Last month, I had the good fortune of attending the annual Vanguard Bogleheads® Summit in Malvern, Penn. The special guest was John Bogle, the man known as the “father of index fund investing” and the founder of The Vanguard Group. Along with this, he is the author of 10 books and has been recognized for his contributions to the investment world by publications ranging from Time Magazine’s “Most Powerful and Influential” to Fortune’s “Giants of the 20th Century.” Despite these accolades, this down-to-earth investment guru insisted on being called “Jack.”
Jack created Vanguard in 1974, serving as Chairman and CEO until 1996. He then took on the role of Senior Chairman until 2000. The largest mutual fund organization in the world with over 300 funds, Vanguard manages assets of $3 trillion. Yet unlike most mutual fund companies, it is owned by its shareholders as a not-for-profit organization. Under this model, it returns excess cash flow to its investors in the form of lower mutual fund fees in future years.
The Vanguard 500 Index Fund, which was designed to track the S&P 500 Index, was founded by Jack in 1975. It was the first index mutual fund ever, and it continues to reign as Vanguard’s largest fund today.
With contributions like these, it’s not hard to guess why Jack is held in such high esteem. In 2017, in fact, Warren Buffett recognized Jack as the person who has done more for individual investors than anyone else.
"If a statue is ever erected to honor the person who has done the most for American investors,” said Buffet, “the hands-down choice should be Jack Bogle."1
Along with Jack, there were other investing VIPs among the crowd of 200 at the summit: Jonathon Clements, Bill Bernstein, Christine Benz and Gus Sauter. Yet for most of the attendees, it was Jack they came to see. And from the kickoff reception to the final closing remarks, Jack did not disappoint.
Below are a few of the golden nuggets of wisdom he shared with conference attendees.
On asset allocation
Investors in their post-retirement years typically think they should replace their stock holdings with safer bond options. Not Jack. At the ripe young age of 87, he admitted to a personal allocation of 50% in U.S. stock funds and 50% in bond funds, including some corporate bonds. Yet despite his proven success in building wealth, the genius investor revealed that he often questions his own financial decisions.
“I spend half my time worrying that I have too much in stocks and half the time feeling I’ve got too little in stocks.” Apparently, even Jack Bogle is human.
On investing internationally
Contrary to most investment thought leaders, Jack believes you can have an excellent investing experience without owning international stocks. During his presentation, he pointed out that half the U.S. company revenues come from overseas. This gives investors global diversification while investing in a U.S. stock fund. He did mention, however, that currency may have some effect on why certain countries do better than others in the short term.
Jack also emphasized that the majority of the international market cap centered in three key markets: the UK, which could be sluggish from Brexit; Japan, which is still struggling with an aging population; and France, where he feels there may be too many labor-friendly policies like the 36-hour work week … upon which he quipped that he still works 36 hours in the first few days of the week.
To further defend his point, he pointed out that US stock market returns have smoked international since 1997, where the US S&P 500 has averaged annually 7.7% while international developed stocks trailed with 4.2% through 2016.
With this in mind, he closed by saying (with a hint at self-deprecation), “It seems logical to me that the U.S. stock market will continue to outperform, but I could be wrong.”
On the future of U.S. stock market return
In the long term, Jack said that the math was simple on expected return over time. It’s basically dividend yield plus corporate earnings growth. Knowing the former is 2% and the latter should come in around 4%, that makes for a total expected return of 6% in the coming years.
To those who questioned his estimations, he quipped, “The math is the math. If you don’t like my prediction, make up your own. Though it shouldn’t be a prediction, more like an expected return and make sure to tell us where your estimation comes from.”
On index fund variations
When it comes to index fund variations, Jack said that “there’s nothing quite like market cap weighting.” By this, he was referring to a situation where stocks are weighted according to a company’s stock valuation, though he believes factor weighting like value is a little “nutty.” He doesn’t deny there are long periods where value investing beats growth, and then where growth beats value, but he feels that “it should be called what it is: a reversion to the mean.” Among Vanguard’s funds, the “growth vs. value” winner is unclear. In the large cap space over the past 10 years, growth prevails while among their small cap index funds value has the upper hand, though performance history is limited due to lifespan of the various Vanguard category funds. In addition, dismissing that value stocks offer higher return runs contrary to the Nobel prize winning economist Eugene Fama (U. of Chicago) who along with Kenneth French (Dartmouth) indicated through their research that small cap stocks and value stocks would support higher stock returns over long periods of time.
On picking individual stocks
After decades of going against the grain of active fund investing, we now have a lot of data to support that diversified index fund investing really works. In any trade, there is a winner and a loser, and thus, before costs, investing is a zero-sum game. To take this a bit further, half of the stock pickers will win, and half of the stock pickers will lose. The reality is that, after costs, most active fund managers will lose. As an index fund investor, owning most of the market and keeping costs low, you put yourself in the upper half of investor performance in most any given year, and in the top 20% or better over longer periods of time.
“Don’t bet your financial future on bad odds,” Jack summed. “Lifetime investing is what we all should be thinking about. What will work in the long run?”
On his legacy
When asked about how it feels to reflect on the impact he has had on the financial industry and so many individual investors, he simply shared a quote by Sophocles: “One must wait until the evening to see how splendid the day has been … my evening has not yet come.”
On character and humility
“My wife, Eve, of 60 years thinks that I am bereft of humility. Look, I just want to be the same kind of kid that I grew up as.”
On going against the grain
“I have never given a damn about what most anyone else thinks.”
What lies ahead
At one point, Jack was asked what the next Jack Bogle would change. This question set him back for a moment. Then he remarked that there are still too many opportunities for Wall Street to unnecessarily extract too much value from Main Street.
In fact, he considers some of the practices as borderline fraud. They get away with this, he said, because the markets keep going up. For his part, though, he has enjoyed “doing something right in an industry that often refuses to do the right thing.”
On Jack’s heroes
When asked who has inspired him, Jack listed Warren Buffett, Andrew Hamilton and Ben Franklin.
Here, Jack kept it short and sweet. The keys to success are simple, he said. You just need to “work a little harder, work a little smarter, and be a self-starter.”
The big takeaway
It was a privilege and honor to meet Jack, and I learned much while listening to him present over the two days of the conference. As I sat among the many Bogleheads who make an annual pilgrimage to hear him speak, I now understand why. As his disciples, they are among those who consider the index fund to be one of the best inventions of our time, and its inventor to be one of the smartest financial gurus of the last half century.
For many, the work of Jack Bogle and Vanguard has led his followers to afford first homes, put kids through college, manage career changes, experience grand life pursuits and ultimately master retirement.
In a world with so many challenges, it’s comforting to know that there’s a man like Jack, whose life’s mission has been “to help individual investors build wealth without paying excessive fees, guide them into investments which will yield the market return without additional risks, and promote suitable asset allocations that match individual risk tolerance.”2
As investors, we can all use a hero like that.
1 - http://www.businessinsider.com/warren-buffett-praises-vanguards-jack-bogle-in-annual-letter-2017-2, Feb 25, 2017, Levy
2 - https://sites.google.com/site/bogleheadsmeeting/
3 - http://money.cnn.com/2017/03/08/investing/vanguard-jack-bogle-stock-market-not-in-bubble/index.html, March 8, 2017, Long, Heather
All investing involves risks.
Past investing performance is no guarantee of future results.