His name may not be that well-known to South Africans, but John Bogle pioneered a style of investing that has saved local investors millions of rand, by way of paying lower fees and avoiding under-performing fund managers.
Jack Bogle, who passed away on Wednesday at the age of 89, was not averse to quoting the Bible, and he may well have muttered “let there be light” when he launched the world’s first index fund back in 1975. His unprecedented strategy – a stock portfolio that did not rely on a fund manager or investment adviser, but simply tracked the average market return – set Vanguard on a course that would change the face of the investment industry.
Bogle’s plan first met with scorn and ridicule. His peers protested that “settling for average” was un-American and called on investors to stamp out index funds. The hating never stopped (“indexing is worse than Marxism,” according to a 2016 broker note), but the scorn has long-since turned to resentment and the ridicule to tears. That’s because investors saw the light and have turned their back on active management in ever-growing numbers, putting the skids on “the most profitable business in history”.
In South Africa, Bogle’s ideals became the blueprint for the 10X Investments model. Since it launched in 2008, 10X Investments has been “selling what it makes”, which is one optimal portfolio to allow every client to benefit from its “best investment view”, rather than “making what will sell”, which Mr Bogle accused investment managers of doing.
Our investment strategy – in terms of fees and asset mix - focuses on the client’s long-term objective, true to Bogle’s mantra. Fees are typically two-thirds below industry averages and the use of index funds underlines that investors cannot claim “superiority over the market”. The independent, professional trustees who oversee the funds prioritise the investors’ interest.
I met and interviewed Mr Bogle in Boston in 2010 to share his wisdom with South African investors. He gave me his time graciously and answered all my questions with clarity, simplicity and passion. When asked for his experience about promoting index funds he replied: “There are three stages with any new idea. First they ignore you, then they ridicule you and then they say, ‘Of course it’s right, that’s what I said in the first place!’ ”
Today, Vanguard dominates the mutual funds industry in the US. It’s become an absolute colossus with $4,5 trillion of assets and a 24% market share. Vanguard has systematically reduced its average fees from 0.89% in 1975 to 0,11% in 2018, the lowest cost provider by far. As it turns out, there’s nothing more American than going after the best deal in town.
The best deal that investors can hope for is a fair deal. That was the overriding theme throughout Bogle’s tenure as Vanguard CEO, “a better, fairer investment experience for mutual fund investors”.
He planted the seeds of that way back in 1951 in his senior thesis at Princeton. His paper identified the four core values that would shape his mutual fund philosophy:
- The prime responsibility is always to the fund investor
- The fund must operate in the most efficient, economical, and honest way possible
- The fund cannot claim superiority over the market, and
- Corporate governance should first and foremost represent the individual, disenfranchised client
Vanguard’s strategy was born out of these ideals, and by Bogle’s first-hand experience in trying (and failing) to select winning fund managers.
Seventy years later, these investor-orientated values are still not shared by the broad industry. To this day, fund ‘fiduciaries’ side with the fund managers rather than investors, especially on the matter of fees. And the industry still prefers to capitalise on the fashions of the day. Bogle often lamented the elevation of salesmanship above stewardship.
John Bogle retired as CEO of Vanguard in 1996. Despite his advancing years he remained the most public advocate of simple, goal-orientated, low cost investing. In 1999, Fortune Magazine named him as one of the four “investment giants” of the twentieth century, and even Warren Buffet, the world’s foremost active investor, was moved to honour him in his 2017 Letter to Shareholders.
Bogle was a prolific writer and public speaker, forever cautioning investors to set realistic expectations, control their costs and impulses, to own the market, and to stay the course.
In his words, “the secret to investing is that there is no secret. When you own the entire stock market through a broad stock index fund, all the while balancing your portfolio with an appropriate allocation to an all-bond-market index fund, you create the optimal investment strategy. While it is not necessarily the best strategy, the number of strategies that are worse is infinite.”
