Memo to Veterans and Principals
Mike - Jul 24, 2015

To: Veterans and Principals
From: John C. Bogle
Date: June 8, 2015
Re: CFA Speech

I’m pleased to attach the text of the keynote speech that I delivered at last Thursday’s forum held by the CFA Society of Philadelphia.

It’s entitled “Putting Investors First,” clearly reflecting my long-time mission of developing a federal standard of fiduciary duty. I also talk about the incredible changes in finance in the past, and those we’ll face in the future.

Yes, parts of the speech may be contentious to some, but I think you’ll enjoy some of my career history (pages 4, 5, and 6).

Thanks to each of you, and best wishes, always.

Jack

P.S.      Earlier in the week I gave the keynote to the Annual Meeting of the Government Financial Officer’s Association (GFOA), some 3,000 state and local officials from (I suppose) every state in the Union, convening at our vast Philadelphia Convention Center. My remarks were short, followed by a 45-minute Q&A session that seemed to be a big hit with the audience. (Maybe I should do that more often!)


Memo to Veterans and Principals
Mike - Jul 24, 2015

Memo to Veterans and Principals
From John C. Bogle
May 27, 2015
Recent “Vanguard in the Press” Articles
 

  • Fees on Mutual Funds Fall. Thank Yourself. The New York Times, May 9, 2015. Once again, journalist Jeff Sommer cites my 2014 Financial Analysts Journal paper on “all-in” fund expenses. One more nail in the coffin of high-cost funds.
  • 6 Ways Vanguard has Changed the Way People Invest. Also on May 9, Chuck Jaffe, writing on MarketWatch, extols our “simply being a good steward of people’s money.” (Chuck’s piece is a model of accuracy . . . except for the first sentence of the first paragraph on page 4.) I prefer to say that at Vanguard, we sell what we make, while too many of our competitors make what will sell.
  • The Five Members of the Advisor’s Pantheon. In its annual selection of the IA 35 (most influential investors), Investment Advisor magazine highlights these five leaders. (Always nice to be linked to the legendary Benjamin Graham!)
  • Hillary Clinton Has a Smart and Surprisingly Simple Investment Strategy. And, as VOX reporter Timothy Lee reports on May 18, 2015, her $25 million holding in Vanguard 500 Index Fund is by far her largest equity holding. (Not quite sure why my photo appeared . . . in tuxedo, yet!)
  • John Bogle Stands Pat on Wall Street Bet. On MarketWatch (May 21, 2015), correspondent Mitch Tuchman notes my theme in an earlier CNBC interview: “Buy the entire stock market . . . then get out of the casino, and never show yourself there again.” The story is illustrated with a picture of me  . . . in a casino! (Photoshop must be at work here.)
  • Lightning Strikes: The Creation of Vanguard . . . A lengthy late-April review of my essay in the 40th Anniversary Issue of the Journal of Portfolio Management, along with my (candid) interview with the “Practical Applications” booklet published by Institutional Investor Journals.

 
Thanks for all you have done to make Vanguard who we are today.

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

To: Vanguard Veterans and Principals
From: John C. Bogle
Date: May 12, 2015
Re: Recent Vanguard News Items
 

The media attention on our structure and strategies goes on unabated—or maybe has even increased in intensity. I attach some of the major items for the period ended May 8, 2015.
 

