CARDIFF GARCIA, HOST:
Hey, everyone. It's Cardiff. This is THE INDICATOR FROM PLANET MONEY. On Wednesday, John Clifton Bogle - Jack Bogle, founder of the Vanguard Group - passed away at the age of 89. Jack Bogle was a giant in the financial industry. But in a way, his legacy's not about what he did for the financial sector but rather about the ways that he tried to prevent the financial sector from ripping people off.
Joining me in the studio today to discuss this legacy is Katherine Bell. She's the editor-in-chief of Barron's, a publication that has extensively covered Jack Bogle's ideas and his career. Katherine, welcome.
KATHERINE BELL: Thanks so much for having me, Cardiff.
GARCIA: So what was your instant reaction to news that Jack Bogle had passed away?
BELL: So in the newsroom, my first reaction was I'm glad we're ready for this because we'd been thinking about him a lot lately. Leslie Norton, one of our senior writers, had done the last major interview with him...
BELL: ...In December. And then, very quickly after that, we sort of paused and had a conversation about how actually very sad we were because he's such an important figure to our readers in particular.
GARCIA: How so?
BELL: Because he really fought for them. Most of our readers are individual investors, so the kind of people who, you know, on their own are trying to save for the future. And he was somebody who looked out for people like that.
GARCIA: Yeah. Well, after the break, Katherine and I are going to discuss Jack Bogle's career. And we're going to use a few of his own quotes to better understand his philosophy and the changes he made to the financial landscape.
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GARCIA: OK, some quick background first. As the founder of Vanguard, Jack Bogle launched the first index mutual fund for individual investors - in other words, for investors like you and me - back in the mid-1970s. It was called the Vanguard 500 Index Fund. That is a fund that just passively buys the roughly 500 stocks in the S&P 500 index. And therefore, the fund just gives you the same returns as the index itself, an index which roughly tracks the overall U.S. stock market.
And because the fund just tracks the index, people who invest in it, people like you and me, don't have to pay expensive fees for fancy portfolio managers to actively pick stocks because it turns out that active stock pickers rarely ever beat the index. So Katherine, the rise of indexing - which, again, we can trace directly back to Jack Bogle launching that first index mutual fund in the mid-1970s - how big a deal has that been?
BELL: It was one of the very biggest financial innovations of the 20th century.
BELL: And for millions for individual investors, I would say the biggest. It really has democratized investing and allowed a lot of people who otherwise wouldn't be investors to be able to participate in the market.
GARCIA: I want to actually turn now to a couple of Jack Bogle's own quotes and get your reactions to them. Here's a quote that he actually gave to Planet Money a few years ago. But you can also hear it now this week in your Planet Money feed because we are re-airing that episode.
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DAVID KESTENBAUM, HOST:
Does seem boring. It does feel like giving up.
JACK BOGLE: It is the essence of boredom. I'll concede it. If you're in investing for excitement, you are a damn fool. You're watching the market every day, up and down, 100-point, 200, 300, 400-point swings, day after day. It's exciting, but it's meaningless.
GARCIA: So this to me, like, represents one of the ways that he had this kind of counter-intuition that, like, excitement was the enemy, that actually, if you want to do well in the market, boredom was where you wanted to be.
BELL: Patience, really.
GARCIA: Why is that?
BELL: Because there's a lot of risk that you introduce if you are paying attention every day or every moment, and you are trying to game market timing. I mean, people can make money that way for sure. But especially for you and me, for ordinary investors, really, the best way to do it is to stay confident and patient over the long haul.
GARCIA: Or, as he liked to say, stay the course, right?
BELL: Stay the course. Yes.
GARCIA: Yeah. There's something else about that quote that I like, which is that the emphasis on boredom wasn't just in his approach to the markets but was some - it was something that he described about himself, right? That he was kind of a - he was a non-flashy guy or even, like, an anti-flashy guy. Like, he's a bit of a cheapskate, right?
BELL: Right. I mean, he had talked to us about how where he really wanted to be was in his boathouse on Lake Placid. You know, he's not a flashy guy.
GARCIA: OK. Let's go to the second quote.
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BOGLE: Cost turns out to be everything. That gives us a huge edge and gives our investors a huge edge. And that's just mathematics. I mean, it may come across as bragging, but it's not. It's just what I have often called the relentless rules of humble arithmetic.
GARCIA: Katherine, this emphasis on cost and the reduction of cost, that was, like, a - another big obsession of his.
BELL: Right. Well, there are a couple of things about this. I mean, the first relates to what we were just talking about, about patience. But he also believed in fairness and in fairness to the investors and in not making too much money as a company at the expense of what was good for the customers. So the other thing besides the index fund that he felt incredibly strongly about was the way that they structured Vanguard as a company, which was as a mutual company, so that it was...
GARCIA: Explain that for our listeners, by the way.
BELL: It was owned by the clients. And so part of what that meant was that when they saved on costs, they would pass those savings along to their clients, to their investors.
GARCIA: OK. The final quote actually comes from one of his books, so we don't have tape for it. I'm just going to kind of paraphrase it. And it relates to something you just said, Katherine. He writes, the way to wealth for those in the business - in other words, people in the financial sector - is to persuade their clients, don't just stand there. Do something.
But the way to wealth for their clients - in other words, like people like you and me who are investing in these funds - in the aggregate is to follow the opposite maxim. Don't do something. Just stand there. What do you think that means?
BELL: Right. I mean, this is one of the reasons he has not always been the most popular person in the mutual fund industry, right?
GARCIA: Yeah. He doesn't want them to have more money (laughter).
BELL: No. I mean, he - he's operating on behalf of the investors again. And in the latter part of his career, he spent most of his time writing and speaking about this. And the pressure that he and Vanguard put on the industry has meant that that's changing and things are better for individual investors, and a lot of that is thanks to him. There's another thing that he said that I liked that is pretty similar, which is that the arc of fiduciary duty is long but moving in the right direction.
GARCIA: (Laughter) Yeah. One final point - it was sort of near and dear to my heart - about Jack Bogle, which was that he launched that first index mutual fund because he had been inspired by the work of an economist, a famous economist, named Paul Samuelson who'd basically done this work looking for evidence that active stock pickers could beat the market in the long run and found no evidence of that. And so people often ask me, like, what's a good example of economics actually having an impact in the real world? This seems to be an example of exactly that, you know.
BELL: Absolutely. I mean, that was his big bet, that the average mutual fund manager, the average active manager, could not do better than the stock market.
BELL: And he was right.
GARCIA: He has been proved to be right.
BELL: Most of the time.
BELL: That's not always necessarily true. But I think what he did was provide this really big option that hadn't been there before that allows a lot more people in.
GARCIA: Yeah. That's interesting too because - to use a phrase you mentioned earlier, the democratization of the market - for a lot of people, especially for people who don't have a ton of money or time or energy to put into this, it's not just the fact that like, OK, it's hard to beat the market if you're an active stock picker. But it's hard for people like me and you to actually spot the active stock pickers who are going to beat the market, you know? So it's sort of like a second layer of that.
BELL: And it's all about how much risk you're willing to take or able to take. And so for people who don't start out with a lot of money and, you know, who don't have a lot of appetite for risk, in most times of the markets, you know, he's given them good options.
GARCIA: Yeah. Katherine Bell, thanks so much.
BELL: Thanks for having me.
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