Memo to Veterans and Principals

To: Veterans and Principals

From: John C. Bogle

Date: 8/20/2014

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.

1. 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.
2. 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.”
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.

Best, always,

   Jack