John Clifton "Jack" Bogle (John Clifton “Jack” Bogle). To date, hundreds of billions of dollars have been invested by investors in index funds., generating a stable income and characterized by low costs. For a great opportunity to profit from invested capital, without making great efforts and without trying to "outplay" the market, investors have one man to thank - John Bogle. close, colleagues, and often journalists call him Jack.
Bogle founded Vanguard, currently managing the world's second largest family of mutual funds, and c 1976 introduced the first stock index fund to the market, actually making a revolutionary breakthrough in the industry. His idea, which he developed back in his thesis while studying at Princeton, was as simple as everything ingenious. realizing, that in the long term, most investors, including mutual funds, lag behind the market, and commissions for transactions and asset management further reduce the income of depositors, Bogle created index funds, just tracking the market. These funds do not need any expensive stock pickers., nor in high portfolio turnover and, hence, allow you to invest, without giving a significant share of income to asset managers.
According to Bogle himself, his main accomplishment in life was the "return of reciprocity to mutual funds". Sounds simple, but in fact it turned out to be an extremely difficult task, And, doing it, Bogle made many enemies. In the preface to his first book, published in 1994 G., he wrote about himself: “I gained notoriety as a rebel in the mutual investment industry. Among the industry players, I, without any doubt, I am her harshest critic. And not because, what i think this industry is bad; rather, because the industry can be much better, what it is ". As New York Attorney General Eliot Spitzer noted ten years later (Eliot Spitzer), “The success of Bogla, turned Vanguard into an industry giant, proves that you can do the right thing with your customers and still thrive ”.
Bogle received the sarcastic nickname “Saint Jack” and the dislike of his colleagues in the stock business for his endless tirades about his sense of duty to clients and criticism of management companies for their exorbitant, According to him, Commission. Bogle is also called “Saint Jack” for the tone of his speeches and comments., in which he tried to appear more honest and noble, rather than managers of other funds, made a reputation for him.
For many competitors, Bogle – eternal "eyesore", which is not surprising, given the harshness of his assessments. He declares, that managers have usurped power from the owners, and calls the directors of mutual funds "completely useless appendages". Financial press, against, usually, takes his ideas with enthusiasm. Journalists have repeatedly referred to Bogle as the conscience of the industry and the best friend of investors. In an interview a couple of years ago he was asked, does it bother him, that in recent years he has hardly been invited to industry events. Not in the least, answered Bogle. According to him, if in the financial sector someone had conducted a survey about the most unpopular person, he not only, for sure, would have won, but I could hardly name a candidate for the second position. On the other hand, - and this is the reason for his indifference to hostility from the financial elite, – if a survey was conducted among investors about, who is the most popular representative of the financial business, he is completely convinced, that would get the most votes, and again does not know, who could be second.
Of such, like bogle, often referred to as natural born leaders, but he himself does not consider himself so. According to him, he “was always only decisive, responsible, realistic guy, to whom, for some reason, was given a rare opportunity to change the way America invests ”. What made him different, so is the ability not to lose sight of the ultimate goal, do not lose optimism and never quit what you started halfway. Speaking at the Wharton School of Business (Wharton School of Business) in front of participants in the MBA program for executives, Bogle stated, that in his view, leadership is the possession of an idea and the ability to captivate others, make her split. It is a positive quality., even virtue, and is not based on power, fear or financial incentives. Ultimately, Bogle became a leader, because that was his life choice, and in him there was enough love, determination and energy to follow it. James Norris (James Norris), Vanguard manager, who participated in the MBA program himself, wrote, what to study a person, like Boglu, in order to find a leadership formula means condemning yourself to disappointment. It's like studying Michelangelo or Shakespeare: can be imitated, imitate, try to surpass, but it is simply impossible to derive all the explanatory formula for David or "Hamlet".
Bogle claims, that "has always been a terrible idealist - or a wonderful idealist". Moreover, with age, his idealism did not weaken at all.. Against, According to him, now he is “an idealist to a much greater degree, than I could have imagined, when I graduated from college ". Bogle's idealism is based on belief in the capitalist system, Into America's Great Opportunities, and this faith supports in him "eternal optimism", consciousness of that, that “humanity is moving for the better, and not for the worse ". Here is just one example of his attitude to life.. Immediately after the tragic events 11 September, the front page of the London Times featured a photograph of that, what is left of the twin towers, with the caption "Good will triumph over evil". Bogle ordered the page to be framed and posted in front of his office..
