"The House that Bogle Built" -- A Gem

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"The House that Bogle Built" -- A Gem

Postby Taylor Larimore » Thu Apr 14, 2011 4:34 pm

Hi Bogleheads:

Lewis Braham's book, The House That Bogle Built, chronicles the years of Mr. Bogle's development from college whiz kid into a titan of the mutual fund industry and shareholder advocate. These are excerpts:

"John Bogle not only created the first index mutual fund but has become the primary voice for change in an industry plagued by excess and complacency."

"It's Bogle's dedication to client's interests above all else that has earned him the reputation as the 'conscience' of the investing industry."

"A brilliant mathematician, he is more interested in people than in numbers."

"My journey to Vanguard put me in the right mood to meet the king of the penny-pinching fund companies."

"Although Vanguard houses none of its $1.4 trillion in assets here, its guards recently started carrying guns."

"He ambles around the campus greeting crew members by their first name and eats in Vanguard's rather drab cafeteria like an average schmo."

"Bogle's primary gripe against the mutual fund industry--that it's more interested in gathering assets than being a good steward of capital."

"The Bogle boys(3) all had to go to work at a very young age to help support the family."

JB: "I don't think there is anything healthier than learning that you have to earn what you want to spend."

"Eve and Jack built a solid family life with six children."

"John Bogle's first employer in the mutual fund business was Walter Morgan who founded the Wellington organization."

"Numbers fascinated him; he could look at a stack of figures and point out an error in the computation before anyone else."

"A favorite mantra of Bogle's became, 'Growth must be earned, not bought.'"

"The phrase 'hot fund' was one that Bogle would grow to detest, running counter as it did to his conservative, stay-the-course philosophy."

"In 1967 Bogle was in such poor condition that a senior cardiologist in the Cleveland heart program gloomily predicted to him that he would never work again."

"On January 23, 1974, the board of Wellington Management voted to fire him."

"Bogle decided that in addition to launching a new firm, he was going to launch a crusade to transform the mutual fund industry."

"Active fund managers as a group end up underperforming the market largely because of their funds' advisory fees, operating expenses, transaction costs, not to mention any sales loads."

"Bogle was amused by Malkiel's classic assertion that, 'A blindfolded chimpanzee throwing darts at The Wall Street Journal can select a portfolio that can do just as well as the experts.'"

"Bogle said he looked forward to getting 'the fund shareholders out of the back seat and into the driver's seat.'"

"With yields rising to as high as 16% in the late 1970s, money market funds had become an attractive alternative to low-interest bank accounts.

"While Vanguard's average expense ratio declined from 0.89% in 1975 to 0.20% in 2010, the industry's average expense ratio actually increased from 1.08% in 1974 to 1.19% in 2010."

JB: "The trick is to tell investors what the fund will do and describe the risks, and then just do it. And tell the truth to them in your annual reports."

"Candor became a critical part of Bogle's approach to the business. -- Some competitors doubtless saw Bogle's honesty as lunacy, but the financial press loved it."

"For him, the shareholder always came first. He wanted the Vanguard experiment to make the words focus solely on the interests of the shareholder a reality."

"Unlike so many others, he actually does believe what he says."

JB: "But supposing the public wants a fund that's a lousy investment? Does that mean we have to go out and sell it to them? I don't think so."

"The total stock market as Bogle rightly points out is the gold standard for indexing."

"He almost always hired people in their twenties without extensive business experience but with solid academic credentials from teh nation's top schools."

"The fundamental problem with Vanguard's compensation system is that it is undisclosed and no one really knows how efficiently or inefficiently it is run."

"In the early 1990s he gave back about 40% of his partnership shares to Vanguard."

"Fidelity funds founder Ned Johnson and his daughter Abigail are collectively worth $19.5 billion according to Forbes--far exceeding anything Bogle or anyone at Vanguard ever earned."

"The greatest bull market in US history began on August 12, 1982, and ended on March 24, 2000. During that period, the S&P 500 soared from 102 to 1,527. By 1981, short-term Treasury bills were paying unprecedented yields of 16%."

"From 1985 through 2004, management fees consumed 43% of the average equity fund investor's return."

"It might be possible for educated investors to realize that stocks were grossly overvalued or undervalued, but accurately timing the crash or comeback was virtually impossible."

JB: "I made a lot of mistakes. In a moment of weakness--I was very ill at the time--started our sector funds."

"During the 1980s and 1990s, Vanguard essentially became the Wal-Mart of the fund industry."

"Institutions were never one of Bogle's strong interests. His focus had always been on the little guy."

"While Bogle did not chase after growth, he accepted it as one of the best measurements of success."

