To: Veterans and Principals
From: John C. Bogle
Date: March 4, 2014
Re: Banner Days for Vanguard!
Part I
Ever since Vanguard began, almost 40 years ago, we’ve had many great “PR” conquests. But I can recall no short period during our long history in which our founding principles and values received such positive attention as in the past several weeks . . . so much so that I’m sending you three different mailings during the course of this week. Part I begins the series with reactions to my landmark article in the January/February 2014 issue of the Financial Analysts Journal.
I sent a copy of the paper, “The Arithmetic of ‘All-In’ Investment Expenses,” to each of you on January 2, 2014, and it remains available on my eblog, www.johncbogle.com.
You may recall that the paper demonstrated that investors in tax-deferred retirement plans can increase their wealth accumulation by 65%(!), simply by using a low-cost stock index fund rather than a typical actively-managed stock fund.
In an earlier paper, Nobel Laureate William F. Sharpe had estimated that enhancement at “more than 20%.” However, he applauded my “wonderful combination” of expense ratios and several other costs of investing that are too often ignored. And (as I mentioned earlier), he loved my final sentence “Do not allow the tyranny of compounding costs to overwhelm the magic of compounding returns.”[1]
But perhaps the greatest bonus of the paper for us was the fine essay in the Buttonwood column of the Economist of London, entitled “Against the Odds,” illustrated (appropriately, I think) with a slot machine taking in dollars and shooting out a penny. In his column, “Buttonwood” notes potential criticisms of my work, but concludes that “the arguments do not make much of a dent in Mr. Bogle’s case.”
Two points: One, articles in professional and academic journals—given their relative rarity and detailed process of review and approval—are perhaps the most effective vehicle for spreading investment ideas. Two, the Economist is noted for the highest standards of journalism, and a level of intellectual depth and integrity only rarely matched by other publications.
Of course I’m pleased that the FAJ article represents my eleventh work in this professional publication and its competitor, Journal of Portfolio Management; and that the Economist has now done perhaps another eight major stories on my work over the years.
The attention on my FAJ essay has also brought further attention to Vanguard’s guiding principle that “Costs Matter.” In last Saturday’s New York Times (March 1, 2014), for example, journalist Paul Sullivan (who said nice things about my philosophy in another recent article) gave my FAJ essay a nice boost, noting that “. . . low-cost [index] funds in tax-deferred retirement account could add as much as 65% to a person’s savings over a high-cost actively managed fund.”
Even earlier, on January 28, 2014, author, veteran journalist, and financial adviser Daniel Solin added his voice in U.S. News and World Report. In an article entitled “What Wall Street Doesn’t Want Investors To Know,” Mr. Solin carefully outlined the points in my FAJ paper, and then added a wonderful summary of the important “takeaways” that I’ve done my best to instill here as part of our corporate character. I’m confident that you’ll find his essay well worth reading . . . and re-reading.
And there’s much more to come.
Best to all. Part II will follow tomorrow.
Jack
[1] Morningstar’s resident expert John Rekenthaler described my paper as, “the best treatment yet of the subject.”