"Bogle's Folly"

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Taylor Larimore
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"Bogle's Folly"

Post by Taylor Larimore » Sat Apr 16, 2016 2:41 pm

Bogleheads:

The Vanguard 500 Index Fund celebrates its 40th birthday this year. Vectors has posted the incredible history of Jack's 500 Index Fund from near-failure to today's triumph.

You can read about it here:

BOGLE'S FOLLY

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Bogle's Folly"

Post by selftalk » Sat Apr 16, 2016 5:17 pm

Thank you. That was very good.

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Re: "Bogle's Folly"

Post by Fat-Tailed Contagion » Sat Apr 16, 2016 6:19 pm

Thank God for Jack Bogle and generous, (relatively) free capital markets.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

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Re: "Bogle's Folly"

Post by snowshoes » Sat Apr 16, 2016 8:28 pm

Great link Taylor! I still suspect the .gov's new fiduciary policies and guidelines will be toothless to say the least and was just for appearances.

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Re: "Bogle's Folly"

Post by pkcrafter » Sat Apr 16, 2016 9:38 pm

Thanks Taylor, I've read very similar stories before and never get tired of reading them. Mr. Bogle's vision and remarkable unselfishness is a great gift to all investors-their fair share. The best thing investors can do is thankfully accept their gift and stop trying to find ways to diminish it.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Re: "Bogle's Folly"

Post by abuss368 » Sat Apr 16, 2016 9:43 pm

Thanks Taylor. 40 years young indeed!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: "Bogle's Folly"

Post by patrick013 » Sat Apr 16, 2016 9:55 pm

I still remember being "sold" a 500 index from the CBOT
and some CD's to put into the account.

Today I'd probably buy it plus some govt. bond mutual fund
to put into the account. My investing needs are quite simple.

A great fund the 500, as well as the 1000, and TSM.
age in bonds, buy-and-hold, 10 year business cycle

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Re: "Bogle's Folly"

Post by dkturner » Sun Apr 17, 2016 7:41 am

Not to diminish all this gushing over the Vanguard 500 Index Fund, but let's keep things in perspective. When Mr. Bogle left Wellington Management to start the Vanguard Group he took the long established Wellington Fund with him. As per Morningstar, since the establishment of the Vanguard 500 Index Fund it has provided an annualized return of 10.8%. The, renamed, Vanguard Wellington Fund has provided an annualized return of 10.9% over this same period, and it has done so with only a 65% exposure to equities, higher expenses and it has a standard deviation of only 10.8, compared to a standard deviation of 16.2 for the 500 Index Fund.

Greater reward, lower risk - I like Mr. Bogle's first mutual fund better than his first index fund.

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Taylor Larimore
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Past performance

Post by Taylor Larimore » Sun Apr 17, 2016 7:59 am

dkturner:

Do you think Wellington's past performance will continue into the future. If so, why?

Thank you and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Bogle's Folly"

Post by Angelus359 » Sun Apr 17, 2016 8:05 am

Wellington beat s&P 500 in a continually declining interest rate environment which places bonds in a substantial positive. Problem is, we hit zero and it can only go up from here.
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Re: "Bogle's Folly"

Post by ruralavalon » Sun Apr 17, 2016 9:30 am

Thank you for the link.

I kept hoping to see the number of managed domestic stock funds that existed in1976, and the number (and names) of those still alive today 40 years later.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Past performance

Post by dkturner » Sun Apr 17, 2016 9:44 am

Taylor Larimore wrote:dkturner:

Do you think Wellington's past performance will continue into the future. If so, why?

Thank you and best wishes.
Taylor
Taylor, let me answer your questions with a couple of questions. Do you think that a combination of the Vanguard 500 Index Fund (65%) and the Vanguard I-T Bond Index Fund (35%) will outperform the Vanguard Wellington Fund in the future? If so, why?

