By Christopher Condon
(Bloomberg) --John Bogle, who popularized the low-cost index-based mutual fund as founder of Vanguard Group Inc. and insisted that most stock-picking money managers weren’t worth the fees they charged, has died. He was 89.
He died Wednesday in Bryn Mawr, Pennsylvania, the company announced in a statement. The cause was cancer, according to the the Philadelphia Inquirer, citing his family. He suffered the first of at least six heart attacks at age 31. In 1967 he had a pacemaker installed, and in 1996 he received a heart transplant.
By word and example, Bogle proselytized on behalf of patient, long-term investing in a diversified group of well-run companies. He focused his advocacy on index funds, those that buy and hold the broadest mixes of stocks. He cautioned that the pursuit of quick trades and short-term profits typically helped investment advisers more than investors.
“The way to wealth for those in the business is to persuade their clients, ‘Don’t just stand there. Do something,” he wrote in “The Little Book of Common Sense Investing” (2007). “But the way to wealth for their clients in the aggregate is to follow the opposite maxim: ‘Don’t do something. Just stand there.”
Bogle’s formula turned Vanguard into the largest U.S. manager of stock and bond funds.
“He was a towering figure,” Burton Malkiel, a Princeton University economics professor and Vanguard board member since 1977, said in an interview. “The mutual-funds industry is infinitely better because of Jack Bogle.”
Bogle founded Valley Forge, Pennsylvania-based Vanguard in 1974. Investors attracted to its low fees helped the firm overtake American Funds, managed by Los Angeles-based Capital Group Inc., in 2008 as the biggest U.S. stock and bond fund manager. Vanguard has $4.9 trillion in assets under management.
Under Bogle, the company introduced the first retail index mutual fund in 1976.
Initially greeted with skepticism, the Vanguard 500 Index Fund, an unmanaged portfolio of the stocks represented in the Standard & Poor’s 500 Index, has more than $441 billion in assets. A related fund, Vanguard Institutional Index Fund, has $221.5 billion in assets, according to the company.
“It was lambasted as foolishness in the 1970s,” Dan Culloton, editor of the Vanguard Fund Family Report for Chicago-based research company Morningstar Inc., said of the inception of index funds. “It’s a cornerstone of investing now.”
Another Vanguard index fund, Total Stock Market Index, had $672 billion in assets as of Dec. 31, 2018.
“Jack Bogle made an impact on not only the entire investment industry, but more importantly, on the lives of countless individuals saving for their futures or their children’s futures,” Tim Buckley, Vanguard’s chief executive officer, said. “He was a tremendously intelligent, driven, and talented visionary whose ideas completely changed the way we invest. We are honored to continue his legacy of giving every investor ‘a fair shake.”’
Bogle promoted the idea that index funds such as the Vanguard 500 can outperform most actively managed funds because they have lower management fees and trading costs.
“Everybody really thought he was crazy, but he was tough enough not to care what everybody thought,” said Malkiel, author of “A Random Walk Down Wall Street,” which shares Bogle’s view that trying to outsmart the market is a lost cause.
By making Vanguard a cooperative, owned by the funds it ran, Bogle gave up the opportunity to amass a much larger personal fortune. He said the cooperative ownership, unique in the industry, eliminated what he saw as a fundamental conflict faced by publicly listed money managers, which try to serve both corporate shareholders and fund investors.
When Bogle retired from Vanguard on Dec. 31, 1999, the company established the Bogle Financial Markets Research Center. He served as president and continued to speak and write about the need for reforms.
“The mutual-fund industry is now dominated by giant, publicly held financial conglomerates run by businessmen hell bent on earning a return on the firm’s capital, not the return on the capital invested by the fund shareholders,” Bogle said in a 2006 speech at the Free Library of Philadelphia.
He told Bloomberg Television in December 2008 that the U.S. government’s bailouts of companies including American International Group Inc. and Citigroup Inc. had “deeply discredited” capitalism. At a February 2009 congressional hearing, he warned that the U.S. retirement system “is imperiled, headed for a serious train wreck.” Months later he filed a brief with the U.S. Supreme Court siding with investors who were challenging fees charged by fund managers.