  • “Financial Pros Choose Indexing for Retirement Savings.” In April, Bloomberg Business cited studies showing that fully 70%(!) of financial professionals who recommend mutual funds—“people who are paid to make money for investors”—side with our index philosophy. (42% of all investment pros choose index funds, versus only 18% who recommend actively managed funds.) Of the remainder, 17% recommend individual stocks and bonds; 14% recommend real estate.
  • “Bogle vs. Grant in the Great Fund Debate.” Jason Zweig, The Wall Street Journal, May 3, 2015. (Despite the photo, I was not yelling! Photoshop?) Jason may have seen the result as a “split decision;” to me, the winner was obvious. In his newsletter, Grant’s Interest Rate Observer, Jim Grant conceded that the 500 Index Fund’s superiority over active managers “may be generally true … for the average lay public investor … [and] for the run-of-the-mill … professional investor.” But for “not a few people in this room, it certainly isn’t true.” (He names no names.) In the Philadelphia Inquirer, Joseph N. DiStefano presents a detailed summary of the debate. It’s a largely accurate and amusing, if hardly conclusive, story.
  • “The Warren Buffett Bookshelf.” The Wall Street Journal cites 11 of Mr. Buffett’s favorite books, by Benjamin Graham, Phillip A. Fisher, John Brooks, John Maynard Keynes, and yes, John C. Bogle, whose The Little Book of Common Sense Investing was the only book recommended in Mr. Buffett’s recently released annual report of Berkshire Hathaway.
  • Two interviews by Olivier Ludwig of ETF.com—“Broker Behavior Costs Investors” and “Investors Are Now Driving Ethics”—focus on the issue of fiduciary duty, and conclude with the now-familiar phrase, “If you simply own the (broad stock) market in a cheap index fund, it is guaranteed to give you your fair share of the market returns.”
  • “Why Hair-Trigger Stock Traders Lose the Race.” The Wall Street Journal, April 10, 2015, Jason Zweig. Jason illustrates the rapid trading in ETFs, (turnover 1244% last year), and warns that, “in the long run, he who trades the least will end up with the most.” (He fails to note the huge increase in ETF trading volume: for the hundred largest ETFs last year, $16 trillion, almost as large as the $18 trillion volume for the 100 largest common stocks.)
  • May 1, 2015, Jason Zweig wrote a story about the end of fixed commission on stock trades, on May 1, 1975 (“May Day”). “Remembering How May Day Remade Wall Street.” It includes a comment from me about the self-interest. (I was a vigorous and unpopular proponent of the change). Jason also notes our own May Day, one of the anniversaries we celebrate. Together, these articles should add to your understanding of present tradition and past history.
  • “. . . Just buy an index fund.” The caption of a cartoon published by Grant’s Interest Rate Observer on May 1, 2015, humorously (I guess!) citing the conclusion of Warren Buffett and Charlie Munger at the recent Berkshire Hathaway Annual Meeting . . . and a fine way to conclude this note.

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

To: Vanguard Veterans and Principals
From: John C. Bogle
Date: May 5, 2015
Re: Lecture at the Securities and Exchange Commission
 

At the invitation of the SEC’s Division of Enforcement (Asset Management Unit), I addressed a staff of some 300 government officials last Tuesday, April 28.
 

I decided against giving a formal presentation, and opted for an extensive “slide show”—54(!) slides in all. The presentation will likely need little explanation for those of you who are involved in our investment management and marketing groups. But for many of you, a quick riffle through the slide show will likely be enough. (Enough!)
 

This presentation has the makings, I think, of a good lecture (or a series of two lectures), or possibly yet another paper for the Financial Analysts Journal or the Journal of Portfolio Management. Who knows? I might even take a shot at it . . . when I get some free time.
 

The title of the talk is “Conflicts, Conflicts, Everywhere,” borrowed from a speech with the same title by Juliet Riewe (pronounced “REE-vee”), co-chief of the Asset Management Unit. Always good to be on the side of the regulators.

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

 

TO: Veterans and Principals
FROM: John C. Bogle
DATE: April 1, 2015
RE: Bloomberg Markets Article
 

This story from the April 2015 issue of Bloomberg Markets magazine features some speculation about who might be able to fill the empty chair you see on the first page of the attachment when I’m gone. The article’s title asks the question, “Is There a Next Jack Bogle?” Based on the authors’ extensive interview with me, they conclude, “Not if You Ask Jack Bogle.” (In fact, all I said was, “I think it’s crystal clear that nobody, nobody, plunges into this battle to build a better industry with any more enthusiasm than I do.”)
 

My potential successors apparently include our CEO Bill McNabb; BlackRock’s head of iShares Mark Weidman; “Smart Beta” pioneer Rob Arnott of Research Affiliates; my son John C. Bogle, Jr. of Bogle Investment Management, hedge fund manager Cliff Asness of AQR; University of Pennsylvania professor Jeremy Siegel of “smart beta” firm WisdomTree Investments; and Andrew Lo of MIT, developer of the “Adaptive Markets Hypothesis.”
 