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Most stock funds die

Post by Taylor Larimore » Sun Apr 17, 2016 9:45 am

ruralavalon wrote: I kept hoping to see the number of managed domestic stock funds that existed in 1976, and the number (and names) of those still alive today 40 years later.
ruralavalon:

These figures by Mr. Bogle (in 2005) help answer your question:
Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business . Only 24 outpaced the market by more than 1% a year. These are terrible odds. -- I favor the all-market index fund as the best choice for most investors.
Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Bogle's Folly"

Post by Cruiser » Sun Apr 17, 2016 9:48 am

I thought the last two paragraphs were excellent. It's eye-opening to think that just a couple months ago, there was so much panic and questioning of where things were headed --- even on this forum.

Thanks for sharing the article, Taylor.
This chart shows the performance of the S&P 500 Index for the past six months. Not including dividends, the index rose 1%. Had you spent the past six months on a wireless-free, around the world cruise and checked your portfolio when returning home, you’d be right in assuming that nothing much happened. You missed lots of noise, scary headlines, fear mongering and end of the world predictions - but that’s nothing new. Investors whose response to the noise and news was “this time it’s different” and fled stocks, likely wish they could have a do-over. Those investors who responded to the noise and news with “this too shall pass” proved to have better insight and reaped the reward of staying the course.

If you find yourself emotionally reacting to the stock market’s daily fluctuations, I recommend that you take a “market fast” for a few weeks. Don't read or watch the financial news. Don't check your portfolio. It won’t hurt and you just might find that your outlook on life improves after a few days. Start counting your blessings and pay more attention to the important people in your life. Try it and you just might be happier and your loved ones might find it more pleasant to have you around.

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Re: Most stock funds die

Post by ruralavalon » Sun Apr 17, 2016 11:38 am

Taylor Larimore wrote:
ruralavalon wrote: I kept hoping to see the number of managed domestic stock funds that existed in 1976, and the number (and names) of those still alive today 40 years later.
ruralavalon:

These figures by Mr. Bogle (in 2005) help answer your question:
Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business . Only 24 outpaced the market by more than 1% a year. These are terrible odds. -- I favor the all-market index fund as the best choice for most investors.
Best wishes
Taylor
Thanks.

So only 34% of actively managed equity funds survived 35 years.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: "Bogle's Folly"

Post by selftalk » Sun Apr 17, 2016 11:57 am

Why in the world would you want to gamble with a managed fund when you can purchase an all market index fund ? It`s simply not worth the risk and could hurt your retirement nest egg. It`s real hard if not impossible to make up for the loss that you may have incurred. Me, I`d rather profit from John Bogle`s hard earned experience. It`s never too late to invest the proper way.

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Re: "Bogle's Folly"

Post by haban01 » Sun Apr 17, 2016 2:44 pm

A few BH reunions ago Gus Sauter talked about the correlations of many Vanguard managed funds vs the indexed equivalent. If my memory serves me correctly Wellington was about 95% correlated to the index. So the manager adding value was not that great.
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Answer to questions

Post by Taylor Larimore » Sun Apr 17, 2016 3:07 pm

dkturner wrote:
Taylor Larimore wrote:dkturner:

Do you think Wellington's past performance will continue into the future. If so, why?

Thank you and best wishes.
Taylor
Taylor, let me answer your questions with a couple of questions. Do you think that a combination of the Vanguard 500 Index Fund (65%) and the Vanguard I-T Bond Index Fund (35%) will outperform the Vanguard Wellington Fund in the future? If so, why?
dkturner:

I didn't expect a 2 questions to answer my question.

Nevertheless, this is why I believe a combination of the two index funds with the same stock/bond allocation is likely to outperform the Wellington managed fund in the future:

* Lower cost.
* Managers change.
* Most managed funds underperform index funds.
* Past performance does not forecast future performance.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "Bogle's Folly"

Post by mlebuf » Sun Apr 17, 2016 4:06 pm

Hi Taylor,

Great article. Some folly. Better to enjoy the last smile than the first laugh.
Best wishes, | Michael | | Invest your time actively and your money passively.

