Updated: Mar 14, 2019
“I will create value for society, rather than extract it.” John C. Bogle, Founder of The Vanguard Group
On April 13, 2004 John C. Bogle, Founder of The Vanguard Group, visited a group of finance students on the campus of Washington State University. I huddled in Todd Auditorium without a clue that the greatest gift to the individual investor sat before me. Mr. Bogle was an industry pioneer putting investor outcomes above all else. His passing comes with great sadness, but his legacy will live on for generations.
Bogle's "investor first" principles stuck with me that day and shaped our vision for Pure Portfolios. We have outlined several of our favorite "Bogleisms" that will stand the test of time (and save you heartache).
"The mutual fund industry has been built, in a sense, on witchcraft."
Bogle was an evidence-based investor before anyone else. It wasn't rocket science either. A simple examination of fees, taxes, and cost led him to shun active mutual funds, identifying them as wealth siphoning traps that benefited Wall Street at the expense of the individual investor.
“The transfer of Wall Street from private ownership to public ownership has been a big step backward.”
Bogle knew right away what public ownership of financial companies meant for the individual investor and it wasn't good. In other words, can public companies with a duty to maximize shareholder value act in the best interest of their clients?
“It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it.”
Compensation and incentives drive human behavior. Here's Wells Fargo CEO John Stumpf after the widespread cross-selling scandal, "We are eliminating product sales goals because we want to make certain our customers have full confidence that our retail bankers are always focused on the best interests of customers."
A great way to evaluate whether you're getting good advice (or not), is to understand the compensation scheme behind the recommendation.
“Buying funds based purely on their past performance is one of the stupidest things an investor can do.”
Evidence suggests the best performing funds of yesterday have virtually zero chance of sustaining outperformance in the future. Yet, many investors base their investment decisions exclusively on recent outperformance. This is likely to end in disappointment and frustration.
“Even for taxable clients, mutual fund managers supervised the assets in very much the same way, simply ignoring the tax impact and passing the tax liability through to largely unsuspecting fund shareholders.”
Bogle was a big critic of the mutual fund industry's indifference to taxes. 2018 was a triple whammy for active mutual funds, as investors were hit with ugly capital gain distributions, poor returns and high fees. Even Morningstar isn't a fan.
“The miracle of compounding returns is overwhelmed by the tyranny of compounding costs.”
High fees are the enemy of the investor. Just as capital compounds over time, paying layers of exorbitant fees compounds over time. If you have 15+ years to invest, this could mean hundreds of thousands or even millions of dollars.
“My biggest prediction for the future is that people are going to start looking after individual investors.”
You're seeing more investor-friendly entities take market share from large bumbling, self serving financial institutions. Robo advisors, online banks, unfiltered blogs, interest in cryptocurrency, and the proliferation of independent investment advisors (RIAs) exist because of the poor behavior of incumbents.
It wouldn't be a stretch to say that John C. Bogle has done more for the individual investor than any person in history. We will honor his legacy by adhering to Evidence-Based investment principles which we define as the relentless pursuit of what works.