Bogle is firmly convinced, what people, leading big business, “Must take care of the country, and not only about myself ", for only a credible business and financial system can ensure social progress domestically and maintain America's global leadership. You can say, that all the activities of this person are imbued with a deep sense of his historical mission. He told, that he once brought a group of portfolio managers to a meeting, where it was about the economic cycle and the market's ability to self-correct, and one of the managers asked: “Why don't we just wait, until the invisible hand of Adam Smith takes care of everything?"Looking at him, Bogle answered: "God, don't you know, that we are the invisible hand of Adam Smith?”
Bogle's ability to bring innovative ideas to life and improve the world around him is rooted in the warehouse of his nature.. He always set himself big goals and walked towards them with unshakable confidence in his ability to correctly assess the situation and change it like this, as he sees fit. He said: “God created few people, more determined, than me". Bogla's hallmark was an unusually strong spirit of competition.. One of his former aides described his boss as a "violent fighter", whose “fighting qualities were evident in the debate, negotiating, in one-on-one fights, in speaking out in defense of their beliefs and in any other matter, which he undertook, - from solving crosswords to battles on the squash court ".
Jack Bogle possessed the ability to fight and achieve his own since childhood, maybe, already in the womb. There is a theory, that fighting temperament is often formed in twin children, and Jack had a twin brother David. Brothers were born 8 May 1929 of the year. At this time, the parents of the boys had the means and lived in their own house in the fashionable area of the town of Verona., state of new jersey. But after the stock market crash in 1929 year Bogle the father was forced to sell the house. The family lost their small fortune, And, as soon as the sons grew up a little, they had to get to work. At the age of 10, Jack delivered mail and moonlighted in an ice cream parlor.. In the meantime, the father began to drink a lot., lost his job in the early 1940s, and a few years later he separated from Jack's mother and left his family. Bogle later said, that these hard impressions of his early life turned him into a financial conservative and aroused in him a strong desire to succeed, in order to restore the good name of the family.
Due to lack of funds, Jack and his brother attended public school for the first few years, however when they were supposed to move to high school, mother took them from there and gave them to Blair Academy (Blair Academy). It was a private secondary school for men, aimed at preparing students for entry into the upper strata of American society. Of course, the Boglov family could not afford to pay for education children in a private school. The mother's brother helped to solve the problem, engaged in investment banking and provided the boys with scholarships from the firm.
Jack has achieved excellent results in the sciences, so in sports, finishing school second in his class. And teachers, and fellow practitioners were confident in his future success. He left Blair Academy in May 1947 of the year, feeling the greatest gratitude, and years later became the largest sponsor of the school. It fits well with American tradition., according to which the students, successful ones donate money to their alma mater. With 1986 on 2001 yy. Bogle served as chairman of her board of trustees.
Jack went to college at Princeton University, where he chose economics as his specialty. He financed his studies with a scholarship and various student part-time jobs.. Mother could not provide financial support to Jack, but he, Nevertheless, felt deeply indebted to her and his two brothers, since the family made a decision, that only one in three sons will go to college, and the choice fell on him. The other two had to work full time, to provide the family with a livelihood. Under these circumstances, Jack became even more entrenched in his desire to achieve professional success..
In his final year at Princeton, Bogle was scheduled to write his thesis and chose the mutual fund industry as his topic.. At that time, this area was small and relatively little known.. However, Jack was extremely interested in the article, published in the December issue of Fortune Magazine 1949 of the year, where it was approved, that mutual funds have tremendous potential for development. Jack collected and analyzed a variety of materials and presented his thesis the size of 123 pages, deserving the highest grade A +. It formulated the basic principles of mutual funds, subsequently used by the author to create the Vanguard Group. The most important of them were minimizing the asset turnover ratio and the value of operating expenses, creation of new types of funds, as well as honesty and openness in dealing with investors.
In May 1951 Bogle graduated from university, received an honors degree (with great praise) on economics, but did not consider his education complete. The desire to further expand his professional knowledge forced him to continue his studies in higher education.. With 1952 on 1959 yy. Jack attended classes at the University of Pennsylvania Evening School of Business and Finance on weekends and evenings..