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Re: "Bogle's Folly"

Post by Toons » Sun Apr 17, 2016 4:41 pm

Excellent :D
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Most stock funds die

Post by Tommy » Sun Apr 17, 2016 5:15 pm

Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business . Only 24 outpaced the market by more than 1% a year. These are terrible odds. -- I favor the all-market index fund as the best choice for most investors.
So only 34% of actively managed equity funds survived 35 years.
While I'm preferring indexed funds, although have Wellington and Wellesley as well, I don't think regular investor really losing money if fund disappeared. I used to have investment in Strong funds, they are out of business, and been acquired by Wells Fargo, so my money moved there.

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Re: Answer to questions

Post by gvsucavie03 » Sun Apr 17, 2016 5:26 pm

Taylor Larimore wrote:
dkturner wrote:
Taylor Larimore wrote:dkturner:

Do you think Wellington's past performance will continue into the future. If so, why?

Thank you and best wishes.
Taylor
Taylor, let me answer your questions with a couple of questions. Do you think that a combination of the Vanguard 500 Index Fund (65%) and the Vanguard I-T Bond Index Fund (35%) will outperform the Vanguard Wellington Fund in the future? If so, why?
dkturner:

I didn't expect a 2 questions to answer my question.

Nevertheless, this is why I believe a combination of the two index funds with the same stock/bond allocation is likely to outperform the Wellington managed fund in the future:

* Lower cost.
* Managers change.
* Most managed funds underperform index funds.
* Past performance does not forecast future performance.

Best wishes.
Taylor
dkturner:

The same was said about the Magellen fund and it's "endless" crushing of the S&P... which did eventually end and left many investors in a tough spot with all of those capital gains tied up in a losing fund. Sell, tax consequences. Stay, continue to substantially lag behind the market.

Bogle has 13 honorary doctorates for a reason. He figured out that it is impossible to predict a winner looking backwards. Vanilla is the best flavor in long-term investing.

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Re: "Bogle's Folly"

Post by Levett » Sun Apr 17, 2016 6:32 pm

I am not good at "belief," especially about the future.

But I sure can predict the past with great accuracy, and Wellington (which I once owned but don't any longer) has been "lucky" for a long, long, long time--and with considerably less risk than holding the S & P 500 (a latecomer compared to Wellington). :wink:

http://quotes.morningstar.com/chart/fun ... ture=en_US

Use "maximum" in the link and compare with VFINX.

Is it not the case, by the way, that Mr. Bogle still owns Wellington for whatever reasons--sentimental, financial, whimsical, whatever?

http://www.reuters.com/article/us-colum ... LI20120911

Speculations about the future are just that--mere speculations.

Lev

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Re: Answer to questions

Post by dkturner » Mon Apr 18, 2016 5:35 am

gvsucavie03 wrote:dkturner:

The same was said about the Magellen fund and it's "endless" crushing of the S&P... which did eventually end and left many investors in a tough spot with all of those capital gains tied up in a losing fund. Sell, tax consequences. Stay, continue to substantially lag behind the market.

Bogle has 13 honorary doctorates for a reason. He figured out that it is impossible to predict a winner looking backwards. Vanilla is the best flavor in long-term investing.
Mr. Bogle continues to own shares in the Wellington Fund, which he has held longer than his shares in the 500 Index Fund. I greatly value his judgement. Both he and I have profited greatly from our investments in Vanguard's low cost actively managed offerings shepherded by Wellington Management. Fama and French have documented that, on average, active investment managers add value - they just don't add enough value to overcome the average expense ratios of their portfolios. By coupling demonstrated successful active management with very low expense ratios Mr. Bogle and I aren't taking a great deal of risk with our actively managed funds.