The article seems to focus on whether or not these potential successors—often with new indexing methodologies—can continue to drive indexing forward. But, along with Bill Sharpe and other respected academics,[1] I believe that traditional market-cap-weighted broad-market indexes (S&P 500 and the Total U.S. Stock Market) will endure long after most—if not all—of these other strategies have been abandoned.
 

I wish that the authors of the article had focused more on who might continue my passionate investor advocacy—including my efforts to establish a standard of fiduciary duty for all money managers. But we rarely get what we wish for…
 
 
 
Best,

Jack

[1] To say nothing of Warren Buffett, who put his reputation and his so-far-winning wager on outpacing a particular hedge fund (and his wife’s estate!) on the line with his confidence in our Vanguard 500 Index Fund. His recent endorsement of my Little Book of Common Sense Investing, by the way, has served to increase sales in recent weeks from about 240 per week (pretty good for a book published more than eight years ago) to 750 per week, an increase of more than 200%.


Memo to Veterans and Principals
Mike - Jul 24, 2015

TO: Veterans and Principals

FROM: John C. Bogle

DATE: March 16, 2015

RE: Financial Times Op-Ed
 

I penned a commentary for today’s Financial Times “Fund Management” section about the role of exchange-traded funds in the growth of indexing. I describe my concerns with the rapid trading so common with ETFs. The first and largest ETF—the $190 billion SPDR S&P 500 ETF—is the most widely traded equity in the world, averaging over $20 billion in turnover every day. As I wrote in the article, “broad-market exchange traded funds are fine, as long as investors don’t trade them.”
 

The front page of the FTfm section picked up that commentary in an article by journalist Chris Newlands. The headline of the article is rather over-the-top—“John Bogle renews attack on exchange traded funds”—but the facts presented by Mr. Newlands are accurate.
 

I like to think that Vanguard is a firm in which constructive debate is tolerated, perhaps even encouraged. My piece in today’s FTfm is a prime example of a case where, as Bill McNabb recently said, “reasonable people can disagree.”
 
 
 

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

 

TO: Veterans and Principals

FROM: John C. Bogle

DATE: March 11, 2015

RE: “The Beat Goes On”

I’m not sure that I understand why the media has given so much recent attention to the principles that I’ve tried to develop as Vanguard’s hallmark. But the beat goes on.

  • Jack Bogle’s Success Principles to Live By: CNBC article by Elizabeth MacBride, February 17, 2015. Her story focuses pretty heavily on my eight rules of leadership (I wasn’t counting!). But it also notes the human side of my career, and her story is rather sentimental. So be it.

 

 

  • John Bogle Enters White House Fray Over Broker Conflicts: Market Watch, by Mitch Tuchman, February 26, 2015. My work with the Council of Economic Advisors, The National Economic Council, and the Department of Labor was really thrilling . . . especially since we all agreed on the need to move forward with fiduciary duty for retirement plans.

 

  • Saving for Retirement: Obama Proposal Sets Up Wall Street Fight: Associated Press, February 23, 2015. The conclusion of the efforts noted above was expressed by the President on a televised speech. The Department of Labor is expected to propose an expanded standard of fiduciary duty applicable to retirement plan advisors, probably several months from now. Wall Street will fight fiercely to prevent the expansion of the fiduciary standard, though I wonder if any of the detractors wants to say, “Let’s put the clients second.”

 

With all the headlines and fine stories, it’s little wonder that Vanguard’s lead over our competitors continues to burgeon.

 

Best,

Jack


Memo to Veterans and Principals
Mike - Jul 24, 2015

 

To:      Veterans & Principals

Date: March 3, 2015

Re:      Berkshire Hathaway 2014 Annual Letter to Shareholders

 

I thought you might enjoy this excerpt from Warren Buffett’s annual letter, published this past weekend.

 

*****

 

The commission of the investment sins … is not limited to “the little guy.” Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. A major reason has been fees: Many institutions pay substantial sums to consultants who, in turn, recommend high-fee managers. And that is a fool’s game.

 

There are a few investment managers, of course, who are very good – though in the short run, it’s difficult to determine whether a great record is due to luck or talent. Most advisors, however, are far better at generating high fees than they are at generating high returns. In truth, their core competence is salesmanship. Rather than listen to their siren songs, investors – large and small – should instead read Jack Bogle’s The Little Book of Common Sense Investing.