Jack Bogle found his first job after college through contacts, for which so many students choose prestigious universities to study. The manager of his varsity dining club reached out to Princeton alumnus Walter Morgan (Walter L. Morgan), Founder and CEO of the fourth largest mutual fund in the United States, the Wellington Fund, and recommended Bogle to him as an employee. Morgan assigned two of his managers to talk to Bogle., and they, impressed by the interview, persuaded the boss to read a young applicant's thesis. Following their advice, Morgan was so delighted, that he ordered copies to be made and distributed for reading to each of the fifty Wellington employees.
Morgan recruited Bogle, not having a clear idea of what, what will he do. Having come to the fund 4 July 1951 of the year, Bogle has performed a variety of routine clerical and administrative duties for several years., working directly with Morgan. Finally in 1955 year he was officially appointed assistant manager. Over the next seven years, he received assignments, related to the most varied aspects of the company's work, and took advantage of it, to study in detail all aspects of the mutual fund business.
Late 1950s. Bogle began persuading Morgan to open a second mutual fund. Wellington was a balanced fund, who invested like in stocks, and in bonds. Bogle proposed the creation of a new fund, exclusively focused on stocks. Morgan liked the idea, and the new fund was introduced to the market in 1958 year. It was originally named Wellington Equity Fund, but in 1963 year renamed into Windsor Fund. Wellington funds were managed by a separate firm, called Wellington Management Company. IN 1960 year Walter Morgan made a public offering of its shares. Retaining a controlling stake, he sold a significant number of shares to other investors, including Bogla, who acquired 10000 from 877800 company shares.
IN 1965 Bogle was appointed Executive Vice President with a mandate to boost Wellington Management Company revenues. It was obvious to him, that this can be done by increasing assets, managed by the company. Bogle believed that the best way to achieve this goal was to create a new fund., focused on achieving high profitability. But such a fund, first of all, needed effective investment portfolio management, find which, according to Bogle, the easiest way was to merge. Therefore, he entered into negotiations with the Boston company Thorndike., Doran, Paine and Lewis (TDP&L), providing consulting services in the field of investment. In TDP management&L was Ivest Fund, which the, with a relatively small size, showed at that time the best results in the US among mutual funds. Negotiations were successful, and c 1966 year, the two companies merged under the name Wellington Management Company, in which the TDP holders&L got a 40 percent stake. According to both sides, involved in the transaction, TDP&L brought her skills to the combined company, rich experience in analytical work plus a reputation as a reliable company with conservative investment management principles. It was supposed, that the newly formed company, thus, will be able to offer clients much more options for investing their funds.
However, for Bogla merge, which he sought, turned into a solid headache. Despite being named President and CEO of the combined company, he had serious difficulties trying to reach an agreement with new partners from Boston. After a while, disagreements between him and the Boston group turned into open hostility.. Bogle and his partners had different opinions on investment strategies.. For example, in 1970 year, the Boston group sharply opposed Bogle's proposal to introduce a bond fund on the market. According to the stories of witnesses, one of the Bostonians even told Bogle, that a bond fund proposal is “the dumbest idea, which he has ever heard ". The hostility was also attributed to differences in leadership. Bogle was extremely confident, preferred an authoritarian style and did not believe in the effectiveness of subordinates' participation in decision-making. His Boston partners, against, convinced of the benefits of such participation, where the main focus is on building consensus. Besides, they were not ardent supporters of the detailed approach, what could not but anger Bogle, distinguished by great scrupulousness.
Bogle's health problems also contributed to the aggravation of managerial conflict to some extent., who suffered from severe heart failure and in the 1960s. suffered multiple cardiac arrest. He was forced to periodically go to the hospital, and in the end he was implanted with a pacemaker.
Disagreements between the parties deepened especially against the background of very weak financial results., demonstrated by foundations in the early 1970s. As a result of the sharp downturn in the stock market, which took place in 1973 G., the total assets under Wellington's management declined from the maximum $ 2,6 billion, fixed in 1972 G., to $ 2 billion. in the end 1973 G. Wellington Management Company profit declined from $2,7 million. in 1972 G. to $1,9 million. in 1973 G. Company share price, which at the time of the merger was $40, to the beginning 1974 G. dropped to $8.
