The reason Jack Bogle doesn’t fly first class says everything about his investing legacy
Reprinted courtesy of MarketWatch.com
Published: Oct. 7, 2017
To read the original article click here
As my regular readers know, I’ve been a big fan of John Bogle, the founder and now-retired chairman of The Vanguard Group, for many years. This spring, I got to meet him in person for the first time, and I learned a lot.
This is the second article based on my 90-minute conversation. (You’ll find the first article here).
Vanguard’s mutual funds are well known for their low expenses — which of course is a very good thing for investors. Many of the company’s most popular funds charge investors less than 0.2% a year, while the average equity fund charges more than 1%.
The low cost isn’t just a marketing ploy. It really reflects Jack (as he prefers to be called) himself. He doesn’t have to pinch pennies. But he does.
I laughed out loud when he told me that of all the times he has flown, he bought a first class ticket only once — he did so because he could upgrade his seat for $50. He described with delight how much he loved that experience, but even with his deep pockets he never repeated it, because he simply couldn’t justify the extra expense.
To my mind, this is the sort of person you want looking after your money.
Bogle’s office is in a big two-story building on the company’s tree-lined campus in a suburb northwest of Philadelphia. You enter on Vanguard Avenue after driving past a number of other Vanguard buildings.
The campus – and the company culture – are nautically themed. The company itself is named for HMS Vanguard, a British flagship in the Battle of the Nile in 1798. Buildings on the corporate campus are named after other Admiral Horatio Nelson ships, including Victory, Zealous and Goliath. Bogle’s office is in the Victory building.
The company is noted for its nautical theme. Employees are called crew members, the cafeteria is “the galley,” the gym is named ShipShape, and the company store is the chandlery.
Although I found all this quite interesting, my focus of course was on talking with Bogle. What matters most isn’t the trappings of the company but who the company serves and what it does for its customers — in this case, its mutual fund and ETF shareholders.
Bogle believes he knows those answers.
The typical Vanguard investor, he told me, is very conservative. That shouldn’t be a surprise, as the folks who are pouring billions of dollars into Vanguard funds are mostly choosing the S&P 500 index fund VFINX, +0.09% and the company’s total market funds.
Although Vanguard offers funds that represent numerous asset classes (think REITs, small-cap value, large-cap value, international, emerging markets and more), I think the company would like to keep its investors mostly in portfolios that look and act a lot like its largest funds, those that track the S&P 500 SPX, +0.08% and the total stock market fund.
Bogle and I don’t agree completely about diversification. I advocate a wide mix of asset classes, both U.S. and international; many decades of market returns attest to the benefits of this approach. While Bogle doesn’t directly take issue with the facts behind my recommendations, he is uncomfortable advocating them for most investors.
If you want to disappoint an investor, he told me, it won’t necessarily happen when a mutual fund loses money during a bear market. When everybody else is losing money, most investors find it easier to accept that they are doing so too.
No, he said, the way to really disappoint investors is to put them in diversified portfolios that don’t behave like the broad market. When those investors are making very small returns or even losing money as they watch the market averages go up day by day on TV, that is a recipe for severe disappointment.
Bogle and I agree that staying the course during periods of loss is often quite tough, even for investors who firmly believe their more broadly diversified portfolios are likely to make more money in the long run. I think this is especially true for do-it-yourself investors.
Still, I’m grateful that Vanguard offers low-cost funds and ETFs for investors who wish to follow my recommendations.
Bogle is still going strong at age 88, and I asked him how his wife, Eve, is adjusting to his still-busy schedule. He and his assistant each described her as “a saint.” Bogle told me she is a very private person, so it’s a challenge for her to be with him in public.
Our meeting was scheduled for 60 minutes, but he gave me 90, and he let me be the one to signal our ending time. Even though he knew somebody else was waiting for his next meeting, Bogle answered all my questions.
Here’s something else I took away from this meeting: I have always thought I would continue my work until I’m 85, but seeing Bogle and how much he obviously loves what he is doing, I’m now committed to continuing until at least age 90.
One piece of great news for investors: Bogle has updated and expanded one of the four books I recommend to all investors, “The Little Book of Common Sense Investing.”
The new edition, available for preorder and scheduled to be released Oct. 16, has new sections on asset allocation and retirement. Bogle showed me the publisher’s galley on his desk and was almost like a little kid when he proudly pointed to a cover endorsement from one of his greatest fans, Warren Buffett.
I admire Buffett’s work, but I suspect most investors owe a much greater dose of gratitude to Jack Bogle.
Richard Buck contributed to this article.
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