Jack Bogle’s letter to the editor of The Wall Street Journal regarding a recent opinion piece about hedge funds was published in the June 6, 2013 edition.

Hedge Funds Are Hardly a Panacea (subscription required)

I fear that The Wall Street Journal’s opinion piece by hedge-fund specialist Bob Rice (“The Hedge-Fund Investment Puzzle,” June 1) conceals more than it reveals.

Yes, as he writes, “it is plain common sense” to seek “downside protection, strategies that tend to zig when markets zag, and broader opportunities for profit.” But while the idea of market timing is indeed simple, many hedge fund managers have tried, but precious few have succeeded.

Citing Benjamin Graham as the first “hedged fund” operator is an especially unfortunate example. “The trick,” Mr. Rice writes, was Graham’s “clever way to make money . . . whether it [the market] continued to rise, or started to fall.”

How did the hedged strategy work out in the bull market of the Roaring Twenties and thereafter? Thanks to Joe Carlen’s recent book, “The Einstein of Money,” we know the answer. Mr. Carlen carefully documents the returns earned in the “Benjamin Graham Joint Account” (the predecessor to Graham-Newman Corporation).

From 1929 through 1932 inclusive, the Graham account turned in a loss of 70%, compared to a loss of 64% for the S&P 500 Index. (Dividends are included in both cases.) “The strategy unraveled quickly,” Mr. Carlen writes. “There was no longer any reliable advantage to be gained from that kind of hedging.”

Despite Mr. Rice’s high confidence in hedge funds (based on unspecified data), forewarned is forearmed!

John C. Bogle

Valley Forge, Pa.

Mr. Bogle is the founder of the Vanguard Group.

September 6, 2011

To Veterans and Principals:

            It seemed only appropriate to celebrate (as it were) the 35^th anniversary of the index fund, the first major innovation of the then-tiny and young Vanguard Group. So last week, I wrote an essay on the creation of the fund and its initial public offering, which took place on August 31, 1976.

            I sent the essay to the op-ed editors of The Wall Street Journal, hoping they could help me get it placed in the “Review” section, which runs on Saturdays. But they wanted to publish a significantly shortened version on “their” page, so I (reluctantly) did the merciless editing required.

            I’m attaching the the piece as it appeared in the Journal on September 3, but also the full essay as originally penned. I like my title better (of course!); and I loved the flourish of my final sentence, sadly absent from the published version.

            Can you even imagine Vanguard without index funds?

                                                                        Jack

An op-ed written by Mr. Bogle was published in the September 3, 2011 edition of the Wall Street Journal. The article can be found here.

Mr. Bogle contributed an op-ed in the May 15, 2011 edition of the New York Times.  The op-ed can be found here.

August 27, 2010

To Principals and Veterans:

In case you missed my op-ed in this morning’s Wall Street Journal, I’m attaching a copy. I’m pretty sure you’ll enjoy it. Also attached is a lovely article from the coming edition of Forbes.

Best,

Jack

Mr. Bogle recently contributed an op-ed  to the Wall Street Journal.

He spent an hour on Tom Ashbrook’s show, On Point.

Wall Street Journal Op-Ed

Op-Ed Response from Readers, and Mr. Bogle’s Reply

Today’s Wall Street Journal included an op-ed written by Mr. Bogle. It’s available at the link below.

Six Lessons for Investors

The March 3 issue of the Wall Street Journal included a letter to the editor from Mr. Bogle, in which he clarified some of the contentions made in a letter written in response to his February 9 opinion piece.

Text of letter in response to Mr. Bogle’s 2/9/07 article:

Contrary to Mr. Bogle’s belief, the first index fund was created by Barclays Global Investors (BGI) for institutional investors in 1971. As the world’s largest index manager and the global leader in ETFs, we have enabled investors to access our institutional indexing strength in their portfolios. We’ve responded to what investors and their financial advisers want today — better tax efficiency, flexibility in trading, increased transparency, and access to hard to reach markets that help them diversify their portfolios.

ETFs have attracted significant assets because they appeal to many different types of investors. The vast majority of ETF owners are buy-and-hold investors. On the other hand, about 90% of the ETF trading volume is done by institutional investors such as mutual funds and hedge funds for short-term exposure or to hedge risks. Importantly, this trading happens outside the fund at the stock exchanges; thus long-term ETF investors don’t subsidize the costs of active traders in ETFs.

Lee Kranefuss
CEO of iShares at Barclays Global Investors
San Francisco

Text of Mr. Bogle’s response to Mr. Kranefuss:

Among the responses to my Feb. 9 editorial-page commentary “‘Value’ Strategies” on exchange traded funds (Letters to the Editor, Feb. 24), one from Lee Kranefuss of Barclays Global Investors (BGI) contained errors:.

1. While he denies that I created the first index fund, I have claimed only that I created the first index mutual fund (now Vanguard 500 Index Fund), incorporated on Dec. 28, 1975.

2. BGI did not create the first index fund. The first pension account to use an index strategy was created by Wells Fargo Bank in 1971, acquired in 1996 by Barclays.

3. That index strategy was a failure. It relied on a price-weighted — not market-cap-weighted — index, and was thus overwhelmed by frequent trading and its attendant transaction costs.

4. In 1976, the year after the creation of Vanguard 500, the pension account finally switched to the cap-weighted S&P 500 as its tracking standard, and the strategy at last began to work.

Attempts to rewrite history — even in its seemingly arcane aspects — should not be attempted.

John C. Bogle
Founder
Vanguard Group

Mr. Bogle and Prof. Malkiel co-authored an op-ed that runs in today’s Wall Street Journal in defense of market capitalization-weighted indexing. They wrote, in part:

While we have witnessed many “new paradigms” over the years, none have persisted. The “concept” stocks of the Go-Go years in the 1960s came, and went. So did the “Nifty Fifty” era that soon followed. The “January Effect” of small-cap superiority came, and went. Option-income funds and “Government Plus” funds came, and went. High-tech stocks and “new economy” funds came as well, and the survivors remain far below their peaks. Intelligent investors should approach with extreme caution any claim that a “new paradigm” is here to stay. That’s not the way financial markets work.

The full piece is available here.