At industry events and other public appearances, Bogle often drew admirers while making fund company executives uncomfortable. Some fans called him “St. Jack of the mutual-fund industry.”
“He stood up and said what he believed was right, and it cost him friendships in the fund industry,” Don Phillips, managing director at Morningstar, said in an interview.
At a conference hosted by Morningstar in May 2009, Bogle criticized asset managers for paying themselves too much. “Compensation is totally, ridiculously out of control,” he said. “Money managers should return to stewardship and trusteeship.”
Billionaire investor Warren Buffett praised Bogle in his annual letter to Berkshire Hathaway Inc. shareholders in early 2017.
“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,” Buffett wrote. “He has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.”
John Clifton Bogle was born May 8, 1929, in Montclair, New Jersey, to William Bogle Jr. and the former Josephine Hipkins. His twin brother, David, died in 1994.
He attended high school at Blair Academy in Blairstown, New Jersey, on an academic scholarship. He later became a trustee and one of the school’s largest donors.
Bogle graduated magna cum laude from Princeton University in 1951 with a degree in economics. He wrote his senior thesis on the nascent mutual-funds industry.
He joined Philadelphia-based Wellington Management Co., which operated the Wellington Fund, the first so-called balanced mutual fund, containing both stocks and bonds. He quickly rose as a marketer and administrator and became the assistant to firm founder Walter Morgan. In 1967, he was promoted to president and CEO.
He disagreed with Wellington partners over investment strategy and personnel matters during the next several years, and, in January 1974, the Boston-based directors fired him.
Bogle remained chairman of a separate oversight board of the Wellington funds, whose members were loyal to him. He persuaded the board to relieve Wellington Management of responsibility for administering the funds -- tasks that included shareholder record-keeping, fund accounting and preparing public filings -- while continuing to oversee management and distribution. Mutual funds, Bogle said, should be independent from the companies that manage their investments.
A student of British naval history, Bogle continued Wellington’s Napoleonic-Wars theme by naming the newly independent group of funds “Vanguard,” after the flagship of Admiral Horatio Nelson’s fleet in the Battle of the Nile in 1798. Bogle’s office was stuffed with decorations, from pillows and paintings to ship models and statuettes, that commemorated Nelson and his fleet.
In 1977, the fund’s board took control of sales of the funds from Wellington, which had distributed them through brokers. Vanguard funds were then sold directly to customers as no-load shares, meaning investors bought them without paying broker commissions.
Vanguard introduced a money-market fund in 1975 and bond funds in 1977, run by outside managers. In 1981, Vanguard hired its own staff of investment professionals to run those funds. Investment-management services were provided to the funds at cost, making the funds’ expenses among the lowest in the industry.
Bogle remained Vanguard’s CEO until 1996, when he handed the post to his designated successor, John Brennan. Bogle remained chairman of the board and began squabbling with Brennan over the company’s growth plans, with Bogle questioning Brennan’s plans to offer discount brokerage services and develop a so-called supermarket for online mutual fund shopping.
After reaching the mandatory retirement age of 70 in 2000, Bogle asked the Vanguard board to waive the rule for him. It refused, in what was seen as a decision cementing Brennan’s authority at the firm.
Bogle’s books on investing included “Enough: True Measures of Money, Business, and Life” published in 2008 and “The Battle for the Soul of Capitalism” in 2005.
Fortune Magazine named him one of four “Giants of the Investment Industry of the 20th Century” in 1999. Time named him one of the world’s 100 most powerful and influential people in 2004.
Bogle and his wife, the former Eve Sherrerd, had six children: Barbara, Jean, Nancy, Sandra, Andrew and John Jr., according to Marquis Who’s Who. John Bogle Jr. is a limited partner at Bogle Investment Management, a Newton, Massachusetts, firm that follows an active stock picking approach.
--With assistance from Elizabeth Stanton.To contact the reporter on this story: Christopher Condon in Washington at [email protected] To contact the editors responsible for this story: Crayton Harrison at [email protected] Laurence Arnold, Steven Gittelson