John Bogle, the founder of Index fund Giant Vanguard Group, passed away today at the age of 89 years old.
When I wanted to learn about unit trusts in 2003, I was pointed to two set of books:
- 4 Pillars of Investing by William Bernstein
- Common sense of Mutual Funds by John Bogle
I could not get my hands on the second book in the library, so I read his book on forming Vanguard first.
Those few books form the basis of my investing foundation.
Mr Bogle started Vanguard in the 1970s. From what I remember, he was ousted from the company but have to find a way to have some strong scope in this company.
So he studied some of the research behind fund result, and bought into the narrative on the evils of high cost of unit trust, in the context of an apparent lack of consistent returns, survivor-ship bias.
So he created a structure that is uniquely different from the other funds back then.
He made the unit trust own the entire fund management company. In such a way, the trust investors own the fund management company, and thus the fund management company reports to the trust investors, not the owner of the fund management company.
I think the management that ousted him didn’t think this would be any threat at all so this went through.
And during the initial years it was pretty slow and often ridiculed.
Even in Singapore, this concept of index funds, where you buy a unit trust that tracks an index mechanically, without a human fund manager was a rather new concept back in 2003.
There were only 3 so called index unit trust. This is the Lion Global Infinity Series (which is still available today):
- Infinity Global – MSCI World Free Index (my write up here)
- Infinity Europe Stock – MSCI Europe Index
- Infinity US 500 Stock Fund – S&P 500 Index
Vanguard have always done the things that benefit unit holders. They were the main ones who reduced their expense ratio when operation becomes more optimized. It got to a point where other fund management companies are copying what they did. In recent memory, we see Fidelity lowering their index funds expense to 0% (possibly to use it as a way to sell their complementary funds which has higher expense ratios)
Today we have a lot of companies offering index funds. Even bigger, listed index funds, more known as exchange traded funds allowed international investors to invest in low cost funds in USA, UK and other countries.
With low cost exchange traded funds, it allows the everyday investors to:
- have a way of investing that is not too deep, where they can get educated, get competency much easily than buying individual stocks
- own a portfolio of diversified low cost internationally spread equities and bonds
- not be bothered by the need to keep track of their investments
- focus on their jobs and family
- generally fundamentally sound
And for that we have Mr Bogle to thank.
In my personal opinion, Mr Bogle have made the push to create the Ultimate Long Term Volatile Saving Deposit, for all of us.
If you do not understand why index funds and exchange traded funds can be an ultimate long term volatile saving deposit, then I think is worth to dive into the literature of index funds.
When we look at Mr Bogle’s life, its also remarkable.
He has always struggled with heart problems, having many heart attacks. He did a heart transplant when he was 65 years old. That eventually bought him 24 years more.
If I am correct, he holds the record of the longest recipient of a heart transplant.
It just showed us how young 65 years old could be.
Mr Bogle certainly benefited from the financial industry.
But at a personal net worth of $80 mil, that is a relatively small amount to what the others are getting.
He has written numerous books which all provide a candid look at the financial industry and what he thinks works.
There is one book that I have not read which is Enough, which should be a book of a different flavor.
At Investment Moats, we have benefit greatly from Mr Bogle’s work because he created that sound foundation framework, to which other investing principals can be build upon.
Without Mr Bogle, Investment Moats would not be where it is.
And for that we thank you Mr Bogle.
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- Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
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