Conflict between Bogle and the Boston group culminates early 1974 year and resolved in favor of the last. At a meeting of the Board of Directors of Wellington Management Company, held 23 January 1974 of the year, ten votes in favor, with two abstentions, it was decided to dismiss Bogle. To soften the blow, the council also voted to, to keep his current salary, leaving at work as a consultant.
Bogle decided not to give up positions and fight to maintain control of the company.. He appealed to the Boards of Directors of Wellington Foundations, which functioned separately from the Wellington Management Company board of directors, who has just made the decision to dismiss him. Bogle invited each of the boards of directors to consider taking over the functions of the management company..
Mutual fund boards decide to break with tradition, keeping Bogle as president. Besides, they jointly asked him to conduct a large-scale study, concerning the future directions of work and prospects of mutual funds. They also asked the Wellington Management Company to pay Bogle a salary and provide him with research space..
As a next step, Bogle suggested that foundations' boards of directors take over responsibility for their own administrative functions. (legal and accounting). 20 June 1974 of the year, the Board of Directors of the Wellington Investment Group voted in favor of Bogle's proposal. It was decided, that Wellington Management Company will continue to act as investment advisor and chief underwriter of the funds. However, the annual payments to her from the foundations were to be reduced by $1 million. for the reason that, that the management company has terminated the provision of administrative services.
Bogle formed a new company to carry out administrative functions, which was named Vanguard Group. The company got its name in honor of the flagship, on which Lord Nelson was during the famous Battle of the Nile in 1798 G., when the British navy defeated the French. Vanguard Group has been involved in the management of eleven funds, owned by the former Wellington Group, henceforth known as the Vanguard Group of Investment Companies. The new company was registered as a legal entity 24 September 1974 of the year.
Bogle claimed, what, creating the Vanguard Group, he established a new method of corporate governance. According to him, Vanguard's idea was revolutionary in that sense, that it was the only truly “mutual” fund, and so it was made by a different method of distribution of profits. Arrived, generated by all other mutual funds, entered the management company, and at Vanguard they went back to the funds, which made it possible to reduce costs and increase the fund's profitability .
An important new milestone in Vanguard's independence from Wellington Management was the 1977 the decision to withdraw from Wellington's management of the placement of shares among investors. At that time, fund shares were placed through stock brokers., who charged a commission for their services (the so-called "load"). Bogle offered to act without stock brokers, selling shares to shareholders directly. Solution 1977 of the year turned Vanguard into a foundation, no-load promoter. From the point of view of investors, this was a great advantage., since the trade commission, or "load", previously charged for the purchase of fund shares, meant a decrease in the return on investment.
The final break of the once close ties between Vanguard and Wellington Management has occurred, when the latter lost her remaining powers, related to investment management. IN 1980 year for two new funds, which Vanguard has set out to bring to the market, two investment consultants were hired "from the outside". IN 1981 Vanguard took over the advisory role of its money market funds and municipal bonds. Bogle then brought in a number of third-party advisors for various equity funds., which were part of the Vanguard. IN 1995 worked at Vanguard 14 independent firms, providing investment consulting services. Vanguard provided investment advisory services for its ETFs alone, without outsourcing..
In addition to the rejection of the company's investment management services and the transition to a "no load" share sale system, an important element of Vanguard's low-cost strategy is minimizing the cost of advertising and promoting fund services on the market. TO 1990 G. Vanguard claimed, what spends on these purposes ten times less than its largest competitors. The company's frugality is reflected in its cost ratio, which in 1974 was 0,71% compared to 1,08% industry average. TO 1993 G. Vanguard was able to reduce the cost ratio to 0,30%, while the industry average even increased slightly, reaching 1,10%.
Bogle also implemented the ones stated in his thesis. 1951 years of ideas regarding the introduction of new types of funds on the market. Among the three most significant innovations, carried out on his initiative and under his leadership, should be called the creation of bond funds, money market funds and stock index funds (as well as an index bond fund). Each time, Bogle has had to act in an atmosphere of mistrust and withstand numerous critical attacks from industry professionals.. And in each case, his proposed new product held a stable position in the structure of the mutual fund industry., becoming its integral part. Bogle attached particular importance to stock index funds.. He thought, that very few portfolio managers are able to deliver results over time, exceeding the market average, And, Besides, such managers are almost impossible to recognize in advance. That's why, Bogle argued, it is much more profitable for investors to invest their money in a fund, who just wants to keep up with the market, reflecting the dynamics of a certain market index. The index fund has another major advantage, since it does not require active portfolio management and, hence, paying a high salary to an investment manager.
