John Bogle (1929-2019): St. Jack of the Financial Services Industry
John C Bogle, legendary investor and businessman, who brought the most impact to millions of American investors through low-cost index funds, passed away on Wednesday. Bogle was in frail health for years, had survived at least six heart attacks and also received a heart transplant in 1996.
Bogle was born on 8 May, 1929 in Montclair, New Jersey in the United States of America. In 1947, he was accepted at Princeton University where he studied economics and investment, and showed keen interest in the mutual fund industry. After graduating from Princeton, he was hired at Wellington Fund where he was later promoted to assistant manager due to his great talent. Climbing through the ranks, in 1970, he replaced Walter L Morgan as the chairman of Wellington. However, he was later fired for an unwise and poor investment decision he made.
Four years later, he founded the Vanguard Company and, in 1976, announced the first index mutual fund to the general public. He believed that mutual funds should be managed in a manner that serves the interests of the investing public. Until then, actively run equity funds ruled the mutual funds industry; charging high expense and underperforming the index they were paid to outperform. In the long term, investors earned low returns and ended up paying high expenses.
Index funds solved this by eliminating active management through mimicking the benchmark, than outperforming it. Under Under this new concept, investors gained by paying lower expenses and earning high returns than they previously did. Today, Vanguard is the largest fund company, managing $4.40 trillion, and is the only true mutual structure among mutual funds.
This stupendous achievement is known. What is not known is that in1960, when Bogle was 31 years old, he was diagnosed with an incurable heart disease. He got himself a pacemaker but as Dr Bernard Lown, his heart specialist, described later, Bogle was “afflicted with a bizarre electrical derangement of the heartbeat, threatening catastrophic cardiac arrest—a guillotine about to drop. I gave him the brutal verdict and he was undaunted. He lives his life intently and with exuberant energy. A sense of humor lightened the morbid reality, and he joked that playing squash with a portable defibrillator close by unnerved every opponent.”
“But the inevitable downward spiral of my heart disease continued,” Bogle writes in his new book. “Cardiac arrests and paddles on my chest. Physical activity fades away. The right side of the heart no longer pumps. Death’s shadow draws near.” This continued for some 36 years after the first diagnosis of his heart trouble. In 1996, Bogle was eligible for a heart transplant. Some 15 years later, his acquired heart “thumps away minute after minute, like the beat of a jungle drum.”
This personal anecdote comes on page 583 of a 600-page book titled Don’t Count On It. And he narrates this story not to recount his life but to pay homage to four of his heroes and mentors—Walter Morgan, a pioneer of finance, economist Paul Samuelson, Peter Bernstein, a financial economist and, of course, his heart specialist Dr Lown. It is astounding what John Bogle has achieved in one lifetime with such a serious heart ailment.
Bogle hated the idea of trading the market. This is why his index fund only provided net asset value of the funds after the markets closed. However, the rise of exchange-traded funds, low-cost index funds but tradable in the stock market during the trading hours, received a bad rap by Bogle. Even though he despised it, his company Vanguard eventually succumbed to the market craze of ETFs and joined in. Yet, Bogle continued to promote the idea of long-term investing through ETFs and not trade in them.
Bogle’s approach to investing is defined by simplicity and common sense. Below are his eight basic rules for investors-
1. Select low-cost funds
2. Consider carefully the added costs of advice
3. Do not overrate past fund performance
4. Use past performance to determine consistency and risk
5. Beware of stars (as in, star mutual fund managers)
6. Beware of asset size
7. Don't own too many funds
8. Buy your fund portfolio – and hold it
But business success is not why Bogle stands out. He is known as ‘Saint Jack’ of the financial services industry, the conscience-keeper of Wall Street. John Bogle has spent an entire career fighting for individual investors against the dark forces of Wall Street. John Bogle is an institution in the US financial market. He is a true pioneer, having created index funds and having led a lifelong battle for the small investor by advocating low-cost funds. He has also been a powerful writer; his books are now being re-issued as investment classics.