July 9, 2014
To: My Fellow Vanguard Veterans and Principals
My 63rd Anniversary
Monday, July 9, 1951, was the first day of my long career in the mutual fund industry. I vividly remember walking into the Wellington Fund offices on 1420 Walnut Street in Philadelphia. I was a bit nervous (of course!) and wondered what the future had in store for this recent graduate of Princeton University’s Class of 1951.
I was wise to wonder! Little could I have imagined that I would remain with Wellington/ Vanguard for 63 years. Little could I have imagined what surprises and challenges, what successes and failures, what growth and what changes in Wellington lay before me during that long span. Much of what was to follow was due to the ethical values and financial wisdom of my great mentor and friend, Walter L. Morgan, who did his best to impart them to his heir-apparent.
Walter L. Morgan, Wellington Fund, and Vanguard
Walter Morgan was the founder and chief of Wellington Fund and Wellington Management Company, and (as I once wrote to him) he gave me his confidence when I had little confidence in myself. Then, Wellington employed maybe 75 people, and supervised $150 million of assets for the shareholders of its single mutual fund. (Tiny by today’s standards, but then one of this industry’s ten largest firms.)
You all probably know about how my career at Wellington ended (I was fired from my position as chief executive in January 1974), fortuitously opening the door to my creation of Vanguard only seven months later. It was, as they say, the opportunity of a lifetime—a chance to build something new and better for our mutual fund shareholders. The three pillars of our fledging firm were our unique mutual structure, the world’s first index mutual fund, and the unprecedented conversion to a distribution system without a sales force. These disruptive innovations reinforced my conviction that, after Ralph Waldo Emerson, “if you build a better mousetrap, the world will beat a path to your door.”
The World has Beaten a Path to Our Door
Well, as you know, that’s precisely what the world has done. (I’ll spare you the numbers on our assets, our growth, our market share, and the triumph of indexing. You all know them.) One day, I expect, I’ll revel in our rise to industry preeminence, and bask in the glow of our peerless name and reputation. But not now. I have much work yet to do, much more to accomplish.
I haven’t run this firm for many years. When I relinquished my responsibilities as chief executive, I well knew that I no longer had the power of the purse and the power over the persons—our crewmembers—who are largely responsible for, if not exactly what we do as a firm, how we go about doing it. And I salute once again our crewmembers, and especially our veterans, for continuing to maintain our human and ethical values that have been essential to our progress.
The Powers of Leadership
While I was well aware of what power I was relinquishing, I was equally aware of the two vital powers that remained: one is intellectual power, the other is moral power. Still strong, if perhaps diminished (your call on both!), I continue to use those powers to speak out for giving all mutual fund shareholders a better chance to accumulate wealth; for reform in an industry that has come to emphasize marketing over management; for the requirement that every firm that touches other people’s money be subject to high standards of fiduciary duty and trusteeship; and for institutional money managers to assume not only the rights of our collective ownership and putative control, but also the responsibility to play a role in the governance of our nation’s public corporations.
You may have noticed how few other financial leaders have spoken out on these issues. And you may also have noticed that the media and the public are now calling attention to them. That may help to explain why, without a scintilla of promotion on my part, so much recent attention in the press and on television and radio has been focused on my ideas and our firm’s values. My essay, “The Incredibly Shrinking Financial System,” in yesterday’s Wall Street Journal—its 125th anniversary edition—is just one recent example, if a singularly fine one.
The Bully Pulpit
I’m on vacation as I prepare this 63rd anniversary note, reading a marvelous book: Doris Kearns Goodwin’s The Bully Pulpit—Theodore Roosevelt, William Howard Taft, and the Golden Age of Journalism. I’ve been a great admirer of TR for as long as I can remember and have cited him often in my books and speech. I was once again struck by his role in American life during, and even after, his presidency. Here are a few excerpts that I underlined from The Bully Pulpit:
Roosevelt wondered about finding “whom he could trust to carry out his legacy of active moral leadership and progressive reform . . . [who would] make use of . . . the bully pulpit that had provided the key to [TR’s] success.” He understood that, “the vitality of democracy depends on popular knowledge of complex questions . . . [requiring of us] a better understanding of what it takes to summon the public to demand the actions necessary to bring our country [and, I would add, our financial system] closer to its ancient ideals.” That’s what TR’s bully pulpit, and my own bully pulpit, is all about.