"Bogle never subscribed completely to the efficient market hypothesis, but rather to something he half-jokingly dubbed the 'cost matters hypothesis.'"

"The Total Bond Market Index Fund, was founded in late 1986 to provide the same advantages of low cost, high quality, and broad diversification to bond fund investors that Vanguard 500 provided to equity fund investors."

"Bogle, for his part, has always seemed ambivalent about ETFs. He frets that excess speculation in them will eat into investors' returns via high transaction costs and thus cause investors to buy and sell them at inopportune times."

Jack Brennan: "We don't have big shot executives. No one has company cars, parking spaces, or club memberships. I even feel a little bit guilty having an office with a window."

Bud (Jack's brother): "One day I asked, 'Jack, do you think it was a mistake that you chose Brennan to be your successor?' He said, 'Bud-ro,' it was the biggest mistake I've ever made."

"Although he may have lacked Bogle's creative vision, by any stretch of the imagination, Brennan was--everyone would agree--a fabulous manager."

"One of Brennan's major contributions to Vanguard's success was his decision to invest heavily in technology."

"In September 1999 the board voted to extend his stay as senior chairman--a token gesture that Bogle ultimately refused. -- The company agreed to help fund his ongoing advocacy for shareholders through the Bogle Financial Markets Research Center which would be on the campus itself."

"For it was from his tiny office that he would become the greatest shareholder advocate for investors in the history of Wall Street."

JB: "This industry can have lower costs for customers, create much better disclosure, have honest advertising, and be overseen by more responsible directors."

"Bogle even cites Thomas Paine's initially unpopular opinions about overthrowing British rule as support for his own "revolutionary" ideas for the fund industry."

JB: "I banned the use of the word "product" here back in the early 90s or late 80s'. After I left, that ban vanished."

"Most of the philosophical disagreements between Vanguard and Bogle were kept low key or outside the public eye."

McNabb: "It's amazing how much you can get done just by being very transparent with people and encouraging dialogue."

"The Bogleheads are a group of bloggers and investing enthusiasts who, according to cofounders Taylor Larimore and Mel Lindauer, 'follow the beliefs of a remarkable man, John C. Bogle.'"

"His sureness, his confidence, and his missionary zeal are part of what is so enchanting to his fans."

"Many of the financial follies of the 1920s and 1930s seem eerily similar to those that occurred in the current generation."

"'I wouldn't dream of buying a Jaguar or a Mercedes,' Bogle said. It would seem like I was trying to show off."

"And so we have Bogle and perhaps the only other frugal superstar of post-modern capitalism--Warren Buffett--living in a modest house, driving a modest car .. and at the end of their lives--both plan to give most of their money to charity in true Christian form."

"Eve is a private person who doesn't give interviews, but the general impression one gets from speaking to family members, friends, and Bogle himself is that she is the real saint of the family for sacrificing so much of herself so that her husband could become a great success."

"Bogle's contribution to The National Constitution Center's successful opening was immense, as he served as its chairman during its formative years."

JB: "Vanguard is 90% profession and 10% business. Everybody else is 10% profession and 90% business."

"Bogle has always believed that long-term buy-and-hold investing is the best means for fund shareholders to achieve their financial goals."

"It is a cruel irony that the index concept he helped champion has been exploited to create exchange traded funds(ETFs) for speculators whose hold period can often be just a matter of minutes."

"The mind-boggling array of lunatic, specialized high-risk index investments is enough to infuriate someone like Bogle, who has always advised investors to 'keep it simple'. And yet, Bogle doesn't disapprove of ETFs as an investment vehicle if used appropriately."

"In 2009 Bogle did some research to analyze investor return of the average dollar invested in Vanguard ETFs versus comparable Vanguard index mutual funds over the previous five years.--For the S&P 500, the lag was a wide 7.1%."

"Allocating aggressively among specialized asset classes or narrow sectors of the market in an attempt to boost returns is one way financial planners can justify charging their annual fees."

"Despite McNabb's claims to the contrary, there is ample evidence that Vanguard does in fact want to do business with speculators. In May 2009, the company bid to acquire the ETF business of Barclays Global Investors, the largest ETF manager."

"No executive wants to be known as just the caretaker of John Bogle's legacy."

"Bogle has long lobbied for Congress to create a federal fiduciary standard to put shareholders first."

"Vanguard CEO Bill McNabb says that adequate safeguards are in place to prevent asset bloat in that the outside subadvisers to Vanguard's actively manage funds receive performance-based management fees."

"A study concluded that high-turnover managers with $1 billion in assets can lose as much as 10 percentage points a year in potential return when investing in small, illiquid stocks purely from market impact costs."

"Probably the biggest mistake most money managers ever made was to play the style box game against Vanguard."

"An 'interesting experience' is just one of a number of euphemisms Bogle uses for nearly dying several times."

JB: "I don't know what to say about it (his heart transplant) other than it's one more bump along the road of life."

Jack's, Doctor Lown: "The miracle resides in John Bogle. His indomitable personality help him survive all the hospital stays."

"Although active managers had long groused about the hypothesis's deficiencies, academia remained solidly in the EMH camp. -- Typical of the hypothesis's defenders is Larry Swedroe."

"Because management companies are more interested in pleasing their company shareholders than their fund shareholders, they will charge the highest fees they can get away with."

"Study after study has revealed that low-cost funds tend to beat high-cost ones."

"Bogle, for his part, has no interest in commodities, as he sees investing in them as purely a speculative activity because commodities, unlike businesses, produce no cash flow."

"Bogle, of course, is generally repulsed by almost everything about hedge funds--their outrageous fees, their excessive use of leverage, their speculative trading, and their false promises of outsized returns with little downside risk."

"Bogle and Vanguard can tell investors that after deducting expenses, the Vanguard Total Stock Market Index is better than the vast majority of equity funds, and it is."

"As long as Vanguard remains true to Bogle's founding principles, it should continue to be the Wal-Mart of the fund industry."

"Unlike Bogle, who, despite his belief in shareholder democracy, likes to take charge of things, McNabb is definately a delegator and team player, which in may respects is essential for effectively running an organizaton of such an immense size."

"The two most questionable areas of Vanguard's expansion plans that will bear watching are its advertising budget and its new product offerings."

"If there is one mainstream investment product that Vanguard does seem to be lacking, it is some sort of international or global bond fund or ETF."

"During a dinner he hosted for Bogle at his condo in Miami, Boglehead cofounder, Taylor Larimore remarked that it was 'The house that Jack built.' Between the two--Vanguard's and Larimore's --the agents running this behemouth of a financial institution must always remember that it is the little houses Jack built all across the nation that count more so than the big. And just as long as they do, they will truly be preserving Jack Bogle's legacy for posterity."


Thank you Lewis Braham and Jack Bogle.

More Investment Gems
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Postby LadyGeek » Thu Apr 14, 2011 5:27 pm

It's now in the wiki.

Wiki article link: Taylor Larimore's Investment Gems
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Postby norookie » Thu Apr 14, 2011 5:29 pm

:D A true pioneer considering the way things have developed since his break from Fidelity w/ Wellington to start Vanguard, and then surpass them in investors and funds not long ago if my recollection is correct. ~
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Included in our '"Investment Gems"

Postby Taylor Larimore » Thu Apr 14, 2011 5:54 pm

LadyGeek:

You're quick.

Thank you.
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Postby chaz » Thu Apr 14, 2011 5:58 pm

Interesting:

"Fidelity funds founder Ned Johnson and his daughter Abigail are collectively worth $19.5 billion according to Forbes--far exceeding anything Bogle or anyone at Vanguard ever earned."
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Postby chaz » Thu Apr 14, 2011 6:00 pm

Taylor, thanks for posting the gems.
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Postby dharrythomas » Thu Apr 14, 2011 10:37 pm

Taylor,

Thank you. What a tribute to a great American.

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Postby NAVigator » Fri Apr 15, 2011 5:45 am

Taylor,

Thanks for posting these gems. I can hardly wait to read this book. I want to learn all I can about Vanguard and the man behind it all.

Jerry
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Postby gotherelate » Fri Apr 15, 2011 12:04 pm

This morning on one of the financial channels I overheard a talking head mention "stewardship" on Wall Street. The interviewer asked him who he thought he was, Bogle? Maybe, just maybe, some of Jack's common sense approach is starting to rub off on more than just us Bogleheads.
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Postby Bruce » Fri Apr 22, 2011 5:56 pm

Thanks Mel and Taylor

Just got my copy of The House that Bogle Built via fed ex ground today in Alaska from the Bogleheads post.

I look forward to reading it and posting a review.

I appreciate the opportunity.

best regards,
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Postby rustymutt » Fri Apr 22, 2011 6:56 pm

Thank yOu Taylor. I'm looking forward later tonight to start reading this book. I'm going to curl up in my favorite chair and try to read half the book by midnight. My wife said I was like a child in the toy chest when it showed up at the door.
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Postby NAVigator » Fri Apr 22, 2011 7:08 pm

I am currently reading this book. I knew from these gems that it would be a biography of Jack and a history of Vanguard. What I didn't expect is that it is also a finance book. Often when an attempt is made to do "everything", it fails to do anything. This book is an exception. The author has done a remarkable job weaving between biographical information about Jack, factual information about the financial forces that influenced Vanguard, and finally the historical background in which this took place. I am impressed how all of this could be done in such an interesting manner.

This book presents the man, the company, and the forces that drove it all. I now have a greater appreciation for what Vanguard stands for. It is with gratitude that I place my investments with them.

Jerry
"I was born with nothing and I have most of it left."
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Postby Manbaerpig » Fri Apr 22, 2011 7:34 pm

NAVigator wrote:I am currently reading this book. I knew from these gems that it would be a biography of Jack and a history of Vanguard. What I didn't expect is that it is also a finance book. Often when an attempt is made to do "everything", it fails to do anything. This book is an exception. The author has done a remarkable job weaving between biographical information about Jack, factual information about the financial forces that influenced Vanguard, and finally the historical background in which this took place. I am impressed how all of this could be done in such an interesting manner.

This book presents the man, the company, and the forces that drove it all. I now have a greater appreciation for what Vanguard stands for. It is with gratitude that I place my investments with them.

Jerry



wow
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Postby unclemick » Fri Apr 22, 2011 7:57 pm

Thumbs up. Great post. Great thread.

heh heh heh - 8)
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Postby Mel Lindauer » Fri Apr 22, 2011 8:19 pm

Bruce wrote:Thanks Mel and Taylor

Just got my copy of The House that Bogle Built via fed ex ground today in Alaska from the Bogleheads post.

I look forward to reading it and posting a review.

I appreciate the opportunity.

best regards,


We had to spread the "wealth" around, Bruce, and Alaska is "around"! :D
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Postby HueyLD » Fri Apr 22, 2011 9:13 pm

Bruce wrote:Just got my copy of The House that Bogle Built via fed ex ground today in Alaska from the Bogleheads post.

How many days did it take to ship a book from the lower 48 to Alaska by FedEx Ground? How come a book got there faster than a destination in one of the lower 48 states?
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Postby muddyglass » Fri Apr 22, 2011 9:31 pm

thanks taylor for the heads-up.

how does this book compare to robert slater's biography of bogle? i recently read and enjoyed that one.
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Comparing the two biographies.

Postby Taylor Larimore » Fri Apr 22, 2011 9:54 pm

muddyglass wrote:thanks taylor for the heads-up.

How does this book compare to robert slater's biography of bogle? i recently read and enjoyed that one.


The books are quite different.

The House That Bogle Built by Lewis Braham goes into detail about Mr. Bogle's struggles during his early professional years. He also brings fascinating details that occurred in Mr. Bogle's relationship with subsequent Vanguard CEOs. The author injects many of his own opinions.

John Bogle and the Vanguard Experiment by Robert Slater, published in 1996 is more personal and intimate. It contains many family pictures not included in the later book.

Both books reveal the extraordinary life of a brilliant man who has devoted his life "to give ordinary investors a fair shake."

I included extracts from both books in my "Collection of Investment Gems."
"Simplicity is the master key to financial success." -- Jack Bogle
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Postby abuss368 » Fri Apr 22, 2011 10:59 pm

I just received this book yesterday and can not wait to start reading it.

Thanks again.
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Re: Comparing the two biographies.

Postby muddyglass » Fri Apr 22, 2011 11:31 pm

Taylor Larimore wrote:
muddyglass wrote:thanks taylor for the heads-up.

How does this book compare to robert slater's biography of bogle? i recently read and enjoyed that one.


The books are quite different.

The House That Bogle Built by Lewis Braham goes into detail about Mr. Bogle's struggles during his early professional years. He also brings fascinating details that occurred in Mr. Bogle's relationship with subsequent Vanguard CEOs. The author injects many of his own opinions.

John Bogle and the Vanguard Experiment by Robert Slater, published in 1996 is more personal and intimate. It contains many family pictures not included in the later book.

Both books reveal the extraordinary life of a brilliant man who has devoted his life "to give ordinary investors a fair shake."

I included extracts from both books in my "Collection of Investment Gems."


alright, sold! braham's book is now on my to-read list! :D
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Postby ataloss » Sat Sep 03, 2011 7:56 pm

"As long as Vanguard remains true to Bogle's founding principles, it should continue to be the Wal-Mart of the fund industry."



This is meant in a positive way, right?
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Postby Toons » Sat Sep 03, 2011 8:22 pm

ataloss wrote:
"As long as Vanguard remains true to Bogle's founding principles, it should continue to be the Wal-Mart of the fund industry."



This is meant in a positive way, right?


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Postby ataloss » Sun Sep 04, 2011 2:49 pm

makes me think of inferior Chinese imitations sold at a discount
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