An Icon, A Mentor: John “Jack” Bogle, The Legend

There are differences between icons and legends. Icons are poster-children for something and legends something be it a feeling, process or product. Warren Buffet is an icon of value investing but didn’t invent the concept. The Lone Ranger invoked a feeling of justice and loyalty and was a legend. John “Jack” Bogle was both. He died last week at 89 years old.

Jack was iconic in the respect of low cost investing. Over my career, I developed what I call the Fiduciary Focus based on the premise of four equally important characteristics of sound investing. Carefully examining fees and expenses is one of the four areas and I took much of my lead from the work of Mr. Bogle and the company he built called Vanguard. Saying he was important to our firm and most likely your retirement account is an understatement.

Jack will be remembered for many great things and investors owe him a debt of gratitude. The icon will live on for certain but let’s discuss the legendary part.

Imagine yourself building an entire industry that impacts almost every 401k in the country. Imagine watching that be challenged years later. Imagine warning the world of your creations changed situation near your end of life. Most wouldn’t have the mental capacity nor the inclination but Jack did.

Jack took the concept from his Princeton thesis of low cost investing and using an index rather than active management of stocks to create an investment that essentially tracked the S&P500 index. This was thought as preposterous by many – especially those paid to pick stocks – but millions poured in, then billions and now Vanguard has over $5 trillion in assets.

The concept was that actively traded investing rarely outperforms the index itself. He is totally correct then and now. That way of thinking leads to ETF’s (exchange traded funds) which Jack fought vehemently against – until he didn’t. He looked at the landscape, examined the facts and recognized something had changed. Now Vanguard is one of the largest ETF providers in the country.

Near the end, Jack recognized a problem with index investing that we have discussed numerous times in this column. The S&P500 is made up of roughly 500 companies that are designed to represent the US economy. Many investors in the index via 401k’s or other sources believe that their investment is equally divided by the 500 companies. Not so.

The way Jack created the fund was to have the larger companies based on market capitalization have more representation than smaller companies. As the notion of index investing grew substantially things got out of whack. Ten companies control more than 20% of the value of the entire index today and Jack knew that was a problem and he tried to tell the world.

What an extraordinary person to build a great success story and be willing to recognize things change. Then to tell the world what once worked – what he nurtured and developed – doesn’t work any longer. I’ll miss his wisdom. Thanks Jack.

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