Jack Bogle

Apr 25, 2008 by Adam C. Powell, Ph.D.

On April 10th, Jack Bogle came to speak to the MIT Alumni Association of Delaware Valley. Mr. Bogle is famous for having founded Vanguard, one of the world’s largest mutual fund companies, in 1974. Vanguard is well-known for having been a pioneer in the market for indexed mutual funds. Unsurprisingly, Mr. Bogle spent a large portion of his speech discussing the importance of following an index-based investing strategy. During his speech, I wrote down several of his most interesting points:

Bogle on the Global Economy 

• The global economy is anything but new. Chinese tea exports to Britain had an adverse impact on the price of the pound sterling, which motivated the British to find a product to export to China; opium.
• A decade ago, 15% of revenues of U.S. firms came from overseas. Now, 34% of revenues come from overseas.
• Although global stock markets seem to produce similar long-run returns to the U.S. stock market, when the dollar weakens relative to other currencies, they provide American investors with even greater returns.
• In 2007, 92% of mutual fund purchases were foreign; this may be a cases of performance chasing

Bogle on Investing

• When it comes to managing your portfolio, “Don’t do something. Just stand there. Don’t peak.”
• Buying and holding businesses is long-term investment. Speculation is the activity of forecasting the psychology of the market.
• The total return is the sum of the investment return and the speculative return
• Fund turnover is at an all-time high. It was 140% in 1929, around 40% in the 90’s, and reached around 280% in the 2000’s
• We are in a new era with the highest level of speculation in the nation’s history
• This is in part being driven by institutional stock ownership. Individuals own only 8% of stocks. Manager-agents speculate with the money of others.
• Many financial innovations are complex and costly. Innovation, on balance, subtracts value.
• The value of the S&P 500 is $13 trillion, but the value of the futures and options on it are $23 trillion!
• It really doesn’t make sense to have Exchange Traded Index funds. “What kind of nut would want to trade the Standard & Poors all day, in real time? Get a life!”
• There are 690 index funds, but 685 of them are likely to narrow. All people need are a few broad market indices: the U.S. market, the International market, and the emerging market
• In 2018, the Dow will be at 22,500

Bogle on Everything Else

• We need a federal standard of feduciary duty
• Corporate CEOs aren’t really creating much value. As soon as a CEO falls into the bottom quartile of pay, he is moved into the top quartile. This is helping cause the escalation in pay.
• The fiscal stimulus passed by Congress won’t help. Speaker Pelosi said that it is, “A gift to the people.” But, “we the people are doing the giving!”
• A weak dollar is good for U.S. corporations

 All in all, it was enjoyable to hear Mr. Bogle speak. Although he is now retired, he continues to be a vigorous man. He has made a lasting impact on the market by overseeing the introduction of the precursors to the ETFs that I know and love.