 

Decades ago, Ben Graham pinpointed the blame for investment failure, using a quote from Shakespeare: “The fault, dear Brutus, is not in our stars, but in ourselves.”


Memo to Veterans and Principals
Mike - Jul 24, 2015

 

To:    Veterans and Principals

Date: February 10, 2015

RE:   Recognition for Vanguard

 

I’m enclosing several articles about Vanguard that may be of interest. It’s always nice that our focus on doing the right thing for our clients—those down-to-earth, honest-to-God human beings, each with their own hopes, dreams, and financial goals—continues to be received so favorably by the media.

  1. “Where is John C. Bogle’s Presidential Medal of Freedom?” Forbes, February 9, 2015. This lovely piece by author and financial adviser Phil DeMuth suggests that I should be awarded the nation’s highest civilian honor. I am deeply touched by this kind gesture.
  2. “ ‘Robo investing’ on the fruit and nut fringe,” Financial Times, February 2, 2015. Stephen Foley does a nice job of presenting my views on investing in ETFs. He ends the story with a quote from me, “exchange-traded funds are fine, just so long as you don’t trade them.”
  3. “The Best (and Worst) Investments They Ever Made,” The Wall Street Journal, December 27-28, 2014. A wide range of responses from several prominent figures in finance and beyond on investment lessons learned—sometimes the hard way. Included in this group are Nobel Laureates William Sharpe and Eugene Fama, director of CFA Institute Research Foundation Laurence Siegel, and Princeton University professor and former Vanguard director Burton Malkiel.
  4. “Bogle: How to boost investment returns in 2015,” CNBC.com, January 15, 2015. Journalist Elizabeth MacBride visited me in my office for this story about the importance of keeping the costs of investing down and making sure you compare your investments to the proper benchmark.
  5. “The stock market seems to be ignoring the big risks,” Finanz und Wirtschaft, February 3rd, 2015. I did this interview for a Switzerland-based financial magazine. Thankfully, they were kind enough to translate it into English for us!
  6. “Nobody ‘knows’ the market:John Bogle,” MarketWatch.com, February 5, 2015. This short web article criticizes the financial media’s tendency to oversimplify complex investing topics and stresses the importance of sticking with a long-term asset allocation.
  7. “Active Managers Losing Ground Can Thank John Bogle,” Institutional Investor, January 27, 2015. A brief interview that highlights my views on the growth of—and changes in—indexing, such as the rise of ETFs and so-called “Smart Beta” funds.
  8. “Jack Bogle’s Index Investing Is Good Enough for Warren Buffett,” Motley Fool, November 12, 2014. This article highlights Warren Buffett’s instruction in his will that 90% of the assets in his estate should be allocated to Vanguard 500 Index Fund.
  9. “Mutual Funds: Why Shareholders Still Love Them,” Investor’s Business Daily, November 28, 2014. Despite all of the headlines touting ETFs in the financial press recently, good-old-fashioned mutual funds still deserve a place in investors’ portfolios, according to journalist Paul Katzeff.
  10. “Legends of Indexing: John Bogle,” Journal of Indexes, November/ December 2014. The final issue of the Journal of Indexes. While I’m sorry to see this publication fall by the wayside, it went out with a bang. There is an extended interview with me, as well as 13 other “legends” who helped bring indexing to investors.

 

Best, always,

John C. Bogle


Memo to Veterans and Principals
Mike - Jul 24, 2015

 

To:    Veterans and Principals

Date: January 28, 2014

RE:   FORBES Article

 

I’m attaching a rather remarkable 5-page essay published by FORBES, written by its former editor, William Baldwin. While it is titled “Is Vanguard Too Successful?”, I’m not sure that headline captures what it is really about.

In fact, Bill’s story is about the creation of Vanguard, our astonishing rise to industry dominance, and the powerful role played by index funds in our growth. The author wonders if index fund have become too dominant, and are riding for a fall. I’ll be debating this issue with Jim Grant (GRANT’S Interest Rate Observer) at his Spring 2015 Conference in New York City on April 7.

I found the article especially well written, and I commend it to you. Enjoy!

John C. Bogle