The first Vanguard index fund, tied to the Standard and Poor's index 500, was introduced to the market in 1976 G. In February 1996 G. it ranked second among U.S. mutual funds in terms of assets and outstripped 85% of all diversified equity funds in terms of profitability for the last 15 years. Kiplinger’s Personal Finance Magazine reported in 1996 year, that only six of Vanguard's actively managed funds were able to perform better in a five-year period, than the Vanguard Index fund 500.
By the end 1995 the Vanguard family has offered investors 85 various mutual funds, out of which 29 had traditional portfolios, operated by third party investment companies, 37 invested in certain asset categories (money market instruments, bonds), and 19 were index. The total assets of these funds amounted to almost $180 billion. A year later, the number of funds increased to 98, and assets have reached $237 billion.
During his tenure as CEO of the Vanguard Group, Bogle was able to bring to life the third element of his original vision.: honest and open communication with fund shareholders. Over the years, he has become widely known for his outspoken warnings to investors., which were contained in the annual reports of the company, and also due to the frequent and harsh criticism of the advertising policy in the industry. The main object of his criticism was the habit of management companies to strongly praise the results of the past periods in order to create the impression, that future achievements should be just as good. As an example of Bogle's absolute openness regarding the prospects of his own company, it is worth citing a quote from his address to shareholders in the annual report for 1996 year: “We emphasize, that high rates of absolute profitability, demonstrated by our index funds in 1996 year, should not be seen as a symbol of future success. All of these achievements have exceeded the stock market average over the long term.; such exceptionally strong results do not last forever ”.
It should be noted that, that Bogle's overwhelming self-esteem was seriously damaging his relationships with colleagues in the profession. He often, unnecessarily, set against himself people as equals in position., as well as higher, and put employees in a state of fright and depression. The most striking example of confrontation with colleagues in the profession is the story of his relationship with an investment group from Boston during his time at the Wellington Fund.. Although the conflict was based on fundamental differences in approach to business, the situation was significantly exacerbated by Bogle's rejection of discussions of his decisions and his obvious contempt for the abilities and opinions of Boston partners.
Bogle's relationship with employees was a combination of love and stress., in which love is all the same, usually, prevailed. One expert, advised Vanguard on, personnel-related, told, that “most people, in direct contact with Bogle, are very scared. They respect him, but he inspires them with fear. They are afraid to go to meetings, because they will be smashed for something or forced to defend something. Jack Bogle is not a modern manager with a democratic approach to management.. The one, who deals with him, trembling knees ". At the same time, the consultant noted, that Bogla was valued for taking care of subordinates and being available for contact.
From the point of view of employees, the strengths of his nature far outweighed the roughness and toughness. So, according to one of the top managers of Vanguard, Bogle as a leader could be “impulsive, fickle, callous and unfeeling, could make the interlocutor "feel like an absolute dumb", – and for all that, this manager would not exchange jobs with anyone else, because it was working for Boghl, was able to “study all the obvious and hidden features of the industry in the best possible way”. He also added, that Bogle is extremely loyal to his employees and is generous with praise, when any of them show good work.
By the mid-1990s. Bogle's health problems worsened, and c 1996 year of Jack Bogle, whose life has been supported by a pacemaker for many years, had a heart transplant. Early that year, he resigned as CEO of Vanguard., remaining honorary chairman of the board of directors. In the end 1999 Bogle left the board after failing to circumvent the rule, requiring Vanguard directors to retire at age 70 years. From that moment on, the third stage of the career of this indefatigable person began.: he is now President of the Bogle Financial Markets Research Center, part of the Vanguard structure.
Bogle and his wife Eve live in Pennsylvania., in the town of Bryn Mor, located west of Philadelphia. They have six children and twelve grandchildren.. Interesting, that the son of a die-hard index fund supporter runs an actively managed fund. However, Bogle doesn't see this as a problem.. When asked by a Time journalist about this, he answered, which in a 50-year period is about 4% of all fund managers achieve results, exceeding the market average. Only a person who does not know him well is able to guess, that he does not believe in the possibility of his own son getting into these 4%.
