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Abstract

John C. Bogle may have been one of the very few people who transformed the quest for average into a multi-trillion-dollar industry. To be fair, it was no ordinary quest for average. The goal was not only to earn the market average but also to do so with very low fees so that the average (non-professional) investor could benefit. Bogle’s solution was also far from ordinary: founding The Vanguard Group and propelling index mutual funds (and indexing in general) to stardom.

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John C. Bogle may have been one of the very few people who transformed the quest for average into a multi-trillion-dollar industry. To be fair, it was no ordinary quest for average. The goal was not only to earn the market average but also to do so with very low fees so that the average (non-professional) investor could benefit. Bogle’s solution was also far from ordinary: founding The Vanguard Group and propelling index mutual funds (and indexing in general) to stardom.

When Bogle founded Vanguard in 1974, mutual funds admittedly had been in existence for years—by some accounts since 1822 in the Netherlands. As for the genesis of index funds, it may go back to an article by Edward Renshaw and Paul Feldstein, “The Case for an Unmanaged Investment Company,” published in the January/February 1960 issue of the Financial Analysts Journal.

But in 1976, the concepts of mutual funds and index funds came together with Bogle’s creation of the Vanguard 500 Index Fund. Originally derided as “Bogle’s Folly,” the Vanguard 500 Index Fund took a while to catch on; yet the introduction of an indexed mutual fund marked a sea change in the financial industry—for investors and investment managers alike. Nobel Prize–winning economist Paul Samuelson saw it as the opposite of foolish. As he said in a speech to the Boston Society of Security Analysts on 15 November 2005, “I rank this Bogle invention along with the invention of the wheel, the alphabet, Gutenberg printing, and wine and cheese.”

Like many inventions, Bogle’s did not spring up overnight. The seed was planted in 1949 when he was trying to find a topic for his senior thesis at Princeton University and read an article from Fortune magazine (December 1949), “Big Money in Boston.” The article discussed something Bogle had never encountered: mutual funds. Determined to conduct original research, Bogle was pleased that the industry was characterized as “pretty small change . . . rapidly expanding and somewhat contentious . . . the ideal champion of the small stockholder in controversies with . . . corporate management.”

Articulated in 1951 in his thesis, “The Economic Role of the Investment Company,” are principles remarkably predictive of the approach Bogle favored during his 60-odd years in the investment profession. Ever straightforward, Bogle asserted that mutual funds should be managed efficiently, honestly, and economically; fees and charges should be as low as possible; and the primary responsibility should always be to shareowners, not managers. Moreover, almost predicting indexing—Vanguard’s signature approach—Bogle declared that “funds can make no claim to superiority over the market averages.”

Hired after college by Wellington Management’s founder, Walter L. Morgan, who became his beloved mentor, Bogle spent his entire career in the mutual fund industry, eventually transforming it. At Wellington’s headquarters in Philadelphia, Bogle worked alongside A. Moyer Kulp, CFA, and Edmund A. Mennis, CFA, early leaders of what we now know as CFA Institute.

Bogle’s idealism was never more evident than in his creation of Vanguard. Founded on the inviolable principle of fiduciary responsibility to shareowners that he articulated in his thesis back in 1951, it was—and is—a truly mutual fund company, owned by those who invest in it. In addition, the phrase “costs matter” is one that was frequently spoken by Bogle. So, it should come as no surprise that Bogle blended those two guiding principles when creating Vanguard.

Bogle was thought of as “Saint Jack” by countless shareowners to whom he delivered their fair share. Yet, as one who frequently and forthrightly criticized the financial industry and consistently advocated for low fees, he also had his detractors. “Bogle has not won any popularity contests among his professional colleagues,” noted former Federal Reserve chairman Paul Volcker in his foreword to John Bogle on Investing: The First 50 Years. In 1976, the chairman of Fidelity Investments, Edward C. Johnson III, told the Boston Globe that “I can’t believe that the great mass of investors are going to be satisfied with an ultimate goal of just achieving average returns on their funds.” By 1990, Johnson must have become a believer because Fidelity Investments added its first (and certainly not its last) index fund.

Many in finance, however, have deeply appreciated Bogle’s positive effect. In his 2016 Letter to Shareholders, Warren Buffett declared, “If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.” And Katrina Sherrerd, CFA, former managing director at CFA Institute and someone who worked with Bogle over the years, put it well when she said:

"There is only one Jack! I have never met anyone with as much conviction, clarity, and commitment to their views and ideals. When Jack sets his mind to doing something, neither doubt nor obstacle will derail him from his desired course. Investors should be grateful that he was committed to being an investor advocate for so many years."

One theme that was consistent throughout Bogle’s life was his commitment to education and professionalism. He wrote 10 books and countless articles (including 16 for CFA Institute) and was a frequent speaker advocating for an industry where shareowners (not managers) come first, for low-fee investment vehicles, and for the professionalism of investment management. As he said in a speech at the CFA Institute Annual Conference in 2017:

"Strong ethics and professional competence must still be the bulwark of finance. We must develop a keener awareness of how our financial system works, a profound introspection about how we can make it better, a knowledge of the long history of finance, and a deep involvement in fostering in our profession the high character it requires."

By any measure of success, Bogle was successful. But all of his success, perhaps ironically, was achieved by simply targeting the average—capturing the market average and doing so in a way that benefits the average investor. In the hands of John Bogle, average never looked so good.

About the Author(s)

CFA Institute

CFA Institute is the global association of investment professionals that sets the standard for professional excellence and credentials. CFA Institute works with academic institutions with the University Affiliation Program. Academic institutions that embed a significant portion of the CFA Program Candidate Body of Knowledge (CBOK)—including the Code of Ethics and Standards of Professional Conduct—into their curriculum may be eligible to participate in the University Affiliation Program.
An Affiliated University signals to their students and to employers that their curriculum is closely tied to the practice of investment management and is helpful to students preparing for the CFA® Program exams.