Bogle Quotes

Don't look for the needle in the haystack. Just buy the haystack!

He had no wish to be killed by a bogle in which he resolutely did not believe.

The greatest enemy of a good plan is the dream of a perfect plan.” Stick to the good plan. Traditional

On balance, the financial system subracts value from society

The shortest route to top quartile performance is to be in the bottom quartile of expenses. —Jack Bogle

He smiles shyly at Leah. Aged ten he had a smile! Nathan Bogle: the very definition of desire for girls who had previously only felt that way about certain fragrant erasers. A smile to destroy the resolve of even the strictest teachers, other people's parents. Now she sees ten-year-olds and cannot believe they have inside them what she had inside her at the same age.

When there are multiple solutions to a problem, choose the simplest one.

The grim irony of investing, then, is that we investors as a group not only don't get what we pay for, we get precisely what we don't pay for. So if we pay for nothing, we get everything.

The mutual fund industry has been built, in a sense, on witchcraft.

The true investor . . . will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

Buying funds based purely on their past performance is one of the stupidest things an investor can do.

As I have earlier noted, the most important things in life and in business can’t be measured. The trite bromide 'If you can measure it, you can manage it' has been a hindrance in the building a great real-world organization, just as it has been a hindrance in evaluating the real-world economy. It is character, not numbers, that make the world go ‘round. How can we possibly measure the qualities of human existence that give our lives and careers meaning? How about grace, kindness, and integrity? What value do we put on passion, devotion, and trust? How much do cheerfulness, the lilt of a human voice, and a touch of pride add to our lives? Tell me, please, if you can, how to value friendship, cooperation, dedication, and spirit. Categorically, the firm that ignores the intangible qualities that the human beings who are our colleagues bring to their careers will never build a great workforce or a great organization.

The two greatest enemies of the equity fund investor are expenses and emotions.

The old scars are now gone, covered by the new that you caused. . .

The most important of these rules is the first one: the eternal law of reversion to the mean (RTM) in the financial markets.

The great game of life is not about money; it is about doing your best to join the battle to build anew our communities, our nation, and our world.

Gunning for average is your best shot at finishing above average.

At a party given by a billionaire on Shelter Island, Kurt Vonnegut informs his pal, Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch-22 over its whole history. Heller responds,“Yes, but I have something he will never have — enough.

In the mutual fund industry, for example, the annual rate of portfolio turnover for the average actively managed equity fund runs to almost 100 percent, ranging from a hardly minimal 25 percent for the lowest turnover quintile to an astonishing 230 percent for the highest quintile. (The turnover of all-stock-market index funds is about 7 percent.)

Owning the stock market over the long term is a winner's game, but attempting to beat the market is a loser's game.

For finally, “you can always count on Americans to do the right thing,” as Churchill pointed out, “but only after they’ve tried everything else.

Investors need to understand not only the magic of compounding long-term returns, but the tyranny of compounding costs; costs that ultimately overwhelm that magic.

Pressed to identify useful financial innovations created during the past quarter-century, Paul A. Volcker, former Federal Reserve Chairman and recent chairman of President Obama’s Economic Recovery Board, could single out only one: “The ATM.

Three things saved us: Our unwavering 50% savings rate. Avoiding debt. We’ve never even had a car payment. Finally embracing the indexing lessons Jack Bogle—the founder of The Vanguard Group and the inventor of index funds—perfected 40 years ago.

some estimates suggest that the failure rate is around 20 percent, meaning that each year, one of every five hedge funds goes up in smoke.

It’s amazing how difficult it is for a man to understand something if he’s paid a small fortune not to understand it.

ye have a fine, hang-dog, rag-and-tatter, clappermaclaw kind of a look to ye, as if ye had stolen the coat from a potato-bogle.

Tattie-bogle believed that better things, brighter lights, bigger laughs were always happening to women who had no children.

