could serve the funds much more
economically than a profit-seeking
management company. Oh, and I
would be chairman and CEO.
It took seven months of arguing to reach
agreement. The deal left me unhappy
and Wellington Management unhappy,
but that’s what happens in tough negotiations. The new company, which
would become Vanguard, could administer the funds, but it couldn’t invest the
funds’ money. So, basically, I was left
with only one of the functions of a
mutual fund and the least interesting
one at that. I could see more fighting
was ahead. Thank God I love to fight.
“Never ask anyone if
your idea’s any good.
If I had, I never would have
started the index fund.”
they delivered $11.4. I thought, Oh, my
God, that’s not enough even to buy the
stocks in the index. The underwriters
suggested we cancel the fund and give
the money back. I said, “Wait a minute.
This is the world’s first index mutual
fund.” So we managed to approximate
the index with the money we had and
kept it going. The fund is now the largest in the world.
bond funds to a woman who didn’t
know who I was, and at the end she said,
“Can I have the name of your supervisor? I’d like to commend you.”
It quickly became obvious that if I
wanted to build the company, I had to
get into investment management. So I
snuck in. I created a fund that arguably
didn’t require any investment management. All it would try to do is match the
return of the S&P 500 index. It sounds
like a recipe for mediocrity, but the
index fund is actually the killer app of
investing, a strategy that cannot empirically be improved on.
When I started Vanguard, we had 28
employees, counting me. At that stage of
a company’s existence, when values were
so important and when you had to lay
down the law, people considered me
something of a dictator. I would say
that’s a fair criticism. When people ask
me about teamwork, I say, “Teamwork is
the most important thing. Unfortunately, I’m not very good at it.”
The structure of Vanguard has meant
that I couldn’t get the financial rewards
that might have accrued to any other
CEO of a trillion-dollar financial services company. I made a decent amount
of money before I stepped down in 1999,
but every once in a while, because I’m
human, I think maybe I should have
done it a little differently. Maybe Vanguard should have gone to a profit
model, and I should’ve kept a 1 percent
interest. Vanguard would be worth, I
don’t know, $30 billion, and 1 percent of
that is $300 million, which wouldn’t be
bad. When the hospital that did my heart
transplant says they’d like me to give $25
million, I wouldn’t have to say no.
It is based on a simple fact. In the stock
market, some investors do better and
some worse, but their aggregate returns
equal the market’s returns, minus the
costs of investing. After all, they are the
market. So if a fund matches the market’s gross return and does so at a cost
much lower than the average fund, it
will always beat the average fund over
time. It has to. Borrowing a phrase from
Justice Louis Brandeis, I call it the
Relentless Rules of Humble Arithmetic.
And of all the things I’ve said and done
that people disagree with—and there’s
no shortage of those—no one has successfully taken that one on.
Academic research supported the wisdom of indexing, but at the time, everyone in the industry thought it was the
stupidest idea. I hired four Wall Street
brokerages to manage the underwriting. They hoped to raise $150 million;
You don’t have to like Steve Jobs as a person much, bless his soul, but he and I are
similar in a lot of ways. He said: Never
do surveys; never ask anyone if your
idea’s any good. I never did. If I had, I
never would have started the index fund.
The one thing I wouldn’t tolerate on the
Vanguard crew is arrogance. That’s one
of the reasons I decided that everyone
who was remotely qualified had to be
trained to answer phone calls from
investors. We had a lot of executive types
who thought they were too important to
do that kind of thing. They had no idea
what it’s like to be a shareholder.
When we had the panic on Black Monday, in 1987, virtually everyone had to
work the phones. I took 106 calls myself.
I’d answer the phone: “This is Vanguard;
John Bogle speaking. How may I help
you?” And they’d say, “Is it really you?” I
spent a lot of time on one call explaining
But you reach a point in life where you say
what is, is. The rewards of my life have
been great. I built a company; I left things
better than I found them. I have a good
reputation. I put the Vanguard shareholders and crew first. That’s a huge thing.
And I lived to see index investing, and
low-cost fund management and fiduciary duty to fund shareholders, all vindicated. I never thought I’d live to see it.
I had my first heart attack when I was
31. My heart stopped beating on seven
different occasions before I got the
transplant 16 years ago. But you see:
I’m still in the fight. I’m like Antaeus,
that guy from Greek mythology who
took strength from the earth. They
knock me to the ground, and I get back
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