One of our main fund managers is the Vanguard Group, and their funds form the backbone of many of our portfolios. The Group looks after £2.8 trillion of savings and investments, making them the second largest in the world.
In this article, we introduce you to the legend who founded Vanguard in 1975 – John Bogle, author of The Little Book of Commonsense Investing. The Wall Street Journal described his book as: “Excellent advice in a concise and accessible manner.” That’s our approach too, so we hope you are beginning to understand why he’s our hero.
“John Bogle has changed a basic industry in the optimal direction: of very few can this be said.”
Paul Samuelson, Nobel laureate economist, MIT
Bogle’s two main revolutions were:
- Inventing tracker funds. These funds buy the shares of all the companies in an index such as the FTSE 100 and track the movement of the entire index. This cheap and diversified way to invest has helped millions of people to grow their savings in relative safety.
- Driving down fund management fees. Bogle established Vanguard as a mutual organisation that is owned by its customers. Because there are no external shareholders to pay, all profits go into reduced fees for individual savers. Other firms have had to lower their fees as a result.
“I wanted to be the low-cost provider in the business, and we are,” Bogle said.
Apparently, multi-billionnaire Warren Buffett has told his wife she should put 90% of his fortune into Vanguard’s low-cost funds if he dies first. We hope you agree that whatever is good enough for Warren Buffett is good enough for you!
Critics say that passive funds tend to vote with the board and don’t hold executives to account (although they are starting to take a more active role in governance). Also, that there is a risk of buying into an index at the height of a boom just before it collapses (a risk that applies to everyone who invests).
Bogle’s back story
Bogle was born into a wealthy family in 1929, who lost up to 95% of their stocks in the Great Depression. He waited on tables, delivered newspapers, and worked in the post office. Perhaps that’s why he likes to support small, private investors.
“We are in the business of helping ordinary human beings,” he said. (So are we!)
He first critiqued the fund management industry in his 1951 graduate thesis, because he found that active fund managers perform no better than the general stock market, and that the true costs of actively managed funds are hidden.
In 1996, Bogle stepped down as CEO of Vanguard, but still visits the office regularly, and receives ‘thank you’ letters from satisfied investors every day.