How John Bogle started Vanguard Group and invented index funds
Vanguard Group founder John Bogle took on a corrupt, inefficient system with a simple idea that disrupted an industry, proving that idealism can triumph in business.
I’m dipping back into the archives this week, revisiting my February 2006 interview with John Clifton “Jack” Bogle, founder of The Vanguard Group. At age 75, Jack was still as idealistic as he ever was — even more so, he told me — and still focused on fighting corruption and abuse in the industry. His wasn’t always an easy path, but like many entrepreneurs, Jack was driven by a strong sense of purpose as well as the joy of creating something that would endure. Jack passed away in 2019, but his legacy is stronger and more relevant than ever. I feel fortunate to have been able to spend this time with him, both on the mic and off. I think you’ll see why. Listen now on Apple Podcasts, Overcast and Spotify. If you love it, please leave a review!
“I’ve always been a terrible idealist — or a wonderful idealist.”
To an entrepreneur, a corrupt industry with a lot of inefficiencies means one thing: There’s a huge opportunity to innovate. Back in 1975, Jack Bogle created the first index mutual fund, an idea that was innovative in its simplicity. By keeping management costs low, he was able to pass the savings on to investors. It sounds like common sense, but it goes against the grain of how most mutual fund managers think and operate. In fact, at the time, his idea was ridiculed as “un-American” and “a sure path to mediocrity.” But Jack was undeterred. If anything, he was even more motivated by the naysayers.
“You can ask, is it just idealistic prattling, or was it a design for a new enterprise? And I suppose it was both.”
Jack describes himself as both an idealist and a contrarian, two qualities that can serve any entrepreneur well. In our interview, he takes us back to the origins of his big idea, which he developed for his senior thesis at Princeton. To him, it seemed self-evident that if mutual funds could provide their services at a lower cost, they would appeal to more people. His simple premise — that funds should be run in the interest of their shareholder-owners rather than their managers — was rooted in idealism, something you expect from a college senior. But Jack told me his idealism had only grown over the years, which is even more remarkable when you consider, as he said, “nobody took my advice” at the time. And it wouldn’t be the first time he’d encounter resistance.
“If you want to say I was stupid, I would say you understate the problem.”
At age 36, Jack became head of Wellington Management Company and, in his words, got sucked into the “go-go era.” As he explains, things were going great...until they all fell apart, and then Jack got fired. But out of that experience came a renewed commitment to his idealistic view of the industry and a desire to build a better world. When he started up Vanguard, he said, “I left my old job exactly the same way I took on my new job: fired with enthusiasm.”
“I’m not trying to sell a particular fund. I’m trying to sell an idea.”
Jack was determined. curious. motivated to take on the conventional opinion of the day. Listening back to this interview, I can see how some of Jack’s insights about what made him successful, both as an entrepreneur and an idealist, have influenced my own journey as I’ve built my firms, The Shorty Awards and Muck Rack. His discussion about how Vanguard has maintained its values as the firm has grown is particularly powerful. It was important to him to build trust not just with shareholders and clients but also with the people who work with him. He refers to it as trying to be “just, like, a decent human being.” What a concept. In the process, he created a firm where people come to work every day brimming with enthusiasm, dedication and loyalty.
“I think [college students] are looking for idealism in this somewhat cynical world we have — a world where there's a lot of bad behavior in the financial area, a lot of bad behavior in the corporate area.”
Even though this was recorded 14 years ago, I’m struck by how timely it feels today. (He even quotes Alexander Hamilton.) The interview reveals the power of entrepreneurship, but it also shows how Jack was very critical of the way Wall Street and public companies often serve themselves over the people whose money they’ve been entrusted to look after. “‘Your job is to put the shareholders first’ is what I want the government to say.”
“It’s the entrepreneurial spirit of success, not for the sake of the fruits of success, but for the sake of having a good fight and competing and winning.”
How enduring is Jack Bogle’s legacy? The Vanguard 500 Index Fund has now grown to be one of the industry’s largest. Time magazine named Jack one of “the world’s 100 most powerful and influential people.” And in a letter to Berkshire Hathaway shareholders, Warren Buffett wrote, “If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle.”
Thinking back on our time together, what sticks with me is that he never lost his grounding and sense of purpose. Our interview took place well before Skype and Zoom were part of the business lexicon, so Jack traveled to New York from Philadelphia to meet me. He took Amtrak. He rode the subway down to Soho. And we split a yellow cab back to the train station after it was over. Like many of the most important entrepreneurs, Jack wasn’t driven by money or fancy perks. He was driven by mission. And he never lost touch with the idealistic young man who wrote that senior thesis at Princeton.
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