Stay the course! :happy

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Re: Answer to questions

Post by gvsucavie03 » Mon Apr 18, 2016 11:45 am

dkturner wrote: ... Mr. Bogle and I aren't taking a great deal of risk with our actively managed funds.
There is still risk in using this versus pure passive/indexing. As others have said, fund management will change, and like other prominent actively managed funds, they to shall revert to the mean at some point. It hasn't yet, but also looking at the history of investing, the chances of it staying this way for the next 50 years is about as small as its very low expense ratio :wink:

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Two important lessons

Post by Taylor Larimore » Mon Apr 18, 2016 12:13 pm

Mr. Bogle continues to own shares in the Wellington Fund, which he has held longer than his shares in the 500 Index Fund.
Bogleheads:

It is important to understand that many older investors, like myself, own securities that we would not buy today. Two primary reasons:

* When we started investing there were no IRAs or 401ks. Many of our early investments were profitable and have large capital-gains that will trigger taxes if we sell (capital-gains are eliminated at death).

* Index funds were unavailable before 1975.

Two important lessons:

1. It is very important in taxable accounts to only buy tax-efficient funds that can be held 'forever.' Total U.S Stock Market and Total International Stock Market meet this requirement.

2. It is dangerous to copy someone else's portfolio. Each investor has a different goal, time-frame, risk-tolerance, and personal financial situation.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Answer to questions

Post by dkturner » Mon Apr 18, 2016 12:51 pm

gvsucavie03 wrote:
dkturner wrote: ... Mr. Bogle and I aren't taking a great deal of risk with our actively managed funds.
There is still risk in using this versus pure passive/indexing. As others have said, fund management will change, and like other prominent actively managed funds, they to shall revert to the mean at some point. It hasn't yet, but also looking at the history of investing, the chances of it staying this way for the next 50 years is about as small as its very low expense ratio :wink:
The Wellington Fund has been around for 86 years, and it hasn't reverted yet. Besides, how could you know that the Wellington Fund's performance will revert to the mean in the future? You sound like a knee jerk indexer and knee jerk indexers can't possibly know anything about the future performance of anything. :wink:

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Re: "Bogle's Folly"

Post by FactualFran » Mon Apr 18, 2016 2:04 pm

haban01 wrote:A few BH reunions ago Gus Sauter talked about the correlations of many Vanguard managed funds vs the indexed equivalent. If my memory serves me correctly Wellington was about 95% correlated to the index. So the manager adding value was not that great.
A high correlation does not necessarily indicate that the manager did not add value. It if possible for the annual returns of a fund to be perfectly correlated with an index with the fund having a larger cumulative return than the index.

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Re: Answer to questions

Post by gvsucavie03 » Mon Apr 18, 2016 5:19 pm

dkturner wrote: You sound like a knee jerk indexer and knee jerk indexers can't possibly know anything about the future performance of anything. :wink:
All of your data is past performance, so it's obvious you know nothing of the future, too.

The only thing we know about the future is that it will not repeat itself exactly as it once was. I don't know what the future holds - it may out perform. It has a stronger chance of underperforming.

Index funds haven't been around for 86 years either. We'll have to wait and see how this pans out and compare notes.

Taylor made some excellent points in his last post:
Taylor Larimore wrote: It is important to understand that many older investors, like myself, own securities that we would not buy today. Two primary reasons:

* When we started investing there were no IRAs or 401ks. Many of our early investments were profitable and have large capital-gains that will trigger taxes if we sell (capital-gains are eliminated at death).

* Index funds were unavailable before 1975.

Two important lessons:

1. It is very important in taxable accounts to only buy tax-efficient funds that can be held 'forever.' Total U.S Stock Market and Total International Stock Market meet this requirement.

2. It is dangerous to copy someone else's portfolio. Each investor has a different goal, time-frame, risk-tolerance, and personal financial situation.
I have no doubt there are active funds beating an indexing strategies. 86 years (well, less than that if you start from '75) is a long time, but it is still not a guarantee. With an index, you are 99.9% sure to make what the market returns minus <.2% per year.

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