Mungo and his brother and sister called this slack version of her Tattie-bogle, like some heartless, shambling scarecrow

The index fund is a most unlikely hero for the typical investor. It is no more (nor less) than a broadly diversified portfolio, typically run at rock-bottom costs, without the putative benefit of a brilliant, resourceful, and highly skilled portfolio manager. The index fund simply buys and holds the securities in a particular index, in proportion to their weight in the index. The concept is simplicity writ large.

Bogle’s brilliance, for us investors, was to shift the ownership of his new company to the mutual funds it operates. Since we investors own those funds, through our ownership of shares in them, we in effect own Vanguard.

Crack some ribs or crush a skull, Stuff down hearts ’til he is full, Rip paws and tails off any poor seabeast, Lock your cabin doors this night, Shake with terror, quake with fright, For the Bogle may invite you to his feast!

Jack Bogle, el fundador de Vanguard, que tiene más de $3 trillones en activos bajo administración, ha dicho, “¡Por supuesto! Sería increíble salir de la bolsa de valores en la alta y volver a la baja, pero en 65 años en este negocio, no he conocido a nadie que sepa cómo hacerlo y tampoco he conocido a alguien que me diga que algún conocido sepa hacerlo”. Y Warren Buffett ha dicho," El único valor de los pronosticadores de las acciones son hacer de buenos adivinos.

the great British economist John Maynard Keynes, written 70 years ago: “It is dangerous . . . to apply to the future inductive arguments based on past experience, unless one can distinguish the broad reasons why past experience was what it was.

Tamsin laughed that spring-rain laugh of hers. “Alas, my poor Jenny—awash in hobgoblins, besieged by bogles. Truly, there are no such creatures in your New York?” “Only in junior high school,” I said. “Never mind. Just introduce me as they come along.

The simple fact is that selecting a mutual fund that will outpace the stock market over the long term is, using Cervantes’ wonderful observation, like “looking for a needle in the haystack.” So I offer you Bogle’s corollary: “Don’t look for the needle in the haystack. Just buy the haystack!

The idea that a bell rings to signal when investors should get into or out of the market is simply not credible. After nearly 50 years in this business, I do not know of anybody who has done it successfully and consistently. I don't even know anybody who knows anybody who has done it successfully and consistently.

For example, trading in S&P 500-linked futures totaled more than $60 trillion(!) in 2011, five times the S&P 500 Index total market capitalization of $12.5 trillion. We also have credit default swaps, which are essentially bets on whether a corporation can meet the interest payments on its bonds. These credit default swaps alone had a notional value of $33 trillion. Add to this total a slew of other derivatives, whose notional value as 2012 began totaled a cool $708 trillion. By contrast, for what it’s worth, the aggregate capitalization of the world’s stock and bond markets is about $150 trillion, less than one-fourth as much. Is this a great financial system . . . or what!

Over the short run, however, the fundamentals are often overwhelmed by the deafening noise of speculation—the price at which the stock market values each dollar of earnings.

But most short-term renters of stocks are not particularly interested in assuring that corporate governance is focused on placing the interests of the stockholder first.

May your sword guide you and your shield always protect you.

Of 1,028 stock recommendations made by the typical brokerage firm during the first quarter of 2001 (the peak if the bull market), only 7 were "sell" recommendations.

The winning formula for success in investing is owning the entire stock market through an index fund, and then doing nothing. Just stay the course.

It is character, not numbers, that make the world go ‘round.

In 1950, individual investors held 92 percent of U.S. stocks and institutional investors held 8 percent. The roles have flipped, with institutions, now holding 70 percent, predominating, and individuals, now holding 30 percent, playing a secondary role. Simply put, these institutional agents now collectively hold firm voting control over Corporate America. (I

An investment in knowledge always pays the best interest. Learning is to the Studious, and Riches to the Careful. If a man empties his purse into his head, no man can take it away from him.