Bogle is the author of a number of books, enjoying a well-deserved interest in the financial world. First book, published in 1993 year by Irwin Professional Publishing under the heading “Bogle on Mutual Funds: new perspectives for a prudent investor " (“Bogle on Mutual funds: New Perspectives for the Intelligent Investor”), immediately became a bestseller. Its content was the basics of investing in mutual funds and a discussion of the benefits of index funds.. IN 1996 the same publishing house published a book by journalist Robert Slater (Robert Slater) “John Bogle and the Vanguard Experiment: human, transformed the mutual fund industry ” (John Bogle and the Vanguard Experiment: One Man’s Quest to Transform the Mutual Fund Industry), which was written in collaboration with and at Bogle's initiative. Slater's work was interesting because, which, in essence, provided a “first-hand inside view” of one of the leading mutual fund companies.
In September 2005 the fifth book of Bogle was published, dubbed "The Battle for the Soul of Capitalism" (“Battle for the Soul of Capitalism”). Its content is indicated by the phrase on the cover.: “How the financial system shattered social ideals, undermined faith in markets, robbed trillions of investors and what to do about it ”. Pages Books actually resemble a battlefield: Bogle Rebels Against "Pathological Mutation" From "Ownership Capitalism", in which the remuneration went to the owners of the capital, to "managerial capitalism", whose income is completely out of control.
Bogle made a significant contribution to the development of the industry, participating in the work of various professional associations and government organizations. IN 1969-70 yy. he was Chairman of the Board of Governors of the Institute of Investment Companies (Investment Company Institute), and then to 1974 G. remained a member of the council. He also served as Chairman of the Investment Companies Committee of the National Association of Securities Dealers.. IN 1997 G. then Chairman of the US Securities and Exchange Commission Arthur Levitt (Arthur Levitt) appoints Bogle as a member of the newly formed Independent Standards Board. From september 1999 G. he is the chairman of the council of the National Constitutional Center. Till December 2005 he was also a director of the Instinet Corporation. He is a member of the Investment Funds and Private Enterprise Commission of the Conference Board research firm., as well as a member of the investment committee of the Phi Beta Kappa Society.
List of distinctions and awards, received by Bogle, too long, to bring it completely, however, one cannot fail to name at least some of them. For the last 10 years American universities, including his native Princeton, awarded to the "father of index funds" 11 honorary doctorates in such fields of knowledge, as a right, humanities and business administration. IN 1996 year Bogle became the first in the ranking of fund managers by Fund Action magazine. A year later, the publication "Leadership in Financial Services" included him among the "financial leaders of the 20th century.". IN 1998 he received the Professional Excellence Award from the Investment Management and Analytics Association (Association for Investment Management and Research) “For outstanding achievements, practical skill and qualities of a true leader, inspiring respect for the investment profession ”. IN 1999 year Fortune magazine named him one of the four “giants of the 20th century” in the investment industry, and Barron's put his name in the investment hall of fame. At the same time, Princeton University awarded Bogle the Woodrow Wilson Medal for "Outstanding Achievement in the Service of the Nation.". IN 2004 year magazine Time named him "a hero and idol" among the "100 most powerful and influential people in the world". In the same year he was awarded the Lifetime Achievement Award (Lifetime Achievement Award) Institutional Investor magazine.
Bogle's interests are not limited to investment. He is extremely interested in history, is a member of the American Philosophical Society and the American Academy of Arts and Sciences. Despite a serious illness, Bogle has always led a physically active lifestyle., loved hiking, was fond of various sports, including bike, sailing and squash.
Bogle is far from being infallible.. “I can assure you, that i'm not a saint. If you don't believe, ask my wife ", – he jokes. But his career, in his own words, was one "continuous joy", And, in his firm conviction, “No one in this business was having more fun”. In a recent interview, Bogle was asked, is he going now, when his age approaches eighty, live a quieter life. Bogle answered, that when people “slow down, they start to age ”, and this process turns into a "self-fulfilling divination". He's still full of energy and confident, that he still has something to say to the world.
