New Delhi: When you look at your retirement corpus in low-cost index funds after a lifetime of investing and find that you have done well, remember to thank a man named Jack Bogle.
Indian retail stock and bond investors may not have heard the name, but John C. Bogle (called Jack) impacted the way mutual funds are constructed, cost and sold all over the world. The founder of the $4.9 trillion Vanguard Group died on 16 January, a little over three months short of his 90th birthday. Bogle straddles the fund management world like a colossus, having turned an industry on its head more than 30 years ago by thinking of and acting in the interest of the retail investor. He did this by focusing on whittling down costs in two ways. One, to cut out the star fund manager and introduce index-based investing with wafer-thin costs. Two, to cut out the distributor and go “no-load”—where shares are sold without a commission or charge.
Born just before the onset of the Great Depression in the US, Bogle understood the importance of money early on. He was good at numbers. At Princeton University, his 1950-51 senior thesis of 140 pages titled ‘The Economic Role of the Investment Company’ became the bedrock of his life and career. The introduction to his thesis says, “The prime responsibility of mutual funds must always be their shareholders.” And the conclusion says that mutual funds must “serve both individual and institutional investors…serve them in the most efficient, honest and economical way possible”. His thesis urged funds to reduce sales charges and management fees and “make no claim to superiority over the market averages”.
The paper got him his first job—with Wellington Management, a one-fund firm with $150 million in assets. A bid to raise assets under management and fund managers led Bogle and the firm into a merger they regretted, eventually resulting in Bogle getting fired as the chief executive in 1974.
But Bogle’s zeal for his ideal market was so strong that, a day later, he managed to convince the board to “mutualize” the funds. The company would be owned by the funds themselves and operated at cost in the interest of investors. He picked the name “Vanguard” for this firm from the flagship in Nelson’s fleet that defeated Napoleon Bonaparte. Now he ran what he called just one-third of the loaf, because fund management and distribution were not under his control. But it was only a matter of time before Vanguard became the whole loaf.