It will also tell you how easy it is to do just that: simply buy the entire stock market. Then, once you have bought your stocks, get out of the casino and stay out. Just hold the market portfolio forever. And that’s what the index fund does. This investment philosophy is not only simple and elegant. The arithmetic on which it is based is irrefutable. But it is not easy to follow its discipline. So

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.

As a result, Keynes warned, the stock market would become “a battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years.

But wha cookit the parridge for him?” exclaimed the Baillie, “I wad like to ken that;—wha, but your honour’s to command, Duncan Macwheeble? His honour, young Mr Waverley, pat it a’ in my hand frae the beginning—frae the first calling o’ the summons, as I may say. I circumvented them—I played at bogle about the bush wi’ them—I cajolled them; and if I have na gien Inch-Grabbit and Jamie Howie a bonnie begunk, they ken themselves. Him a writer! I did na gae slap-dash to them wi’ our young bra’ bridegroom, to gar them haud up the market; na, na; I scared them wi’ our wild tenantry, and the Mac-Ivors, that are but ill settled yet, till they durst na on ony errand whatsoever gang ower the door-stane after gloaming, for fear John Heatherblutter, or some siccan dare-the-diel, should take a baff at them: then, on the other hand, I beflum’d them wi’ Colonel Talbot—wad they offer to keep up the price again the Duke’s friend? did na they ken wha was master? had na they seen aneuch, by the example of mony a poor misguided unhappy body”—

The creation of Vanguard and its truly mutual (fund-shareholder-owned) structure has been the so-far-single counterexample to this pattern. I explain why this structure has worked so well, and why it must ultimately become the dominant structure in the industry.

In recent years, annual trading in stocks—necessarily creating, by reason of the transaction costs involved, negative value for traders—averaged some $33 trillion. But capital formation—that is, directing fresh investment capital to its highest and best uses, such as new businesses, new technology, medical breakthroughs, and modern plant and equipment for existing business—averaged some $250 billion. Put another way, speculation represented about 99.2 percent of the activities of our equity market system, with capital formation accounting for 0.8 percent.

Today, in our society, in economics, and in finance, we place far too much trust in numbers. Numbers are not reality . At best, they are a pale reflection of reality. At worst, they’re a gross distortion of the truths we seek to measure. But the damage doesn’t stop there. Not only do we rely too heavily on historic economic and market data; our optimistic bias also leads us to misinterpret the data and give them credence that they rarely merit. By worshipping at the altar of numbers and by discounting the immeasurable, we have in effect created a numeric economy that can easily undermine the real one. Government:

Financial markets are far too complex to isolate any single variable with ease, as if conducting a scientific experiment. The record is utterly bereft of evidence that definitive predictions of short-term fluctuations in stock prices can be made with consistent accuracy. The prices of common stocks are evanescent and illusory.

Can you think of another business in the world that would continue to exist as a going concern even after it had been proven definitively—as John Bogle of Vanguard proved about the financial industry—that most of its products are vastly inferior to other, cheaper alternatives like index funds? I can’t. How about a business whose most prestigious firms have been caught defrauding their own customers not once, but over and over again? In the normal corporate world, would such a business not only continue to operate, but actually make more and more money every year? Of course not. It would be long dead by now. And yet deceiving its clients and foisting inferior and even fraudulent products on them is exactly how Wall Street stays in business!

In 1980, the compensation of the average chief executive officer was forty-two times that of the average worker; by the year 2004, the ratio had soared to 280 times that of the average worker (down from an astonishing 531 times at the peak in 2000). Over the past quarter-century, CEO compensation measured in current dollars rose nearly sixteen times over , while the compensation of the average worker slightly more than doubled. Measured in real(1980) dollars, however, the compensation of the average worker rose just 0.3 percent per year, barely enough to maintain his or her standard of living. Yet CEO compensation rose at a rate of 8.5 percent annually, increasing by more than seven times in real terms during the period. The rationale was that these executives had "created wealth" for their shareholders. But were CEOs actually creating value commensurate with this huge increase in compenstion? Certainly the average CEO was not. In real terms, aggregate corporate profits grew at an annual rate of just 2.9 percent, compared to 3.1 percent for our nation's economy, as represented by the Gross Domestic Product. How that somewhat dispiriting lag can drive average CEO compensation to a cool 9.8 million in 2004 is one of the great anomalies of the age.

The first step is to measure what can be easily measured. This is okay as far as it goes. The second step is to disregard that which cannot be measured, or give it an arbitrary quantitative value.This is artificial and misleading.The third step is to presume that what cannot be measured really is not very important.This is blindness.The fourth step is to say that what cannot be measured does not really exist. This is suicide.   I’m

they pale by comparison to the trading volumes of hedge funds, to say nothing of the levels of trading in exotic securities such as interest rate swaps, collateralized debt obligations, derivatives such as futures on commodities, stock indexes, stocks, and even bets on whether a given company will go into bankruptcy (credit default swaps). The aggregate nominal value of these instruments, as I noted in Chapter 1, now exceeds $700 trillion.

Three, no matter what career you choose, do your best to hold high its traditional professional values, now swiftly eroding, in which serving the client is always the highest priority. And don’t ignore the greater good of your community, your nation, and your world. As William Penn pointed out, “We pass through this world but once, so do now any good you can do, and show now any kindness you can show, for we shall not pass this way again.”   As

But after all the horse trading between Democrats and Republicans—and reformers, bankers, and lobbyists—I fear that its complex, obtuse regulations (some 170 separate rules are still being developed) involved in limiting proprietary trading by banks makes me wish we’d taken the simple step of restoring the separation of deposit taking banks from investment banks. The Glass-Steagall Act of 1933 worked well until it was gradually eroded and finally repealed in 1999.

And now every April I sit on my porch And I watch the parade pass before me I see my old comrades, how proudly they march Reliving the dreams of past glory I see the old men all twisted and torn The forgotten heroes of a forgotten war And the young people ask me, "What are they marching for?" And I ask myself the same question And the band plays Waltzing Matilda And the old men still answer the call But year after year their numbers get fewer Some day no one will march there at all

In the same interview, Benjamin Graham was asked about the objection made to the index fund—that different investors have different requirements. Again, he responded bluntly: “At bottom that is only a convenient cliché or alibi to justify the mediocre record of the past. All investors want good results from their investments, and are entitled to them to the extent that they are actually obtainable. I see no reason why they should be content with results inferior to those of an indexed fund or pay standard fees for such inferior results.

Thomas Paine, whose 1776 tract Common Sense helped spark the American Revolution. Here is what Tom Paine wrote: Perhaps the sentiments contained in the following pages are not yet sufficiently fashionable to procure them general favor; a long habit of not thinking a thing wrong, gives it a superficial appearance of being right, and raises at first a formidable outcry in defense of custom. But the tumult soon subsides. Time makes more converts than reason. . . . I offer nothing more than simple facts, plain arguments, and common sense.

At the outset, investing is an act of faith, a willingness to postpone present consumption and save for the future.

In reality, there is, perhaps, no one of our natural passions so hard to subdue as pride. Disguise it, struggle with it, beat it down, stifle it, mortify it as much as one pleases, it is still alive, and will every now and then peep out and show itself; you will see it perhaps often in this history; for even if I could conceive that I had completely overcome it, I should probably be proud of my humility.

The higher the level of their investment activity, the greater the cost of financial intermediation and taxes, the less the net return that shareholders—as a group, the owners of our businesses—receive.

Another huge toll has been taken by taxes. Passively managed index funds are tax-efficient, given the low turnover implicit in the structure of the Standard & Poor’s 500 Index (and, to an even greater extent, the all-market Wilshire 5000 Index).

I believe that the Total Stock Market Index Fund should be the investment of choice for most investors, covering as it does the entire U.S. stock market, and

Graham’s timeless lesson for the intelligent investor, as valid today as when he prescribed it in his first edition, is clear: “the real money in investment will have to be made—as most of it has been made in the past—not out of buying and selling but of owning and holding securities, receiving interest and dividends and increases in value.” His

It is fair to say that, by Graham’s demanding standards, the overwhelming majority of today’s mutual funds, largely because of their high costs and speculative behavior, have failed to live up to their promise. As a result, a new type of fund—the index fund—is now gradually moving toward ascendancy. Why? Both because of what it does—providing the broadest possible diversification—and because of what it doesn’t do—neither assessing high costs nor engaging in high turnover. These

I’m speaking here about the classic index fund, one that is broadly diversified, holding all (or almost all) of its share of the $15 trillion capitalization of the U.S. stock market, operating with minimal expenses and without advisory fees, with tiny portfolio turnover, and with high tax efficiency. The index fund simply owns corporate America, buying an interest in each stock in the stock market in proportion to its market capitalization and then holding it forever.

Mutual fund investors, too, have inflated ideas of their own omniscience. They pick funds based on the recent performance superiority of fund managers, or even their long-term superiority, and hire advisers to help them do the same thing. But, the advisers do it with even less success (see Chapters 8, 9, and 10). Oblivious of the toll taken by costs, fund investors willingly pay heavy sales loads and incur excessive fund fees and expenses, and are unknowingly subjected to the substantial but hidden transaction costs incurred by funds as a result of their hyperactive portfolio turnover. Fund investors are confident that they can easily select superior fund managers. They are wrong.

Contrarily, for those who invest and then drop out of the game and never pay a single unnecessary cost, the odds in favor of success are awesome. Why? Simply because they own businesses, and businesses as a group earn substantial returns on their capital and pay out dividends to their owners. Yes, many individual companies fail. Firms with flawed ideas and rigid strategies and weak managements ultimately fall victim to the creative destruction that is the hallmark of competitive capitalism, only to be succeeded by others.3 But in the aggregate, businesses grow with the long-term growth of our vibrant economy.

When you have identified your long-term objectives, defined your tolerance for risk, and carefully selected an index fund or a small number of actively managed funds that meet your goals, stay the course. Hold tight. Complicating the investment process merely clutters the mind, too often bringing emotion into a financial plan that cries out for rationality. I am absolutely persuaded that investors’ emotions, such as greed and fear, exuberance and hope—if translated into rash actions—can be every bit as destructive to investment performance as inferior market returns. To reiterate what the estimable Mr. Buffett said earlier: “Inactivity strikes us as intelligent behavior.” Never forget it.

Experience conclusively shows that index-fund buyers are likely to obtain results exceeding those of the typical fund manager, whose large advisory fees and substantial portfolio turnover tend to reduce investment yields. Many people will find the guarantee of playing the stock-market game at par every round a very attractive one. The index fund is a sensible, serviceable method for obtaining the market’s rate of return with absolutely no effort and minimal expense.

The message is clear: in the long run, stock returns depend almost entirely on the reality of the investment returns earned by our corporations. The perception of investors, reflected by the speculative returns, counts for little. It is economics that controls long-term equity returns; emotions, so dominant in the short-term, dissolve.

I would add that I am not persuaded that international funds are a necessary component of an investor’s portfolio. Foreign funds may reduce a portfolio’s volatility, but their economic and currency risks may reduce returns by a still larger amount. The idea that a theoretically optimal portfolio must hold each geographical component at its market weight simply pushes me further than I would dream of being pushed. (I explore the pros and cons of global investing in Chapter 8.) My best judgment is that international holdings should comprise 20 percent of equities at a maximum, and that a zero weight is fully acceptable in most portfolios.

But it is the long-term merits of the index fund—broad diversification, weightings paralleling those of the stocks that comprise the market, minimal portfolio turnover, and low cost—that commend it to wise investors. Consider these words from perhaps the wisest investor of all, Warren E. Buffett, from the 1996 Annual Report of Berkshire Hathaway Corporation: Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

John Bogle wrote the best “business” (LIFE!) book I’ve read in years. The (BRILLIANT!) title: Enough.

So please don't forget that considering the probabilities of future returns only begins the decision-making process. Decisions have consequences. If the consequences of being badly wrong about future returns would imperil your financial future, be conservative.

Nina King was last seen outside her home in Los Angeles on November 19, 1952. She was reported missing by a neighbor. The murder of Nina King now appears to be tied to the disappearance of Los Angeles Police Detective Frank Bogle, who vanished on March 14, 1953, while investigating Miss King’s missing-person case. All of Detective Bogle’s files remain in the archives. The LAPD does not close unsolved cases, and we do not forget our own. We will follow every lead to bring closure to the family of Miss King and to determine what happened to Detective Bogle. We believe that answers in one case could lead to both cases being solved.’” The station switched to commercial as I stared at Frank, my mouth gaping. He looked up for a heartbeat, and then he was gone.

The best-known stars are, of course, those funds awarded top five-star billing by Morningstar Mutual Funds.

The Greek philosopher Archilochus tells us, the fox knows many things, but the hedgehog knows one great thing. The fox—artful, sly and astute—represents the financial institution that knows many things about complex markets and sophisticated marketing. The hedgehog—whose sharp spines give it almost impregnable armor when it curls into a ball—is the financial institution that knows only one great thing: long-term investment success is based on simplicity. John C. Bogle

When Rich People Do Stupid Things March, 2011 Enough. That's the title of Vanguard founder John Bogle's book about measuring what counts in life.

The title, as Bogle explains, comes from a conversation between Kurt Vonnegut and novelist Joseph Heller, who are enjoying a party hosted by a billionaire hedge fund manager. Vonnegut points out that their wealthy host had made more money in one day than Heller ever made from his novel Catch-22. "Yes," says Heller, "but I have something he will never have: enough.

My recommendations for investors in the accumulation phase of their lives, working to build their wealth, focused on a stock/bond mix of 80/20 for younger investors and 70/30 for older investors. For investors starting the post-retirement distribution phase, 60/40 for younger investors, 50/50 for older investors.

I’ve often been cited as an advocate for a similar simple and seemingly rigid asset allocation: your bond position should equal your age, with the remainder in stocks. That asset allocation strategy can serve the needs of many—if not most—investors quite well, but it was never intended to be more than a rule of thumb, a place to begin your thought process.

If you choose to invest in TDFs, I encourage you to “look under the hood” first. (Always a good idea!) Compare the costs of TDFs, and pay attention to their underlying structures. Many TDFs hold actively managed funds as components, whereas others use low-cost index funds. Make sure you know precisely what is in your TDF portfolio and how much you’re paying for it. The major actively managed TDFs have annual expense ratios that average 0.70 percent; index fund TDFs carry average expense ratios of 0.13 percent. It will not surprise you to know that I believe that low-cost, index-based target-date funds are likely to be your best option.

I doubt I need to say it, but I was in no mood for a fight just then; while the poison might have left my body, I still felt its aftereffects, a bone-deep weariness, and desired only a cup of coffee and a good hearty breakfast, not another swordfight with some bloody bogles. And why is it that my enemies always come at me when I am tired and hungry? Why cannot I deal with my stepmother’s hirelings on a full stomach, having had a good night’s rest in some comfortable bed? (Present lodgings excepted—the lumps in these mattresses, my God!) Assassins are a monstrous breed. Either they attack when you are at your worst, or they are having a go at you on your birthday. I have never known a more dishonourable profession.

Grateful for the business, the dealer gave Bogle a copy of the original book, Naval Battles of Great Britain 1775–1815, from which the naval prints had been lifted. Leafing through it, Bogle came across something Admiral Nelson had written after the Battle of the Nile in 1798: “Nothing could withstand the squadron under my command. The judgment of the captains, together with the valor and high state of discipline of the officers and men of every description, was irresistible.”1 This resonated immediately with Bogle, who then spied below Nelson’s signature, “HMS Vanguard, off the mouth of the Nile.

The Greek poet Archilochus once observed that the fox knows many things, but the hedgehog knows one important thing—a phrase later made famous by the philosopher Isaiah Berlin. Bogle was the quintessential hedgehog. He always believed in one big thing with a fiery passion. He had the integrity and intellectual suppleness to shift positions, though. When he was later confronted with his change of heart on the merits of active investing, he quoted the economist John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?

To Bogle—who had years earlier battled with Samuelson’s textbook at Princeton—the column was electrifying. It inspired his future mantra that “strategy follows structure,” and this was a strategy that arguably suited Vanguard’s hamstrung structure perfectly. The few existing index funds were almost solely the preserve of pension funds, and while they were beginning to gain traction, none of Vanguard’s competitors in the mutual fund industry—mostly aimed at ordinary investors—would want to start a low-cost product that might show up its pricier, traditional actively managed funds. Meanwhile, Vanguard’s at-cost structure was the perfect match. Plus, he obviously knew a few gunslingers in Boston whom he wouldn’t mind humbling.

Most’s eclectic background also provided the spark behind the invention of what would become known as the ETF. During his travels around the Pacific, he had appreciated the efficiency of how traders would buy and sell warehouse receipts of commodities, rather than the more cumbersome physical vats of coconut oil, barrels of crude, or ingots of gold. This opened up a panoply of opportunities for creative financial engineers. “You store a commodity and you get a warehouse receipt and you can finance on that warehouse receipt. You can sell it, do a lot of things with it. Because you don’t want to be moving the merchandise back and forth all the time, so you keep it in place and you simply transfer the warehouse receipt,” he later recalled.19 Most’s ingenious idea was to, after a fashion, mimic this basic structure. The Amex could create a kind of legal warehouse where it could place the S&P 500 stocks, and then create and list shares in the warehouse itself for people to trade. The new warehouse-cum-fund would take advantage of the growth and electronic evolution in portfolio trading—the simultaneous buying and selling of big baskets of stocks first pioneered by Wells Fargo two decades earlier—and a little-known aspect of mutual funds: They can do “in kind” transactions, exchanging shares in a fund for a proportional amount of the stocks it contains, rather than cash. Or an investor can gather the correct proportion of the underlying stocks and exchange them for shares in the fund. Stock exchange “specialists”—the trading firms on the floor of the exchange that match buyers and sellers—would be authorized to be able to create or redeem these shares according to demand. They could take advantage of any differences that might open up between the price of the “warehouse” and the stock it contained, an arbitrage opportunity that should help keep it trading in line with its assets. This elegant creation/redemption process would also get around the logistical challenges of money coming in and out continuously throughout the day—one of Bogle’s main practical concerns. In basic terms, investors can either trade shares of the warehouse between themselves, or go to the warehouse and exchange their shares in it for a slice of the stocks it holds. Or they can turn up at the warehouse with a suitable bundle of stocks and exchange them for shares in the warehouse. Moreover, because no money changes hands when shares in the warehouse are created or redeemed, capital gains tax can be delayed until the investor actually sells their shares—a side effect that has proven vital to the growth of ETFs in the United States. Only when an ETF is actually sold will investors have to pay any capital gains taxes due.

All journalists stand on the shoulders of giants, whether they admit it or not. In many cases, my book was vastly enhanced by the superlative work of other journalists, writers, and financial historians, who have themselves explored some of the subjects and themes I have tried to knit together in one sweeping narrative. Peter Bernstein is a huge inspiration, and his books were of tremendous help for some of the earlier chapters, as was Colin Read’s The Efficient Market Hypothesists. Lewis Braham’s biography of Jack Bogle is essential reading for anyone interested in the tumultuous life of Vanguard’s founder. Ralph Lehman’s The Elusive Trade was exhaustively detailed on the genesis of ETFs, and Anthony Bianco’s The Big Lie vividly tells the story of WFIA/BGI in the Pattie Dunn era. I have also learned an enormous amount from working with or admiring from afar financial journalists like John Authers, Gillian Tett, James Mackintosh, Philip Coggan, and Jason Zweig, as well as industry experts such as Deborah Fuhr, Ben Johnson, Eric Balchunas, and David Nadig. They are all titans upon whose shoulders I nervously perch.

Initially, he was entranced by the professional investing industry that was blossoming as he entered adulthood. At the time of writing the Financial Analysts Journal article, Bogle was a young hotshot executive of Wellington, one of the oldest and largest mutual fund managers in America. But an odd combination of disaster and serendipity in the mid-1970s set him on the path to upending the industry he once venerated. “There’s nobody more religious than a convert,” observes Jim Riepe, one of Bogle’s closest colleagues in the founding of Vanguard, as a way of explaining the remarkable metamorphosis.

Although the framing was deliberately provocative, it is undeniably true that index funds are free riders on the work done by active managers, which has an aggregate societal value—something even Jack Bogle admitted. If everyone merely invested passively, the outcome would be “chaos, catastrophe,” Bogle noted a few years before passing away. “There would be no trading. There would be no way to turn a stream of income into a pile of capital or a pile of capital into a stream of income,” Vanguard’s founder observed in 2017.20 Bogle rightly pointed out that the likelihood of such a scenario—where everyone was merely invested in an index fund—was zero.

There is a conundrum at the heart of the efficient-markets hypothesis, often called the Grossman-Stiglitz Paradox after a seminal 1980 paper written by hedge fund manager Sanford Grossman and the Nobel laureate economist Joseph Stiglitz.22 “On the Impossibility of Informationally Efficient Markets” was a frontal assault on Eugene Fama’s theory, pointing out that if market prices truly perfectly reflected all relevant information—such as corporate data, economic news, or industry trends—then no one would be incentivized to collect the information needed to trade. After all, doing so is a costly pursuit. But then markets would no longer be efficient. In other words, someone has to make markets efficient, and somehow they have to be compensated for the work involved. This paradox has hardly held back the growth of passive investing. Many investors gradually realized that whatever academic theory one subscribes to, the cold unforgiving fact is that over time most active managers underperform their benchmarks. Even if they do beat the market, a lot of the “alpha” they produce is then often gobbled up by their fees. With his usual wit, Bogle dubbed this the “Cost Matters Hypothesis.”23 However, the truth of the Grossman-Stiglitz Paradox does raise some pertinent questions around whether markets may become less efficient as more and more investing is done through index funds.

The Bogle Boys. Vanguard’s founder Jack Bogle always had a young assistant to mentor, and every year all past and present assistants would have a boozy Christmas dinner with their boss. From top left to right: Jeremy Duffield, Jim Riepe, Daniel Butler, Jan Twardowski, Duncan McFarland. From bottom left to right: Jack Brennan, Tim Buckley, Jack Bogle, Jim Norris.

At this point, it may be worth remarking how Robin often shared key traits of his persona with other faery beings. He would often appear as a horse to carry off miscreants, in this respect resembling various supernatural beasts such as the colt-pixy of Hampshire and Dorset, the Scottish kelpie and the Highland water-horse. We just now heard of his ‘saucer eyes,’ a feature shared with many of the black dogs that haunt the highways of England. Lastly, his ability to change his shape, becoming (amongst other things) a disabled beggar, a soldier, a young woman, a fox, a hare, an owl, a frog, a dog and a tree, associates Robin with many of the bogles, boggarts and brags of northern England.

Time makes more converts than reason.