A Personal Note of Thanks
As the days fly on, and as I age, I recognize that the time will come when I will no longer be able to engage in the mission that I have set for myself—to speak out for truth and integrity and character in the world of finance, striving to build a better world for investors—honest-to-God, down-to-earth human beings who deserve a fair shake. One’s strength to carry on does not—cannot—go on forever. The spirit is more willing than ever, but the flesh inevitably weakens.
For me, the human beings who have been part of my long career have been by far its most important aspect. Yes, as I have said, “I like human beings better than algorithms,” and judgment better than process. (Not that, at our size, we don’t require many algorithms and much process. Neither has ever been my strong point!) In its early years, Vanguard was young, beleaguered, and scorned. But by the mid-1980s, we developed the momentum that has continued ever since, built on those same three pillars of our founding.
Especially in those early years, when our success was not assured, I knew that among my highest priorities were the need to always be optimistic, to set the standard for commitment, to communicate openly, and, broadly put, to give our wonderful crew the strength to carry on. Turnabout is fair play, and today it is all of you on the crew who give me the strength to carry on. These have not been the easiest days for me, but I carry on because of your confidence, your respect, your admiration, and (as some of you have said) your love. How could such a life possibly be more rewarding?
A song that tells this very story provides a fine conclusion for this message:
Sometimes in our lives we all have pain, we all have sorrow
But if we are wise we know that there’s always tomorrow.
Lean on me when you’re not strong
And I’ll be your friend, I’ll help you carry on
For it won’t be long
Til I’m gonna need somebody to lean on.
Thanks for that strength. Thanks for being part of this fine firm. Thanks for everything.
Jack was featured in The Wall Street Journal’s “The Future of Everything” special report celebrating the Journal’s 125th anniversary.
To: Veterans and Principals
From: John C. Bogle
Date: June 26, 2014
Recognition for Vanguard and Indexing
The almost overwhelming success of Vanguard and index funds continues to draw attention, not only from investors (over $77 billion of net cash flow so far this year, 95% of which went into our low-cost index funds), but also from the media. Attached are four recent articles noting our success.
- “Bogle Is In The Vanguard Of Mutual Fund Investing,” Investor’s Business Daily, June 12, 2014. This nice profile highlights the triumph of indexing, and Vanguard’s rise to prominence over the last four decades.
- “Facing price wars and robots, wealth managers push advice,” Reuters, June 20, 2014. I recently participated in the Global Wealth Management Summit hosted by Reuters. This article stems from that summit, and focuses on the growing market for web-based financial advisory services, such as Vanguard’s Personal Advisor Services. Of course, the opening line tickled me: “Jack Bogle, the founder of Vanguard Group and the pioneer of low-cost index investing, has won.”
- “Vanguard’s Bogle expects shrinking Wall Street,” Reuters, June 17, 2014. This article about my thoughts on the future of the financial industry also came out of the Reuters event.
- “Philosophy Differs From Strategy,” RickFerri.com, June 16, 2014. Independent financial advisor Rick Ferri writes about how his investment philosophy is based on the realization that trying to beat the markets is “costly and counterproductive,” so his investment strategy relies on low-cost index funds.
With all of Vanguard’s success over our four decades of existence (we’ll celebrate our 40th anniversary on September 24, 2014), it remains critically important that keep our focus on what’s best for our clients. I’ve used this quotation from Shakespeare many times before, “Uneasy lies the head that wears a crown.”
Indeed, Vanguard’s rise to the pinnacle of the mutual fund industry places a fragile crown on our heads. We must continue to focus on our founding values of stewardship and trusteeship of the assets entrusted to us by our clients.
Enjoy your summer.
Jack has done numerous interviews on NPR, and has found public radio to be an ideal platform for conveying Vanguard’s values to both our clients and the general investing public. His most recent interview, by David Freudberg, host of the Humankind series, was titled “The Philosopher of Finance” and consists of two half-hour segments. In the interview, Jack and David discuss topics regarding human values, as well as issues that are of vital importance for long-term investment success.
The interview will be released as a free podcast today. Instructions on how to access the podcast are below. I hope you’ll enjoy this discussion of our values and the keys to ensuring a secure retirement.
There are two ways you can hear this program:
1. The public radio producer will be making “The Philosopher of Finance” available for free download at their podcast
Humankind on Public Radio starting at noon on Thursday, June 12, 2014. (Those who subscribe to the podcast will then be able to hear a new episode of Humankind each week at no charge.) The podcast can be accessed here: http://tinyurl.com/HumankindPodcast
2. Those who wish to purchase a CD copy may place an order here: