John McQuown? Wells Fargo executive pioneered index investment funds?

[yankees60]

The below is in a current McKinsey and Company newsletter.

Is this true? We've always been told it was John Bogle. I'm not ever remember previously encountering the John McQuown name.


1934–2024


John McQuown
Wells Fargo executive pioneered index investment funds

In the 1960s, University of Chicago economists argued that stock pickers could never beat the overall market in the long run. McQuown, who had studied mechanical engineering before earning an MBA at Harvard, drew on their theories and assembled a team at Wells Fargo that in 1971 created one of the first index funds. Their work pioneered a now-dominant investment strategy of seeking to replicate the performance of a stock index rather than betting on individual companies.

[toddthebod]

Bogle pioneered low cost index funds, not index funds in general.

[livesoft]

I believe WF had the first index fund but it was available only to institutional investors. Retail investors had to wait for Bogle.

[enad]

This article Mac, McQuown banker behind first index Fund mentions Mac as well as John Bogle

[goodenyou]

Read the Book by Robin Wigglesworth:

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

https://www.amazon.com/Trillions-Renega ... 0593087682

It's a good read.

[bobcat2]

Is this true? We've always been told it was John Bogle. I'm not ever remember previously encountering the John McQuown name.
John McQuown
Wells Fargo executive pioneered index investment funds

In the 1960s, University of Chicago economists argued that stock pickers could never beat the overall market in the long run. McQuown, who had studied mechanical engineering before earning an MBA at Harvard, drew on their theories and assembled a team at Wells Fargo that in 1971 created one of the first index funds.

Yes, it's true.
Wells Fargo had the first index fund but, as stated above, it was available only to institutional investors. Retail investors had to wait for Bogle and Vanguard about five years later.

I first read about the Wells Fargo index funds over 30 years ago in Capital Ideas by Peter Bernstein.
https://www.amazon.com/Capital-Ideas-Im ... 527&sr=8-1

In the early 1970s, Wells Fargo launched two significant index funds:
1971: Wells Fargo introduced (what was likely) one of the first index fund, an equally weighted fund that included approximately 1,500 stocks listed on the New York Stock Exchange. However, this fund faced challenges due to high transaction costs and the complexities of constant rebalancing.
1973: Wells Fargo created a market-capitalization-weighted index fund tracking the S&P 500. This fund was designed for institutional investors and marked a shift toward a more efficient indexing approach. ...

Publicly Available Index Fund: John Bogle, founder of The Vanguard Group, launched the first publicly available index fund, the "First Index Investment Trust" (later renamed the Vanguard 500 Index Fund), on December 31, 1975. It was the first index fund marketed to retail investors and aimed to democratize investing with a low-cost, passive strategy.

Source of above quotes: Perplexity

The development of index funds was significantly influenced by the Capital Asset Pricing Model (CAPM). The CAPM, introduced in the 1960s by economists William Sharpe, Jack Treynor, John Lintner, and Jan Mossin, demonstrated that a capitalization-weighted market portfolio is optimal on a risk-adjusted basis under certain assumptions. This theoretical foundation supported the idea that passive investing through index funds could outperform most active management strategies over time.

Source: Perplexity

BobK

PS - I first read about the Vanguard 500 Stock Index fund in a Newsweek column by Paul Samuelson in the summer of 1976. My first investment in the fund was in 1983 by which time I had stopped being a poor grad student.

[nisiprius]

Yes and no. And it's complicated because John C. Bogle definitely liked to put his spin on the topic.

It's rather like the origin stories of many inventions. Things are "in the air," there are lab experiments, there are forerunners, there are exchanges of ideas. Then along comes an innovator who says "let's seriously do this as a business" and puts together a ton of related things into a complete system. In tech parlance, "ships it." Edison's contribution wasn't the electric light bulb, it was a superior electric light bulb and the generators and the formulas for sizing cables between the generators and the customers, and an electric meter to allow billing... and so on.

The idea was in the air. There were experiments, like the Samsonite Luggage Fund. Then along comes John C. Bogle who--from whatever source--knew about the idea, and had a personal career need to create a mutual fund that could be claimed as not having a manager... and launched a fund.

Bogle himself claimed it was "the first index mutual fund."

Read the Book by Robin Wigglesworth:

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

https://www.amazon.com/Trillions-Renega ... 0593087682

It's a good read.

It's just terrific, and a careful and balanced assessment of the contributions of the "quants" versus Bogle.

[Gaston]

Is this true? We've always been told it was John Bogle. I'm not ever remember previously encountering the John McQuown name.

From what I’ve read, yes, John “Mac” McQuown led a team that produced the first index fund. It was an institutional fund and, if memory serves, it was an equal-weight fund. His team was a Dream Team that included a number of academics who later went on to win Nobel prizes.

John Bogle launched the first retail index fund.

The above pertains to the USA. Not sure whether someone in another country launched an earlier index product.

[bmstrong]

https://youtu.be/bq8yCYbcG5k?si=oMIMombYLiwDrW0n

Wigglesworth.

https://youtu.be/C3kl-AiKUbs?si=IidHKAlRA7o5prgc

RR.

[Lastrun]

I would encourage avid readers to read all three books, Trillons, Capital Ideas, and Capital Ideas Evolving.

One of the things that really fascinated me was that the Wells Fargo unit eventually morphed into BlackRock, and we're all familiar with the Vanguard story. Interesting how these two became the behemoths they are today.

[hnd]

Yes technically. I believe it was equal weighted, only available to institutional investors. It wasn't popular and went by the wayside.

Bogle took the concept much further. But also remember that nobody cared about the index fund. The Johnsons or Lovelaces didn't get frothy because of the invention of the index fund. They met him at an airport to try and convince him to not structure Vanguard the way he did. Which I believe is the more important reason that index funds and all other mutual funds began to get cheaper.

[yankees60]

Many thanks for all those responses! Quite informative of many things I did not know.

However, am I remembering correctly or incorrectly that Bogle had written a college thesis regarding index funds?

Not sure if anyone had written that above.

[yankees60]

Read the Book by Robin Wigglesworth:

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

https://www.amazon.com/Trillions-Renega ... 0593087682

It's a good read.

Thanks for that! Officially on my Amazon Wishlist. Will buy it once its used price comes down a few more $$$$.

[Columbia85]

I agree with the comments above about reading the book by Robin Wigglesworth. I enjoyed it as well.

Trillions: How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever

[yankees60]

Many thanks for all those responses! Quite informative of many things I did not know.

However, am I remembering correctly or incorrectly that Bogle had written a college thesis regarding index funds?

Not sure if anyone had written that above.

Answering my own question:

https://www.morningstar.com/funds/was-b ... -prescient

Was Bogle’s Princeton Thesis Eerily Prescient?

Eric Balchunas, senior ETF analyst for Bloomberg Intelligence, describes the Bogle Effect and the serendipitous shaping of the Vanguard founder’s career.


Don't easily see a date for the thesis but presumably it was well before McQuown did his work?

[Lastrun]

.......

PS - I first read about the Vanguard 500 Stock Index fund in a Newsweek column by Paul Samuelson in the summer of 1976. My first investment in the fund was in 1983 by which time I had stopped being a poor grad student.

I believe Samuelson's 1974 article Challenge to Judgment is also one of the "founding documents" so to speak. https://www.pm-research.com/content/iijpormgmt/1/1/17

As Nisiprius said, it was in the air.

[alex_686]

Don't easily see a date for the thesis but presumably it was well before McQuown did his work?

Yes, well before. Only Bogleheads focus on Bogle's cost matter's thesis. It has issues. Almost everyone else focuses on the work done by The University of Chicago Booth school. Most people start with Fama's Efficient Market Hypothesis. 2 out of the 3 people who launched the Samsonite Pension Fund - the first index fund - were student's of Fama and they did their thesis on indexing.

[Valuethinker]

I would encourage avid readers to read all three books, Trillons, Capital Ideas, and Capital Ideas Evolving.

One of the things that really fascinated me was that the Wells Fargo unit eventually morphed into BlackRock, and we're all familiar with the Vanguard story. Interesting how these two became the behemoths they are today.

"morphed into Blackrock"

I'd nuance that and say "was acquired by Blackrock". It became Barclays Global Investors? Who "invented" the ETF (although I think, actually, the first ETF was in Canada and originated by a Canadian bank?).

Blackrock then bought it for many billions of dollars during the Global Financial Crisis, when Barclays desperately needed to shore up its capital base.

Blackrock's heritage was as a quant bond fund manager. BGI took them into the largest equity manager as well. But the active and passive sides of Blackrock are, as I understand it, totally separate.

[bobcat2]

I would encourage avid readers to read all three books, Trillons, Capital Ideas, and Capital Ideas Evolving.

I would also encourage people to read In Pursuit of the Perfect Portfolio - key Insights of the Pioneers who shaped the way we invest.
https://www.amazon.com/Pursuit-Perfect- ... 21&sr=8-1

And for the truly motivated I recommend A History of the Theory of Investments.
https://www.amazon.com/History-Theory-I ... 937&sr=8-1

BobK

[Artful Dodger]

Another article about the Samsonite Pension “index” fund..

https://blogs.cfainstitute.org/investor ... -turns-50/

I think Bogle is widely credited with bringing the first mutual index fund to individual investors. Tthe first chapter of Wigglesworth’s book covers the Berkshire Hathaway annual meeting where Warren Buffett gives Bogle due credit for enriching the finances of the average investor.

[yankees60]

I would encourage avid readers to read all three books, Trillons, Capital Ideas, and Capital Ideas Evolving.

I would also encourage people to read In Pursuit of the Perfect Portfolio - key Insights of the Pioneers who shaped the way we invest.
https://www.amazon.com/Pursuit-Perfect- ... 21&sr=8-1

And for the truly motivated I recommend A History of the Theory of Investments.
https://www.amazon.com/History-Theory-I ... 937&sr=8-1

BobK

Thanks for both of these. Added both to my Amazon Wishlist. To be purchased once they reach the desired Used price.

[bobcat2]

I would also encourage people to read In Pursuit of the Perfect Portfolio - key Insights of the Pioneers who shaped the way we invest.
https://www.amazon.com/Pursuit-Perfect- ... 21&sr=8-1

And for the truly motivated I recommend A History of the Theory of Investments.
https://www.amazon.com/History-Theory-I ... 937&sr=8-1

BobK

Thanks for both of these. Added both to my Amazon Wishlist. To be purchased once they reach the desired Used price.

There is a big difference in these two books. Pursuit of the Perfect Portfolio is a very accessible book that profiles the contributions of Markowitz, Sharpe, Fama, Bogle, Scholes, Merton, Leibowitz, Shiller, Charles Ellis, and Jeremy Siegel on how to build better portfolios. The authors interviewed all 10 men and each is asked how to construct the best portfolio. This is an informative, enjoyable, and relatively easy read.

A History of the Theory of Investments is not an easy read. Think of Peter Bernstein's Capital Ideas as an extra reading assignment for an introductory course in undergraduate finance. A History of the Theory of Investments is then an extra reading assignment for an introductory course in PhD finance. The blurb on the cover is from Bill Sharpe who says he learned a lot from reading A History of the Theory of Investments. Are you curious about the state-preference approach to investment theory? Are you worried about the excess kurtosis caused by heteroskedasticity in equity returns and how to measure that effect using GARCH models? Then this is the book for you. Otherwise, you have been warned.

Perhaps unfortunately, I fall into the geeky minority in the former group.

BobK

[Gaston]

Blackrock then bought it for many billions of dollars during the Global Financial Crisis, when Barclays desperately needed to shore up its capital base.

I sometimes wonder whether Barclays wishes they had kept their investment business and sold their bank!

[nisiprius]

Many thanks for all those responses! Quite informative of many things I did not know.

However, am I remembering correctly or incorrectly that Bogle had written a college thesis regarding index funds?

Not sure if anyone had written that above.

I would say no, the 1951 thesis does not anticipate the idea of an index fund, which started to emerge around 1970±5.

The thesis is reproduced in John Bogle on Investing: The First 50 Years, 2001, McGraw-Hill. No, I haven't read it, but I have skimmed it. The title was "The Economic Role of the Investment Company." He makes it clear that he's mostly talking about the open-ended investment company, which soon acquired the name "mutual fund." The thesis is in praise of mutual funds, but it doesn't say a thing about index funds.

It contains a single phrase. It's on p. 355 of that book. Near the start of a chapter on "Advantages to the Individual Investor," he says several things must be made clear:

Second, the funds can make no claim to superiority over the market averages, which are in a sense investment portfolios with fixed portfolios.... They state, rather, that their performance must be judged against what the individual could have done at the same cost over the same period, with the same objectives as has a given fun.

That phrase "the funds can make no claim to superiority over the market averages" has been cited by Bogle, as a sort of half-anticipation of index funds, but the thesis doesn't make the essential step of suggesting that someone create a fund that does hold that market-average fixed portfolio.

When Bogle mentions the phrase, it is in a tentative sort of way, e.g. here:

...perhaps an early harbinger of my decision to create, nearly a quarter of a century later, the first index mutual fund.

And here:

While I'd hinted at the idea of an index fund in my senior thesis at Princeton University in 1951 (mutual funds "may make no claim to superiority over the market averages"), Dr. Samuelson [in 1974] was much more forceful...

[Makefile]

Don't easily see a date for the thesis but presumably it was well before McQuown did his work?

Yes, well before. Only Bogleheads focus on Bogle's cost matter's thesis. It has issues. Almost everyone else focuses on the work done by The University of Chicago Booth school. Most people start with Fama's Efficient Market Hypothesis. 2 out of the 3 people who launched the Samsonite Pension Fund - the first index fund - were student's of Fama and they did their thesis on indexing.

My understanding was that when he said the "cost matters hypothesis" it was slightly satirical of the "efficient market hypothesis," and was meant to describe that the collective indexers and the collective non-indexers will each receive the market return less costs. The indexers are guaranteed to do that while the non-indexers will fight among each other, some outperforming the market and some underperforming. Is there something flawed with that thinking?

[nisiprius]

(Accidental dupe)

[nisiprius]

You can hear the voice of the late John McQuown, in a long 2022 interview, in Episode 182 of the Rational Reminder podcast: John 'Mac' McQuown: The Data Will Sort That Out

[Moniker]

Here is a timeline of index funds:
https://timelines.issarice.com/wiki/Tim ... ndex_funds

[bobcat2]

The efficient market hypothesis, which it riffs on, did not emerge by that name and "as we know it" until about 1970, closely associated with Eugene Fama. ...
The key detail:

In mid-1975, I (Jack Bogle) was both blissfully unaware of the work the quants were doing and profoundly inspired by the pragmatism of Samuelson and Ellis.

So he acknowledges the work of McQuown and others, but claims that he arrived at the idea of the idea of an index fund independently, and that it can be justified without, and does not need the EMH, Modern Portfolio Theory, etc.

This is totally confused. The efficient market hypothesis has two fathers - Gene Fama and Paul Samuelson, although only Fama called it the efficient market hypothesis. The 1965 paper Proof That Properly Anticipated Price Fluctuate Randomly is Samuelson's contribution to EMH. So if Bogle was inspired by Samuelson, then Bogle was inspired by an EMH quant, whether he knew it or not.

Here is a link to a paper that discusses the papers by Samuelson and Fama on the EMH.
Efficient Market Hypothesis, Eugene Fama and Paul Samuelson
https://hal.science/hal-01618347v2/document

And here is a portion of the abstract.

The authorship of the EMH is attributed to Paul A. Samuelson and Eugene F. Fama. In two independent articles, published in 1965, they both reacted to empirical studies showing the random character of stock prices. Fama and Samuelson both interpret random fluctuations of prices as the consequence of rationality behaviors.

Samuelson's contributions to EMH is discussed in both Capital Ideas by Peter Bernstein and A History of the Theory of Investments by Mark Rubinstein.
Here I quote Rubinstein as he begins his discussion of EMH.

Early attempts to formalize the notion of efficient markets by Samuelson (1965) define efficient markets in terms of a martingale.

BobK

[Valuethinker]

Blackrock then bought it for many billions of dollars during the Global Financial Crisis, when Barclays desperately needed to shore up its capital base.

I sometimes wonder whether Barclays wishes they had kept their investment business and sold their bank!

UK retail banking is a good core franchise and quite profitable. Barclaycard is the leading credit card.

I think BGIM was always run very separately and the model where a bank owns a big asset manager is rarely one that works. Particularly in the highly regulated post 2008 environment.

From a shareholder perspective Barclays sold too cheaply. But they were desperate to avoid taking government money in the bailout (presumably because of the conditions imposed). If you google the Amanda Staveley court case a lot of stuff that doesn't smell nice took place - although Barclays won that case, I believe.

[nisiprius]

...The efficient market hypothesis has two fathers - Gene Fama and Paul Samuelson, although only Fama called it the efficient market hypothesis. The 1965 paper Proof That Properly Anticipated Price Fluctuate Randomly is Samuelson's contribution to EMH. So if Bogle was inspired by Samuelson, then Bogle was inspired by an EMH quant, whether he knew it or not...

Thank you for the corrections.

[yankees60]

Many thanks for all those responses! Quite informative of many things I did not know.

However, am I remembering correctly or incorrectly that Bogle had written a college thesis regarding index funds?

Not sure if anyone had written that above.

I would say no, the 1951 thesis does not anticipate the idea of an index fund, which started to emerge around 1970±5.

The thesis is reproduced in John Bogle on Investing: The First 50 Years, 2001, McGraw-Hill. No, I haven't read it, but I have skimmed it. The title was "The Economic Role of the Investment Company." He makes it clear that he's mostly talking about the open-ended investment company, which soon acquired the name "mutual fund." The thesis is in praise of mutual funds, but it doesn't say a thing about index funds.

It contains a single phrase. It's on p. 355 of that book. Near the start of a chapter on "Advantages to the Individual Investor," he says several things must be made clear:

Second, the funds can make no claim to superiority over the market averages, which are in a sense investment portfolios with fixed portfolios.... They state, rather, that their performance must be judged against what the individual could have done at the same cost over the same period, with the same objectives as has a given fun.

That phrase "the funds can make no claim to superiority over the market averages" has been cited by Bogle, as a sort of half-anticipation of index funds, but the thesis doesn't make the essential step of suggesting that someone create a fund that does hold that market-average fixed portfolio.

When Bogle mentions the phrase, it is in a tentative sort of way, e.g. here:

...perhaps an early harbinger of my decision to create, nearly a quarter of a century later, the first index mutual fund.

And here:

While I'd hinted at the idea of an index fund in my senior thesis at Princeton University in 1951 (mutual funds "may make no claim to superiority over the market averages"), Dr. Samuelson [in 1974] was much more forceful...

THIS court rules in YOUR favor! Well done, counselor!

[bmstrong]

There is a pay-walled interview Wigglesworth did for the promotion tour I've long wanted to watch. I've written them mutiple times since his passing in hopes they would release to the general public:

https://www.realvision.com/shows/the-es ... ab=details

[bmstrong]

I sometimes wonder whether Barclays wishes they had kept their investment business and sold their bank!

UK retail banking is a good core franchise and quite profitable. Barclaycard is the leading credit card.

I think BGIM was always run very separately and the model where a bank owns a big asset manager is rarely one that works. Particularly in the highly regulated post 2008 environment.

From a shareholder perspective Barclays sold too cheaply. But they were desperate to avoid taking government money in the bailout (presumably because of the conditions imposed). If you google the Amanda Staveley court case a lot of stuff that doesn't smell nice took place - although Barclays won that case, I believe.

https://boglecenter.net/bogleheads-live ... glesworth/

Wigglesworth touches on it in the Bogleheads Live interview. The book tour Wigglesworth did really produced a couple good interviews and gems. I cannot wait for his next book on the history of the bond market.

[bobcat2]

In mid-1975, I (Jack Bogle) was both blissfully unaware of the work the quants were doing and profoundly inspired by the pragmatism of Samuelson and Ellis.

...The efficient market hypothesis has two fathers - Gene Fama and Paul Samuelson, although only Fama called it the efficient market hypothesis. The 1965 paper Proof That Properly Anticipated Price Fluctuate Randomly is Samuelson's contribution to EMH. So if Bogle was inspired by Samuelson, then Bogle was inspired by an EMH quant, whether he knew it or not.

Yes, Paul Samuelson was one of the two fathers of EMH. He was also well acquainted with CAPM, developed at about the same time by Sharpe and others. And he was keenly aware of the clear practical application of these two theoretical breakthroughs, namely the stock index fund.

Paul's "pragmatism" was to advance these theories to practice by presenting their practical application to finance industry professionals in a way that would seem reasonable to them. OTOH, Fama's approach to financial practitioners was much more aggressive. Sort of "You dummies don't understand the implications of the math".

Samuelson was a very clever and pragmatic guy.

BobK

[nisiprius]

For what it's worth, this is Robin Wigglesworth's take:

Bogle would later claim that he was ignorant of academic ideas like Markowitz's modern portfolio theory and Fama's efficient-markets hypothesis, and was at the time unfamiliar with the pioneering efforts of Wells Fargo, American National Bank, and Batterymarch. Given the coverage that they received in the industry press and Bogle's wide-ranging intellect, voracious news consumption, and visits to Chicago, this simply isn't credible. He would often point to his 1951 thesis and its observation that "funds can make no claim to superiority over the market averages" as the intellectual genesis of Vanguard's first index fund, conveniently ignoring that the thesis actually broadly advocated for actively managed portfolios, and his anonymous attack on the idea under the pen name John B. Armstrong.

[nisiprius]

Here's my personal take.

1) In this speech, he practically calls the roll of the people developing the theory behind indexing, and creating some experimental non-public index funds:

Harry Markowitz, William Fouse, John McQuown, Eugene Fama, and William F. Sharpe

He goes on to say that he didn't know about their work and didn't get the idea from them.

I'd characterize that as a "non-acknowledgement acknowledgement."

2) No Bogle, no index funds. Without John C. Bogle, I don't believe we would have index funds today, because actively managed funds are so much more profitable for fund companies. It was not so much a question of the idea, which was certainly in the air, no matter where he got it, but the curious confluence of his belief in the social value of mutual funds in general, and his career crisis which he was able to dodge by a tricky maneuver involving creating a fund without a manager.

Without Bogle, index funds would be on the scrap heap of good ideas that no commercial enterprise would adopt (like "ruin-contingent annuities." You can find a ton of papers on why they would be good and how insurers ought to price them--but you can't buy one).

(A counter-argument might be that without Bogle we would still have Dimensional Fund Advisors (DFA)).

[bobcat2]

In 1976 Paul Samuelson wrote two Newsweek columns about indexed stock investing. The one I remember vividly was the August column when he had become aware of the Vanguard Index fund and advised readers to buy it.

In an earlier column in April he decried that no such retail fund existed but noted that there were a few institutional index funds.
Here is the part of that column where Samuelson links stock index funds with his view of market efficiency for the layperson.

The finding that few can beat the averages is not merely a theory of mine. It has been put forth and tested by researchers at the universities of Chicago and Pennsylvania, at Stanford and MIT and elsewhere. It has, of course, been double-checked in the backrooms of Wall Street for weaknesses and rebuttals.

Is this finding really surprising? Is it critical of capitalism and the marketplace? Not at all. It is about what the followers of Adam Smith would hope to be able to claim - that competition works so efficiently as to discount already in price the best information that skill and resources can mobilize.

Investment Secrets - Newsweek April 5, 1976

BobK

[nisiprius]

...if Bogle was inspired by Samuelson, then Bogle was inspired by an EMH quant, whether he knew it or not...

I can go further than that, now that I've had a chance to read Samuelson's "Challenge to Judgement," which Bogle said was the direct source of his inspiration. Samuelson wrote:

The crucial point is that when investigators--like Irwin Friend, William Sharpe, Jack Treynor, James Lorie, Fischer Black, and Myron Scholes, or any Foundation treasurer of fair-minded and serious intent — look to identify those minority groups or methods endowed with sustainable superior investment prowess, they are quite unable to find them. The only honest conclusion is to agree that a loose version of the "efficient market" or "random walk" hypothesis accords with the facts of life. This truth, be it emphasized, is a truth about New York (and Chicago, and Omaha); and it is as true in New York as in Cambridge.

He also names the early experiments:

Wells Fargo set out a trial balloon in the way of a sensible non-managed fund that embodied essentially the whole market. Batterymarch has done likewise. One of the American Express funds also experimented with such an outlet for pension fund money.

So if he read the article, Bogle had heard about the EMH and had heard about these early index funds. (The table of contents of that issue of the journal also has two titles mentioning "random walk" and one about "Profit potential in an 'almost efficient market.'" These topics were obviously in the air.)

Bogle calls Samuelson part of a "pragmatic school." This is justified by the fact that Samuelson urges the actual creation of index funds. He makes three specific suggestions for organizations he hopes might do it:

...Some large foundation should set up an in-house portfolio that tracks the S & P 500 Index — if only for the purpose of setting up a naive model against which their in-house gunslingers can measure their prowess.... Perhaps CREF, which pioneered the variable annuity and the variable pension plan, can be induced to set up a pilot-plant operation of an unmanaged diversified fund.... I have suggested to my colleague, Franco Modigliani, who presumably will be President of the American Economic Association in 1976 (if there is a 1976), that economists might want to put their money where their darts are: the AEA might contemplate setting up for its members a no-load, no-management-fee, virtually no transaction-turnover fund along Sharpe-Mossin-Lintner lines.

It's easy to see why Bogle might have been inspired by reading, in effect, "it's time for someone to do this."

Bogle's 2004 speech, As the index fund moves from heresy to dogma... has obvious echoes of Samuelson, who wrote:

...there are two worlds— the same old practical world [of actual stock and bond investors] and the new world of the academics with their mathematical stochastic processes.... Indeed, to reveal my bias, the ball is in the court of the practical men: it is the turn of the Mountain to take a first step toward the theoretical Mohammed.

In other words, the academics have made the case for an index fund, now it's time for the practical men to create one.

[Northern Flicker]

Yes technically. I believe it was equal weighted, only available to institutional investors. It wasn't popular and went by the wayside.

Bogle took the concept much further.

The equal-weighted Samsonite fund failed due to transaction cost, but I believe that Wells Fargo offered a a cap-weighted S&P500 fund (to institutional investors) before Vanguard did so (to retail investors).

I've seen claims that Bogle proposed passive investing in his senior thesis at Princeton in the 1950's.

[nisiprius]

I've seen claims that Bogle proposed passive investing in his senior thesis at Princeton in the 1950's.

I looked at this in this posting, above and my answer is "no, he didn't."

The thesis was advocacy for "investment companies," i.e. what we now call mutual funds. It really had nothing to say about indexing.

It contains one phrase:

the funds can make no claim to superiority over the market averages

but the context is that the benefit of a mutual fund is not that it will beat the market, but that it will beat the results you could get by yourself.

He was fond of citing the phrase as if it anticipated index funds, but always in a hedged way, e.g.

...perhaps an early harbinger of my decision to create, nearly a quarter of a century later, the first index mutual fund...

In Trillions, Robin Wigglesworth's take was:

He would often point to his 1951 thesis and its observation that "funds can make no claim to superiority over the market averages" as the intellectual genesis of Vanguard's first index fund, conveniently ignoring that the thesis actually broadly advocated for actively managed portfolios, and his anonymous attack on the idea under the pen name John B. Armstrong.

[bmstrong]

In 1976 Paul Samuelson wrote two Newsweek columns about indexed stock investing. The one I remember vividly was the August column when he had become aware of the Vanguard Index fund and advised readers to buy it.

https://johncbogle.com/wordpress/wp-con ... k-1976.pdf

[bobcat2]

In 1976 Paul Samuelson wrote two Newsweek columns about indexed stock investing. The one I remember vividly was the August column when he had become aware of the Vanguard Index fund and advised readers to buy it.

https://johncbogle.com/wordpress/wp-con ... k-1976.pdf

About a week after I read Samuelson's August column I had lunch with two of my colleagues at the city of Columbus Finance Department. The department was divided into two sections and one of my lunch companions that day was the head of the other section and the other was his top lieutenant.

I mentioned reading the column and opined that this indexed fund concept seemed like a really good idea. They hated it. It would take all the fun out of investing.

BobK

[Valuethinker]

https://johncbogle.com/wordpress/wp-con ... k-1976.pdf

About a week after I read Samuelson's August column I had lunch with two of my colleagues at the city of Columbus Finance Department. The department was divided into two sections and one of my lunch companions that day was the head of the other section and the other was his top lieutenant.

I mentioned reading the column and opined that this indexed fund concept seemed like a really good idea. They hated it. It would take all the fun out of investing.

BobK

Economic theory would suggest that active fund managers and investors would be prepared to accept lower returns due to the additional utility of "fun" compared to holding index funds.